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Finance—Consolidated financial statements in respect of the year ended 30 June 2016


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Commonwealth of Australia

CONSOLIDATED FINANCIAL STATEM ENTS FOR THE YEAR ENDED 30 J UNE 2016

CIRCULATED BY

SENATOR THE HONOURABLE MATHIAS CORMANN MINISTER FOR FINANCE OF THE COMMONWEALTH OF AUSTRALIA DECEMBER 2016

© Commonwealth of Australia 2016

ISSN 2205-9008 (print) 2205-9016 (online)

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iii

CONTENTS

PREFACE ......................................................................................................... 1

COMMENTARY ON THE FINANCIAL STATEMENTS ................................................. 3

Introduction .................................................................................................................... 5

Discussion and analysis ................................................................................................ 8

CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE AUSTRALIAN GOVERNMENT (WHOLE OF GOVERNMENT) AND GENERAL GOVERNMENT SECTOR FINANCIAL REPORTS......................................................................... 23

Independent audit report ............................................................................................. 25

Statement of compliance ............................................................................................. 27

Australian Government operating statement .............................................................. 29

Australian Government balance sheet ........................................................................ 31

Australian Government cash flow statement .............................................................. 32

Australian Government statement of changes in equity (net worth) ........................... 33

SECTOR STATEMENTS .................................................................................... 35

Australian Government operating statement by sector - including General Government Sector Financial Report ....................................... 37

Australian Government balance sheet by sector - including General Government Sector Financial Report ....................................... 39

Australian Government cash flow statement by sector - including General Government Sector Financial Report ....................................... 42

General Government Sector statement of changes in equity (net worth) .................. 44

NOTES TO THE FINANCIAL STATEMENTS .......................................................... 45

1

PREFACE

I am pleased to present the Consolidated Financial Statements (CFS) for the Australian Government for the financial year ended 30 June 2016. The CFS presents the whole of government and general government sector (GGS) financial reports. It consolidates the audited accounts of 179 entities across the public sector.

The CFS has been prepared in accordance with the regulations of the Public Governance, Performance and Accountability Act 2013 (the PGPA Act) and applicable Australian Accounting Standards (AAS), including the requirements of AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049). The CFS shows the results of the Australian Government’s financial performance and cash flows for the year ended 30 June 2016 and the Australian Government’s financial position as at 30 June 2016.

The Preface and the Commentary should be read in light of the information and explanations provided in the CFS.

Fiscal balance

The Australian Government’s fiscal balance for the year ended 30 June 2016 was a deficit of $47.3 billion. For the year ended 30 June 2015, the Australian Government reported a fiscal balance deficit of $46.8 billion.

The Australian Government’s taxation revenue increased by $13.5 billion (3.8 per cent) in 2015-16, reflecting an increase in taxes from individuals, customs duty and sales, partially offset by a decrease in company tax and excise duty. Non-taxation revenue increased by $1.5 billion (4.8 per cent).

The Australian Government’s expenses increased by $13.4 billion (3.1 per cent) in 2015-16. This was mainly driven by a $10.2 billion increase in gross operating expenses and a $2.7 billion increase in current and capital transfers.

In addition, the Australian Government’s total net acquisition of non-financial assets increased by $2.2 billion.

Balance sheet

The Australian Government’s net worth was negative $414.0 billion at 30 June 2016. As at 30 June 2015, the Australian Government’s net worth was negative $299.8 billion.

The Australian Government’s financial assets increased by $40.9 billion (10.6 per cent) for the year ended 30 June 2016. Total non-financial assets increased by $11.3 billion (7.3 per cent).

Preface

2

The Australian Government’s liabilities increased by $166.5 billion (19.8 per cent) to $1,008.2 billion. Interest bearing liabilities increased by $91.9 billion (20.2 per cent), most notably a $76.7 billion increase in the market value of Australian Government Securities.

Cash flow

The Australian Government recorded a cash deficit of $43.6 billion for the year ended 30 June 2016 from operating activities and investing activities in non-financial assets. The closing cash position was $5.7 billion.

Contingent liabilities, contingent assets and risks

Contingent liabilities and contingent assets for the Australian Government are not disclosed in the balance sheet but are set out in detail in Note 11A of the CFS. Analysis of interest rate, foreign currency, credit and other risks that could potentially impact on the Australian Government’s financial position is included in Note 11B of the CFS.

Final Budget Outcome

Under the Charter of Budget Honesty Act 1998 (the Charter), the Australian Government is also required to publicly release and table a Final Budget Outcome (FBO) report no later than three months after the end of the financial year. The FBO for the 2015-16 financial year was released by the Treasurer and I on 30 September 2016. Under the Charter, the FBO must be based on external reporting standards; including AAS and the concepts and classifications set out in Government Finance Statistics (GFS), with any departures from those standards to be documented.

I would like to thank the many Australian Government employees whose efforts have contributed to the completion of the CFS.

Senator the Hon Mathias Cormann Minister for Finance

COMMENTARY ON THE CONSOLIDATED FINANCIAL STATEMENTS

5

INTRODUCTION

The 2015-16 Consolidated Financial Statements (CFS) for the Australian Government present the whole of government and general government sector (GGS) financial reports and are prepared in accordance with AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049). They are required by section 48 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

The CFS include the consolidated results for all Australian Government controlled entities as well as disaggregated information on the sectors of government (GGS, public non-financial corporations (PNFC) and public financial corporations (PFC)).1 Unless explicitly stated, the financial results reported in this commentary comprise consolidated amounts for the Australian Government as a whole, inclusive of the GGS, and PNFC and PFC sectors. 2

The GGS results in the CFS materially align with the 2015-16 Final Budget Outcome, with the exception of the different measurement basis used for specialist military equipment, and advances paid to the International Development Association and

Asian Development Fund.3

AT A GLANCE

Table 1: Financial results for the year ended 30 June 2016 4

2015-16 $b

2014-15 $b

Change $b

Change %

Revenue 402.5 387.5 15.1 3.9

Expenses 442.0 428.7 13.4 3.1

Net capital investment 7.8 5.6 2.2 39.2

Fiscal balance(a) (47.3) (46.8) (0.5) 1.1

Per cent of GDP 2.9 2.9 0.0

Total assets 594.2 541.9 52.3 9.6

Total liabilities 1,008.2 841.8 166.5 19.8

Net worth(b) (414.0) (299.8) (114.2) 38.1

Per cent of GDP 25.1 18.6 6.5

Operating activities (27.8) (24.9) (3.0) 12.0

Investing activities in non-financial assets (15.7) (12.7) (3.0) 23.6

Cash surplus/(deficit) (43.6) (37.6) (6.0) 15.9

(a) Fiscal balance (or net lending/borrowing) is the net operating balance less net capital investment. (b) Net worth is calculated as total assets minus total liabilities.

1 The institutional structure of the public sector is explained in Note 1 of the 2015-16 CFS. Note 15 of the 2015-16 CFS provides the list of Australian Government controlled reporting entities, including their sectoral classification. 2 The balances and movements detailed in the commentary have been rounded to the nearest tenth

of a billion. Discrepancies between totals and sums of components are due to rounding. 3 These differences are explained in Note 1 of the CFS. 4 The 2014-15 comparatives include adjustments for tax and loan fee items, and non-financial assets now measured at fair value. Refer to Note 1.5 of the 2015-16 CFS for further information.

Commentary on the financial statements

6

Operating Statement (Fiscal Balance)

Table 2: Operating statement

2015-16 $b 2014-15 $b

Change $b

Change %

Revenue 402.5 387.5 15.1 3.9

Per cent of GDP 24.4 24.1 0.3

Expenses 442.0 428.7 13.4 3.1

Per cent of GDP 26.8 26.6 0.2

Net capital investment 7.8 5.6 2.2 39.2

Per cent of GDP 0.5 0.3 0.1

Fiscal balance (47.3) (46.8) (0.5) 1.1

Per cent of GDP 2.9 2.9 0.0

Chart 1: Operating statement (per cent of GDP) since 2007-08

Commentary on the financial statements

7

Balance Sheet (net worth)

Table 3: Balance sheet

2015-16 $b

2014-15 $b

Change $b

Change %

Financial assets 426.8 385.9 40.9 10.6

Non-financial assets 167.4 156.0 11.3 7.3

Total assets 594.2 541.9 52.3 9.6

Total liabilities 1,008.2 841.8 166.5 19.8

Net worth (414.0) (299.8) (114.2) 38.1

Per cent of GDP 25.1 18.6 6.5

Net financial worth(a) (581.4) (455.9) (125.5) 27.5

Per cent of GDP 35.2 28.3 6.9

Net debt(b) 191.5 145.3 46.2 31.8

Per cent of GDP 11.6 9.0 2.6

Net interest payments (10.8) (9.9) (0.9) 8.8

Per cent of GDP 0.7 0.6 0.1

(a) Net financial worth equals total financial assets minus total liabilities. (b) Net debt equals the sum of the deposits held, government securities, loans and other borrowing, minus the sum of the cash and deposits, advances paid and investments, loans and placements.

Chart 2: Balance sheet (per cent of GDP) since 2007-08

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Per cent of GDP

Commentary on the financial statements

8

DISCUSSION AND ANALYSIS

Fiscal balance

The Australian Government’s fiscal balance was a deficit of $47.3 billion for the year ended 30 June 2016, an increase of $0.5 billion (1.1 per cent) against the 30 June 2015 result.

Table 4: Operating statement 2015-16 2014-15 Change Change

$b $b $b %

Revenue 402.5 387.5 15.1 3.9

Expenses 442.0 428.7 13.4 3.1

Net operating balance (39.5) (41.2) 1.7 4.1

Less Net acquisitions of non-financial assets 7.8 5.6 2.2 39.2

Fiscal balance (47.3) (46.8) (0.5) 1.1

Chart 3 below shows the composition of the Australian Government’s fiscal balance since 2007-08.

Chart 3: Operating statement since 2007-08

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$billion

Taxation revenue Non-taxation revenue Expenses Fiscal balance

$billion

Commentary on the financial statements

9

Revenue

The Australian Government’s revenue increased by $15.1 billion (3.9 per cent) in 2015-16 to $402.5 billion.

Table 5: Revenue

2015-16 2014-15 Change Change

$b $b $b %

Taxation revenue 368.9 355.4 13.5 3.8

Non-taxation revenue 33.6 32.0 1.5 4.8

Total revenue 402.5 387.5 15.1 3.9

Taxation revenue

The Australian Government’s total taxation revenue for the year ended 30 June 2016 was $368.9 billion. The composition of taxation revenue is shown in Chart 4 below.

Chart 4: Composition of taxation revenue

Individuals and other w ithholding taxation $190b (51%)

Com pany tax $63.5b (17%)

Sales taxes $61.8b (17%) Customs duty

$14b (4%)

Excise duty $21.6b (6%)

Other* $18b (5%)

* Other includes Superannuation funds ($6.8 billion), Other indirect taxation ($5.8 billion), Fringe benefits tax ($4.5 billion) and Resource rent taxes ($0.9 billion).

Taxation revenue increased by $13.5 billion (3.8 per cent) to $368.9 billion. The key changes were:

• an increase of $9.2 billion (5.1 per cent) in individuals and other withholding taxation. The growth in individuals and other withholding taxation is broadly consistent with the moderate growth in the labour market, as well as growth in individuals’ incomes and capital gains;

Commentary on the financial statements

10

• an increase of $4.1 billion (7.1 per cent) in sales taxes, with the main contributor being a $4.0 billion increase in goods and services tax (GST), consistent with growth in consumption subject to GST;

• a decrease of $1.5 billion (2.4 per cent) in company tax. This was due to weaker profitability in non-finance industries; and

• a decrease in excise duty of $2.1 billion (8.7 per cent) and an increase in customs duty of $3.2 billion (29.1 per cent), is largely due to a shift from domestic tobacco production to imported tobacco products.

Refer to Note 3A of the 2015-16 CFS for further information.

Non-taxation revenue

The Australian Government’s total non-taxation revenue for the year ended 30 June 2016 was $33.6 billion. For more information, refer to Notes 3B-D of the 2015-16 CFS.

Commentary on the financial statements

11

Expenses

The Australian Government’s total expenses for the year ended 30 June 2016 were $442.0 billion. The composition of expenses is shown in Chart 5 below.

Chart 5: Composition of expenses

Gross operating $137.4b (31%)

Interest $26.3b (6%)

Grants

$134.8b (30%)

Personal benefits $131.6b (30%)

Subsidies $11.9b (3%)

The Australian Government’s total expenses increased by $13.4 billion (3.1 per cent) in comparison to 2014-15. The key changes were:

• an increase in gross operating expenses of $10.2 billion (8.0 per cent). This was driven by an increase of $6.5 billion in the supply of goods and services expense, mainly due to:

- an increase in benefits to households in goods and services ($3.8 billion) primarily relating to Pharmaceutical Benefits and Services ($1.7 billion), Medical Services and Benefits ($1.1 billion) and Assistance to the Aged ($0.9 billion);

- an increase in the supply of goods and services for the Defence function ($1.7 billion);

• an increase of $1.8 billion in personal benefits expense, primarily relating to Income Support for Seniors; and

• an increase of $1.4 billion in grants. The primary contributors to the increase included:

Commentary on the financial statements

12

- an increase of $4.0 billion in grants to state and territory governments, primarily for General Revenue Assistance ($2.6 billion) and Assistance to the States for Healthcare Services ($1.7 billion); partially offset by

- a decrease of $1.8 billion in grants through state and territory governments, primarily due to Local Government Financial Assistance Grants brought forward in June 2015.

Chart 6 below provides a presentation of total expenses based on how the Australian Government allocated resources across the range of policy areas. The chart highlights the relative cost of each function for 2015-16.

Chart 6: Total expenses by function

Social security and w elfare $152b (34%)

Other purposes $83.8b (19%)

Health $69.3b (16%)

Education $32.1b (7%)

General public services $25.1b (6%) Defence $27.2b (6%)

Transport and communication $18.6b (4%)

Other $33.8b (8%)

Other economic affairs $8.9b (2%)

Fuel and energy $6.4b (1%)

Housing and community amenities $4.7b (1%)

Public order and safety $4.8b (1%)

Recreation and culture $3.5b (1%)

Agriculture, forestry and fishing $2.3b (1%)

Mining, manufacturing and construction $3.2b (1%)

Refer to Note 4 of the 2015-16 CFS for further information on expenses.

Commentary on the financial statements

13

Net worth

The Australian Government’s net worth decreased by $114.2 billion in 2015-16 to a negative net worth of $414.0 billion as at 30 June 2016.

Table 6: Balance sheet

2015-16 2014-15 Change Change

$b $b $b %

Financial assets 426.8 385.9 40.9 10.6

Non-financial assets 167.4 156.0 11.3 7.3

Total assets 594.2 541.9 52.3 9.6

Interest bearing liabilities 547.2 455.4 91.9 20.2

Provisions and payables 461.0 386.4 74.6 19.3

Total liabilities 1,008.2 841.8 166.5 19.8

Net worth (414.0) (299.8) (114.2) 38.1

Chart 7 below shows the composition of the Australian Government’s financial position since 2007-08.

Chart 7: Balance sheet since 2007-08

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Net worth

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Commentary on the financial statements

14

Assets

The Australian Government’s total assets as at 30 June 2016 were $594.2 billion. The composition of assets is shown in Chart 8 below.

Chart 8: Composition of assets

Cash and deposits $5.7b (1%)

Advances paid $48.2b (8%) Other receivables and accrued revenue

$43.2b (8%)

Investments, loans and placements $286.8b (48%) Equity investments $42.9b (7%)

Non-financial assets $167.4b (28%)

Table 7: Assets

2015-16 2014-15 Change Change

$b $b $b %

Financial assets Cash and deposits 5.7 4.8 0.9 18.5

Advances paid 48.2 41.8 6.4 15.4

Other receivables and accrued revenue 43.2 40.8 2.5 6.0

Investments, loans and placements 286.8 252.4 34.4 13.6

Equity investments 42.9 46.2 (3.3) 7.1

Total financial assets 426.8 385.9 40.9 10.6

Non-financial assets 167.4 156.0 11.3 7.3

Total assets 594.2 541.9 52.3 9.6

The Australian Government’s total assets increased by $52.3 billion (9.6 per cent) since 30 June 2015.

The key changes in financial assets were:

• an increase of $34.4 billion in investments, loans and placements, which had a number of variances across multiple entities. The largest of these included an increase of $10.4 billion in non-equity investments held by the Future Fund, a $9.8 billion increase in Australian dollar securities and foreign exchange holdings

Commentary on the financial statements

15

held by the Reserve Bank of Australia and a $5.4 billion increase to the International Monetary Fund (IMF) quota;

• an increase of $6.4 billion in advances paid, mainly due to the Higher Education Loan Program scheme driven by an increase in loans;

• an increase of $2.5 billion in other receivables and accrued revenue, primarily resulting from decreases to offsetting provision accounts for:

- provisions for doubtful debts - other taxes ($1.3 billion), due to increased settlement amounts for high value cases;

- provisions for credit amendments to tax - other taxes ($1.2 billion), due to the settlement of a group of large cases in 2015-16, together with a $0.4 billion restatement to the 2014-15 provision; and

• a decrease of $3.3 billion in equity investments, primarily resulting from a reduction in listed equities and listed managed investment schemes held by the Future Fund.

The key changes in non-financial assets between 30 June 2015 and 30 June 2016 included the following:

• an increase of $5.1 billion for other plant, equipment and infrastructure, primarily driven by an increase of $4.6 billion in network assets for the rollout of the National Broadband Network;

• an increase of $4.3 billion for specialist military equipment, primarily as a result of additions; and

• an increase of $1.2 billion for intangibles, primarily driven by computer software additions by the NBN Co Ltd ($0.5 billion) and impairment reversals for water assets ($0.4 billion).

Commentary on the financial statements

16

Liabilities

The Australian Government’s total liabilities were $1,008.2 billion as at 30 June 2016. The composition of liabilities is shown in Chart 9 below.

Chart 9: Composition of liabilities

Interest bearing liabilities $547.2b (54%)

Payables $18.5b (2%)

Provisions $442.5b (44%)

Table 8: Liabilities

2015-16 2014-15 Change Change

$b $b $b %

Interest bearing liabilities 547.2 455.4 91.9 20.2

Provisions and payables 461.0 386.4 74.6 19.3

Total liabilities 1,008.2 841.8 166.5 19.8

The Australian Government’s liabilities increased by $166.5 billion (19.8 per cent) since 30 June 2015.

The increase of $91.9 billion in interest bearing liabilities primarily resulted from:

• an increase of $76.7 billion in the issuance volume and market value of Australian Government Securities held by the AOFM;

• an increase of $5.6 billion in deposits held, primarily due to an increase in deposits with foreign governments, foreign institutions and international organisations;

• an increase of $5.0 billion in loans, primarily due to an increase in bills of exchange and promissory notes issued to the IMF; and

• an increase of $3.9 billion in other interest bearing liabilities, primarily due to increased amounts outstanding under repurchase agreements ($2.7 billion) and swap principal payables ($0.7 billion).

Commentary on the financial statements

17

The increase in provisions and payables of $74.6 billion primarily resulted from:

• an increase of $66.4 billion in the superannuation liability predominantly due to a 1.0 percentage point decrease in the long-term government bond rate used to discount expected future superannuation payments;

• an increase of $4.7 billion in Australian currency (notes) on issue;

• an increase in other provisions of $2.2 billion, mainly driven by adjustments to the military compensation health care provision ($1.0 billion) and university superannuation provision ($0.9 billion) following actuarial revaluations; and

• an increase of $1.5 billion in other employee liabilities, mainly resulting from adjustment to the provision for military workers’ compensation following actuarial revaluation.

Commentary on the financial statements

18

Cash flows Table 9: Cash flow

2015-16 2014-15 Change Change

$b $b $b %

Cash receipts Operating activities 395.7 385.8 9.9 2.6

Investing activities in non-financial assets 0.5 2.4 (1.9) 80.4

Financing activities 68.2 60.3 7.9 13.2

Total cash receipts 464.4 448.5 15.9 3.5

Cash payments Operating activities 423.5 410.7 (12.8) 3.1

Investing activities in non-financial assets 16.2 15.1 (1.1) 7.2

Investing activities in financial assets 23.8 16.1 (7.7) 47.5

Financing activities 0.0 6.4 6.4 100.0

Total cash payments 463.5 448.3 15.2 3.4

Net cash from discontinued activities 0.0 0.1 (0.1) 100.0

Net movement in cash 0.9 0.3 0.6 189.0

Cash at beginning of the year 4.8 4.5 0.3 6.8

Cash at end of year 5.7 4.8 0.9 18.5

Key fiscal aggregate Operating activities (27.8) (24.9) (3.0) 12.0

Investing activities in non-financial assets (15.7) (12.7) (3.0) 23.6

Cash surplus/(deficit) (43.6) (37.6) (6.0) 15.9

The Australian Government’s cash balance was $5.7 billion at 30 June 2016. For the year ended 30 June 2016, the Australian Government recorded a cash deficit of $43.6 billion, an increase of $6.0 billion compared to a cash deficit of $37.6 billion for 2014-15.

Receipts and payments

The following charts provide a detailed break-down of Australian Government receipts and payments for 2015-16, showing the relative composition of each dollar received and paid.

Chart 10: Composition of each dollar of cash received in 2015-16

Taxes 78c

Interest & dividends 2c

Borrowings & investments 14c

Sales of goods & services 4c

Other 2c

Commentary on the financial statements

19

Chart 11: Composition of each dollar of cash paid in 2015-16

Grants & subsidies 31c

Interest paid 3c Personal benefits 29c

Purchases of non-financial assets 4c

Payments for goods & services 20c

Payment for employees & other 8c

Financing & investing activities 5c

Chart 12 provides the trend of the Australian Government’s receipts and payments for operating activities and purchases/sales of non-financial assets since 2007-08.

Chart 12: Receipts and payments - operating and non-financial assets

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Payments Receipts

Commentary on the financial statements

20

APPENDIX A

PREVIOUS YEARS

The CFS since 1995-96 are available on the Department of Finance website at: http://www.finance.gov.au/publications/commonwealth-consolidated-financial-statements.

The historical series datasets are available in electronic format at: http://data.gov.au/dataset/australian-government-consolidated-financial-statements-tables-and-data.

LINKS TO OTHER PUBLICATIONS

The Australian Government publishes a range of information about its projected and actual financial position. Links to some of these documents are set out below. The information in the following documents has been prepared for different purposes and therefore does not form part of the CFS. Further, the documents listed below are not subject to audit.

2015-16 Final Budget Outcome

The 2015-16 Final Budget Outcome (FBO) was prepared in a manner consistent with the Charter of Budget Honesty Act 1998 (the Charter). The Charter requires that the Government provide the FBO no later than three months after the end of the financial year. Consistent with these requirements, the FBO encompasses Australian Government GGS fiscal outcomes for the 2015-16 financial year and is based on external reporting standards.

The FBO is available on the Australian Government website at: http://www.budget.gov.au/2015-16/content/fbo/html/index.htm.

Australian Government Monthly Financial Statements

The Australian Government GGS Monthly Financial Statements are prepared on a basis consistent with the Budget as required under section 47 of the PGPA Act. The statements are prepared in accordance with AASB 1049.

The Australian Government GGS Monthly Financial Statements are available on the Department of Finance website and the Minister for Finance website at: http://www.finance.gov.au/publications/commonwealth-monthly-financial-statements; and http://www.financeminister.gov.au/media-releases/2016.

The historical series datasets are available in electronic format at:

http://data.gov.au/dataset/australian-government-general-government-sector-monthly-financial-statements-tables-and-data.

Commentary on the financial statements

21

Budget Strategy and Outlook and Mid-Year Economic and Fiscal Outlook

The Budget Strategy and Outlook — Budget Paper — 2015-16, the Mid-Year Economic and Fiscal Outlook 2015-16 and the Budget Strategy and Outlook — Budget Paper — 2016-17 have been prepared in accordance with the Charter.

The aforementioned Budget papers are available on the Australian Government website at http://www.budget.gov.au/.

Tax Expenditures Statement 2015

The Tax Expenditures Statement (TES) provides details of concessions, benefits, incentives and charges provided through the tax system (tax expenditures) to taxpayers by the Australian Government. Information is published on the Treasury website at: http://www.treasury.gov.au/PublicationsAndMedia/Publications/2016/TES-2015.

CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE AUSTRALIAN GOVERNMENT (WHOLE OF GOVERNMENT) AND GENERAL GOVERNMENT SECTOR FINANCIAL REPORTS

25

Consolidated financial statements

26

Consolidated financial statements

27

Consolidated financial statements

29

Australian Government operating statement for the year ended 30 June 2016 2016 2015

Note $m $m

Revenue from transactions Taxation revenue 3A 368,942 355,436

Sales of goods and services 3B 17,139 16,082

Interest income 3C 4,279 4,499

Dividend income 3C 2,863 3,927

Other 3D 9,299 7,525

Total revenue 402,522 387,469

Expenses from transactions Gross operating expenses Wages and salaries 4A 22,730 22,282

Superannuation 4A 8,396 7,324

Depreciation and amortisation 4B 9,773 8,131

Supply of goods and services(b) 4C 89,127 82,653

Other operating expenses 4A 7,380 6,838

Total gross operating expenses 137,406 127,228

Superannuation interest expense 4A 9,106 8,999

Interest expense 4D 17,197 16,816

Current transfers Current grants 4E 126,064 124,567

Subsidy expenses(a) 11,901 12,454

Personal benefits(b) 131,574 129,736

Total current transfers 269,539 266,757

Capital transfers Mutually agreed write-downs 4E 1,193 1,473

Other capital grants 4E 7,589 7,398

Total capital transfers 8,782 8,871

Total expenses 4F 442,030 428,671

Net operating balance (39,508) (41,202)

Other economic flows - included in Operating Result Net write-downs of assets (including bad and doubtful debts) 5A (8,806) (5,576)

Assets recognised for the first time 283 230

Net gain/(loss) from the sale of assets 5B 6,081 13,433

Net foreign exchange gains/(losses) 5C 2,247 3,808

Net swap interest gains/(losses) 5D (476) (935)

Other gains/(losses) 5E (20,861) 717

Amortisation of non-produced assets (85) (121)

Net result from associates and joint ventures 15 27

Operating result from continuing operations (61,110) (29,619)

Discontinued operation 2 - 149

Operating result (61,110) (29,470)

Other economic flows - Other non-owner movements in equity Items that will not be reclassified to operating result Revaluation of non-financial assets 9 2,949 10,866

Actuarial revaluations of superannuation (57,417) (17,720)

Other economic revaluations 243 224

Items that may be reclassified subsequently to operating result Revaluation of equity investments 9 640 383

Comprehensive result - Total change in net worth (114,695) (35,717)

(a) Includes a reclassification of $111 million from suppliers to subsidies in 2014-15 in relation to employment programs. (b) Payments of direct or indirect personal benefits have been reviewed against the principles contained in the ABS GFS Manual, which has resulted in reclassifications between Current transfers - Personal

benefits and Supply of goods and services in 2014-15 of $559 million.

Consolidated financial statements

30

Australian Government operating statement (continued) for the year ended 30 June 2016 2,016 2,015

Note $m $m

Net operating balance (39,508) (41,202)

less Net acquisition of non-financial assets Purchases of non-financial assets 17,560 15,623

less Sales of non-financial assets 536 2,497

less Depreciation and amortisation 9,773 8,131

plus Change in inventories 646 588

plus Other movements in non-financial assets (94) 22

Total net acquisition of non-financial assets 7,803 5,605

Fiscal balance (Net lending/borrowing) (47,311) (46,807)

The above statement should be read in conjunction with the accompanying notes.

Consolidated financial statements

31

Australian Government balance sheet as at 30 June 2016

2016 2015

Note $m $m

Assets Financial assets Cash and deposits 10B 5,712 4,822

Advances paid 7A 48,194 41,769

Other receivables and accrued revenue 7A 43,232 40,778

Investments, loans and placements 7B 286,787 252,356

Equity investments 7C 42,912 46,194

Total financial assets 426,837 385,919

Non-financial assets Land 7D 11,738 10,953

Buildings 7D 27,779 27,877

Specialist military equipment 7D 56,217 51,889

Other plant, equipment and infrastructure 7D 36,385 31,307

Intangibles 7D 9,831 8,678

Investment property 7D 377 387

Inventories 7E 8,711 8,531

Heritage and cultural assets 7D 11,462 11,332

Other non-financial assets 7F 4,865 5,062

Total non-financial assets 167,365 156,016

Total assets 7G 594,202 541,935

Liabilities Interest bearing liabilities Deposits held 8A 30,740 25,124

Government securities 8B 480,757 404,044

Loans 8C 14,661 9,707

Other borrowings 8D 6,029 5,336

Other interest bearing liabilities 8E 15,051 11,177

Total interest bearing liabilities 547,238 455,388

Provisions and payables Superannuation liability 8F 314,958 248,540

Other employee liabilities 8F 21,558 20,091

Suppliers payable 8G 6,330 5,558

Personal benefits payable 8G 3,820 4,722

Subsidies payable 8G 539 444

Grants payable 8G 2,659 3,239

Australian currency on issue 8G 70,209 65,481

Other payables 8G 5,174 4,780

Other provisions 8G 35,743 33,508

Total provisions and payables 460,990 386,363

Total liabilities 1,008,228 841,751

Net worth Accumulated results (483,947) (368,230)

Reserves 69,921 68,414

Net worth (414,026) (299,816)

Current liabilities 103,411 114,379

Non-current liabilities 904,817 727,372

Total liabilities by maturity 1,008,228 841,751

Current assets 358,271 328,916

Non-current assets 235,931 213,019

Total assets by maturity 594,202 541,935

The above statement should be read in conjunction with the accompanying notes.

Consolidated financial statements

32

Australian Government cash flow statement for the year ended 30 June 2016 2016 2015

Note $m $m

OPERATING ACTIVITIES Operating cash received Taxes received 361,964 353,396

Receipts from sales of goods and services 18,073 16,694

Interest receipts 4,377 4,459

Dividend receipts 2,890 3,756

Other receipts 8,393 7,534

Total cash received 395,697 385,839

Operating cash used Payments for employees (31,610) (29,504)

Payments for goods and services (90,823) (84,730)

Grants and subsidies paid (145,777) (144,554)

Interest paid (15,172) (14,377)

Personal benefits (133,822) (131,067)

Other payments (6,334) (6,467)

Total cash used (423,538) (410,699)

Net cash from discontinued operating activities 2 - (7)

Net cash flows from operating activities 10A (27,841) (24,867)

INVESTING ACTIVITIES Investments in non-financial assets Sales of non-financial assets 466 2,380

Purchases of non-financial assets (16,208) (15,114)

Net cash flows from investments in non-financial assets (15,742) (12,734)

Investments in financial assets for policy purposes (5,694) (5,190)

Investments in financial assets for liquidity purposes (18,056) (10,908)

Net cash from discontinued investing activities 2 - 91

Net cash from investing activities (39,492) (28,741)

FINANCING ACTIVITIES Financing cash received Cash received Borrowings 61,404 57,597

Other financing 6,822 2,693

Total cash received 68,226 60,290

Financing cash used Other financing (3) (6,374)

Total cash used (3) (6,374)

Net cash flows from financing activities 68,223 53,916

Net (decrease)/increase in cash held 890 308

Cash at beginning of year 4,822 4,514

Cash at end of year 10B 5,712 4,822

Key fiscal aggregate Net cash flows from operating activities (27,841) (24,867)

Net cash flows from investments in non-financial assets (15,742) (12,734)

Cash surplus/(deficit) (43,583) (37,601)

Finance leases and similar arrangements (693) (481)

GFS cash surplus/(deficit) (44,276) (38,082)

The above statement should be read in conjunction with the accompanying notes.

33

Consolidated financial statements

Australian Government statement of changes in equity (net worth) for the year ended 30 June 2016 Australian Government Foreign

Asset currency Total

Accumulated revaluation translation Investments Statutory Other Total Net

Item results reserve(a) reserve(b) reserve(c) funds(d) reserve(e) reserves Worth

$m $m $m $m $m $m $m $m

Adjusted opening balance as at 1 July 2014 (320,210) 35,714 (322) 11,123 5,554 4,042 56,111 (264,099)

Comprehensive result - Total change in net worth (47,153) 11,199 219 9 - 9 11,436 (35,717)

Transfers to/(from)/between reserves (867) (47) (2) (4,308) 1,570 3,654 867 -

Net worth as at 30 June 2015 (368,230) 46,866 (105) 6,824 7,124 7,705 68,414 (299,816)

Non-material changes in accounting policy and errors 979 (399) - 99 - (194) (494) 485

Adjusted opening balance as at 1 July 2015 (367,251) 46,467 (105) 6,923 7,124 7,511 67,920 (299,331)

Comprehensive result - Total change in net worth (117,079) 3,536 160 (1,304) - (8) 2,384 (114,695)

Transfers to/(from)/between reserves 383 19 - - 1,390 (1,792) (383) -

Net worth as at 30 June 2016 (483,947) 50,022 55 5,619 8,514 5,711 69,921 (414,026)

Reserves

(a) The asset revaluation reserve includes net revaluation increments and decrements arising from the revaluation of property, plant and equipment. (b) The foreign currency translation reserve records foreign currency differences arising from the translation of self-sustaining foreign operations. (c) The investments reserve records the Australian Government’s interest in portfolio authorities and companies. (d) Statutory funds comprise amounts set aside out of operating surpluses under a specific Act or Statute. (e) Other reserves include amounts set aside out of operating surpluses for purposes other than those detailed above, including general reserves.

The above statement should be read in conjunction with the accompanying notes.

SECTOR STATEMENTS

37

Sector statements

Australian Government operating statement by sector — including General Government Sector Financial Report for the year ended 30 June 2016

Note

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Revenue from transactions Taxation revenue 3A 368,937 355,534 - - - - 5 (98) 368,942 355,436

Sales of goods and services 3B 7,619 7,156 9,873 9,840 725 3,257 (1,078) (4,171) 17,139 16,082

Interest income 3C 2,931 3,145 54 44 2,383 2,271 (1,089) (961) 4,279 4,499

Dividend income 3C 6,240 6,178 - - 40 71 (3,417) (2,322) 2,863 3,927

Other 3D 9,326 7,565 116 103 148 176 (291) (319) 9,299 7,525

Total revenue 395,053 379,578 10,043 9,987 3,296 5,775 (5,870) (7,871) 402,522 387,469

Expenses from transactions Gross operating expenses Wages and salaries 4A 18,675 18,357 3,882 3,764 174 286 (1) (125) 22,730 22,282

Superannuation 4A 7,854 6,927 482 354 73 66 (13) (23) 8,396 7,324

Depreciation and amortisation 4B 8,132 6,804 1,596 1,287 44 57 1 (17) 9,773 8,131

Supply of goods and services 4C 84,395 78,633 5,525 5,196 350 2,775 (1,143) (3,951) 89,127 82,653

Other operating expenses 4A 6,332 5,742 772 852 278 273 (2) (29) 7,380 6,838

Total gross operating expenses 125,388 116,463 12,257 11,453 919 3,457 (1,158) (4,145) 137,406 127,228

Superannuation interest expense 4A 9,106 8,999 - - - - - - 9,106 8,999

Interest expenses 4D 16,673 16,024 441 420 1,176 1,313 (1,093) (941) 17,197 16,816

Current transfers Current grants 4E 126,135 124,635 - - - - (71) (68) 126,064 124,567

Subsidy expenses 12,053 12,617 - - - - (152) (163) 11,901 12,454

Personal benefits 131,574 129,736 - - - - - - 131,574 129,736

Tax expenses - - 55 (66) 2 48 (57) 18 - -

Total current transfers 269,762 266,988 55 (66) 2 48 (280) (213) 269,539 266,757

Capital transfers Mutually agreed write-downs 4E 1,193 1,473 - - - - - - 1,193 1,473

Other capital grants 4E 7,589 7,398 - - - - - - 7,589 7,398

Total capital transfers 8,782 8,871 - - - - - - 8,782 8,871

Total expenses 4F 429,711 417,345 12,753 11,807 2,097 4,818 (2,531) (5,299) 442,030 428,671

Net operating balance (34,658) (37,767) (2,710) (1,820) 1,199 957 (3,339) (2,572) (39,508) (41,202)

netting(b)

General Government corporations corporations(a)

Public non-financial Public financial

Government Australian Eliminations and

(a) Comparatives include Medibank Private Limited (discontinued operation) for the period prior to disposal - refer Note 2. (b) The eliminations and netting column includes the elimination of inter-sector transactions and the netting off of gains and losses across sectors.

38

Sector statements

Australian Government operating statement by sector — including General Government Sector Financial Report (continued) for the year ended 30 June 2016

Note

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Other economic flows - included in operating result Net write-downs of assets 5A (8,747) (5,361) (61) (217) (6) (7) 8 9 (8,806) (5,576)

Assets recognised for the first time 283 224 - 5 - - - 1 283 230

Net gain/(loss) from the sale of assets 5B 6,222 10,690 14 50 (156) (73) 1 2,766 6,081 13,433

Net foreign exchange gains/(losses) 5C 429 (2,335) (3) 2 1,820 6,142 1 (1) 2,247 3,808

Net swap interest gains/(losses) 5D (508) (977) 5 8 28 35 (1) (1) (476) (935)

Other gains/(losses) 5E (20,911) 4,706 31 11 19 42 - (4,042) (20,861) 717

Amortisation of non-produced assets (55) (58) (30) (63) - (3) - 3 (85) (121)

Net result from associates and joint ventures 15 27 - - - - - - 15 27

Operating result (57,930) (30,851) (2,754) (2,024) 2,904 7,093 (3,330) (3,837) (61,110) (29,619)

Discontinued operation 2 - - - - - - - 149 - 149

Net operating result (57,930) (30,851) (2,754) (2,024) 2,904 7,093 (3,330) (3,688) (61,110) (29,470)

Other economic flows - through equity Will not be reclassified to operating result Revaluation of non-financial assets 9 2,866 10,404 37 435 45 29 1 (2) 2,949 10,866

Actuarial revaluations of superannuation (56,913) (17,780) (162) 145 (342) (85) - - (57,417) (17,720)

Other economic revaluations 267 (3,873) 75 (234) - (1,264) (99) 5,595 243 224

May be reclassified to operating result Revaluation of equity investments 9 (2,970) 3,676 - - 663 380 2,947 (3,673) 640 383

Comprehensive result (114,680) (38,424) (2,804) (1,678) 3,270 6,153 (481) (1,768) (114,695) (35,717)

Net operating balance (34,658) (37,767) (2,710) (1,820) 1,199 957 (3,339) (2,572) (39,508) (41,202)

less Net acquisition of non-financial assets Purchases of non-financial assets 11,141 11,337 6,324 4,233 96 53 (1) - 17,560 15,623

less Sales of non-financial assets 477 2,423 59 75 - - - (1) 536 2,497

less Depreciation and amortisation 8,132 6,804 1,597 1,255 44 57 - 15 9,773 8,131

plus Change in inventories 413 582 20 8 17 (2) 196 - 646 588

plus Other movements in non-financial assets (95) 14 1 18 - (11) - 1 (94) 22

Total net acquisition of non-financial assets 2,850 2,706 4,689 2,929 69 (17) 195 (13) 7,803 5,605

Fiscal balance (Net lending/borrowing) (37,508) (40,473) (7,399) (4,749) 1,130 974 (3,534) (2,559) (47,311) (46,807)

Eliminations and Australian

Government corporations corporations(a)

General Public non-financial Public financial

netting(b) Government

(a) Comparatives include Medibank Private Limited (discontinued operation) for the period prior to disposal - refer Note 2. (b) The eliminations and netting column includes the elimination of inter-sector transactions and the netting off of gains and losses across sectors.

39

Sector statements

Australian Government balance sheet by sector — including General Government Sector Financial Report as at 30 June 2016

Note

2016201520162015201620152016201520162015

$m$m$m$m$m$m$m$m$m$m

Assets Financial assets Cash and deposits10B3,6383,1562,5582,042413480(897)(856)5,7124,822

Advances paid7A46,89840,6581152,2442,177(959)(1,071)48,19441,769

Other receivables and accrued revenue 7A45,04341,9051,3531,272252250(3,416)(2,649)43,23240,778

Investments, loans and placements7B149,994134,271523624168,809158,175(32,539)(40,714)286,787252,356

Equity investments7C87,23086,39423415401(44,735)(40,604)42,91246,194

Total financial assets332,803306,3844,4473,946172,133161,483(82,546)(85,894)426,837385,919

Non-financial assets Land 7D10,6209,9429568701611431(2)11,73810,953

Buildings7D25,54725,6391,8831,952350287(1)(1)27,77927,877

Specialist military equipment7D56,21751,889------56,21751,889

Other plant, equipment and infrastructure7D14,28113,62321,90717,507197177--36,38531,307

Intangibles7D7,2816,5442,4932,1005836(1)(2)9,8318,678

Investment property7D164187213200----377387

Inventories7E8,5678,415118107269--8,7118,531

Heritage and cultural assets7D11,46211,332------11,46211,332

Tax assets--82991554(834)(919)--

Other non-financial assets7F4,6384,8962762174037(89)(88)4,8655,062

Total non-financial assets138,777132,46728,67523,868837693(924)(1,012)167,365156,016

Total assets7G471,580438,85133,12227,814172,970162,176(83,470)(86,906)594,202541,935

General Government

Australian Government corporations Public financial Eliminations(a) Public non-financial corporations

(a) Comprises the elimination of inter-sector balances.

40

Sector statements

Australian Government balance sheet by sector — including General Government Sector Financial Report (continued) as at 30 June 2016

Note

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Liabilities Interest bearing liabilities Deposits held 8A 217 218 4 - 61,211 60,486 (30,692) (35,580) 30,740 25,124

Government securities 8B 483,361 409,937 - - - - (2,604) (5,893) 480,757 404,044

Loans 8C 10,351 5,693 2,664 2,660 2,599 2,406 (953) (1,052) 14,661 9,707

Other borrowings 8D 1,607 1,509 4,418 3,826 - - 4 1 6,029 5,336

Other interest bearing liabilities 8E 6,473 6,601 7 15 8,571 4,562 - (1) 15,051 11,177

Total interest bearing liabilities 502,009 423,958 7,093 6,501 72,381 67,454 (34,245) (42,525) 547,238 455,388

Provisions and payables Superannuation liability 8F 314,228 248,209 46 24 685 306 (1) 1 314,958 248,540

Other employee liabilities 8F 18,302 17,052 1,797 1,636 1,457 1,403 2 - 21,558 20,091

Suppliers payable 8G 5,335 4,601 1,077 1,002 63 60 (145) (105) 6,330 5,558

Personal benefits payable 8G 3,820 4,722 - - - - - - 3,820 4,722

Subsidies payable 8G 539 444 - - - - - - 539 444

Grants payable 8G 2,659 3,239 - - - - - - 2,659 3,239

Australian currency on issue 8G - - - - 70,209 65,481 - - 70,209 65,481

Tax liabilities - - 515 674 1 1 (516) (675) - -

Other payables 8G 2,841 2,801 2,324 1,956 3,391 2,668 (3,382) (2,645) 5,174 4,780

Other provisions 8G 35,361 33,127 380 382 1 1 1 (2) 35,743 33,508

Total provisions and payables 383,085 314,195 6,139 5,674 75,807 69,920 (4,041) (3,426) 460,990 386,363

Total liabilities 885,094 738,153 13,232 12,175 148,188 137,374 (38,286) (45,951) 1,008,228 841,751

General Government Government

Australian

corporations corporations Public non-financial Public financial Eliminations(a)

(a) Comprises the elimination of inter-sector balances.

41

Sector statements

Australian Government balance sheet by sector — including General Government Sector Financial Report (continued) as at 30 June 2016

Note

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Net worth Accumulated results (473,200) (360,589) (6,557) (3,575) (286) (142) (3,904) (3,924) (483,947) (368,230)

Reserves 59,686 61,287 2,770 2,672 24,822 24,698 (17,357) (20,243) 69,921 68,414

Contributed equity - - 23,677 16,542 246 246 (23,923) (16,788) - -

Net worth (413,514) (299,302) 19,890 15,639 24,782 24,802 (45,184) (40,955) (414,026) (299,816)

Current liabilities 60,685 86,449 5,069 4,252 75,195 68,643 (37,538) (44,965) 103,411 114,379

Non-current liabilities 824,409 651,704 8,163 7,923 72,993 68,731 (748) (986) 904,817 727,372

Total liabilities by maturity 885,094 738,153 13,232 12,175 148,188 137,374 (38,286) (45,951) 1,008,228 841,751

Current assets 235,297 220,228 4,636 3,839 155,869 149,401 (37,531) (44,552) 358,271 328,916

Non-current assets 236,283 218,623 28,486 23,975 17,101 12,775 (45,939) (42,354) 235,931 213,019

Total assets by maturity 471,580 438,851 33,122 27,814 172,970 162,176 (83,470) (86,906) 594,202 541,935

Government General Australian

corporations corporations Government

Public non-financial Public financial Eliminations(a)

(a) Comprises the elimination of inter-sector balances.

42

Sector statements

Australian Government cash flow statement by sector — including General Government Sector Financial Report

for the year ended 30 June 2016

2016201520162015201620152016201520162015

$m$m$m$m$m$m$m$m$m$m

OPERATING ACTIVITIES Cash received Taxes received 361,962 353,494 - - - - 2 (98) 361,964 353,396

Receipts from sales of goods and services7,5927,02010,88210,7326283,104(1,029)(4,162)18,07316,694

Interest receipts2,9363,05651442,4532,327(1,063)(968)4,3774,459

Dividend receipts5,5404,745--4358(2,693)(1,047)2,8903,756

GST receipts--5763702618(602)(388)--

Other receipts8,4807,5984634161210(294)(308)8,3937,534

Total cash received 386,510 375,913 11,555 11,180 3,311 5,717 (5,679) (6,971) 395,697 385,839

Cash used Taxes paid - - (16) (43) - (31) 16 74 - -

Payments for employees(27,122)(25,775)(4,293)(4,130)(207)(97)12498(31,610)(29,504)

Payments for goods and services(85,115)(79,967)(6,737)(6,086)(242)(2,774)1,2714,097(90,823)(84,730)

Grants and subsidies paid(145,866)(144,623)--(166)(162)255231(145,777)(144,554)

Interest paid(14,977)(13,924)(56)(57)(1,198)(1,366)1,059970(15,172)(14,377)

Personal benefits(133,822)(131,066)-----(1)(133,822)(131,067)

GST paid--(414)(385)(12)-426385--

Other payments(5,921)(5,289)(347)(537)(59)(311)(7)(330)(6,334)(6,467)

Total cash used (412,823) (400,644) (11,863) (11,238) (1,884) (4,741) 3,032 5,924 (423,538) (410,699)

Net cash from discontinued operating activities - - - - - - - (7) - (7)

Net cash from operating activities (26,313) (24,731) (308) (58) 1,427 976 (2,647) (1,054) (27,841) (24,867)

INVESTING ACTIVITIES Investments in non-financial assets Sales of non-financial assets 414 2,305 52 75 - - - - 466 2,380

Purchases of non-financial assets (10,341) (11,280) (5,770) (3,801) (97) (53) - 20 (16,208) (15,114)

Net cash flows from investments in non-financial assets (9,927) (8,975) (5,718) (3,726) (97) (53) - 20 (15,742) (12,734)

Public non-financial corporations Public financial corporations(a)

General Government

Eliminations and Australian

netting(b) Government

(a) Comparatives include Medibank Private Limited (discontinued operation) for the period prior to disposal - refer Note 2. (b) The eliminations and netting column includes the elimination of inter-sector transactions and the netting off of certain cash flows across sectors.

43

Sector statements

Australian Government cash flow statement by sector — including General Government Sector Financial Report

(continued)

for the year ended 30 June 2016

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

INVESTING ACTIVITIES Investments in financial assets for policy purposes (12,684) (5,163) - - (35) (63) 7,025 36 (5,694) (5,190)

Investments in financial assets for liquidity purposes (5,255) (11,951) (146) (46) (4,406) (12,315) (8,249) 13,404 (18,056) (10,908)

Net cash from discontinued investing activities - - - - - - - 91 - 91

Net cash from investing activities (27,866) (26,089) (5,864) (3,772) (4,538) (12,431) (1,224) 13,551 (39,492) (28,741)

FINANCING ACTIVITIES Cash flows from financing activities Cash received Borrowings 57,102 52,381 - 105 887 6,381 3,415 (1,270) 61,404 57,597

Other financing - 7 7,158 4,817 4,729 5,456 (5,065) (7,587) 6,822 2,693

Total cash received 57,102 52,388 7,158 4,922 5,616 11,837 (1,650) (8,857) 68,226 60,290

Cash used Other financing (2,441) (2,256) (470) (430) (2,572) (932) 5,480 (2,756) (3) (6,374)

Total cash used (2,441) (2,256) (470) (430) (2,572) (932) 5,480 (2,756) (3) (6,374)

Net cash from discontinued financing activities - - - - - - - - - -

Net cash from financing activities 54,661 50,132 6,688 4,492 3,044 10,905 3,830 (11,613) 68,223 53,916

Net increase/(decrease) in cash 482 (688) 516 662 (67) (550) (41) 884 890 308

Cash at beginning of year 3,156 3,844 2,042 1,380 480 1,030 (856) (1,740) 4,822 4,514

Cash at end of year 3,638 3,156 2,558 2,042 413 480 (897) (856) 5,712 4,822

Key fiscal aggregate Net cash flows from operating activities (26,313) (24,731) (308) (58) 1,427 976 (2,647) (1,054) (27,841) (24,867)

Net cash flows from investments in non-financial assets (9,927) (8,975) (5,718) (3,726) (97) (53) - 20 (15,742) (12,734)

Cash surplus/(deficit) (36,240) (33,706) (6,026) (3,784) 1,330 923 (2,647) (1,034) (43,583) (37,601)

Finance leases and similar arrangements (165) (72) (528) (408) - - - - (693) (480)

GFS cash surplus/(deficit) (36,405) (33,778) (6,554) (4,192) 1,330 923 (2,647) (1,034) (44,276) (38,081)

Government corporations

Public financial corporations(a)

Public non-financial General Australian

Government

Eliminations and netting(b)

(a) Comparatives include Medibank Private Limited (discontinued operation) for the period prior to disposal - refer Note 2. (b) The eliminations and netting column includes the elimination of inter-sector transactions and the netting off of certain cash flows across sectors.

44

Sector statements

General Government Sector statement of changes in equity (net worth) for the year ended 30 June 2016 General Government Foreign

Asset currency Total

Accumulated revaluation translation Investments Other Total Net

Item results reserve reserve reserve reserves reserves Worth

$m $m $m $m $m $m $m

Adjusted opening balance as at 1 July 2014 (316,383) 30,497 (330) 25,258 80 55,505 (260,878)

Comprehensive result - Total change in net worth (48,514) 10,354 166 (441) 11 10,090 (38,424)

Transfers to/(from)/between reserves 4,308 (3) - (4,308) 3 (4,308) -

Net worth as at 30 June 2015 (360,589) 40,848 (164) 20,509 94 61,287 (299,302)

Non-material changes in accounting policy and errors 750 (399) - 99 18 (282) 468

Adjusted opening balance as at 1 July 2015 (359,839) 40,449 (164) 20,608 112 61,005 (298,834)

Comprehensive result - Total change in net worth (113,395) 2,788 196 (4,251) (18) (1,285) (114,680)

Transfers to/(from)/between reserves 34 21 - - (55) (34) -

Net worth as at 30 June 2016 (473,200) 43,258 32 16,357 39 59,686 (413,514)

Reserves

The above statement should be read in conjunction with the accompanying notes.

NOTES TO THE FINANCIAL STATEMENTS

47

INDEX TO NOTES

NOTE 1: BASIS OF FINANCIAL STATEMENTS PREPARATION ................................. 49

NOTE 2: DISCONTINUED OPERATIONS ............................................................... 56

NOTE 3: REVENUE FROM TRANSACTIONS .......................................................... 57

Note 3A: Taxation revenue ........................................................................................... 58

Note 3B: Sales of goods and services .......................................................................... 62

Note 3C: Interest and dividend income ......................................................................... 63

Note 3D: Other sources of non-taxation revenue ......................................................... 63

NOTE 4: EXPENSES FROM TRANSACTIONS ......................................................... 64

Note 4A: Employee and superannuation expenses ...................................................... 65

Note 4B: Depreciation and amortisation expenses ....................................................... 66

Note 4C: Supply of goods and services ........................................................................ 67

Note 4D: Interest expense ............................................................................................ 68

Note 4E: Grants expense .............................................................................................. 69

Note 4F: Expenses by function ..................................................................................... 70

NOTE 5: OTHER ECONOMIC FLOWS ................................................................... 71

Note 5A: Net write-down of assets (including bad and doubtful debts) ........................ 73 Note 5B: Net gain/(loss) from the sale of assets ........................................................... 74

Note 5C: Net foreign exchange gains/(losses) ............................................................. 75

Note 5D: Net swap interest gains/(losses) .................................................................... 75

Note 5E: Other gains/(losses) ....................................................................................... 75

NOTE 6: FAIR VALUE MEASUREMENT ................................................................. 76

NOTE 7: ASSETS .............................................................................................. 85

Note 7A: Advances paid and receivables ..................................................................... 86

Note 7B: Investments, loans and placements ............................................................... 88

Note 7C: Equity investments ......................................................................................... 89

Note 7D: Land and buildings, plant, equipment and infrastructure, heritage and cultural assets and intangibles ............................................................. 90

Note 7E: Inventories ...................................................................................................... 97

Note 7F: Other non-financial assets.............................................................................. 97

Note 7G: Assets by function .......................................................................................... 98

NOTE 8: LIABILITIES ......................................................................................... 98

Note 8A: Deposit liabilities .......................................................................................... 100

Note 8B: Government securities ................................................................................. 100

Note 8C: Loans ........................................................................................................... 100

Note 8D: Other borrowings ......................................................................................... 101

Note 8E: Other interest bearing liabilities .................................................................... 101

Note 8F: Employee benefits ........................................................................................ 102

Note 8G: Other provisions and payables .................................................................... 104

Notes to the financial statements

48

NOTE 9: NET REVALUATION INCREASES/(DECREASES) ..................................... 106

NOTE 10: RECONCILIATION OF CASH ............................................................... 107

NOTE 11: RISKS ............................................................................................ 108

Note 11A: Contingencies ............................................................................................ 110

Note 11B: Financial instruments ................................................................................ 119

Note 11C: Defined benefit superannuation plans....................................................... 139

NOTE 12: EVENTS OCCURRING AFTER BALANCE DATE ..................................... 151

NOTE 13: RECONCILIATIONS AND EXPLANATIONS ............................................ 151

Note 13A: Reconciliations to ABS GFS measures ..................................................... 152

Note 13B: Reconciliation to original budget ................................................................ 156

Note 13C: Glossary of key fiscal aggregates .............................................................. 164

NOTE 14: AUDIT EXPENSES ............................................................................ 166

NOTE 15: LIST OF AUSTRALIAN GOVERNMENT REPORTING ENTITIES................. 167

Notes to the financial statements

49

Note 1: Basis of financial statements preparation

1.1 Purpose

The purpose of this note is to outline the basis on which the financial statements for the Australian Government (whole of government) and the general government sector (GGS) have been prepared.

Significant accounting policies that are relevant to understanding the financial statements are provided throughout the notes to the financial statements.

Except as otherwise noted, the accounting policies detailed in this note and throughout the notes to the financial statements are applicable at both the whole of government level and for the GGS.

1.2 Statement of compliance

The Australian Government Consolidated Financial Statements (CFS) are required by section 48 of the Public Governance, Performance and Accountability Act 2013.

The CFS are general purpose financial statements that have been prepared for the whole of government and the GGS in accordance with Australian Accounting Standards (AAS), including AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049).

The GGS financial statements are included in the CFS and can be found in the Sector statements and the Notes to the financial statements.

1.3 Basis of accounting

The purpose of the CFS is to provide users with information about the stewardship by the Australian Government and accountability for the resources entrusted to it; information about the financial position, performance and cash flows of the Australian Government; and information that facilitates assessment of the macro-economic

impact of the Australian Government.

The principles and rules in the Australian Bureau of Statistics Australian System of Government Finance Statistics: Concepts, Sources and Methods 2005 — ABS Catalogue No. 5514.0 (ABS GFS Manual) have been applied in the production of these financial statements, except in instances in which their application would conflict with AAS.

The 2015-16 financial statements for the whole of government and the GGS have been prepared on the basis of the ABS GFS Manual effective as at 1 July 2014.

Where the key fiscal aggregates presented on the face of the financial statements are materially different to those measured in accordance with the applied ABS GFS Manual, a reconciliation between the two measures has been provided (refer Note 13A).

Notes to the financial statements

50

The CFS has been prepared on an accrual basis and is presented in Australian dollars.

With the exception of advances paid to the International Development Association (IDA) and the Asian Development Fund (ADF), the key fiscal aggregates reported in the CFS GGS financial statements materially align to the GGS financial statements included in the 2015-16 Final Budget Outcome (FBO). As detailed in Part 2, Note 2 of the 2015-16 FBO, AASB 1049 requires the advances paid to the IDA and ADF to be recognised at fair value. Under the ABS GFS Manual, these advances are recorded at nominal value. The ABS GFS treatment is adopted in the FBO while the AAS treatment is adopted in the CFS.

1.4 New Australian Accounting Standards

Adoption of new Australian Accounting Standard requirements

During 2015-16, the Australian Government adopted all applicable AAS that became effective during the year. The application of new accounting standards did not materially impact the operations of the Australian Government.

The Australian Government has early adopted AASB 2015-7 Amendments to Australian Accounting Standards — Fair Value Disclosures of Not-for-Profit Public Sector Entities (AASB 2015-7). AASB 2015-7 amends AASB 13 Fair Value Measurement to provide disclosure relief to not-for-profit public sector entities from certain disclosures about the fair value measurements of property, plant and equipment held for their current service potential rather than to generate net cash inflows. This includes relief from disclosures of quantitative information about the significant unobservable inputs used in fair value measurements and of the sensitivity of certain fair value measurements to changes in unobservable inputs.

Future Australian Accounting Standards requirements

The Australian Accounting Standards Board (AASB) has issued a number of new standards, amendments to standards and interpretations that are effective for future reporting periods:

• AASB 124 Related Party Disclosures removes the current exemption for not-for-profit public sector entities such as government departments with respect to related party relationships and transactions. It is expected that this will require additional disclosures. The new standard is effective from 1 July 2016.

• AASB 15 Revenue from Contracts with Customers (AASB 15) replaces components of AASB 111 Construction Contracts, AASB 118 Revenue and AASB 1004 Contributions. AASB 15 could significantly change the pattern of revenue and profit recognition and internal budgeting processes. The new standard is effective from 1 January 2018.

Notes to the financial statements

51

• AASB 9 Financial Instruments represents the finalisation of the three phase project to replace AASB 139 Financial Instruments: Recognition and Measurement. It incorporates new principles for the requirements for recognition, measurement and derecognition of financial assets and liabilities, and general hedge accounting. This is likely to impact on the categorisation, recognition and measurement of financial instruments particularly those currently held at fair value through profit or loss. The new standard is effective from 1 January 2018.

• AASB 16 Leases will require all leases to be recognised on the balance sheet of lessees, thereby increasing the transparency surrounding such arrangements and making the lessee’s balance sheet better reflect the economics of its transactions. The new standard is effective from 1 January 2019. This is likely to impact on the recognition of operating leases currently reported as commitments.

Other than the above, current pronouncements related to future reporting periods are not expected to materially impact on future reporting periods or will not apply to the operations of the Australian Government.

The ABS GFS Manual has been updated to incorporate the changes sought by the International Monetary Fund (IMF) as outlined in its Government Finance Statistics Manual 2014 (IMF GFSM 2014). These revisions were necessary to reflect changes to the international and Australian standards for compiling national accounts as GFS are a key input to those measures. The new 2015 ABS GFS Manual replaces the current 2005 ABS GFS Manual for GFS publications from September 2017. The changes may impact upon the classification of certain items and will change the reconciliation to GFS measures disclosed in Note 13A.

1.5 Prior year adjustments and changes in accounting policy

Non-financial assets recognised at cost

The 2014-15 comparatives have been restated to recognise specialist military equipment (SME) at fair value, consistent with the AASB 1049 requirement for SME to be measured at fair value from 30 June 2015, if fair value can be reliably measured. The Australian Government, through Finance and Defence, had not completed its work to establish reliable measurements of the fair value of SME in time for the 2014-15 CFS. Consequently, SME was measured at the historic cost basis of measurement.

SME has now been restated to fair value, including as at 30 June 2015. Consistent with AASB 1049 and AASB 108, the 2014-15 restatement of SME to fair value has been recorded as a revaluation as at 30 June 2015. This has resulted in a $9,237 million increase to SME as at 30 June 2015 (refer Note 7D). There is no impact upon the 2014-15 net operating balance nor net assets as at 1 July 2014.

Notes to the financial statements

52

The 2014-15 comparatives have also been restated to recognise the property, plant and equipment of NBN Co Ltd at fair value in line with AASB 1049 requirements (NBN Co Ltd is not required to recognise these assets at fair value in their own financial statements). The prior period restatement of these assets to fair value resulted in a $793 million increase to other infrastructure, plant and equipment at 30 June 2015 ($317 million at 1 July 2014). Within the operating statement, the 2014-15 depreciation expense was increased by $32 million and other comprehensive income increased by $508 million. Within the GGS, there was an associated $793 million increase in equity investments in public corporations at 30 June 2015 ($317 million at 1 July 2014) to reflect the increased value of NBN Co Ltd net assets (refer Note 7C).

Provisions for taxation credit amendments and refunds

In the 2014-15 comparatives, adjustments were made to tax related items as a result of changes to percentages used by the Australian Taxation Office in calculating the provision for credit amendments and provision for refunds. This restatement resulted in a $430 million increase in the provision for credit amendments (refer Note 7A) and a $450 million increase in the provision for taxation refunds (refer Note 8G). There was a corresponding decrease of $880 million in taxation revenue (refer Note 3A) increasing the prior period deficit in net operating balance and fiscal balance.

There were also adjustments made as a result of an overstatement of revenue and expenses in relation to tax settlements. This reduced taxation revenue by $411 million (refer Note 3A) and mutually agreed write-downs by $384 million, resulting in a $27 million increase to the prior period deficit in net operating balance and fiscal balance.

Loan fee revenue

In 2015-16 a reliable estimate of the loan fee revenue generated by the Higher Education Loan Program (HELP) was reported separately as revenue. The amount had previously been reported as part of the actuarial adjustments to HELP. The adjustment was a total of $559 million impacting other sources of non-tax revenue (refer Note 3D) and the net-write-down of financial assets (refer Note 5A).

The combined impact of the above restatements was to increase net assets at 30 June 2015 by $9,150 million ($317 million at 1 July 2014), and to increase the prior period deficit in net operating balance and fiscal balance by $381 million.

Several comparative balances have also been reclassified to ensure consistency in presentation with the 2015-16 reported results. Reclassifications are disclosed in the relevant notes.

Notes to the financial statements

53

1.6 The reporting entity and basis of consolidation

For the purposes of these financial statements, the Australian Government means the executive (consisting principally of Ministers and their departments), the legislature (that is, the Parliament) and the judiciary (that is, the courts). Where the ‘Australian Government’ is referred to throughout these statements it is intended to also mean the ‘Commonwealth of Australia’. The Australian Government reporting entity (referred to as the reporting entity) includes Australian Government Departments of State, Parliamentary Departments, other non-corporate Commonwealth entities, corporate Commonwealth entities and companies in which the Australian Government holds a controlling interest.

The Australian Government controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The existence of control in the context of these financial statements does not in any way indicate that there is necessarily control over the manner in which statutory/professional functions are performed by an entity.

In the process of reporting the Australian Government as a single economic entity, all material transactions and balances between Australian Government-controlled entities are eliminated. Any dissimilar accounting policies applied at the entity level are amended to ensure consistent policies are adopted in these financial statements where the effect is material.

Where control of an entity is obtained during a financial year, results are included in the consolidated operating statement and consolidated cash flow statement from the date on which control commenced. Where control of an entity ceases during a financial year, results are included for that part of the year for which control existed.

1.7 Sectors

The sector classification of Australian Government entities follows that defined by the Australian Bureau of Statistics for the purposes of Government Finance Statistics (GFS). This, in turn, is based on international standards issued by the International Monetary Fund (IMF).

Notes to the financial statements

54

Figure 1: Institutional structure of the public sector

1.8 Significant accounting judgements and estimates

In preparing financial statements, Australian Government entities are required to make judgements and estimates that impact:

• income and expenses for the year;

• the reported amounts of assets and liabilities; and

• the disclosure of off-balance sheet arrangements, including contingent assets and contingent liabilities.

Judgements and estimates are subject to periodic review, including through the receipt of actuarial advice. Judgements and estimates are based on historical experience, various other assumptions believed to be reasonable under the circumstances and, where appropriate, practices adopted by other entities.

In the process of applying the accounting policies described in the relevant note, judgements and estimates made by Australian Government entities that have the most significant impact on the amounts recorded in these financial statements include:

Significant accounting estimate / judgement Note

Taxation revenue items reported under the economic transaction method 3A

Impairment — key assumptions and methodologies used to estimate the recoverability of accounts receivable, statutory debts and inventory 5A

Fair value — assumptions used in valuation techniques for the fair value of financial assets and liabilities, including derivatives 6, 11B

Total public sector

Total non-financial public sector

Public non-financial corporations sector (PNFC)

Public financial corporations sector (PFC)

General government sector (GGS)

(Provide goods and services to consumers on a commercial basis, are funded largely by the sale of these goods and services, and are generally legally distinguishable from the governments that own them)

(Perform central banking functions, accept deposits and have the authority to incur liabilities and acquire assets in the market)

(GGS provides non-market public services and are funded mainly through taxes and levies)

Notes to the financial statements

55

Significant accounting estimate / judgement Note

Fair value and impairment test — key assumptions underlying recoverable amount and valuations of land, property, plant and equipment and infrastructure 5A, 6

Measurement of depreciation and amortisation — estimate of expected useful lives 4B, 7D

Measurement of defined benefit and long service leave obligations — principal actuarial assumptions 8F, 11C

Recognition and measurement of provisions and contingencies — key assumptions about the likelihood and magnitude of an outflow or inflow of resources 8G, 11A

1.9 Insurance

Australian Government entities operating in the GGS are members of the Australian Government’s self managed fund for insurable risks, Comcover. This excludes workers’ compensation where the risk continues to be managed by Comcare. Australian Government entities operating outside the GGS adopt their own insurance strategies, which includes both self-insurance and commercial insurance coverage.

1.10 Rounding

All amounts have been rounded to the nearest million dollars, unless otherwise noted.

1.11 Minority interests (non-controlling interests)

Minority interests have not been separately disclosed in the operating statement and balance sheet as they are immaterial to the CFS.

1.12 Compliance with the Constitution

Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law. It is important to note that it is not possible in all instances to fully remove the potential for Section 83 breaches under existing legislation. In many cases the Australian Government relies on information provided by payment recipients to calculate and pay appropriate entitlements, and this information is not always timely or accurate.

Australian Government entities monitor their level of compliance with Section 83 of the Constitution across all legislation for which they have legislative responsibility. If an entity identified a risk of/or actual Section 83 breach during the reporting period, the details have been disclosed in the financial statements of the responsible entity.

In 2015-16, 622 actual breaches of Section 83 were identified across nine Commonwealth entities, with a total value of $6.2 million. This compares to 6,731 breaches across 11 entities in 2014-15, with a total value of $82.5 million. A further 2,315,399 potential breaches were identified in 2015-16 with a total value of $2,762 million. This compares to 2,346,969 potential breaches in 2014-15 with a total value of $2,554 million. Of the actual and potential breaches, $1,473 million has been recovered or waived in 2015-16 (2014-15: $1,625 million).

Notes to the financial statements

56

Note 2: Discontinued operations

There were no discontinued operations during 2015-16.

During 2014-15 the Australian Government sold Medibank Private Limited (Medibank) through an initial public offering.

The Medibank Share Offer prospectus was released on 20 October 2014. Medibank was listed on the Australian Stock Exchange on 25 November 2014.

Medibank’s pre-disposal results, adjusted for the elimination of transactions with Australian Government entities, have been reported as a discontinued operation in the 2014-15 CFS.

The adjusted financial performance of Medibank, on consolidation in the Australian Government’s financial statements for 2014-15 is detailed below. There is no income tax expense associated with the sale of Medibank as this is eliminated upon consolidation.

Financial performance

2016 2015(a)

$m $m

Revenue from transactions - 2,769

Expenses from transactions - 2,619

Net operating balance - 150

Other economic flows - included in Operating Result - (1)

Net operating result - 149

Discontinued operations

The contribution to Australian Government cash flows of Medibank after adjusting for the elimination of transactions with Australian Government entities was as follows:

Cash flows

2016 2015(a)

$m $m

Net cash flows from operating activities - (7)

Net cash flows from investing activities - 91

Net cash flows from financing activities - -

Net result - 84

Discontinued operations

(a) The 2015 amounts are for the period 1 July 2014 to 24 November 2014.

Notes to the financial statements

57

Note 3: Revenue from transactions

Revenue from transactions arise from interactions between the Australian Government and other entities, including households, private corporations, the not-for-profit sector and other governments. It excludes gains resulting from changes in price levels and other changes in the volume of assets. These are disclosed separately in Note 5 as ‘Other Economic Flows’. The total Australian Government revenue and relative composition of revenue sources were as follows:

Amount 2015-16 Composition

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2014-15 2015-16

$m

Income taxation 66%

Indirect taxation 26%

Sales of goods & services 4%

Interest revenue 1%

Dividend revenue 1%

Other revenue 2%

• Income taxation (refer Note 3A) is the largest source of Australian Government revenue and refers to the taxation of income, profits and capital gains.

• Indirect taxation (refer Note 3A) includes taxes on the sale and use of goods and services and other taxes. Included within this grouping is the goods and services tax (GST), customs and excise duties and other taxes levied on particular products or industries.

• Sales of Goods and Services (refer Note 3B) is distinguished from taxation in that the revenue is received in return for the direct provision of goods and services (including the provision of regulatory services) to the payer.

• Interest revenue (refer Note 3C) refers to income accrued on financial assets such as deposits, securities other than shares, loans and accounts receivable.

• Dividend revenue (refer Note 3C) includes equity distributions received by the Government Investment Funds and corporations and, at the GGS level, also includes distributions from corporate commonwealth entities or companies (which are eliminated upon consolidation).

Notes to the financial statements

58

• Other non-taxation revenue (refer Note 3D) includes transaction revenue not categorised elsewhere, with significant items including the collection of royalties and the collection of child support payments to pass on to custodial parents.

Note 3A: Taxation revenue

2016 2015 2016 2015

$m $m $m $m

Income taxation(a) Individuals and other withholding taxes Gross income tax withholding 174,815 167,645 174,815 167,645

Gross other individuals 43,261 40,224 43,261 40,224

less Refunds (28,081) (27,033) (28,081) (27,033)

Total individuals and other withholding taxation 189,995 180,836 189,995 180,836 Fringe benefits tax 4,453 4,392 4,453 4,392

Company tax 63,529 65,167 63,534 65,069

Superannuation funds 6,830 5,879 6,830 5,879

Resource rent taxes 876 1,352 876 1,352

Total income taxation revenue 265,683 257,626 265,688 257,528

Indirect taxation Sales taxes Goods and services tax 60,312 56,348 60,312 56,348

Wine equalisation tax 883 828 883 828

Luxury car tax 620 540 620 540

Total sales taxes 61,815 57,716 61,815 57,716

Excise duty revenue(b) 21,625 23,687 21,625 23,687

Customs duty revenue(b) 14,046 10,884 14,046 10,884

Other indirect taxation Agricultural levies 522 510 522 510

Other taxes(c) 5,246 5,111 5,246 5,111

Total other indirect taxation revenue 5,768 5,621 5,768 5,621

Mirror taxes 513 503 513 503

less Transfers to States in relation to mirror tax revenue (513) (503) (513) (503)

Mirror tax revenue - - - -

Total indirect taxation revenue 103,254 97,908 103,254 97,908

Total taxation revenue 368,937 355,534 368,942 355,436

General Government Australian Government

(a) Includes 2014-15 adjustments of $1,174 million relating to changes in percentages used to calculate the provision for credit amendments and refunds and overstatement of revenue and expenses in relation to settlements. (b) The 2015-16 Final Budget Outcome provides a disaggregation of excise and customs duty revenue by

duty type. (c) Visa application charges have been reclassified from non-taxation revenue to taxation revenue to reflect a sustained change in the nature of the receipts. This includes an adjustment to 2014-15 of $1,819 million.

Notes to the financial statements

59

Taxation revenue

Taxation revenues are recognised when all of the following three conditions have been satisfied:

• there is a basis establishing the Australian Government’s right to receive the revenue;

• it is probable that future economic benefits will be received; and

• the amount of revenue to be received can be reliably measured.

Estimation of some revenues can be difficult due to impacts of economic conditions and the timing of final taxable income, hence the Australian Government uses two bases of recognition:

• Economic Transaction Method (ETM) - Revenue is recognised when the Government, through the application of legislation to taxation and other relevant activities, gains control over the future economic benefits that arise from taxes and other statutory charges. Where a taxation revenue is able to be measured reliably (even in cases where the transactions are yet to occur but are likely to be reported) the ETM method is used to recognise revenue.

• Taxation Liability Method (TLM) - Revenue is recognised at the earlier of when an assessment of a tax liability is made, or payment is received. Furthermore, revenue is recognised when there is sufficient information to raise an assessment but an event has occurred which delays the issue of the assessment. This method is permitted when there is an ‘inability to reliably measure taxes when the underlying transactions or events occur’. Revenue recognised under this policy is generally measured at a later time than would be the case if it were measured under ETM.

The revenue recognition policy adopted by the Australian Government for each major type of taxation revenue is as follows:

Type of taxation revenue

Revenue recognition basis

Basis of revenue recognition

Income tax — individuals TLM Comprise income tax withholding (ITW), other individuals, Medicare levy and income tax refunds. ITW represents

amounts withheld from payments of remuneration for the year. Other individuals revenue includes income tax instalments and final tax returns received during the year. Other individuals revenue and income tax refunds do not incorporate an estimate of the tax to be paid or refunded on the final assessment for the year.

Income tax — companies TLM Comprise amounts of tax payable by companies that relate to instalments and final payments received/raised for current

and former periods. It does not include estimates of revenue related to the reporting year that will be recognised in annual income tax returns lodged after the reporting date.

Notes to the financial statements

60

Type of taxation revenue

Revenue recognition basis

Basis of revenue recognition

Income tax — superannuation funds

TLM Superannuation contributions tax is levied on superannuation funds based on contributions made by employers. Superannuation fund tax revenue comprise amounts of tax payable by superannuation funds that relate to instalments and payments for current and former reporting years. It does not include estimates of revenue related to the reporting year that will be recognised in annual income tax returns lodged after the reporting date.

Petroleum resource rent tax (Resource rent taxes)

ETM Recognised based on the actual and estimated taxable profits in respect to offshore petroleum projects excluding some of the North-West Shelf production and associated exploration areas, which are subject to excise (included in excise on petroleum and other fuel products) and royalties.

Goods and services tax (GST)

ETM Recognised based on the actual liabilities raised during the year and includes an estimate of amounts outstanding that relate to transactions occurring in the reporting period.

Excise duty ETM Recognised based on the actual and estimated duty payable. Excise duty becomes payable when certain goods are distributed for home consumption during the reporting period.

Customs duty ETM Recognised when imported goods are distributed for home consumption.

Luxury car tax ETM Recognised at the time the sale (or private import) of a luxury vehicle occurs within the reporting period and includes an estimate of amounts outstanding that relate to transactions occurring in the reporting period.

Wine equalisation tax

ETM Recognised when an assessable dealing occurs within the reporting period giving rise to a tax liability and includes an estimate of amounts outstanding that relate to transactions occurring in the reporting period.

Fringe benefits tax (FBT) ETM Recognised on fringe benefits provided by employers to employees during the reporting period and includes an

estimate of outstanding instalments and balancing payments for the annual FBT return.

If all taxation revenue had been measured according to the ETM, including those revenue types currently considered unreliable, the estimated impact on the 2015-16 financial results would be as follows:

Notes to the financial statements

61

Operating statement and balance sheet for 2015-16 — Adoption of ETM 2016 2016 2016

Full ETM Difference $m $m $m

Income Taxation revenue Income tax Individuals and other withholding taxes 189,995 191,852 1,857

Fringe benefits tax 4,453 4,453 -

Superannuation funds 6,830 5,718 (1,112)

Company tax 63,534 65,929 2,395

Resource rent taxes 876 876 -

Total income tax 265,688 268,828 3,140

Total taxation revenue 368,942 372,082 3,140

Assets 594,202 665,312 71,110

Liabilities 1,008,228 1,068,947 60,719

Net worth (414,026) (403,635) 10,391

Penalties and general interest charges (GIC) arising under taxation legislation are recognised as revenue at the time the penalty and GIC are imposed on the taxpayer and included within the relevant revenue categories. Generally, subsequent remissions and write-offs of such penalties and interest are treated as an expense or other economic flow of the period. Penalties and interest that are imposed by law and immediately remitted by the Commissioner of Taxation are not recognised as revenue or expense.

Taxpayers are entitled to dispute amounts assessed by the Government. Where the Government considers that the probable outcome will be a reduction in the amount of tax owed by a taxpayer, an allowance for credit amendment (if the disputed debt is unpaid) or a provision for refund (if the disputed debt has been paid) will be created and there will be a corresponding reduction in revenue.

Concessions and other forms of tax expenditures constitute revenue foregone and are not reported in Note 3A above or as an expense (unless available to beneficiaries regardless of whether they are required to pay tax in which case an expense is recorded). The Australian Government Treasury issues an annual Tax Expenditures Statement (unaudited), which provides a list of tax expenditures provided by the Australian Government to individuals and businesses.

Notes to the financial statements

62

Note 3B: Sales of goods and services

2016 2015 2016 2015

$m $m $m $m

Sales of goods 1,618 1,547 2,025 1,951

Rendering of services 4,101 3,684 13,153 12,147

Operating lease rental 77 44 138 103

Other fees from regulatory services(a) 1,823 1,881 1,823 1,881

Total sales of goods and services revenue 7,619 7,156 17,139 16,082

Cost of goods sold 754 731 1,177 1,070

General Government Australian Government

(a) Visa application charges have been reclassified from non-taxation revenue to taxation revenue to reflect a sustained change in the nature of the receipts. This includes an adjustment to 2014-15 of $1,819 million.

Sales of goods and services

Revenue from the sale of goods is recognised when:

• the risks and rewards of ownership have been transferred to the buyer;

• the seller retains neither managerial involvement nor effective control over the goods;

• the revenue and transaction costs incurred can be reliably measured; and

• it is probable that the economic benefits associated with the transaction will flow to the entity.

Revenue from the rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:

• the amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and

• it is probable that the economic benefits associated with the transaction will flow to the entity.

The total of future minimum sublease payments expected is $800 million for the General Government and $1,012 million for the Australian Government.

The Government charges fees for both regulatory and other services. These include a number of mandatory fees, the most significant of which are visa application charges (VAC), passport fees, and passenger movement changes. Fees from regulatory services are designed to cover all or part of the cost of providing a regulatory function. If the revenue collected is clearly out of proportion to the costs of providing the regulatory service, then the fee is classified as taxation revenue. Fees from regulatory services are recognised when collected or when due and payable under the relevant legislation.

Notes to the financial statements

63

A review of the classification of VAC determined that the revenue for these charges had increased over a number of years without a commensurate increase in costs. As a result, VAC have been reclassified from non-taxation to taxation revenue to reflect the sustained change in the nature of the revenue in accordance with principles contained in the ABS GFS Manual. The 2014-15 comparatives have been restated to reflect this revenue classification change.

Note 3C: Interest and dividend income

2016 2015 2016 2015

$m $m $m $m

Interest from other governments State and territory debt 49 21 49 21

Housing agreements 112 116 112 116

General purpose advances - - 143 160

Total interest from other governments 161 137 304 297

Interest from other sources Advances 47 47 47 47

Deposits 96 104 102 111

Bills receivable - - 27 27

Bank deposits 166 178 232 240

Indexation of HELP receivable and other student loans 457 567 457 567

Securities 1,136 1,208 2,607 2,817

Other 868 904 503 393

Total interest from other sources 2,770 3,008 3,975 4,202

Total interest 2,931 3,145 4,279 4,499

Dividends Dividends from other public sector entities 3,442 2,324 - -

Other dividends 2,798 3,854 2,863 3,927

Total dividends 6,240 6,178 2,863 3,927

Total interest and dividend income 9,171 9,323 7,142 8,426

General Government Australian Government

Interest and dividend income

Interest revenue is recognised using the effective interest method. Dividend revenue is recognised when the right to receive a dividend has been established.

Note 3D: Other sources of non-taxation revenue

2016 2015 2016 2015

$m $m $m $m

Industry contributions 129 90 129 90

Royalties 1,005 1,402 1,005 1,402

Seigniorage 145 111 145 111

Child support payments 1,517 1,499 1,517 1,499

Loan fees(a) 676 559 676 559

Other 5,854 3,904 5,827 3,864

Total other sources of non-taxation revenue 9,326 7,565 9,299 7,525

General Government Australian Government

(a) HELP loan fees of $559 million have been reclassified in 2014-15 from net write-downs of actuarial revaluations.

Notes to the financial statements

64

Note 4: Expenses from transactions

Expenses from transactions arise from interactions between the Australian Government and other entities, including households, private corporations, the not-for-profit sector and other governments. They exclude losses resulting from changes in price levels and other changes in the volume of assets. These are disclosed separately in Note 5 as ‘Other Economic Flows’. The total Australian Government expenses and relative composition of expenses are as follows:

Amount 2015-16 Composition

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2014-15 2015-16

$m

Gross operating expenses 30%

Interest expenses 6%

Current and capital transfers 64%

• Gross operating expenses cover the costs incurred by the Government in the provision of services, including benefit payments to third parties to provide services to households (such as Medicare). Included in gross operating expenses are:

- employee and superannuation expenses (refer Note 4A),

- depreciation and amortisation (refer Note 4B), and

- supply of goods and services (refer Note 4C).

• Interest expenses comprise the nominal growth in the Government’s unfunded superannuation liabilities (refer Note 4A), interest incurred on financial liabilities and the initial discount recognised on the provision of concessional loans (refer Note 4D).

Notes to the financial statements

65

• Current and capital transfers are unrequited transfers in the form of:

- personal benefits paid directly to individuals or households,

- subsidies to public and private entities to allow them to provide goods or services at a reduced cost, or

- financial assistance in the form of current or capital grants to third parties to achieve particular government outcomes (refer Note 4E).

Note 4A: Employee and superannuation expenses(a)

2016 2015 2016 2015

$m $m $m $m

Wages and salaries expenses 18,675 18,357 22,730 22,282

Other operating expenses Leave and other entitlements 3,084 2,530 3,836 3,246

Separations and redundancies 278 372 429 619

Workers compensation premiums and claims 641 754 687 804

Other 2,329 2,086 2,428 2,169

Total other operating expenses 6,332 5,742 7,380 6,838

Superannuation expenses Superannuation 7,854 6,927 8,396 7,324

Superannuation interest 9,106 8,999 9,106 8,999

Total superannuation expenses 16,960 15,926 17,502 16,323

Total employee and superannuation expense 41,967 40,025 47,612 45,443

General Government Australian Government

(a) Employee benefit accounting policies are disclosed in Note 8F.

Ministerial remuneration

The Australian Government has elected to disclose ministerial remuneration of Cabinet Ministers. This disclosure is not currently required under the accounting standards. Ministerial remuneration is limited to Cabinet Ministers because they are considered the key management personnel of the Australian Government. Cabinet Ministers are responsible for planning, directing and controlling the activities of the Australian Government, directly or indirectly. The disclosure includes all Cabinet Ministers who have served during the financial year. For Cabinet Ministers who serve only part of the financial year, their ministerial remuneration is pro-rated. Employee expenses including salary and allowances received or receivable by 29 Cabinet Ministers totalled $9.5 million during 2015-16 (2014-15: 20 Cabinet Ministers; $8.7 million).

Ministerial remuneration comprises total salary (including the additional ministerial component), superannuation contributions, and motor vehicle costs including related fringe benefits tax. Additional ministerial benefits that are not considered to be for personal benefit, such as electorate allowance, staff, transport, printing and communication, as well as costs incurred by portfolio departments on behalf of

Notes to the financial statements

66

ministers, are excluded from the disclosure. Costs associated with The Lodge and Kirribilli House are not included, as these are national assets and incur costs regardless of who uses them. The Life Gold Pass entitlement and accumulation of the entitlement available for former prime ministers are also excluded. The overall value of these entitlements is included in employee provisions.

The Remuneration Tribunal provides information on the remuneration of Senators and Members of Parliament, including ministers. This information is available on the Remuneration Tribunal website.

Note 4B: Depreciation and amortisation expenses

2016 2015 2016 2015

$m $m $m $m

Depreciation Specialist military equipment(a) 3,968 2,872 3,968 2,872

Buildings 1,457 1,462 1,583 1,574

Other infrastructure, plant and equipment(b) 1,619 1,450 2,647 2,230

Heritage and cultural assets 104 73 104 73

Total depreciation 7,148 5,857 8,302 6,749

Total amortisation 1,039 1,005 1,556 1,503

Add back Amortisation of non-produced assets (55) (58) (85) (121)

Total depreciation and amortisation expense 8,132 6,804 9,773 8,131

General Government Australian Government

(a) SME is recognised at fair value from 30 June 2015. The 2015-16 depreciation is based on the fair value of SME while the 2014-15 depreciation is based on historical cost. (b) Includes an adjustment to 2014-15 of $32 million in relation to the recognition of NBN net assets at fair value in accordance with AASB 116 Property, Plant and Equipment.

Depreciation

Land, being an asset with an unlimited useful life, is not depreciated. The majority of buildings, plant, equipment and infrastructure are depreciated on a straight-line basis over their useful life or over the lesser of the lease term and useful life for selected leasehold improvements.

Depreciation and amortisation rates applying to each class of depreciable assets are based on the following useful lives:

2015-16 2014-15

Buildings(a) 1-200 years 1-200 years

Specialist military equipment 1-54 years 1-54 years

Other plant, equipment and infrastructure 1-112 years 1-112 years

Heritage and cultural assets 1-5,000 years 1-5,000 years

(a) This depreciation range includes certain leasehold improvements, which have depreciation rates of up to 50 per cent.

Notes to the financial statements

67

Amortisation

Software is amortised on a straight-line basis over its anticipated useful life. Other intangible assets are amortised from the date they are available for use, unless classified as an indefinite life intangible (for example, water entitlements). Amortisation rates applying to each class of intangible asset are based on the following useful lives:

2015-16 2014-15

Computer software 1-24 years 1-24 years

Other intangibles(a)(b) 1-100 years 1-100 years

(a) Excludes goodwill and indefinite life intangibles. (b) The useful life of the Hansard digitised data is currently 100 years.

Note 4C: Supply of goods and services

2016 2015 2016 2015

$m $m $m $m

Supply of goods and services(a)(b) 27,415 25,526 31,679 29,102

Operating lease rental expenses 2,551 2,555 2,808 2,847

Health care payments 4,768 5,080 4,768 5,080

Benefits to households in goods and services(b) 47,428 43,658 47,428 43,658

Other 2,233 1,814 2,444 1,966

Total payment for supply of goods and services 84,395 78,633 89,127 82,653

General Government Australian Government

(a) Includes a reclassification of $111 million from suppliers to subsidies in relation to employment programs. (b) Payments of direct or indirect personal benefits have been reviewed against the principles contained in the ABS GFS Manual, which has resulted in reclassifications in 2014-15 of $176 million.

Operating leases

Operating lease payments are expensed on a straight-line basis, which is representative of the pattern of benefits derived from the leased assets.

Operating lease commitments

Operating lease commitments include the following types of leasing arrangements:

• computer and office equipment leases;

• office accommodation leases;

• agreements for the provision of motor vehicles; and

• transportation and support facilities for Antarctic operations.

Notes to the financial statements

68

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

2016 2015 2016 2015

$m $m $m $m

Leasing commitments Within 1 year 2,728 2,668 3,026 2,952

Between 1 to 5 years 8,407 7,590 9,087 8,294

More than 5 years 6,793 7,062 7,501 7,765

Total lease commitments 17,928 17,320 19,614 19,011

General Government Australian Government

Benefits to households in goods and services (indirect personal benefits)

These benefits are provided to households as social transfers and delivered by a third party (for example, medical and pharmaceutical benefits). The benefits are reported separately to personal benefits which comprise current transfers provided directly to individuals or households, rather than via a third party. Direct and indirect personal benefit payments are determined in accordance with provisions under social security law and other legislation.

Note 4D: Interest expense

2016 2015 2016 2015

$m $m $m $m

Interest on debt Government securities 15,312 14,473 14,828 14,236

Loans 9 10 136 134

Taxation overpayments 174 223 174 223

Exchange settlement funds - - 458 506

Deposits 4 4 30 31

Other 24 34 99 107

Total interest on debt 15,523 14,744 15,725 15,237

Discount on concessional instruments 675 860 675 860

Unwinding of discount and other 377 314 379 316

Finance charges for finance leases 98 106 418 403

Other financing costs 1,150 1,280 1,472 1,579

Total interest expense 16,673 16,024 17,197 16,816

General Government Australian Government

Interest expense

Interest on outstanding borrowings and other finance costs directly related to borrowings are expensed as incurred. Interest expense includes interest on debt, discounts on loans and concessional instruments, unwinding of discount of provisions and amortisation of finance charges for finance leases.

Notes to the financial statements

69

Note 4E: Grants expense

2016 2015 2016 2015

$m $m $m $m

Current grants expense State and Territory governments(a) 99,363 96,418 99,363 96,418

Local governments 6 - 6 -

Private sector 6,262 5,826 6,262 5,826

Overseas 3,659 4,622 3,659 4,622

Non-profit organisations 4,393 5,834 4,393 5,834

Multi-jurisdictional sector 10,319 9,985 10,319 9,985

Other 2,133 1,950 2,062 1,882

Total current grants expense 126,135 124,635 126,064 124,567

Capital grants expense Mutually agreed write-downs(b) 1,193 1,473 1,193 1,473

Other capital grants State and Territory governments(a) 5,869 6,594 5,869 6,594

Local governments 958 410 958 410

Non-profit organisations 380 - 380 -

Private sector 375 - 375 -

Multi-jurisdictional sector - 101 - 101

Other 7 293 7 293

Total other capital grants expense 7,589 7,398 7,589 7,398

Total capital grants expense 8,782 8,871 8,782 8,871

Total grants expense 134,917 133,506 134,846 133,438

General Government Australian Government

(a) Current and capital grants to and through ‘State and Territory Governments’ are limited to grants under the Federal Financial Relations framework, as disclosed in Budget Paper No 3 and the Final Budget Outcome. Commonwealth entities may also provide grants to individual state and territory government entities, including under the Commonwealth Grants Rules and Guidelines. These are disclosed as grants to non-profit organisations or other grants as appropriate. (b) Includes an adjustment to 2014-15 of $384 million relating to an overstatement of revenue and expenses

in relation to taxation settlements as detailed in Note 1.

Current and capital transfers (grants)

Where no economic benefits are receivable in return for transfers, amounts are recognised as current transfers. For other transfers, the distinction between current and capital transfers is based on the nature of the activities or assets for which the transfers are made. If the activities or assets relate to the acquisition of assets, other than inventories that will be used in production for one year or more, the transfers are

treated as capital transfers. Otherwise they are treated as current transfers.

Where a transaction or event gives rise to legal, social, political or economic consequences such that the Australian Government has little discretion to avoid the sacrifice of future economic benefits, a liability and expense is recognised. In other circumstances, grants are recognised to the extent that the services required to be performed by the grantee have been performed or the grant eligibility criteria have been satisfied. Education grants to and through the states, territories and other education providers, such as universities, are recognised on a due and payable basis.

Notes to the financial statements

70

Capital transfers also include mutually agreed write-downs. These transactions occur when both parties agree to the write-off of an amount owed to the Australian Government, rather than the Australian Government unilaterally deciding to write-down or write-off a debt. Mutually agreed write-downs include, for example, the remission of a penalty raised for overdue taxes receivable. Mutually agreed write-downs are recorded as an expense in the calculation of fiscal balance.

The 2015-16 Final Budget Outcome provides a disaggregation of current and capital grants to state and territory governments, and local governments.

Note 4F: Expenses by function

2016 2015 2016 2015

$m $m $m $m

General public services 24,207 24,149 25,144 25,019

Defence 27,034 23,693 27,175 23,771

Public order and safety 4,823 4,443 4,819 4,527

Education 32,122 31,100 32,122 31,100

Health 69,301 65,696 69,297 65,675

Social security and welfare 152,122 147,785 152,049 147,700

Housing and community amenities 4,741 4,835 4,741 4,836

Recreation and culture 3,462 3,533 3,462 3,529

Fuel and energy 6,423 6,799 6,423 6,799

Agriculture, forestry and fishing 2,261 2,412 2,261 2,409

Mining, manufacturing and construction 3,103 3,550 3,201 3,648

Transport and communication 7,083 6,432 18,572 16,767

Other economic affairs 9,198 10,045 8,937 10,016

Other purposes 83,831 82,873 83,827 82,875

Total expenses 429,711 417,345 442,030 428,671

General Government Australian Government

The functional classification of expenses shows the total accrual outlays according to the socioeconomic objectives that the Australian Government aims to achieve. The following table provides a description of each function.

Function Description

General public services Includes legislative and executive affairs, financial and fiscal affairs, foreign affairs, foreign economic aid, general research, general economic

and social planning, statistical services, and government superannuation benefits.

Defence Includes military and civil defence affairs, foreign military aid and defence research.

Public order and safety Includes administration of the federal legal system and the provision for legal services, including legal aids, to the community. Public order and

safety expenses also include law enforcement and intelligence activities, and the protection of Australian Government property.

Education Includes primary and secondary education, university and other higher education, technical and further education, preschool and special education, and transportation of students.

Notes to the financial statements

71

Function Description

Health Includes general hospitals, repatriation hospitals, mental health institutions, nursing homes, special hospitals, hospital benefits, medical benefits, medical clinics and practitioners, dental clinics and practitioners, maternal and infant health, ambulance services, school and other public health services, pharmaceuticals, medical aids and appliances, and health research.

Social security and welfare Includes sickness benefits, benefits to ex servicemen and their dependants, invalid and other permanent disablement benefits, old age

benefits, widows, deserted wives, divorcees and orphans benefits, unemployment benefits, family and child benefits, sole parent benefits, family and child welfare, and aged and handicapped welfare.

Housing and community amenities

Includes housing and community development, water supply, household garbage and other sanitation, sewerage, urban stormwater drainage, protection of the environment, and street lighting.

Recreation and culture Includes public halls and civic centres, swimming pools and beaches, national parks and wildlife, libraries, creative and performing arts,

museums, art galleries, broadcasting, and film production.

Fuel and energy Includes coal, petroleum, gas, nuclear affairs, and electricity.

Agriculture, forestry and fishing

Includes agricultural land management, agricultural water resources management, agricultural support schemes, agricultural research and extension services, forestry and fishing.

Mining, manufacturing and construction

Includes activities relating to prospecting, mining and mineral resources development, manufacturing activities and research into manufacturing methods, materials and industrial management, and activities associated with the building and construction industry.

Transport and communication Includes road construction, road maintenance, parking, water transport, rail transport, air transport, pipelines, multi mode urban transit systems,

and communications.

Other economic affairs Includes storage, saleyards, markets, tourism and area promotion, and labour and employment affairs.

Other purposes Includes public debt transactions, general purpose inter government transactions, and natural disaster relief.

Note 5: Other economic flows

Included within ‘other economic flows’ are the changes in the volume or value of assets and liabilities that do not result from transactions. This includes impairment write-downs (unless mutually agreed with the counter-party), fair value movements, changes in assumptions underpinning actuarial assessments, and foreign exchange gains or losses. For government reporting, these flows are distinguished from transactions as they do not involve an interaction between entities and are often not related to economic activities (for example, production, income generation, consumption, wealth accumulation).

Notes to the financial statements

72

Noting that other economic flows comprise both gains and losses, the predominant sources of other economic flows are as follows:

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

Net

write-downs

Net gain/(loss) on sale of assets

Net foreign exchange Net swap interest Other gains/(losses) Non-financial revaluations

Superannuation revaluation Other equity revaluations

$million

2014-15

2015-16

Of the above, the following flows are included in the measurement of the accounting operating result. The remaining movements are adjusted directly to equity.

• Net write-down of assets (refer Note 5A) comprised the revaluation and impairment of financial and non-financial assets.

• Net gains/(losses) from the sale of assets (refer Note 5B) the difference between the proceeds and the carrying amount of assets sold after selling costs.

• Net foreign exchange gains/(losses) (refer Note 5C) comprised unrealised gains/losses from the translation of assets and liabilities held overseas.

• Net swap interest gains/(losses) (refer Note 5D) comprised interest accrued or incurred on swaps and other derivatives (a form of financing transaction).

• Other gains/(losses) (refer Note 5E) are other gains/losses not classified elsewhere but which are included in the calculation of the operating result for accounting purposes.

Notes to the financial statements

73

Note 5A: Net write-down of assets (including bad and doubtful debts)

2016 2015 2016 2015

$m $m $m $m

FINANCIAL ASSETS Receivables - bad and doubtful debts Goods and services 177 101 177 114

Taxes due(a) 3,302 3,050 3,302 3,050

Other 588 681 588 681

Total receivables - bad and doubtful debts 4,067 3,832 4,067 3,845

Net write-down/(reversal) and impairment arising from the revaluation of investments and other financial assets(b) 4,097 628 4,097 623

Total financial write-down and impairment 8,164 4,460 8,164 4,468

NON-FINANCIAL ASSETS Inventories 562 419 572 427

Land - 2 (8) (2)

Buildings 52 67 23 53

Specialist military equipment(c) 214 324 214 324

Other infrastructure, plant and equipment 54 148 85 222

Heritage and cultural assets 3 31 3 31

Intangibles (302) (90) (247) 53

Net write-down, impairment and fair value losses arising from the revaluation of non-financial assets 583 901 642 1,108

Total net write-down and impairment of assets and fair value losses 8,747 5,361 8,806 5,576

General Government Australian Government

(a) Includes an adjustment to 2014-15 of $27 million relating to an overstatement of taxation revenue and expenses. (b) HELP loan fees of $559 million have been reclassified in 2014-15 to other sources of non-taxation revenue. (c) As detailed in Note 1, the Australian Government restated SME to fair value for 2014-15. As a result of this,

impairment losses of $583 million and impairment reversals of $103 million were treated as net revaluation decrements.

Impairment of taxes due

Impairment losses for large tax receivables (greater than $10 million) are estimated on an individual assessment basis, with a default percentage impairment rate (based on historical collectability rates) applied to debts where the taxpayer is insolvent or has entered into a payment arrangement. The remaining tax receivables (less than or equal to $10 million) impairment loss is derived using an automated model which allows large debt populations to be examined and provides for statistical credibility, in conjunction with interpretive judgement.

Impairment of non-financial assets

Non-financial assets were assessed for impairment at 30 June 2016. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount. The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if

Notes to the financial statements

74

the Australian Government was deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Note 5B: Net gains/(losses) from the sale of assets

2016 2015 2016 2015

$m $m $m $m

FINANCIAL ASSETS Net gains/(losses) from sale of investments 6,052 6,964 5,896 6,881

Net gains/(losses) - financial assets 6,052 6,964 5,896 6,881

COMMONWEALTH ENTITIES Proceeds from sale of entities - 5,686 - 5,686

less written down value of entities - (4,034) - (1,256)

Net gains/(losses) - Entities(a) - 1,652 - 4,430

NON-FINANCIAL ASSETS Proceeds from sale of land and buildings 220 211 237 286

less selling costs of sale of land and buildings (4) (4) (4) (5)

less written down value of land and buildings sold (204) (258) (219) (282)

Net gains/(losses) - land and buildings 12 (51) 14 (1)

Proceeds from sale of investment properties 4 15 39 15

less selling costs of investment properties - (1) - (1)

less written down value of investment properties (4) (15) (30) (15)

Net gains/(losses) - investment properties - (1) 9 (1)

Proceeds from sale of infrastructure, plant and equipment 68 47 81 50

less selling costs of infrastructure, plant and equipment (8) (11) (8) (11)

less written down value of infrastructure, plant and equipment sold (65) (53) (74) (59)

Net gains/(losses) - I,P&E (5) (17) (1) (20)

Proceeds from sale of intangibles 153 2,144 153 2,144

less selling costs of intangibles - - - -

less written down value of intangibles (2) (16) (2) (16)

Net gains/(losses) - intangibles 151 2,128 151 2,128

less written down value of heritage and cultural assets - (1) - (1)

Net gains/(losses) - heritage and cultural assets - (1) - (1)

Proceeds from sale of biological assets 41 15 41 15

less selling costs of biological assets - - - -

less written down value of biological assets (41) (15) (41) (15)

Net gains/(losses) - biological assets - - - -

Total net gains/(losses) - non-financial assets 158 2,058 173 2,105

Net gains/(losses) from sale of assets 6,210 10,674 6,069 13,416

Add back selling costs included in expenses 12 16 12 17

Net gains/(losses) from sale of assets in other economic flows 6,222 10,690 6,081 13,433

General Government Australian Government

(a) Comparatives include gain on sale of Medibank Private Limited, excluding selling costs. In 2014-15, these costs comprised $1.5 million in employee costs and $77.3 million in supplier costs which are reported within the respective categories — refer Note 2.

Notes to the financial statements

75

Note 5C: Net foreign exchange gains/(losses)

2016 2015 2016 2015

$m $m $m $m

Net foreign exchange gains/(losses) Non-speculative 429 (2,335) 2,247 3,808

Net foreign exchange gains/(losses) 429 (2,335) 2,247 3,808

General Government Australian Government

Foreign currency translation

Transactions are translated to Australian dollars at the rate of exchange applicable at the date of the transaction. Balances and investments are translated at the exchange rates applicable at balance date.

Note 5D: Net swap interest gains/(losses)

2016 2015 2016 2015

$m $m $m $m

Net swap interest Net swap interest revenue 2,203 1,025 2,301 1,114

Net swap interest expense (2,711) (2,002) (2,777) (2,049)

Net swap interest received (508) (977) (476) (935)

General Government Australian Government

Swap interest

Consistent with the ABS GFS Manual, interest on swaps and other derivatives is classified as a financing transaction and recorded in ‘other economic flows’.

Note 5E: Other gains/(losses)

2016 2015 2016 2015

$m $m $m $m

Fair value gains - financial instruments (17,813) 5,694 (17,795) 1,698

Fair value gains - biological assets 22 22 22 22

Fair value gains - investment properties 16 2 48 9

Net actuarial gains/(losses) (3,244) (1,141) (3,244) (1,141)

Other 108 129 108 129

Total other gains/(losses) (20,911) 4,706 (20,861) 717

General Government Australian Government

Other gains/(losses)

Other gains/(losses) primarily comprise:

• fair value movements in financial assets and liabilities categorised as ‘held at fair value through profit and loss’ (refer Note 11B);

• the actuarial revaluation of provisions, other than superannuation; and

• gains resulting from the derecognition of financial assets previously categorised as ‘available for sale’ (refer Note 11B) with the gain equal to the accumulated fair value movements previously taken direct to reserves.

76

Notes to the financial statements

Note 6: Fair value measurement

(a) Fair value measurement

The following tables provide an analysis of assets and liabilities that are measured at fair value.

Australian Government

Level 1(a) Level 2(b) Level 3(c) Total Level 1(a) Level 2(b) Level 3(c) Total

$m $m $m $m $m $m $m $m

Financial assets:

Receivables - 1,766 40,276 42,042 - 1,931 33,606 35,537

Investments, loans and placements(d) 59,09848,10564,319171,52262,76942,32452,146157,239

Equity investments38,298304,29142,61941,87174,05945,937

Total financial assets97,39649,901108,886256,183104,64044,26289,811238,713

Non-financial assets:

Land -10,3231,41511,738-9,8971,05610,953

Buildings-3,85823,92127,779-4,53923,33827,877

Specialist military equipment--56,21756,217--51,88951,889

Plant, equipment and infrastructure-1,59234,79336,385-2,02829,27931,307

Heritage and cultural assets-7,5893,87311,462-7,7173,61511,332

Other5678-6835555-560

Total non-financial assets524,040120,219144,264524,736109,177133,918

Total fair value measurements of assets in the statement of financial position 97,401 73,941 229,105 400,447 104,645 68,998 198,988 372,631

2016 2015

77

Notes to the financial statements

(a) Fair value measurement (continued) Australian Government

Level 1(a)Level 2(b)Level 3(c)TotalLevel 1(a)Level 2(b)Level 3(c)Total

$m$m$m$m$m$m$m$m

2016 2015

Financial liabilities:

Government securities 480,736 - - 480,736 363,907 40,114 - 404,021

Other 200 5,086 1,395 6,681 - 3,720 1,609 5,329

Total financial liabilities 480,936 5,086 1,395 487,417 363,907 43,834 1,609 409,350

Total fair value measurements of liabilities in the statement of financial position 480,936 5,086 1,395 487,417 363,907 43,834 1,609 409,350

(a) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at measurement date. (b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability. (c) Level 3: Unobservable inputs for the asset or liability. (d) Investments, loans and placements includes gold holdings of $4,165 million at 30 June 2016 (30 June 2015: $3,866 million). Gold holdings were previously

categorised with gold loans under ‘loans and receivables’ in Note 11B. ‘Loans and receivables’ are not included in the above fair value disclosure.

78

Notes to the financial statements

General Government

Level 1(a) Level 2(b) Level 3(c) Total Level 1(a) Level 2(b) Level 3(c) Total

$m $m $m $m $m $m $m $m

Financial assets:

Receivables - 1,122 38,941 40,063 - 1,205 32,434 33,639

Investments, loans and placements 1,759 72,105 64,177 138,041 745 68,809 51,906 121,460

Equity investments 38,299 29 48,611 86,939 41,872 7 44,261 86,140

Total financial assets 40,058 73,256 151,729 265,043 42,617 70,021 128,601 241,239

Non-financial assets:

Land - 9,463 1,157 10,620 - 9,097 845 9,942

Buildings - 3,179 22,368 25,547 - 3,653 21,986 25,639

Specialist military equipment - - 56,217 56,217 - - 51,889 51,889

Plant, equipment and infrastructure - 888 13,393 14,281 - 1,263 12,360 13,623

Heritage and cultural assets - 7,589 3,873 11,462 - 7,717 3,615 11,332

Other 5 465 - 470 5 355 - 360

Total non-financial assets 5 21,584 97,008 118,597 5 22,085 90,695 112,785

Total fair value measurements of assets in the statement of financial position 40,063 94,840 248,737 383,640 42,622 92,106 219,296 354,024

Financial liabilities:

Government securities 480,736 - - 480,736 363,908 40,113 - 404,021

Other - 3,290 1,251 4,541 - 6,897 1,483 8,380

Total financial liabilities 480,736 3,290 1,251 485,277 363,908 47,010 1,483 412,401

Total fair value measurements of liabilities in the statement of financial position 480,736 3,290 1,251 485,277 363,908 47,010 1,483 412,401

2016 2015

(a) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at measurement date. (b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability. (c) Level 3: Unobservable inputs for the asset or liability.

Notes to the financial statements

79

(b) Valuation technique and inputs for Level 2 and Level 3 fair value measurements

The following table summarises the valuation techniques used by entities in determining the values of Level 2 and Level 3 categorised assets and liabilities.

Valuation Technique Description

Cost approach The amount required currently to replace the service capacity of an asset.

Depreciated replacement cost (DRC)

The amount a market participant would be prepared to pay to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence. Obsolescence is determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

Income approach / Discounted cash flows Converts future amounts (cash flow or income and expenses) to a single current (i.e. discounted) amount. The fair value measurement is determined on

the basis of the value indicated by current market expectations about those future amounts.

Market approach Market approach seeks to estimate the current value of an asset with reference to recent market evidence including transactions of comparable assets within local second-hand markets.

Net assets of entities The value of the corporation’s assets less the value of its liabilities.

The following table summarises the inputs used by entities:

Input Used Description

Cost of new assets The amount a market participant would pay to acquire or construct a new substitute asset of comparable utility.

Per square metre cost The square metre cost of new or replacement assets.

Consumed economic benefit Physical deterioration, functional or technical obsolescence and conditions of the economic environment specific to the asset.

Capitalisation rate Rate of return on a real estate investment property based on the income that the property is expected to generate.

Market transactions Market transactions of comparable assets, adjusted by a small amount to reflect differences in price sensitive characteristics (eg. size, condition etc).

Adjusted market transactions

Market transactions of comparable assets, involving significant professional judgement to adjust for other factors (eg. economic conditions) and their impact on price sensitive characteristics.

Principal due The amount of the principal remaining to be repaid.

Discount rate Rate at which cash flows are discounted back to the value at measurement date.

Future cash flows The future predicted cash flows of the asset.

Foreign exchange rates Rates used to convert foreign currencies into Australian dollars.

Weighted average cost of capital (WACC) The average rate of return a company is expected to pay to all its security holders to finance its assets.

Net assets of entities The value of the corporation’s assets less the value of its liabilities.

Notes to the financial statements

80

The valuation techniques and inputs have been applied to the various classes of assets and liabilities as follows:

Receivables

Receivables categorised as Level 2 and Level 3 have been valued using a discounted cash flow approach. The primary inputs include principal due and the discount rate.

Level 3 receivables are differentiated from Level 2 in that the majority (by value) are calculated each year by actuarial assessment. The two main measures impacting on the calculation are the face value of the debt not expected to be repaid and the fair value of the remaining receivable, calculated as the present value of projected future cash flows. The remaining balance of the Level 3 receivables have been valued consistent with previous years, using professional valuation advice.

These balances are sensitive to changes in the underlying assumptions, including the discount rate. For example, the Government’s largest receivable, Higher Education Loan Program loans, are sensitive to changes in the future Consumer Price Index (CPI) growth, the discount rate (yield curve) and debt not expected to be repaid.

Investments, loans and placements

Investments, loans and placements categorised as Level 2 have been valued using a market approach based on observable market transactions. Those categorised as Level 3 use the following techniques:

Category Valuation technique(s) Inputs used

IMF Quota 3 Cost approach Foreign exchange rates

Collective investment vehicles 3 Discounted cash flow Discount rate

3 Market approach Adjusted market

transactions

Other interest bearing securities 3 Discounted cash flow Discount rate

Other 3 Net assets of entities Net assets of entities

Investments, loans and placements categorised as Level 3 that are valued using the net assets technique have been based on either the latest available audited accounts of those entities or internal management accounts because this is the most relevant available information at the end of the period. This information is an observable input. Due to the diverse nature of the collective investment vehicles, it is not possible to provide a range of inputs and associated sensitivity analysis for those investments of

the Future Fund Management Agency.

For the IMF quota investment, the value of shares are held in foreign currency and converted to an Australian dollar equivalent for inclusion in the financial statements. This information is an observable input.

Notes to the financial statements

81

Equity investments

Equity investments categorised as Level 2 have been valued using a market approach based on observable market transactions. Those categorised as Level 3 use the following techniques:

Category Valuation technique(s) Inputs used

Shares 3 Values of shares held Foreign exchange rates

Net assets of entities Net assets of entities

Investment in public corporations 3 Net assets of entities Net assets of entities Discounted cash flow WACC

Equity accounted investments 3 Net assets of entities Net assets of entities

GGS investments in public corporations that have been valued using a discounted net cash flow technique are assumed to be a cash generating unit. Cash flow projections for a forecast period and terminal year are based on management corporate plans and have been discounted using a WACC. A decrease of 0.3 per cent in the discount rate used in the WACC calculations would result in an approximate $0.2 billion increase in the value of the assets. An increase of 0.3 per cent in the discount rate would result in a decrease of $0.4 billion in the value of assets.

For international shares held by the Treasury, the value is held in foreign currency and converted to an Australian dollar equivalent for inclusion in the financial statements. This information is an observable input.

Financial liabilities

Financial liabilities categorised as Level 2 have been valued using a market approach based on observable market transactions. Those categorised as Level 3 use the following techniques:

Category Valuation technique(s) Inputs used

Other Loans 3 Market approach Adjusted market transactions

Payables 3 Discounted cash flow Discount rate

Bond rate

Financial liabilities categorised as Level 3 have had their fair value determined using market interest rates and valuation techniques that incorporate discounted cash flows or adjusted market transactions. They have been classified Level 3 because they have either complex interest rate formulas that include foreign exchange rates, a variety of discount rates, use the Nikkei index or they have knockout or callable features. The inputs are considered observable.

Notes to the financial statements

82

Non-financial assets

Non-financial assets categorised as Level 2 and 3 have been valued using the following techniques:

Category Valuation technique(s) Inputs used

Land 2 Market approach Market transactions

Income approach Future cash flows

3 Market approach Adjusted market transactions

Income approach Future cash flows

Buildings 2 Market approach Market transactions

2 Income approach Future cash flows

2 Cost approach Replacement cost of new assets

3 Cost approach Replacement cost of new assets

Consumed economic benefit

3 Market approach Adjusted market transactions

3 Income approach Future cash flows

Specialist 3 Market approach Adjusted market transactions

military Cost approach Replacement cost of new assets

equipment Consumed economic benefit

Other 2 Market approach Market transactions

infrastructure 2 Cost approach Replacement cost of new assets

plant and 3 Cost approach Replacement cost of new assets

equipment Consumed economic benefit

Income Approach Future cash flows

Market approach Adjusted market transactions

Heritage and 2 Market approach Market transactions

cultural assets 2 Cost approach Replacement cost of new assets

3 Cost approach Replacement cost of new assets

Consumed economic benefit

3 Market approach Adjusted market transactions

Other 2 Market approach Market transactions

Government entities engage professional valuers to undertake comprehensive valuations of these classes of non-financial assets as specified in their respective accounting policy notes. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date.

Level 3 non-financial assets valued using the market approach utilise market transactions of similar assets adjusted using professional judgement for each individual asset’s characteristics to determine fair value. Non-financial assets that do not transact with enough frequency and transparency to develop objective opinions of value from observable market evidence have been valued utilising the depreciated replacement cost approach, unless this cannot be reliably calculated.

Notes to the financial statements

83

(c) Reconciliation for recurring Level 3 fair value measurements

The following tables provide reconciliations for the movement in balances for assets and liabilities classified as Level 3.

Australian Government

Financial Liabilities

Receivables

Investments, loans and placements

Equity

investments Land Buildings Other IPE

Heritage and cultural assets Other

$m $m $m $m $m $m $m $m

Opening balance at 1 July 2014 27,583 42,132 3,779 1,004 22,916 25,077 2,664 1,919

Purchases / Payments 8,233 14,128 220 5 1,741 5,563 30 108

Sales / Repayments (2,096) (13,497) (192) (10) (38) (153) - (532)

Gains and losses recognised in profit or loss (114) 616 128 3 (1,523) (2,120) (46) 122

Gains and losses recognised in equity - 8,334 34 31 348 1,074 (135) -

Transfers in / (out) of level 3(a) - 433 90 23 (106) (162) 1,102 (8)

Closing balance at 30 June 2015 33,606 52,146 4,059 1,056 23,338 29,279 3,615 1,609

Purchases / Payments 531 25,286 310 208 1,667 7,048 39 1

Sales / Repayments (2,561) (15,117) (98) (2) (60) (49) - (346)

Gains and losses recognised in profit or loss 398 2,054 (6) 5 (1,418) (2,516) (83) 131

Gains and losses recognised in equity 8,302 (39) 1 86 85 474 (252) -

Transfers in / (out) of level 3(a) - (11) 25 62 309 557 554 -

Closing balance at 30 June 2016 40,276 64,319 4,291 1,415 23,921 34,793 3,873 1,395

Financial Assets Non-Financial Assets(b)

(a) Transfers between levels are determined on an individual entity basis and usually occur when there has been a change to the valuation technique or inputs used to determine the fair value measurement. (b) For the reconciliation of SME refer to Note 7D.

No tes to the financial statements

84

General Government

Financial Liabilities

Receivables

Investments, loans and placements

Equity

investments Land Buildings Other IPE

Heritage and cultural assets Other

$m $m $m $m $m $m $m $m

Opening balance at 1 July 2014 26,727 41,65539,17779221,67711,9182,6641,667

Purchases / Payments7,94513,9955,21111,6111,66030107

Sales / Repayments(1,960)(13,465)(1,739)-(10)(48)-(389)

Gains and losses recognised in profit or loss (278) 607 (4,007) (2) (1,461) (1,327) (46) 106

Gains and losses recognised in equity - 8,3605,63331275301(135)-

Transfers in / (out) of level 3(a) - 754 (14) 23 (106) (144) 1,102 (8)

Closing balance at 30 June 2015 32,434 51,906 44,261 845 21,986 12,360 3,615 1,483

Purchases / Payments -25,2057,5862031,5301,49439-

Sales / Repayments(2,165)(14,984)(98)(2)(59)(46)-(342)

Gains and losses recognised in profit or loss 370 2,054 (6) (3) (1,354) (1,466) (83) 110

Gains and losses recognised in equity 8,302 7(3,157)6610403(252)-

Transfers in / (out) of level 3(a) - (11) 25 48 255 648 554 -

Closing balance at 30 June 2016 38,941 64,177 48,611 1,157 22,368 13,393 3,873 1,251

Financial Assets Non-Financial Assets(b)

(a) Transfers between levels are determined on an individual entity basis and usually occur when there has been a change to the valuation technique or inputs used to determine the fair value measurement. (b) For the reconciliation of SME refer to Note 7D.

Notes to the financial statements

85

Note 7: Assets

Assets are probable future economic benefits obtained or controlled by an Australian Government entity as a result of past transactions and activities undertaken, and other events. These include financial assets such as deposits, loans and investments, and non-financial assets such as land, buildings and inventories. The total Australian Government assets and relative composition of assets are as follows:

Amount 2015-16 Composition

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2014-15 2015-16

$m

1%

8%

8%

48%

7%

28%

Cash & deposits

Equity investments

Non-financial assets

Investments, loans & placements

Receivables & accrued revenue

Advances paid

• cash and deposits include cash on hand or at bank and short-term deposits;

• advances paid (refer Note 7A) include loans receivable and are predominantly provided for policy purposes such as student loans;

• other receivables and accrued revenue (refer Note 7A) include statutory amounts due for the collection of tax or the recovery of benefits, and contractual amounts due for the provision of goods and services or other arrangements;

• investments, loans and placements (refer Note 7B) comprise securities and other non-equity investments held for liquidity or policy purposes;

• equity investments (refer Note 7C) cover shares held by the Government Investment Funds and corporations and, at the GGS level, include the investment in public corporations (which are eliminated upon consolidation); and

• non-financial assets comprise the Government’s holdings of land and buildings, plant, equipment and infrastructure, heritage and cultural assets, investment properties and intangibles (refer Note 7D). Non-financial assets also includes inventories for sale, use or distribution (refer Note 7E) and other non-financial assets (refer Note 7F).

Notes to the financial statements

86

Note 7A: Advances paid and receivables

2016 2015 2016 2015

$m $m $m $m

Advances paid Loans to State and Territory governments(a) 3,839 3,685 3,839 3,685

Higher Education Loan Programme 36,808 30,445 36,808 30,445

Student Financial Supplement Scheme 411 531 411 531

Other(a) 6,077 6,232 7,373 7,344

less Provision for doubtful debts (237) (235) (237) (236)

Total advances paid 46,898 40,658 48,194 41,769

Other receivables Goods and services receivable 1,045 895 1,932 1,686

Recoveries of benefit payments 5,346 4,206 5,346 4,206

Taxes receivable 34,204 35,441 34,215 35,434

Other financial assets 40 25 281 324

Other 7,048 6,910 3,962 4,556

less Provision for doubtful debts - Goods and services and other (840) (739) (858) (754)

less Provision for doubtful debts - Personal benefits receivable (1,034) (766) (1,034) (766)

less Provision for doubtful debts - Taxes receivable (11,764) (13,107) (11,764) (13,107)

less Provision for credit amendments(b) (2,946) (4,134) (2,946) (4,134)

Total other receivables 31,099 28,731 29,134 27,445

Accrued revenue Accrued taxation revenue 13,699 12,785 13,699 12,785

Other accrued revenue 245 389 399 548

Total accrued revenue 13,944 13,174 14,098 13,333

Other receivables and accrued revenue 45,043 41,905 43,232 40,778

Total advances paid and receivables 91,941 82,563 91,426 82,547

Advances paid and receivables maturity schedule Not later than one year(b) 41,082 35,547 39,021 34,391

Later than one year 50,859 47,016 52,405 48,156

by maturity 91,941 82,563 91,426 82,547

General Government Australian Government

(a) Includes a reclassification of $540 million loans receivable in 2014-15 in line with consolidated entity financial statements. (b) Includes an adjustment to 2014-15 of $430 million relating to changes in percentages used to calculate taxation provisions for credit amendments and refunds.

Advances (loans)

Advances are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method, less any impairment loss, unless these loans have been designated as ‘held at fair value through profit or loss’. Interest is recognised on loans evenly in proportion to the amount outstanding over the period to repayment. Loans designated as ‘held at fair value through profit or loss’ include the Higher Education Loan Program and certain concessional loans.

Notes to the financial statements

87

Other receivables and accrued revenue

Trade debtors, bills of exchange, promissory notes and other receivables are initially recorded at the fair value of the amounts to be received and are subsequently measured at amortised cost using the effective interest rate method, less any impairment loss. Other accrued revenue is recognised when a service has been provided but has not been invoiced. Accrued revenue is recognised at the nominal amounts due. Taxation related accounting policies are disclosed in Note 3A. Collectability of debts is reviewed at balance date. An allowance is made when collection of the debt is judged to be less, rather than more, likely. The following tables provide a reconciliation of the movement in the provision for doubtful debts, excluding those associated with statutory receivables.

Reconciliation of the allowance for doubtful debts(a) Australian Government Advances Goods and Other Total

and loans Services

$m $m $m $m

Opening balance 1 July 2014 (229) (167) (1,811) (2,207)

less Amounts written off (16) (47) (4) (67)

less Amounts recovered and reversed (1) (38) (4) (43)

plus Amount recognised in net surplus 7 (95) (1) (89)

plus Other movement(b) (31) (2) 1,229 1,196

Closing balance 30 June 2015 (236) (179) (575) (990)

less Amounts written off (17) (53) (13) (83)

less Amounts recovered and reversed - (23) - (23)

plus Amount recognised in net surplus (1) (72) (120) (193)

plus Other movement (17) 25 (26) (18)

Closing balance 30 June 2016 (237) (150) (708) (1,095)

General Government Advances Goods and Other Total

and loans Services

$m $m $m $m

Opening balance 1 July 2014 (228) (148) (1,810) (2,186)

less Amounts written off (16) (47) (4) (67)

less Amounts recovered and reversed (1) (31) (4) (36)

plus Amount recognised in net surplus 7 (93) (1) (87)

plus Other movement(b) (31) (1) 1,228 1,196

Closing balance 30 June 2015 (235) (164) (575) (974)

less Amounts written off (17) (54) (13) (84)

less Amounts recovered and reversed - (23) - (23)

plus Amount recognised in net surplus (1) (71) (120) (192)

plus Other movement (18) 26 (26) (18)

Closing balance 30 June 2016 (237) (132) (708) (1,077)

(a) Excludes statutory receivables such as taxes receivable and personal benefits recoverable. (b) Comparatives include $1,200 million reversal of previous impairment write-down for the Higher Education Superannuation Program following agreement with the NSW Government that NSW will resume making payments to eligible NSW universities to meet its share of superannuation expenses.

Notes to the financial statements

88

Note 7B: Investments, loans and placements

2016 2015 2016 2015

$m $m $m $m

Gold - - 4,566 3,915

Deposits 33,039 38,268 13,499 5,890

Government securities 1 2 143,116 138,649

Residential mortgage backed securities(a) 2,808 4,288 2,808 4,288

International Monetary Fund quota 12,354 5,913 17,258 11,824

Defined benefit superannuation plan assets - - 34 266

Collective investment vehicles 50,017 45,121 50,017 45,121

Other interest bearing securities 39,283 29,661 39,283 29,661

Other(b) 12,492 11,018 16,206 12,742

Total investments, loans and placements 149,994 134,271 286,787 252,356

General Government Australian Government

(a) Investments in residential mortgage-backed securities are to support competition in the residential mortgage market and to meet government policy objectives. Residential mortgage-backed securities held for investment purposes are classified elsewhere. (b) 2014-15 includes a reclassification of the Government’s investment in the Australian National University

(ANU) to investments in associated entities ($2,105 million).

Investments, loans and placements

Gold holdings (including gold on loan to other institutions) are valued at market value at balance date. The Australian Government measures gold at the bid price.

Depending on the type of instrument, deposits are recognised at either nominal or market value. Interest is credited to revenue as it accrues. Deposits have varying terms and rates of interest.

Investments in domestic and foreign government securities, except those contracted for sale under repurchase agreements, are classified by the Reserve Bank of Australia (RBA) as ‘at fair value through profit or loss’. Securities purchased and contracted for sale under repurchase agreements are classified as ‘loans and receivables’ and valued at amortised cost. The difference between the purchase and sale price is accrued over the term of the agreement and recognised as interest revenue.

The IMF quota represents Australia’s membership subscription to the IMF. The investment is denominated in special drawing rights (SDR) and is valued at the Australian dollar equivalent. SDR is an international type of monetary reserve made up of a basket of national currencies created by the IMF.

The Future Fund employs collective investment vehicles (CIVs) as part of its investment strategy. Investments in CIVs are recorded at fair value on the date which consideration is provided to the contractual counterparty under the terms of the relevant subscription agreement.

Other interest bearing securities are primarily held by the Australian Government investment funds (refer Note 11B) and include negotiable certificates of deposit, mortgage and asset backed securities, bank bills and corporate debt securities.

Notes to the financial statements

89

Note 7C: Equity investments

2016 2015 2016 2015

$m $m $m $m

Investments - Shares 39,718 42,976 40,133 43,377

Investment in public corporations(a) 44,735 40,603 - -

Equity accounted investments 2,777 2,815 2,779 2,817

Total equity investments 87,230 86,394 42,912 46,194

General Government Australian Government

(a) Includes an adjustment to 2014-15 of $793 million in relation to recognition of NBN net assets at fair value in accordance with AASB 116 Property, Plant and Equipment.

Equity investments

At the whole of government level, equity investments primarily consist of the Future Fund’s holdings of listed equities and listed managed investment schemes. These investments are designated as ‘financial assets through profit or loss’ on acquisition.

At the GGS level, equity investments also include the Australian Government’s ownership interest in public corporations in the public non-financial corporation (PNFC) and PFC sectors. The investments are eliminated at whole of government level. Where the public corporation is a government business enterprise whose principal function is to engage in commercial activities in the private sector, the investment is measured at fair value, applying a discounted cash flow technique. Investments in other public corporations are measured as the Australian Government’s proportional interest in the net assets of the public corporation as at the end of the reporting period.

Notes to the financial statements

90

Note 7D: Land and buildings, plant, equipment and infrastructure, heritage and cultural assets and intangibles Australian GovernmentHeritage

SpecialistOther plant,and

militaryequipment andculturalInvestmentComputerOther Land(a)Buildings(a) equipment(b) infrastructure(a)assetspropertysoftware intangiblesTotal Item$m$m$m$m$m$m$m$m$m

Gross book value------11,0814,60115,682

Accumulated depreciation/amortisation------(6,002)(1,002)(7,004)

At Cost------5,0793,5998,678

Gross book value10,95329,68551,88935,62511,446387--139,985

Accumulated depreciation/amortisation-(1,808)-(4,318)(114)---(6,240)

At Fair Value10,95327,87751,88931,30711,332387--133,745

Net book value at 30 June 201510,95327,87751,88931,30711,3323875,0793,599142,423

Gross book value------12,3194,70317,022

Accumulated depreciation/amortisation------(6,574)(617)(7,191)

At Cost------5,7454,0869,831

Gross book value11,73829,52856,21739,73111,552377--149,143

Accumulated depreciation/amortisation-(1,749)-(3,346)(90)---(5,185)

At Fair Value11,73827,77956,21736,38511,462377--143,958

Net book value at 30 June 201611,73827,77956,21736,38511,4623775,7454,086153,789

(a) Includes an adjustment to 2014-15 of $793 million in relation to recognition of NBN net assets at fair value in accordance with AASB 116 Property, Plant and Equipment. (b) Includes an adjustment to 2014-15 of $9,237 million in relation to recognition of SME at fair value.

Notes to the financial statements

91

Australian Government assets at fair value — Revaluation period

Assets held at fair value as at 30 June 2016 were based on valuations conducted in the following periods:

Australian GovernmentHeritage

SpecialistOther plant,and

militaryequipment andculturalInvestmentComputerOther LandBuildings equipment infrastructureassetspropertysoftware intangiblesTotal

Item$m$m$m$m$m$m$m$m$m

2014-15 or earlier1,9424,892-3,0811,510---11,425

2015-169,79622,88756,21733,3049,952377--132,533

Assets at fair value at 30 June 201611,73827,77956,21736,38511,462377--143,958

Notes to the financial statements

92

Australian Government assets at fair value — Valuation details

Details pertaining to valuations can be found in the audited financial statements of individual Australian Government controlled entities.

SME were valued by internal experts, with the exception of three platforms which were subject to independent valuation. Other asset classes were predominantly independently valued. Valuations are undertaken with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date.

Australian Government leased assets

Australian Government entities lease assets under a number of finance leases. As at 30 June 2016, the carrying value of leased assets included $1,294 million in land and buildings (2015: $1,400 million) and $368 million in plant and equipment (2015: $262 million). These entities were within the GGS. Refer Note 8D for accounting policy disclosure on finance leases.

Australian Government assets under construction

Australian Government assets under construction include $1,301 million (2015: $2,886 million) in land and buildings, $14,260 million (2015: $11,993 million) in SME and $5,886 million (2015: $5,849 million) in other plant, equipment and infrastructure (including computer software and intangibles).

Notes to the financial statements

93

Australian Government

Reconciliation of movement in land and buildings, plant, equipment and infrastructure, heritage and cultural assets and intangibles Australian Government Heritage

Specialist Other plant, and

military equipment and cultural Investment Computer Other Land(a) Buildings(a) equipment(b) infrastructure(a) assets property software intangibles Total Item $m $m $m $m $m $m $m $m $m

Net book value at 1 July 2014 10,396 27,003 41,243 26,990 10,825 375 5,077 3,459 125,368

Additions: Purchases and entity acquisitions 21 2,419 5,065 5,412 71 17 671 289 13,965

Acquisition by finance lease 4 20 - 457 - - - - 481

Internally developed - - - - - - 783 - 783

Revaluations: write-ups 649 324 8,758 570 489 10 - - 10,800

Depreciation/amortisation expense (1) (1,623) (2,872) (2,400) (73) - (1,169) (114) (8,252)

Recoverable amount write-downs (2) (83) (325) (152) (3) - (150) (117) (832)

Reversal of write-downs 4 8 - 3 - - 5 213 233

Other movements - (135) 25 477 24 1 (121) (131) 140

Disposals (118) (56) (5) (50) (1) (16) (17) - (263)

As at 30 June 2015 10,953 27,877 51,889 31,307 11,332 387 5,079 3,599 142,423

Additions: Purchases and entity acquisitions 31 1,638 6,753 6,923 109 16 465 248 16,183

Acquisition by finance lease 1 5 - 687 - - - - 693

Internally developed - - - - - - 1,366 - 1,366

Revaluations: write-ups 915 166 1,143 273 475 41 - - 3,013

Depreciation/amortisation expense - (1,644) (3,968) (2,821) (104) - (1,242) (79) (9,858)

Recoverable amount write-downs 8 (13) (214) (70) (4) - (55) (57) (405)

Reversal of write-downs - 8 - 4 - - (1) 358 369

Other movements (139) (193) 623 138 (346) (37) 136 17 199

Disposals (31) (65) (9) (56) - (30) (3) - (194)

As at 30 June 2016 11,738 27,779 56,217 36,385 11,462 377 5,745 4,086 153,789

(a) Includes an adjustment to 2014-15 of $793 million in relation to recognition of NBN net assets at fair value in accordance with AASB 116 Property, Plant and Equipment. (b) Includes an adjustment to 2014-15 of $9,237 million in relation to recognition of SME at fair value.

Notes to the financial

statements

94

General Government Reconciliation of movement in land and buildings, plant, equipment and infrastructure, heritage and cultural assets and intangibles

General Government Heritage

Specialist Other plant, and

military equipment and cultural Investment Computer Other Land Buildings equipment(a) infrastructure assets property software intangibles Total

Item $m $m $m $m $m $m $m $m $m

Gross book value - - - - - - 8,644 3,533 12,177

Accumulated depreciation - - - - - - (4,955) (678) (5,633)

At Cost: - - - - - - 3,689 2,855 6,544

Gross book value 9,942 26,993 51,889 16,239 11,446 187 - - 116,696

Accumulated depreciation/amortisation - (1,354) - (2,616) (114) - - - (4,084)

At Fair Value: 9,942 25,639 51,889 13,623 11,332 187 - - 112,612

Net book value at 30 June 2015 9,942 25,639 51,889 13,623 11,332 187 3,689 2,855 119,156

Gross book value - - - - - - 9,137 3,750 12,887

Accumulated depreciation - - - - - - (5,232) (374) (5,606)

At Cost: - - - - - - 3,905 3,376 7,281

Gross book value 10,620 27,209 56,217 16,891 11,552 164 - - 122,653

Accumulated depreciation/amortisation - (1,662) - (2,610) (90) - - - (4,362)

At Fair Value: 10,620 25,547 56,217 14,281 11,462 164 - - 118,291

Net book value at 30 June 2016 10,620 25,547 56,217 14,281 11,462 164 3,905 3,376 125,572

(a) Includes an adjustment to 2014-15 of $9,237 million in relation to recognition of SME at fair value.

General Government assets at fair value — Revaluation period Assets held at fair value as at 30 June 2016 were based on valuations conducted in the following periods:

2014-15 or earlier 1,942 4,892 - 2,832 1,509 - - - 11,175

2015-16 8,678 20,655 56,217 11,449 9,953 164 - - 107,116

Assets at fair value at 30 June 2016 10,620 25,547 56,217 14,281 11,462 164 - - 118,291

Notes to the financial statements

95

General Government Heritage

Specialist Other plant, and

military equipment and cultural Investment Computer Other Land Buildings equipment(a) infrastructure assets property software intangibles Total

Item $m $m $m $m $m $m $m $m $m

Net book value at 1 July 2014 9,331 24,847 41,243 13,097 10,825 183 3,719 2,464 105,709

Additions: Purchases and entity acquisitions 18 2,333 5,065 1,605 71 16 292 276 9,676

Acquisition by finance lease 4 20 - 49 - - - - 73

Internally developed - - - - - - 652 - 652

Revaluations: write-ups 691 262 8,758 123 490 2 - - 10,326

Depreciation/amortisation expense (1) (1,509) (2,872) (1,480) (73) - (876) (51) (6,862)

Recoverable amount write-downs (2) (79) (325) (89) (3) - (68) (56) (622)

Reversal of write-downs - (6) - (1) - - 5 213 211

Other movements 14 (187) 25 367 23 2 (19) 9 234

Disposals (113) (42) (5) (48) (1) (16) (16) - (241)

As at 30 June 2015 9,942 25,639 51,889 13,623 11,332 187 3,689 2,855 119,156

Additions: Purchases and entity acquisitions 17 1,479 6,753 1,691 109 15 395 210 10,669

Acquisition by finance lease 1 5 - 159 - - - - 165

Internally developed - - - - - - 800 - 800

Revaluations: write-ups 844 231 1,143 195 475 9 - - 2,897

Depreciation/amortisation expense - (1,499) (3,968) (1,654) (104) - (913) (49) (8,187)

Recoverable amount write-downs - (41) (214) (35) (4) - (47) (11) (352)

Reversal of write-downs - 8 - 1 - - (1) 358 366

Other movements (155) (223) 623 348 (346) (43) (15) 13 202

Disposals (29) (52) (9) (47) - (4) (3) - (144)

As at 30 June 2016 10,620 25,547 56,217 14,281 11,462 164 3,905 3,376 125,572

(a) Includes an adjustment to 2014-15 of $9,237 million in relation to recognition of SME at fair value.

General government assets under construction

GGS assets under construction include $1,147 million (2015: $2,609 million) in land and buildings, $14,260 million (2015: $11,993 million) in SME and $1,679 million (2015: $2,254 million) in other plant, equipment and infrastructure (including computer software and intangibles).

Notes to the financial statements

96

Contractual commitments for the acquisition of property, plant, equipment and intangible assets

Australian Government capital commitments include buildings $2,623 million (2015: $2,099 million), SME $15,064 million (2015: $11,630 million) and property, plant and equipment (including computer software and intangibles) $10,844 million (2015: $10,077 million).

General Government capital commitments include buildings $2,570 million (2015: $2,068 million), SME $15,064 million (2015: $11,630 million) and property, plant and equipment (including computer software and intangibles) $2,757 million (2015: $2,348 million).

Capital commitments include GST where relevant (2015 figures have been restated to reflect this).

Land, buildings, plant, equipment and infrastructure

Property, plant and equipment are stated at fair value. Certain small entities and public corporations may adopt a cost basis in their own financial statements. Where the difference is material to the CFS, an adjustment is made on consolidation.

Where available, the fair value of property, plant and equipment is determined by reference to market-based evidence, for example, the market value of similar properties. If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant or equipment and the item is rarely sold, fair value is estimated using an income (net present value/discounted cash flows) or a depreciated replacement cost approach. The valuation technique used for each class of depreciable assets is disclosed in Note 6.

The cost of restoration or removal is provided for in the measurement of property, plant and equipment when a legal or constructive obligation exists. These costs include obligations relating to the dismantling, removal, remediation, restoration and other expenditure associated with the Australian Government’s fixed assets or site fit-outs. Restoration provisions are initially recorded when a reliable estimate of the costs to be incurred can be determined and are discounted to present value. Estimates are based upon a review of lease contracts, legal requirements, historical information, and expected future costs. Any changes to these estimates are adjusted on a progressive basis as required.

Intangibles

The Australian Government’s intangibles comprise internally developed software for internal use, water entitlements and intangible assets acquired by public corporations (PNFCs and PFCs). When public corporations acquire investments in controlled, jointly controlled or associated entities, and pay an amount greater than the fair value of the net identifiable assets of the entity, this excess is recognised as goodwill.

Notes to the financial statements

97

Intangibles are carried at cost. Water entitlements are classified as indefinite life intangibles and are therefore subject to annual impairment testing. Goodwill and other indefinite life intangibles are not amortised but tested for impairment on an annual basis.

Note 7E: Inventories

2016 2015 2016 2015

$m $m $m $m

Inventories held for sale Finished goods(a) 890 1,081 976 1,146

Raw materials and stores 58 57 73 70

Work in progress 406 242 417 247

Total inventories held for sale 1,354 1,380 1,466 1,463

Consumable stores and inventories held for distribution 7,213 7,035 7,245 7,068

Total inventories 8,567 8,415 8,711 8,531

General Government Australian Government

(a) Finished goods include $218 million valued at net realisable value (2015: $193 million).

Inventories

Inventories held for sale are valued at the lower of cost and net realisable value. Inventories held for distribution are measured at cost, adjusted for any loss of service potential. Quantities on hand and items of inventory are periodically evaluated with excess and obsolete inventory recorded as a reduction to inventory and an expense.

Note 7F: Other non-financial assets

2016 2015 2016 2015

$m $m $m $m

Total biological assets 49 44 49 44

Total assets held for sale 257 129 257 129

Prepayments 4,219 4,516 4,382 4,620

Other 113 207 177 269

Total other non-financial assets 4,638 4,896 4,865 5,062

General Government Australian Government

Notes to the financial statements

98

Note 7G: Assets by function (a)

2016 2015 2016 2015

$m $m $m $m

General public services 205,999 184,719 205,131 184,422

Defence 93,810 89,121 93,736 89,507

Public order and safety 2,678 2,915 2,678 2,944

Education 39,577 33,240 39,577 33,240

Health 2,298 1,261 2,277 1,244

Social security and welfare 7,930 8,317 7,930 7,979

Housing and community amenities 9,541 8,435 9,541 8,389

Recreation and culture 12,847 12,428 12,847 12,428

Fuel and energy 1,458 1,538 1,458 1,538

Agriculture, forestry and fishing 956 910 956 908

Mining, manufacturing and construction 530 525 2,566 2,384

Transport and communication 20,505 16,404 29,245 24,578

Other economic affairs 31,875 30,926 162,150 154,982

Other purposes(b) 41,576 48,112 24,110 17,392

Total assets 471,580 438,851 594,202 541,935

General Government Australian Government

(a) Refer to Note 4F for a description of each function. (b) Cash and deposits that are not allocated to other functions are included in the ‘other purposes’ function.

Note 8: Liabilities

Liabilities are obligations to another entity to provide economic value as a result of past transactions and activities undertaken by Australian Government entities. They include interest bearing liabilities, provisions and payables. The total Australian Government liabilities and relative composition of liabilities are as follows:

Amount 2015-16 Composition

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2014-15 2015-16

$m

48%

3%

1%

1%

2%

33%

12%

Loans

Other borrow ings

Deposits held

Government securities

Employee benefits

Other provisions & payables

Other interest bearing liabilities

Notes to the financial statements

99

• deposits held (refer Note 8A) predominantly the liability for cash and deposits held with the RBA and other PFCs;

• Government securities (refer Note 8B) issued by the Australian Government in the form of Treasury Bonds, Treasury Indexed Bonds and Treasury Notes;

• loans (refer Note 8C) comprising promissory notes issued to the IMF and other multi-lateral organisations to meet Australia’s international financial obligations, bonds issued by public corporations, and other loans;

• other borrowings (refer Note 8D) covers obligations under finance lease arrangements;

• other interest bearing liabilities (refer Note 8E) includes Australia’s liability to the IMF as denominated in special drawing rights (SDR), repurchase agreements entered into by the RBA, and other debt not elsewhere classified;

• employee benefits (refer Note 8F) captures amounts owing to current and former employees, the largest of which is the Australian Government obligation for the unfunded proportion of the public sector and military superannuation schemes; and

• other provisions and payables (refer Note 8G) including year-end obligations for goods and services, current and capital transfers and unearned income. Also includes a liability for currency notes issued by the RBA.

Notes to the financial statements

100

Note 8A: Deposit liabilities

2016 2015 2016 2015

$m $m $m $m

Exchange settlement funds - - 24,745 23,360

Drawing accounts held with the Reserve Bank of Australia - - 321 370

State governments - - 121 59

Monies held in trust 211 212 211 212

Foreign governments - - 4,810 758

Other 6 6 532 365

Total deposit liabilities 217 218 30,740 25,124

General Government Australian Government

Deposits held

Deposits include deposits at call and term deposits and are classified as financial liabilities. Deposit balances are shown at their amortised cost, which is equivalent to their face value. Interest is accrued over the term of deposits and is paid periodically or at maturity.

Note 8B: Government securities

2016 2015 2016 2015

$m $m $m $m

Treasury bonds 434,333 359,868 434,333 359,868

Treasury notes 4,986 5,978 4,986 5,978

Treasury indexed bonds 41,417 38,176 41,417 38,176

Other 2,625 5,915 21 22

Total government securities 483,361 409,937 480,757 404,044

General Government Australian Government

Government securities

Government securities liabilities are measured at fair value. Where a security is issued at a premium or discount, the premium or discount is recognised at that time and included in the book value of the liability.

Note 8C: Loans

2016 2015 2016 2015

$m $m $m $m

Bills of exchange and promissory notes 9,651 4,825 10,618 5,658

Bonds (non-Treasury) - - 2,732 2,908

Loans 700 868 1,311 1,141

Total loans 10,351 5,693 14,661 9,707

Loans maturity schedule

Not later than one year 111 212 1,278 801

Later than one year 10,240 5,481 13,383 8,906

Total loans by maturity 10,351 5,693 14,661 9,707

General Government Australian Government

Notes to the financial statements

101

Loans

Loans are initially recognised at fair value plus any transaction costs that are directly attributable to the issue, and are subsequently measured at either amortised cost or at fair value through profit and loss. Any differences between the final amounts paid to discharge the loan and the initial loan proceeds (including transaction costs) are recognised in the operating statement over the borrowing period using the effective interest method.

Note 8D: Other borrowings

2016 2015 2016 2015

$m $m $m $m

Finance lease liabilities as at the reporting date are reconciled to the lease liability as follows:

Not later than one year 154 143 641 588

Later than one year and not later than five years 713 650 2,254 1,965

Later than five years 2,272 2,277 12,161 11,072

Minimum lease payments 3,139 3,070 15,056 13,625

less future finance charges 1,532 1,561 9,027 8,289

Total finance lease liabilities 1,607 1,509 6,029 5,336

Finance lease liabilities maturity schedule Current 52 45 184 192

Non-current 1,555 1,464 5,845 5,144

Total finance lease liabilities by maturity 1,607 1,509 6,029 5,336

General Government Australian Government

Other borrowings (finance leases)

Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets. Where an asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the leased asset or, if lower, the present value of minimum lease payments at the inception of the lease contract. A corresponding liability is recognised at the same time in other borrowings. Lease payments are allocated between the principal component and the interest expense. The discount rate used is the interest rate implicit in the lease.

Note 8E: Other interest bearing liabilities

2016 2015 2016 2015

$m $m $m $m

Swap principal payable 653 942 2,896 2,174

Amounts outstanding under repurchase agreements - - 4,526 1,780

Special reserve - IMF special drawing rights 5,795 5,633 5,795 5,633

Finance lease incentives(a) 11 17 11 25

Other 14 9 1,823 1,565

Total other interest bearing liabilities 6,473 6,601 15,051 11,177

General Government Australian Government

(a) $114 million liabilities in 2014-15 have been reclassified from finance lease incentives to other payables consistent with the treatment in 2015-16.

Notes to the financial statements

102

Other interest bearing liabilities

The IMF Special Drawing Right (SDR) allocation liability reflects the current value in Australian dollars of the Australian Government’s liability to repay Australia’s cumulative allocations of SDRs. Interest is payable to the IMF in relation to the amount by which Australia’s SDR holdings are below Australia’s net cumulative allocations. Interest expense is recognised as it accrues.

In the course of financial market operations, the RBA engages in repurchase agreements involving foreign and Australian dollar marketable securities. Securities sold but contracted for purchase under repurchase agreements are reported within the relevant investment category and are valued at market prices. The counterparty obligation to repurchase is reported as an interest bearing liability and is measured at amortised cost. The difference between the sale and purchase price is recognised as interest expense over the term of the agreement.

Note 8F: Employee benefits

2016 2015 2016 2015

$m $m $m $m

Total superannuation liability 314,228 248,209 314,958 248,540

Other employee liabilities Leave and other entitlements 7,754 7,263 10,388 9,770

Accrued salaries and wages 192 785 264 875

Workers compensation claims 3,164 3,225 3,324 3,374

Separations and redundancies 126 154 446 388

Military compensation 6,737 5,333 6,737 5,333

Other 329 292 399 351

Total other employee liabilities 18,302 17,052 21,558 20,091

Total employee and superannuation liabilities 332,530 265,261 336,516 268,631

General Government Australian Government

Superannuation

The superannuation liability represents the present value of the

Australian Government’s unfunded liability to employees for past services as estimated by the actuaries of the respective superannuation plans. Additional information on superannuation is included in Note 11C.

Notes to the financial statements

103

Other employee liabilities

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of balance date are measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability. The liability for leave and other entitlements includes provision for annual leave and long service leave.

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

The liability for long service leave is calculated using expected future increases in wages and salary rates including related on-costs and is discounted using applicable government bond rates. In determining the present value of the liability, attrition rates, pay increases through promotion and inflation are taken into account. The liability for long service leave has been determined by reference to the work of actuaries.

Workers’ compensation claims

The provision represents an estimate of the present value of future payments in respect of claims for events occurring before 30 June 2016 with a 75 per cent probability of sufficiency. The expected future payments are discounted to present value using a risk free rate. The expected future payments include claims reported but not yet paid, claims incurred but not yet reported, and anticipated claims handling costs.

Military compensation

The military compensation provision represents an estimate of the present value of future payments in respect of claims under the Military Rehabilitation and Compensation Act 2004 and the Safety, Rehabilitation and Compensation Act 1988 arising from service rendered before 30 June 2016. The provision is calculated by discounting future payments using a yield curve derived from the yields on Commonwealth bonds of various durations as at 30 June 2016.

The military compensation provision is subject to inherent sources of uncertainty arising from a range of factors, including that claims may not be received until many years after the event and subsequent payments for income support, health and rehabilitation services can extend over a long period of time. The Annual Report for the Department of Veterans’ Affairs details the assumptions and areas of uncertainty underpinning the actuarial estimation of the military provision.

Notes to the financial statements

104

Note 8G: Other provisions and payables

2016 2015 2016 2015

$m $m $m $m

Payables Suppliers payable Trade creditors 3,612 3,646 4,400 4,431

Operating lease rental payable 430 325 430 325

Other creditors 1,293 630 1,500 802

Total suppliers payable 5,335 4,601 6,330 5,558

Total personal benefits payable(a) 3,820 4,722 3,820 4,722

Total subsidies payable(b) 539 444 539 444

Grants payable State and territory governments 198 630 198 630

Private sector 566 573 566 573

Overseas 1,455 1,483 1,455 1,483

Local governments - 3 - 3

Other 440 550 440 550

Total grants payable 2,659 3,239 2,659 3,239

Other payables Unearned income 866 916 1,230 1,248

Accrued expenses 915 897 2,796 2,518

Other(c) 1,060 988 1,148 1,014

Total other payables 2,841 2,801 5,174 4,780

Total payables 15,194 15,807 18,522 18,743

Australian currency on issue - - 70,209 65,481

Other provisions Grant provisions 9,325 8,457 9,325 8,457

Provision for outstanding benefits and claims(d) 15,897 14,550 15,897 14,550

Provision for tax refunds(d) 2,972 3,338 2,972 3,338

Provision for restoration, decommissioning and makegood 2,546 2,159 2,651 2,259

Subsidy provisions 4,053 4,085 4,053 4,085

Other(d) 568 538 845 819

Total other provisions 35,361 33,127 35,743 33,508

Total provisions 35,361 33,127 105,952 98,989

Total other provisions and payables 50,555 48,934 124,474 117,732

General Government Australian Government

(a) $1,261 million personal benefits payable have been reclassified in 2014-15 to provision for outstanding benefits to better reflect the nature of the transaction. (b) $4,085 million subsidies payable have been reclassified in 2014-15 to subsidies provisions to better reflect the nature of the transaction. (c) $114 million of other payables have been reclassified from finance lease incentives in 2014-15. (d) 2014-15 includes adjustments of $450 million relating to changes in percentages used to calculate

provision for credit amendments and refunds and overstatement of revenue and expenses in relation to settlements.

Notes to the financial statements

105

Other provisions and payables

Payables

Trade and other payables, including accruals, are recorded when

Australian Government entities are required to make future payments as a result of a purchase of assets or services. Payables are initially recognised at fair value and are subsequently measured at amortised cost.

Australian currency on issue

Australian currency issued represents a liability of the RBA in favour of the holder. Currency issued for circulation, including demonetised currency, is measured at face value. When the RBA issues currency notes to the commercial banks it receives, in exchange, funds equal to the full face value of the notes issued.

Provisions

Non-employee provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect is material, provisions are determined by discounting the expected future cash flows (adjusted for expected future risks) required to settle the obligation at a rate that reflects current market assessments of the time value of money and the risks specific to the liability.

The calculation of provisions is subject to the volatility of economic assumptions used, in particular, the discount rate and the effects of inflation as well as the impact of variations in payment patterns. In calculating the estimated cost of future payments for each provision, actuarial advice is generally obtained. Given the uniqueness of a number of the Australian Government provisions and the use of actuarial assumptions, there can be an element of uncertainty in the estimate.

Reconciliation of movement in provisions

$m $m

Movement table:

Balance of provisions at 1 July Provisions made during the year 11,943 16,840

Provisions used during the year (10,043) (10,206)

Provisions remeasured, reversed or unwound during the year 334 329

Balance of provisions at 30 June 35,361 105,952

2016

98,989

General Government Australian Government

33,127

Notes to the financial statements

106

Note 9: Net revaluation increases/(decreases)

2016 2015 2016 2015

$m $m $m $m

Financial assets Equity investments(a) (2,970) 3,676 640 383

Non-financial assets Land 847 679 921 638

Buildings 208 272 139 329

Specialist military equipment(b) 1,157 8,757 1,157 8,757

Other infrastructure, plant and equipment(a) 227 169 305 615

Heritage and cultural assets 474 518 474 518

Provision for restoration, decommissioning and makegood (47) 9 (47) 9

Total non-financial assets 2,866 10,404 2,949 10,866

Total revaluation increases/(decreases) (104) 14,080 3,589 11,249

General Government Australian Government

(a) Includes adjustments to 2014-15 of $475 million for the GGS (being adjustment to Department of Communication’s Administered investment in NBN Co Ltd) and $508 million for the Australian Government in relation to recognition of NBN Co Ltd non-financial assets at fair value in accordance with AASB 116 Property, Plant and Equipment. (b) Includes an adjustment to 2014-15 of $8,757 million in relation to recognition of SME at fair value.

Notes to the financial statements

107

Note 10: Reconciliation of cash

Cash and deposits

Cash includes: cash at bank and on hand, short term deposits at call and investments in short-term money market instruments that are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts. Cash and cash equivalents includes notes and coins held and any deposits in bank accounts with an original maturity of three months or less that are readily convertible to known

amounts of cash and subject to insignificant risk of changes in value. Deposits at call, which are held for longer-term investment purposes, are classified as investments. Cash is recognised at its nominal amount.

A: Reconciliation of net operating balance to net cash flows from operating activities

2016 2015 2016 2015

$m $m $m $m

Net operating balance (34,658) (37,767) (39,508) (41,202)

less Revenues not providing cash Other 4,551 1,304 4,551 1,138

Total revenues not providing cash 4,551 1,304 4,551 1,138

plus Expenses not requiring cash Increase in employee entitlements 10,108 8,382 10,856 8,636

Depreciation/amortisation expense 8,132 6,804 9,773 8,131

Mutually agreed writedowns 1,193 1,473 1,193 1,473

Other non-cash expenses 1,031 1,881 1,033 1,882

Total expenses not requiring cash 20,464 18,540 22,855 20,122

plus Cash provided by working capital items (Increase)/Decrease in receivables (7,625) (5,224) (1,197) (2,826)

(Increase)/Decrease in inventories (461) (489) (498) (498)

(Increase)/Decrease in other financial assets (787) 1,280 (665) 1,200

(Increase)/Decrease in other non-financial assets 37 (1,479) (22) (1,472)

Increase/(Decrease) in benefits, subsidies and grants payable (454) (189) (588) (189)

Increase/(Decrease) in supplier payables (72) 2,417 (1,479) 2,098

Increase/(Decrease) in other provisions and payables 1,794 (516) (2,188) (962)

Total cash provided/(used) by working capital items (7,568) (4,200) (6,637) (2,649)

equals Net cash from/(used by) operating activities (26,313) (24,731) (27,841) (24,867)

General Government Australian Government

B: Reconciliation of cash at the end of the reporting period as shown in the cash flow statement to the related items in the balance sheet.

Cash at the end of the reporting period as shown in the Australian Government and GGS cash flow statement is equal to ‘cash and deposits’ as reported in the Australian Government and GGS balance sheet.

Notes to the financial statements

108

Note 11: Risks

The assets and liabilities in the 2015-16 CFS incorporate assumptions and judgements based on the best information available at the date of signing. The judgements and estimates made by Australian Government entities that have the most significant impact on the amounts recorded in the financial statements are disclosed in Note 1.8. In addition to these, there are a range of factors that may influence the amounts ultimately realised or settled in future years that relate to past events. The disclosure of these factors increases the transparency of the risks to the Government’s financial position. These risks have been grouped into the following disclosures:

• Contingencies (refer Note 11A) comprise possible obligations or assets arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events. The Australian Government has issued a number of guarantees, such as those relating to guarantee schemes for the banking and financial sector, while other significant contingent liabilities relate to uncalled capital subscriptions and credit facilities to international financial institutions and legal cases concerning the Australian Government. The Government has robust and conservative strategies in place to reduce its potential exposure to these contingent liabilities. Please refer to 2016-17 Budget Paper No 1, Statement 8: Statement of Risks 5 which outlines general fiscal risks, specific contingent liabilities and specific contingent assets that may affect the budget balances.

• Financial Instrument disclosures (refer Note 11B) concern the contractual arrangements that the Australian Government has entered into for policy, liquidity or financing purposes. To varying degrees, Australian Government entities are exposed to the following risks arising from financial instruments:

- market risk;

- credit risk; and

- liquidity risk.

• Defined benefit superannuation plans (refer Note 11C) comprise the Government’s largest liability after public debt. Under these schemes, the Australian Government’s obligation is to provide the agreed benefits to current and former employees, for which it bears actuarial risk (the risk that benefits will cost more than expected). Given the significance of these obligations, Note 11C explains the characteristics of the major defined benefit plans and risks associated with them, and describes how the plans may affect the amount, timing and uncertainty of the Australian Government’s future cash flows. The Future Fund is a long-term

5 http://budget.gov.au/2016-17/content/bp1/download/bp1.pdf.

Notes to the financial statements

109

investment fund that is designed to enhance the ability of the

Australian Government to discharge unfunded superannuation liabilities expected after 2020, when an ageing population is likely to place significant pressures on the Government’s finances.

Consistent with the amounts recognised in the financial statements, the disclosures are based on the policies, events and arrangements up to the reporting date and do not include policy decisions announced in the 2016-17 Budget Papers which have not yet been enacted or implemented.

Notes to the financial statements

110

Note 11A: Contingencies Reconciliation of movement in quantifiable contingent liabilities and contingent assets

Uncalled shares Claims for Other Total Total Net

Guarantees Indemnities or capital damages or quantifiable quantifiable Contingent Contingent Item (a) (b) subscriptions(c) costs contingencies(e) liabilities assets Liabilities

$m $m $m $m $m $m $m $m

Opening balance as at 1 July 2014 16,639 332 13,474 181 5,442 36,068 190 35,878

Increases(d) 39 3 - 81 255,960 256,083 10 256,073

Re-measurement 1,362 (2) 2,095 (53) 235 3,637 28 3,609

Liabilities/Assets crystallised - - - (38) (1) (39) (51) 12

Expired (26) (18) - (20) (2,802) (2,866) (49) (2,817)

As at 30 June 2015 18,014 315 15,569 151 258,834 292,883 128 292,755

Opening balance as at 1 July 2015 18,014 315 15,569 151 258,834 292,883 128 292,755

Increases 70 - 3,977 64 681 4,792 18 4,774

Re-measurement (3,559) 15 (815) 33 (29,892) (34,218) 68 (34,286)

Liabilities/Assets crystallised - - - (12) - (12) (74) 62

Expired (254) (20) - (50) (605) (929) (3) (926)

As at 30 June 2016 14,271 310 18,731 186 229,018 262,516 137 262,379

Contingent Liabilities

(a) A guarantee is where one party promises to be responsible for the debt or performance obligations of another party should that party default in some way. (b) An indemnity is a legally binding promise whereby a party undertakes to accept the risk of loss or damage another party may suffer. (c) Uncalled shares/capital subscriptions include uncalled shares of $18,664 million (2015: $15,504 million) in the European Bank for Reconstruction and Development, the International Bank for Reconstruction and Development, the Multilateral Investment Guarantee Agency and the Asian Development Bank.

(d) From 1 January 2015, the RBA has provided a Committed Liquidity Facility (CLF) to eligible authorised deposit-taking institutions (ADIs) as part of Australia’s implementation of the Basel III liquidity requirements. The CLF provides ADIs with a contractual commitment to funding under repurchase agreements with the RBA, subject to certain conditions. (e) The comparatives have been reduced by $1,091 million, reflecting the restatement of the estimated aggregate value of tax in dispute, for which a liability has not

been made.

Notes to the financial statements

111

Contingent liabilities and assets are not recognised in the balance sheet but are disclosed in the relevant notes. They are classified as contingent due to:

• uncertainty as to the existence of a liability or asset which will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly within the control of the Australian Government;

• an existing liability in respect of which settlement is not probable or, for a contingent asset, where the inflow of economic benefits is not virtually certain; or

• an existing liability or asset where the amount cannot be reliably measured.

Quantifiable contingencies by sector(a)(b) as at 30 June 2016 General Public non-financial Public financial Government corporations corporations

2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m

Quantifiable contingent liabilities Guarantees 13,135 16,506 306 389 951 1,180

Indemnities 410 415 - - - -

Uncalled shares/capital subscriptions 18,664 15,504 - - 68 66

Claims for damages/costs 184 113 2 39 - -

Other contingencies 4,538 3,810 - - 224,480 255,024

Total quantifiable contingent liabilities 36,931 36,348 308 428 225,499 256,270

less Quantifiable contingent assets 127 117 10 12 - -

Net quantifiable contingencies 36,804 36,231 298 416 225,499 256,270

(a) Refer to the Australian Government contingency disclosures for further details on quantifiable and non-quantifiable contingencies. (b) Transactions between sectors are included in this table but eliminated in the consolidated statements to avoid double counting. Accordingly, the sum of the amounts for each line item may exceed or be less

than the equivalent amount in the consolidated statements.

Non-quantifiable contingencies

The following pages list unquantifiable contingencies. Those identified and reported in the 2015-16 CFS for the first time have been identified as ‘new’. Further detail on individual contingencies may be included in the annual report for the respective Commonwealth entity.

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112

Guarantees, indemnities and undertakings

A range of guarantees, indemnities and undertakings have been provided by Australian Government entities in relation to various agreements, deeds and other matters and some of these guarantees, indemnities and undertakings are unlimited. Guarantees, indemnities and undertakings include, but are not limited to:

• Emergency pest and disease response arrangements (administered by the

Department of Agriculture and Water Resources). Typically, the Australian Government is liable for 50 per cent of total government funding to respond to a disease or pest outbreak and may be expected to contribute bilaterally in situations where an incursion is not covered by a cost sharing agreement or where the relevant industry body is not party to an agreement. The Australian Government may also provide financial assistance to an industry party by funding its initial share of the response. These contributions may subsequently be recovered from the industry over a period of up to ten years, usually by a levy.

• Native title costs and agreements — access to geospatial data (administered by the

Attorney-General’s Department) whereby indemnities have been provided against third-party claims arising from errors in the data. Additionally, under the Native Title Act 1993, the Australian Government will be liable for any compensation found to be payable in respect of compensable acts for which the Commonwealth is responsible.

• Australian Victims of Terrorism Overseas Payment (administered by the

Attorney-General’s Department). The Australian Government manages a scheme for providing financial assistance to Australians who are victims of an overseas terrorist act that has been declared by the Prime Minister. Under the scheme, Australians harmed (primary victims) and Australians who are close family members of a person who dies as a direct result of a declared terrorist act (secondary victims) will be able to claim payments of up to $75,000. As acts of terrorism are unpredictable, the cost of the scheme is unquantifiable.

• The Terrorism Insurance Scheme is managed by the Australian Reinsurance Pool

Corporation (ARPC) for replacement terrorism insurance covering damage to commercial property including associated business interruption and public liability under the Terrorism Insurance Act 2003. The Australian Government guarantees to pay any liabilities of the ARPC, but the Treasurer must declare a reduced payout rate to insured parties if the Australian Government’s liability would otherwise exceed $10 billion.

• Australian Red Cross Society — blood and blood products (administered by the

Department of Health). The Australian Government, states and territories jointly provide indemnity for the Australian Red Cross Blood Service regarding personal injury and loss or damages suffered by a recipient of certain blood and blood products where other available mitigation or cover is not available.

Notes to the financial statements

113

• CSL Ltd (administered by the Department of Health). The Australian Government

has indemnified CSL Ltd for a specific range of events that occurred during the Plasma Fractionation Agreement from 1 January 1994 to 31 December 2004, where alternative cover was not arranged by CSL Ltd. Indemnities relate to certain existing and potential claims made for personal injury, loss or damage suffered through therapeutic and diagnostic use of certain products manufactured by CSL Ltd.

• Vaccines (administered by the Department of Health). Indemnities have been provided to the manufacturers of smallpox and influenza vaccines held by the Australian Government, covering possible adverse events that could result from the use of the vaccines in an emergency situation.

• The Australian Medical Association Ltd (AMA) (administered by the Department of Health). The AMA, the Commonwealth, Australian Private Hospitals Association Ltd and Private Healthcare Australia have agreed to indemnify each other in respect of any loss, liability, cost, claim or expense due to misuse of confidential information or breach of the Privacy Act 1988 in relation to participation in and support of the Private Mental Health Alliance.

• New South Wales Health Administration Council (NSW HAC) (administered by the National Health Funding Body (NHFB)). An indemnity has been provided to the New South Wales Government through the NSW HAC, in relation to a state funding pool account with the RBA.

• Accommodation Payment Guarantee Scheme (administered by the Department of Health). The Australian Government guarantees the repayment of aged care residents’ accommodation bonds, entry contribution balances and, from 1 July 2014, refundable accommodation deposits and contributions if the approved provider becomes insolvent or bankrupt and defaults on its refund obligations. From the latest available information, the maximum contingent liability, in the unlikely event that all providers defaulted, is $18.340 billion. The scheme was activated during 2016. Since the scheme was introduced, it has been activated a total of nine times requiring payment of $41 million. It is difficult to predict if the past patterns of payments are indicative of future payments, and as such it is not possible to estimate potential future payments.

• Medical indemnity schemes (administered by the Departments of Health and Human Services) operate under the Medical Indemnity Act 2002 and the Midwife Professional Indemnity (Commonwealth Contribution) Scheme Act 2010. A provision has been recognised for estimated liabilities under the Incurred but Not Reported Scheme (IBNRS), the High Cost Claims Scheme (HCCS) and the Run-Off Cover Scheme (ROCS). No provision has been recognised for the Exceptional Claims Scheme (ECS), the Midwife Professional Indemnity (Commonwealth Contribution) Scheme (MPIS) and the Midwife Professional Indemnity Run-off Cover Scheme (MPIRCS) as, to date, no payment has been made against these schemes and they could not be reliably measured. However, the nature of these claims is such that

Notes to the financial statements

114

there is usually an extended period between the date of the medical incident and notification to the insurer.

• Garrison and welfare services and immigration detention services (administered

by the Department Immigration and Border Protection). The Australian Government has entered into limited liability contracts with: Broadspectrum Limited (BRS) for the provision of garrison and welfare services at Regional

Processing Countries and Serco Australia Pty Ltd (Serco) for immigration detention services in Australia. The Australian Government has also negotiated arrangements with a number of state and territory governments for the provision of health, education, corrections and policing services to immigration detention facilities and people in immigration detention. Some jurisdictions are seeking indemnification by the Australian Government for the provision of those services.

• Snowy Hydro Limited water releases (administered by the Department of

Industry, Innovation and Science). The Australian, New South Wales and Victorian governments have indemnified Snowy Hydro Limited for liabilities arising from water releases in the Snowy River below Jindabyne Dam, where these releases are in accordance with the water licence and related regulatory arrangements agreed between the three governments. The indemnity applies to liabilities for which a claim is notified within 20 years from 28 June 2002.

• Maralinga clean-up (administered by the Department of Industry, Innovation and

Science). Fourteen unlimited indemnities have been given in relation to the clean-up of the former British atomic test site at Maralinga.

• Gorgon liquefied natural gas and carbon dioxide storage project (administered by

the Department of Industry, Innovation and Science). Gorgon Joint Venture Partners (GJV) have been indemnified against independent third-party claims (relating to stored carbon dioxide) following closure of the carbon dioxide sequestration project. The Western Australian Government will indemnify the GJV, and the Australian Government will indemnify the Western Australian Government for 80 per cent of any amount determined to be payable.

• Liquid Fuel Emergency Act 1984 (administered by the Department of Industry,

Innovation and Science). The Australian Government and state and territory governments have entered into an inter-governmental agreement in relation to a national liquid fuel emergency. Under the agreement, the Australian Government may incur the direct costs of managing a liquid fuel emergency and includes the possibility of the Australian Government reimbursing the state and territory governments for costs arising from their responses, and potential compensation for industry arising from Australian Government directions under the Act.

• Maritime incident clean-up (administered by the Department of Infrastructure and

Regional Development). The Australian Maritime Safety Authority is responsible for the provision of funds necessary to meet the clean-up costs arising from ship-sourced marine pollution and, in all circumstances, is responsible for making

Notes to the financial statements

115

appropriate efforts to recover the costs of any such incidents. The

Australian Government meets costs that cannot be recovered from such incidents.

• National Disability Insurance Scheme (NDIS) (administered by the Department

of Social Services). In bilateral negotiations to establish the NDIS, the Australian Government has committed to provide temporary, untied financial assistance to some jurisdictions that expect to have their GST entitlements adversely affected during the transition to the NDIS. Any impact on the Australian Government is not expected to occur before 2016-17.

• Officers and directors assisting the Commonwealth in relation to asset sales,

reviews and other arrangements (administered by various entities). From time to time, the Australian Government has provided warranties, undertakings and indemnities (indemnities) to directors, committee members, advisers, officers and/or staff of organisations for activities undertaken in good faith in assisting the Commonwealth in relation to asset sales, reviews and other arrangements.

This includes indemnities in relation to the: directors of NBN Co Ltd (NBN Co); former directors of the Australian Submarine Corporation Pty Ltd; directors and delegates of the board of the Commonwealth Superannuation Corporation, Future Fund Board of Guardians (Board members); certain specified members of the review into the Australian Human Pituitary Hormone Program; and certain specified members of the review into the Diagnostics Products Agreement. The Australian Government has also indemnified the boards and/or acquirers of certain entities against certain claims and costs arising from the sales of the Government entities.

Claims and proceedings

At any time, various Australian Government entities are subject to claims and legal actions that are pending court or other processes. These include, but are not limited to:

• Suspension of livestock exports to Indonesia (administered by the Department of

Agriculture and Water Resources). Proceedings have commenced against the Australian Government for losses due to the temporary suspension of exports of live animals to Indonesia that was put in place on 7 June 2011. Currently the amount of the claims remains unquantified.

• Aviation Rescue & Fire Fighting (ARFF) potential contaminated site management

(new) (managed by Airservices Australia). A number of sites around the country have potentially been contaminated with polyfluorinated chemicals that were contained in firefighting foams. The foams containing these chemicals were used widely from 1978 until 2010. The identified contaminants do not break down in the natural environment. Testing and assessment of the fire training grounds commenced in 2008-09 with some additional site assessments conducted in the years following. A sum of $26 million has been provided at 30 June 2016. It is not possible to quantify any potential remediation costs at this time.

Notes to the financial statements

116

• Termination of the funding agreement with OPEL Network Pty Ltd

(administered by the Department of Communications and the Arts). The Australian Government is a party to legal action brought against it in relation to an agreement under the Broadband Connect Infrastructure Program. The outcome of that litigation cannot be predicted.

• Australian Government general insurance fund — Comcover (administered by

the Department of Finance). Comcover’s liability for outstanding claims, which includes the expected future cost of claims notified and claims incurred but not reported, is subject to inherent uncertainty in the estimation process. The Australian Government’s potential liability cannot be quantified at this time.

• Tobacco Plain Packaging (administered by the Department of Health). The

Government will continue to fund the defence of legal challenges to the tobacco plain packaging legislation in international forums. Further information about these cases has not been disclosed on the grounds that it may prejudice the outcomes of these cases or may relate to commercial information.

Property remediation — Defence and other sites

From time to time, the Australian Government may have ownership of properties that have a potential or possible environmental and associated concern. Where this is the case, further reviews may be undertaken to determine the extent, nature and estimated costs of remediation, if required. Financial provision has been made for the estimated costs in restoring, decontaminating and decommissioning property. However, for sites where the potential costs cannot be quantified, the obligations have been assessed as remote contingencies. This includes contingencies for Defence properties and the Googong Dam lease agreement with the Australian Capital Territory Government.

Non-quantifiable contingent assets

Contingent assets include but are not limited to:

• HIH Claims Support Scheme (HCSS) (administered by the Department of the

Treasury). As an insured creditor in the liquidation of the HIH Group, the Australian Government is entitled to payments arising from the HCSS’s position in the Proof of Debt of respective HIH companies. The Australian Government has received payments from the HIH Estate during 2015-16, however, the timing and amount of future payments are unknown and will depend on the outcome of the estimation process and the completion of the liquidation of the HIH Group.

• International Monetary Fund (IMF) (administered by the Department of the

Treasury). Since 1986, the IMF has used its burden sharing mechanism to make up for the loss of income from unpaid interest charges on the loans of debtor members and to accumulate precautionary balances in a Special Contingent Account to protect the IMF against losses arising from the failure of a member to repay its overdue principal obligations. As there is considerable and inherent uncertainty around the timing and amounts of burden sharing to be refunded to Australia this

Notes to the financial statements

117

contingent asset cannot be reliably measured and as such is recorded as an unquantifiable contingent asset.

• Wireless local area network. The Commonwealth Scientific and Industrial

Research Organisation (CSIRO) has ongoing patent infringement proceedings in the United States of America in relation to CSIRO’s invention of a wireless local area network. CSIRO expects to receive additional revenue which would exceed the associated legal costs.

• Coal Mining Industry (Long Service Leave) Legislation Amendment Act 2011. The

Coal Mining Industry (Long Service Leave Funding) Corporation (Corporation) is currently undertaking a Transitional Service Review. The provision in the Act provides that ‘Eligible Employees’ and ‘Former Employees’ can make application to the Corporation for recognition of period or periods of employment service between 1 January 2000 and December 2011 in the Black Coal Mining Industry that may not be presently recognised and recorded by the Corporation. The Corporation has not recognised levies attributable to those employers of ‘Eligible Employees’ and ‘Former Employees’ that previously did not contribute to the Corporation. At balance date, the amounts that would be receivable are not reliably measurable.

Additionally, at any time various Australian Government entities are pursuing various other claims and legal actions that are pending court or other processes.

Other disclosure

The following contingencies are considered remote but are significant and have been disclosed to ensure comparability with contingency disclosures in the 2016-17 Budget, specifically Budget Paper 1, Statement 8: Statement of Risks:

• Financial Claims Scheme - Deposits (administered by the Australian Prudential

Regulation Authority (APRA)). Provides depositors of authorised deposit-taking institutions and general insurance policyholders with timely access to their funds in the event of a financial institution failure. Authorised under the Banking Act 1959 and available from 1 February 2012, deposits up to $250,000 at eligible authorised deposit-taking institutions are covered under the Financial Claims Scheme. This $250,000 cap has no expiry date. When last estimated as at 31 December 2015, deposits eligible for coverage under the Financial Claims Scheme were approximately $810 billion (31 December 2014: $766 billion). It is not possible to estimate the amounts of any eventual payments that may be required in relation to the scheme.

• Financial Claims Scheme - Insurance (administered by the Australian Prudential

Regulation Authority (APRA)). The Policyholder Compensation Facility established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer. Amounts available to meet payments and administer both facilities, in the event of activation, are capped at $20 billion under the legislation. Any payments made

Notes to the financial statements

118

under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. If there were a shortfall, a levy would be applied to industry to recover the difference between the amount expended and the amount recovered in the liquidation. It is not possible to estimate the amounts of any eventual payments that may be required in relation to the scheme.

Notes to the financial statements

119

Note 11B: Financial instruments

(a) Categories of financial instruments

The classification of financial assets depends on the purpose for which they were acquired. The Australian Government classifies its financial assets into the following categories:

Financial assets at fair value through profit or loss

Loans and receivables

Held-to-maturity investments Available-for-sale

Financial assets held for trading, and those designated at fair value through profit or loss. Derivatives are categorised as held for trading unless they are designated as hedges

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market

Non-derivative financial assets with fixed or determinable payments and fixed maturities where there is a positive intention and ability to hold to maturity

Principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories

Similarly, the classification of financial liabilities depends on the purpose of the liability. The Australian Government classifies its financial liabilities in the following categories:

• financial liabilities at fair value through profit or loss; and

• other liabilities.

Notes to the financial statements

120

Categories of financial instruments by value

2016 2015 2016 2015

$m $m $m $m

Financial assets(a) Loans and receivables 26,308 26,870 128,662 108,252

Financial assets at fair value through profit or loss 201,563 188,771 234,272 221,501

Held to maturity 3,661 3,544 4,153 3,963

Available for sale 63,480 52,467 17,746 13,346

Carrying amount of financial assets 295,012 271,652 384,833 347,062

Financial liabilities Financial liabilities at fair value through profit or loss 485,277 412,401 487,417 409,350

Other financial liabilities 26,400 21,494 143,022 124,391

Carrying amount of financial liabilities 511,677 433,895 630,439 533,741

General Australian

Government Government

(a) Statutory receivables, gold holdings and equity accounted investments are included in financial assets in the Balance Sheet but excluded from this note as they do not represent cash, an equity instrument of another entity, nor a contractual right to receive cash or another financial asset. At 30 June 2016, statutory receivables were valued at $37,516 million (30 June 2015: $34,848 million), gold holdings were valued at $4,165 million (30 June 2015: $3,866 million) and equity accounted investments were valued at $291 million (30 June 2015: $306 million). Gold holdings were previously categorised with gold loans under ‘loans and receivables’.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using the effective interest method less impairment. For ‘financial assets at fair value through profit or loss’, gains and losses arising from changes in the fair value are included as other economic flows in the operating statement in the period in which they arise.

Certain financial assets categorised as ‘loans and receivables’ and measured at amortised cost are initially measured at fair value using a valuation method as a quoted price was not observable. In addition, the investment in the IMF quota is classified as ‘available for sale’ but is measured at cost as fair value cannot be reliably measured due to its unique nature.

Notes to the financial statements

121

Impairment of financial assets

Financial assets are assessed for impairment at each balance date. If there is objective evidence that an impairment loss has been incurred it is recognised as follows:

Financial asset category Measurement of impairment loss Recognition of impairment

loss

Financial assets held at amortised cost: loans and receivables or held to maturity investments held at amortised cost

Difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.

• carrying amount is reduced by way of an allowance account • loss is recognised in the

operating statement as an ‘other economic flow’.

Financial assets held at cost: unquoted equity instrument held at cost (because fair value cannot be reliably measured) or a linked derivative asset

Difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate for similar assets.

• loss is recognised in the operating statement as an ‘other economic flow’.

Available for sale financial assets Difference between its cost, less principal repayments and

amortisation, and its fair value, less any impairment loss previously recognised in the operating statement.

• transferred from equity (net worth) to the operating statement as an ‘other economic flow’.

Derecognition of financial assets and liabilities

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or the asset is transferred to another entity. In the case of a transfer to another entity, it is necessary that the risks and rewards of ownership are also transferred. Financial liabilities are derecognised when the obligation under the contract is discharged, cancelled or expired.

Fair value

The fair values of Australian Government and GGS financial assets and liabilities approximate their carrying amounts as reported in the CFS, with the exception of the subsequent measurement of concessional loans categorised as ‘loans and receivables’ under AASB 139 Financial Instruments: Recognition and Measurement. Subsequent to recognition, these loans are carried at amortised cost which may differ to an updated fair value.

Notes to the financial statements

122

Net income, expense and other economic flows from financial assets

2016 2015 2016 2015

$m $m $m $m

Loans and receivables Interest income 455 510 73 311

Net gain/(loss) on disposal - 1 6 8

Net foreign exchange gain/(loss) (17) (5) (20) (3)

Write-down and impairment (398) (249) (400) (262)

Interest expenses (7) (18) (7) (18)

Net gain/(loss) 33 239 (348) 36

Available for sale Interest income 5 2 31 29

Dividend income 3,466 2,344 53 38

Net gain/(loss) on disposal - (1) - (1)

Net foreign exchange gain/(loss) 181 626 181 626

Fair value movements in equity (2,970) 3,951 641 383

Net gain/(loss) 682 6,922 906 1,075

Held for trading Interest income - - 1,746 1,527

Net gain/(loss) - - 1,746 1,527

Fair value through profit and loss Interest income 4,316 3,520 4,369 3,574

Net gain/(loss) on disposal 6,052 6,965 5,890 6,874

Dividend income 2,774 3,833 2,810 3,889

Net foreign exchange gain/(loss) 430 (2,317) 2,252 3,829

Write-down and impairment - (7) - (7)

Interest expenses (406) (517) (406) (517)

Other gains/(losses) (4,384) 11,955 (4,364) 7,964

Net gain/(loss) 8,782 23,432 10,551 25,606

Held to maturity Interest income 122 135 122 158

Net foreign exchange gain/(loss) - 2 - 2

Net gain/(loss) 122 137 122 160

Government Government

General Australian

Notes to the financial statements

123

Net income, expense and other economic flows from financial liabilities

2016 2015 2016 2015

$m $m $m $m

Held at fair value through profit and loss Interest expenses 18,068 16,534 17,681 16,397

Other gains/(losses) (17,913) (8,197) (17,915) (8,197)

Net gain/(loss) held at fair value through profit and loss 155 8,337 (234) 8,200

Other financial liabilities Interest expenses 429 388 1,407 1,356

Net foreign exchange gain/(loss) (164) (641) (166) (647)

Net gain/(loss) other financial liabilities 265 (253) 1,241 709

General Australian

Government Government

(b) Financial management objectives and market risk

Market risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises currency risk, interest rate risk and other price risks. The management of market risk by Australian Government entities is governed by the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and, for some entities such as the RBA, specific legislation.

The three sectors of government: GGS, PNFC and PFC; hold financial instruments for different purposes and with different market risk exposures. Consequently, the following discussion of financial management objectives and market risk has been disaggregated by sector. Where material, the discussion includes a sensitivity analysis for each type of market risk exposure showing the effect on the net operating balance and net worth resulting from ‘reasonably possible’ changes in market risk at 30 June 2016.

Generally, in applying the sensitivity analysis as at 30 June 2016, a default rate of 10.5 per cent (2015: 10.9 per cent) has been applied for the sensitivity analysis of foreign exchange risk and 30 to 100 basis points for the sensitivity analysis of interest rate risk. However, for certain financial instruments, different sensitivity rates have been used based on the relevant entity’s assessment of changes in risk variables that were considered reasonably possible at the reporting date with regard to the nature of the underlying financial instrument.

General government sector

GGS entities hold financial instruments as part of their operations or for public policy purposes.

Notes to the financial statements

124

Management of interest rate risk in the general government sector

Commonwealth entities subject to the PGPA Act are required to draw down administered and departmental monies on an ‘as-needed’ basis. As a general principle, Commonwealth general government entities cannot invest public monies except as delegated under section 58 of the PGPA Act or authorised by legislation. Corporate Commonwealth entities subject to the PGPA Act are also restricted in how they can invest monies that are surplus to operational requirements. As a general principle, surplus money may only be placed on deposit with a bank or invested directly in securities issued or guaranteed by the Australian Government, a state or a territory, unless an exemption is approved by the Finance Minister. Financial assets held by the majority of GGS entities are non-interest bearing, including trade receivables, or have fixed interest and do not fluctuate due to changes in the market interest rate.

The Treasurer has delegated investment powers to the Australian Office of Financial Management (AOFM). The AOFM’s functions give it primary responsibility for ensuring that the Australian Government has sufficient cash to meet its needs. As at 30 June 2016, AOFM had deposited $28.9 billion in term deposits with the RBA on behalf of the Australian Government (2015: $34.3 billion). As these investments are internal to the Australian Government reporting entity, they are not reported in the CFS, except at the general government level.

Investment funds

The Australian Government Investment Funds currently comprise:

• Future Fund;

• DisabilityCare Australia Fund (DCAF);

• Building Australia Fund (BAF);

• Education Investment Fund (EIF); and

• Medical Research Future Fund (MRFF).

The Future Fund was established by the Future Fund Act 2006 to finance the Australian Government’s unfunded public sector superannuation liability. The Future Fund Board of Guardians is responsible for the investment decisions of the Fund under an Investment Mandate issued by the Australian Government. The Investment Mandate requires the Board to maximise returns above a benchmark rate whilst taking acceptable but not excessive risk. The benchmark rate has been set at the Consumer Price Index (CPI) plus 4.5 per cent to 5.5 per cent per annum over the long term. Section 58 of the PGPA Act does not apply to investments of the fund.

Notes to the financial statements

125

The Health and Hospitals Fund (HHF) was abolished with effect from 29 October 2015, replaced with the Medical Research Future Fund (MRFF). $1.01 billion was transferred to the MRFF with the remaining funds returned to

Government. The MRFF will provide grants of financial assistance to support health and medical research innovation with the objective of improving the health and wellbeing of Australians.

The DCAF is an investment fund which reimburses Commonwealth and state and territory governments for the costs relating to the National Disability Insurance Scheme.

The Nation Building Funds (BAF and EIF) are designed to provide financing resources for critical areas of infrastructure.

The MRFF, DCAF and Nation Building Funds are also managed by the Future Fund Management Agency and the Future Fund Board of Guardians and operate under the same governance arrangements.

As at 30 June 2016, the Funds’ exposures to interest rates, in respect of securities held, was:

2016 2015 2016 2015

$m $m $m $m

Future Fund 7,544 8,810 22,918 17,517

Other Investment Funds 8,572 7,390 7,245 3,989

Floating interest rates Fixed interest rates

The following table details the impact on the net operating balance and net worth of a 30 basis point (2015: 40 basis point) change in the Funds’ interest rate bond yield with all other variables held constant.

Interest rate risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Future Fund +30bp (575) (575) n/a n/a

-30bp 587 587 n/a n/a

+40bp n/a n/a (525) (525)

-40bp n/a n/a 544 544

Other Investment Funds +30bp 9 9 n/a n/a

-30bp (8) (8) n/a n/a

+40bp n/a n/a 21 21

-40bp n/a n/a (19) (19)

Effect on Effect on

Notes to the financial statements

126

Exchange traded interest rate futures are used by the Future Fund’s investment managers to manage the exposure to interest rates and to ensure it remains within approved limits. At 30 June 2016, the notional value of open futures contracts and swaps totalled $19,918 million (2015: $12,526 million).

The other administered funds had open positions in exchange traded interest rate futures contracts as at 30 June 2016. The notional value of investments in ‘sell international interest rate futures contracts’ was negative $1,762 million (2015: negative $1,054 million).

Financial assets held for policy purposes

The GGS also holds certain financial assets and liabilities for public policy purposes. These include:

• Residential mortgage-backed securities (RMBS) - RMBS support competition in the Australian residential mortgage market. They are administered by the AOFM and were initiated in September 2008. RMBS investments were subsequently extended in October 2008 and again in November 2009 (with a total program of up to $20 billion). In April 2013, the Government announced that due to improvements in market conditions, the AOFM would not make any new investments in RMBS. On behalf of the Australian Government, the AOFM acquired a total of $15,462 million of AAA (or equivalent) rated RMBS up to 30 June 2016. The amount held as at 30 June 2016 was $2,813 million (in principal terms). Interest earned on RMBS comprises a floating interest rate (set against the one-month Bank Bill Swap (BBSW) reference rate) plus a fixed margin set at the time each investment is acquired. The following table shows the sensitivity to a change in the one-month BBSW rate.

Interest rate risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Residential mortgage backed +30 bp 8 8 n/a n/a

securities -30 bp (8) (8) n/a n/a

Residential mortgage backed +40 bp n/a n/a 17 17

securities -40 bp n/a n/a (17) (17)

Effect on Effect on

The prior year has been restated to reflect the change in approach for sensitivity analysis in accordance with AASB 7 Financial Instruments: Disclosures.

Notes to the financial statements

127

• Concessional loans held for policy purposes — The Australian Government has entered into a number of concessional loan arrangements for policy purposes. These include student loans provided under the Higher Education Loan Program (2016: $36,808 million, 2015: $30,445 million) and loans to state and territory governments under previous Commonwealth-State financing arrangements (2016: $1,957 million, 2015: $2,033 million). Student loans have been designated as ‘held at fair value through profit and loss’. Changes in market interest rates will impact on the fair value of these loans but will have no impact on the future cash flows or principal amounts at maturity. Loans to state and territory governments are borrowings for a fixed period with regular repayments, which comprise principal and interest components, and a fixed interest rate. Other concessional loans have been designated as ‘loans and receivables’ and have no exposure to interest rate risk.

Other material financial assets held for policy purposes (rather than liquidity management) include: Australia’s subscription to the Asian Development Fund and International Development Association; the IMF quota; investments in international financial institutions; and, at the general government level, the investment in public corporations.

Debt management

The majority of GGS entities are prohibited from borrowing. The AOFM is responsible for the borrowing activities of the GGS and for overall debt management. For many years, debt issuance by the Australian Government was undertaken solely with the objective of maintaining the Treasury Bond and Treasury Bond futures markets, as successive budget surpluses removed the need to borrow to fund the Budget. The forecast Budget outlook changed in the Updated Economic and Fiscal Outlook published on 3 February 2009 and the objective of issuance changed to funding the Budget. As a means of diversifying its funding sources, in September 2009, the

Australian Government resumed issuance of Treasury Indexed Bonds.

The main types of market risk the Australian Government’s debt portfolio is exposed to is domestic interest rate risk and domestic inflation risk. Moreover, by generally issuing/buying and holding to maturity, the market risk most relevant to the debt portfolio is the risk of fluctuations to future interest cash flows and principal amounts arising from changes in interest rates and inflation. In market value terms, as at 30 June 2016, the AOFM had issued $483,361 million in Commonwealth Government Securities (2015: $409,936 million). The following table provides a sensitivity analysis of interest rate risk in relation to the debt portfolio.

Notes to the financial statements

128

Interest rate risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Treasury bonds +30 bp 7,711 7,711 n/a n/a

-30 bp (7,940) (7,940) n/a n/a

Treasury notes +40 bp n/a n/a 7,728 7,728

-40 bp n/a n/a (8,019) (8,019)

Effect on Effect on

The prior year has been restated to reflect the change in approach for sensitivity analysis in accordance with AASB 7 Financial Instruments: Disclosures.

Management of currency risk in the general government sector

Entities in the GGS are responsible for the management of their foreign exchange risks. However, it is Australian Government policy that these entities, with four exceptions, do not act to reduce the foreign exchange risk that they would otherwise face in the course of their business arrangements. This means that these GGS entities are not permitted to undertake any form of hedging. Rather than allowing GGS entities to enter into individual hedging arrangements, the Australian Government has taken a decision to self-insure foreign exchange exposures and not accept the additional costs associated with hedging. This is based on the view that, as a large organisation, the Australian Government has a broad spread of assets and liabilities and a range of revenues and expenses, both geographically and across classes, which assists in the management of movements in exchange rates. The four exceptions are the Future Fund, the AOFM, the Australian Broadcasting Corporation and the Export Finance and Insurance Corporation (National Interest Account).

The Future Fund undertakes certain transactions denominated in foreign currencies, hence it is exposed to the effects of exchange rate fluctuations. Exchange rate exposures are managed utilising forward foreign exchange contracts. The Fund’s exposure in Australian equivalents to foreign currency risk at 30 June 2016 totalled $81,798 million (2015: $80,737 million). After adjusting for forward exchange contracts, the Fund’s net exposure at 30 June 2016 amounted to $53,529 million (2015: $49,220 million). The Fund’s exposures are in multiple currencies, primarily US dollar, Euro, Yen and the UK Pound.

The following table demonstrates the impact on the net operating balance and net worth, of a 10.5 per cent movement (2015: 10.9 per cent movement) in the value of the Australian dollar (AUD) relative to the basket of actual net exposures.

Notes to the financial statements

129

Currency risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Investments +10.5% 6,581 6,581 n/a n/a

-10.5% (6,459) (6,459) n/a n/a

+10.9% n/a n/a 4,667 4,667

-10.9% n/a n/a (4,587) (4,587)

Effect on Effect on

The Australian Government holds several financial instruments as part of its membership of the IMF and its investment in international financial institutions and multilateral aid organisations. These financial instruments include the:

• IMF quota (financial assets), comprising the current value in AUD of Australia’s subscription to the IMF (2016: $12,354 million, 2015: $5,913 million);

• investment in international financial institutions, including the European Bank for Reconstruction and Development, the International Bank for Reconstruction and Development, the International Finance Corporation, the Asian Development Bank and the Multilateral Investment Guarantee Agency (2016: $1,256 million, 2015: $1,013 million);

• subscription based membership rights (not control) held by the Australian Government in accordance with the articles of association for the International Development Association and the Asian Development Fund, which are recognised at fair value (2016: $1,987 million, 2015: $1,936 million);

• promissory notes (financial liability) issued to the IMF and international financial institutions (2016: $9,651 million, 2015: $4,825 million). The promissory notes are non-interest bearing and relate to the undrawn paid-in capital subscriptions; and

• the SDR allocation liability which reflects the current value in AUD of the Treasury’s liability to repay to the IMF Australia’s cumulative allocations of SDRs (2016: $5,795 million, 2015: $5,633 million).

The Australian Government is exposed to foreign currency denominated in US dollars, Euro and SDR on the above financial instruments. The following table details the impact on the net operating balance and net worth of a 10.5 per cent

(2015: 10.9 per cent) movement in the value of the AUD relative to financial instruments associated with the IMF and international financial institutions, and a 10.5 per cent (2015: 10.9 per cent) movement for financial instruments associated with multi-lateral aid organisations.

Notes to the financial statements

130

Currency risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Loans + 10.5% (189) (189) n/a n/a

- 10.5% 234 234 n/a n/a

+ 10.9% n/a n/a (191) (191)

- 10.9% n/a n/a 238 238

International Monetary Fund +10.5% (1,174) (1,174) n/a n/a

-10.5% 1,449 1,449 n/a n/a

+10.9% n/a n/a (581) (581)

-10.9% n/a n/a 723 723

Effect on Effect on

Management of other price risk in the general government sector

The Australian Government is exposed to equity price risks arising from equity investments, primarily through Future Fund investments. The equity price risk is the risk that the value of the equity portfolio will decrease as a result of changes in the levels of equity indices and the price of individual stocks. The Future Fund holds all of its equities at fair value through profit or loss.

As at 30 June 2016, the Future Fund’s exposure to equity price risk consisted of $9,998 million in domestic listed equities and listed managed investment schemes (2015: $11,001 million) and $28,435 million in international listed equities and listed management schemes (2015: $30,883 million).

The following table demonstrates the impact on the net operating balance and net worth of a +/- 20 per cent change in domestic equities and a +/- 15 per cent change in international equities held by the Future Fund.

Other price risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Assets

Australian equities + 20% 2,851 2,851 2,869 2,869

- 20% (2,796) (2,796) (2,724) (2,724)

International equities + 15% 9,403 9,403 9,259 9,259

- 15% (8,983) (8,983) (8,543) (8,543)

Effect on Effect on

Notes to the financial statements

131

The Future Fund had open positions in exchange traded equity futures contracts and equity option contracts as at 30 June 2016. The exchange traded equity futures, swaps and options are used to manage market exposures to equity price risk to ensure that asset allocations remain within the Future Fund’s approved limits. The notional value of the open contracts and their fair market value are set out below.

Notional Fair Notional Fair

value market value market

value value

2016 2016 2015 2015

$m $m $m $m

Buy domestic equity futures contracts 137 - 220 (5)

Sell domestic equity futures contracts (1,921) 3 (2,233) 44

Buy international equity futures contracts 2,388 (143) 2,705 (44)

Sell international equity futures contracts (2,612) (22) (1,681) 36

Sell equity index swap agreements - - (18) -

Exchange traded international volatility index call options 2 - 1 1

Exchange traded international volatility index put options 2 - - -

Over the counter domestic equity index put options - - (46) 3

Over the counter domestic equity index call options 142 13 281 21

Over the counter international equity index put options (115) 7 (1,060) 70

Over the counter international equity index call options 2,488 238 4,537 597

Exchange traded warrants - - - -

511 96 2,706 723

Equity price risk

Total

The Australian Government is exposed to cash flow risk on Treasury Capital Indexed Bonds on issue. These instruments expose the Australian Government to cash flow risk on interest payments and the value of principal payable on maturity arising from indexation against the (all groups) Australian CPI. When the CPI increases, debt servicing costs and the principal payable on maturity will also rise (subject to a six-month lag).

Notes to the financial statements

132

At 1 July 2015, if the CPI had experienced an immediate 30 basis points increase/(decrease) and that change were to persist for 12 months to 30 June 2016 with all other variables held constant, the effect on the net operating balance and net worth position for the year ended 30 June 2016 would be as follows:

CPI sensitivity analysis

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Treasury Capital Indexed Bonds +30 bp 969 969 n/a n/a

-30 bp (1,006) (1,006) n/a n/a

+40 bp n/a n/a 1,121 1,121

-40 bp n/a n/a (1,172) (1,172)

Effect on Effect on

The prior year has been restated to reflect the change in approach for sensitivity analysis in accordance with AASB 7 Financial Instruments: Disclosures.

Public financial corporations

The PFC sector comprises the RBA and similar entities.

The RBA is Australia’s central bank. Its role is set out in the Reserve Bank Act 1959. The RBA’s main responsibility is monetary policy. In addition to conducting monetary policy, the RBA also holds Australia’s foreign currency reserves, operates Australia’s main high-value payments system, provides banking services to the Australian Government and designs, produces and issues Australia’s banknotes. In undertaking these functions, the RBA has significant exposures to interest rate and currency risk. The Export Finance and Insurance Corporation (EFIC) is also involved in lending and borrowing activities with exposures to interest rate and currency risk.

In the PFC sector the market operations of the RBA and EFIC make up the overwhelming majority of the sector’s exposure to market risk. The following market risk disclosures are therefore limited to the market operations of the RBA and EFIC.

Management of interest rate risk in the public financial corporations sector

The RBA’s balance sheet is exposed to considerable interest rate risk because most of its assets are financial assets, such as domestic and foreign securities, which have a fixed income stream. The price of such securities increases when market interest rates decline, while the price of a security will fall if market rates rise. Interest rate risk increases with the maturity of a security because the associated income stream is fixed for a longer period.

Notes to the financial statements

133

The following table shows the sensitivity to a change in interest rate variables.

Interest rate risk

Change in risk variable

Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Foreign currency securities +100 bp 339 339 300 300

-100 bp (339) (339) (300) (300)

Australian dollar securities +100 bp 144 144 156 156

-100 bp (144) (144) (156) (156)

Effect on Effect on

As EFIC is also involved in lending and borrowing activities, interest rate risks arise. EFIC uses interest rate swaps, forward rate agreements, cross-currency swaps and futures as the primary methods of reducing exposure to interest rate movements.

Management of currency risk in the public financial corporations sector

Foreign exchange risk arises from the RBA’s foreign currency assets, which are held to support the RBA’s operations in the foreign exchange market. The overall level of foreign currency exposure is determined by policy considerations and cannot otherwise be managed to reduce foreign exchange risk. The RBA’s net foreign currency exposure as at 30 June 2016 was $53 billion (2015: $50 billion). Within the overall exposure and to a limited extent, foreign currency risk can be reduced by holding assets across a diversified portfolio of currencies.

The RBA holds foreign reserves in several currencies — the US dollar (55 per cent of net foreign currency holdings), the Euro (20 per cent), the Canadian dollar (5 per cent), the Yen (5 per cent), the Chinese renminbi (5 per cent), the UK pound sterling (5 per cent) and the South Korean won (5 per cent) — because the markets for these currencies are typically liquid and suitable for investing foreign exchange reserves. The RBA also operates in foreign exchange markets on behalf of its clients, including to assist the Australian Government in meeting foreign currency obligations. The following table demonstrates the RBA’s sensitivity to a movement of +/-10 per cent in the value of the AUD exchange rate as at 30 June 2016.

Currency risk

Change in risk Operating balance

Net

worth

Operating balance Net worth

2016 2016 2015 2015

$m $m $m $m

Australian dollar exchange rate + 10% (4,845) (4,845) (4,547) (4,547)

- 10% 5,922 5,922 5,557 5,557

Effect on Effect on

Notes to the financial statements

134

The RBA undertakes foreign currency swaps to assist its daily domestic market operations. These instruments carry no foreign exchange risk since the exchange rates at which both legs of the transaction are settled are agreed at the time the swap is undertaken.

EFIC extends facilities in various currencies, principally in US dollars and Euros. Where the borrowing currency is different from the currency of the assets being funded, cross-currency swaps, or the foreign exchange markets are used to offset the exposure (before provisions). EFIC’s exposure in AUD to foreign currency risk at 30 June 2016 totalled $3,150 million on financial assets and $3,184 million on financial liabilities giving a net exposure of negative $34 million (2015: negative $31 million).

Public non-financial corporations

The PNFC entities primarily hold financial instruments as a direct result of operations, including trade receivables and payables, or to finance operations. Certain entities in the PNFC sector also enter into derivative transactions, including interest rate swaps, forward currency contracts and commodity swap contracts. The purpose is to manage

the interest rate, currency and commodity risks arising from the entity’s operations and sources of finance.

(c) Credit risk

Credit risk in relation to financial assets, is the risk that a third party will not meet its obligations in accordance with agreed terms. Generally, the Australian Government’s maximum exposure to credit risk in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the consolidated balance sheet. The following table shows the credit quality of financial receivables reported in the CFS that are not past due nor individually determined as impaired.

2016 2015 2016 2015

$m $m $m $m

Not Past Not Past Past Past

Due Nor Due Nor Due or Due or

Impaired Impaired Impaired Impaired

$m $m $m $m

Australian Government

Advances and loans 48,050 41,682 143 88

Goods and services receivable 1,619 1,262 162 245

Other receivables 2,796 3,488 735 817

Total 52,465 46,432 1,040 1,150

General Government Advances and loans 46,755 40,570 143 88

Goods and services receivable 778 609 135 122

Other receivables 5,641 5,584 735 776

Total 53,174 46,763 1,013 986

Notes to the financial statements

135

The following table shows the ageing of financial receivables that are past due but not impaired for 2016:

0 to 30 30 to 60 60 to 90 over 90 Total

days days days days

$m $m $m $m $m

Australian Government

Advances and loans 61 21 9 52 143

Goods and services receivable 108 42 12 - 162

Other receivables(a) 42 31 27 635 735

Total 211 94 48 687 1,040

General Government

Advances and loans 61 21 9 52 143

Goods and services receivable 87 22 12 14 135

Other receivables(a) 42 31 27 635 735

Total 190 74 48 701 1,013

(a) Excludes statutory receivables such as taxes receivable and personal benefits recoverable.

The following table provides the corresponding information for 2015:

0 to 30 30 to 60 60 to 90 over 90 Total

days days days days

$m $m $m $m $m

Australian Government

Advances and loans 38 23 7 20 88

Goods and services receivable 131 37 25 52 245

Other receivables(a) 84 29 28 676 817

Total 253 89 60 748 1,150

General Government

Advances and loans 38 23 7 20 88

Goods and services receivable 64 28 18 12 122

Other receivables(a) 43 29 28 676 776

Total 145 80 53 708 986

(a) Excludes statutory receivables such as taxes receivable and personal benefits recoverable.

The following table illustrates changes in the fair value of loans and receivables designated at fair value through profit and loss that arose due to credit risk:

2016 2015

$m $m

Fair value changes due to credit risk:

During the period 2,049 1,442

Prior period 11,244 8,787

Cumulative change 13,293 10,229

Notes to the financial statements

136

Australian Government entities have assessed the risk of default on payment and have allocated $237 million to the impairment allowance for advances and loans at 30 June 2016 (2015: $236 million) and $858 million to the impairment allowance for goods and services and other receivables at 30 June 2016 (2015: $754 million).

The majority of Australian Government entities do not have significant exposures to any concentrations of credit risk. Generally, Australian Government entities’ exposures are to a large number of customers or highly rated counterparties and their credit risks are very low. Australian Government entities that do have material concentrations of credit risk include:

• the Future Fund has a significant exposure to interest bearing securities issued by domestic banks (including domestic subsidiaries of foreign banks);

• EFIC’s principal exposure to credit risk arises from the financing and credit facilities extended to clients. Exposures on the commercial account amounted to $2,079 million at 30 June 2016 (2015: $2,042 million) and on the national interest account amounted to $822 million (2015: $915 million);

• the AOFM’s financial investments include loans to state and territory governments, deposits, discount securities and RMBS. The credit quality of the RMBS derives from the underlying quality of the mortgage assets and structural enhancements such as lenders mortgage insurance, liquidity facilities, and the issue of different classes of securities. At the time of acquisition, each RMBS issue must meet a range of eligibility criteria set by the AOFM;

• for the RBA, credit risk arises from exposure to the issuers of securities that it holds; banks with which the RBA deposits funds and counterparties that are yet to settle transactions. The RBA’s credit exposure is low compared with that of most commercial financial institutions because it manages such risks within a highly risk-averse framework; and

• from time to time the Australian Government may have significant exposures to credit risk in relation to major asset sales.

Collateral

With the exception of the following, the majority of Australian Government entities do not hold collateral to manage credit risk. Cash invested by the RBA under repurchase agreements is secured by collateral to a value of 102 per cent of the amount invested. In relation to Indigenous Business Australia’s gross credit risk, collateral valued at $1,491 million is held against home and business loans (2015: $1,403 million). For EFIC, collateral held may include first ranking mortgages over assets financed by EFIC, standby documentary credits, third-party guarantees and recourse to companies and company directors. No collateral has currently been called and held at year end.

Notes to the financial statements

137

(d) Liquidity risk

Liquidity risk is the risk that the Australian Government will not be able to meet its obligations as they fall due. The following tables disclose the undiscounted value of the contractual maturities of financial liabilities as at the end of the financial year, including estimated future interest payments.

The Australian Government has sufficient access to funds to meet its liabilities as they fall due. The Australian Government is positioned to address liquidity risk through existing revenue sources, including the power to tax, and its capacity to roll over existing debt:

138

Notes to the financial statements

Liquidity risk(a)(b)

On 1 year 1 to 5 More than Total On 1 year 1 to 5 More than Total

demand or less years 5 years(c) demand or less years 5 years(c)

$m $m $m $m $m $m $m $m $m $m

Australian Government Suppliers 198 4,917 113 1 5,229 212 6,403 120 2 6,737

Subsidies payable - 218 - - 218 - 171 - - 171

Grants liability 11 1,905 742 168 2,826 17 2,422 930 275 3,644

Other payables 157 5,580 1,490 526 7,753 200 3,887 1,076 245 5,408

Deposits 16,015 14,719 - - 30,734 11,398 13,726 - - 25,124

Government securities - 33,840 230,981 276,344 541,165 - 52,132 180,570 239,209 471,911

Loans - 1,912 3,014 11,221 16,147 - 1,302 2,679 6,484 10,465

Leases - 161 722 2,282 3,165 - 627 2,089 11,070 13,786

Other interest bearing liabilities - 8,999 - 6,385 15,384 7 5,016 1,001 7,066 13,090

Australian currency on issue - - - 70,209 70,209 - - - 65,481 65,481

Total financial liabilities 16,381 72,251 237,062 367,136 692,830 11,834 85,686 188,465 329,832 615,817

General Government Suppliers 102 4,369 78 1 4,550 107 4,492 53 2 4,654

Subsidies payable - 218 - - 218 - 171 - - 171

Grants liability 11 1,963 742 168 2,884 17 2,471 930 275 3,693

Other payables 127 1,524 184 16 1,851 140 1,553 124 29 1,846

Deposits 212 6 - - 218 218 - - - 218

Government securities - 33,840 233,046 276,948 543,834 - 56,957 181,131 240,027 478,115

Loans - 85 516 10,214 10,815 - 175 566 5,228 5,969

Leases - 160 720 2,272 3,152 - 180 767 2,278 3,225

Other interest bearing liabilities - 653 - 5,795 6,448 7 944 3 5,634 6,588

Australian currency on issue - - - - - - - - - -

Total financial liabilities 452 42,818 235,286 295,414 573,970 489 66,943 183,574 253,473 504,479

2016 2015

(a) The amounts disclosed in the tables above are the undiscounted values and may not align to the amounts disclosed in the balance sheet. (b) The Future Fund has entered into forward exchange contracts to manage exposure to currency risk. These contracts are settled on a gross basis with maturities one year or less. Inflows under contract at 30 June 2016 amounted to $15,557 million (2015: $35,564 million) and outflows amounted to $16,004 million (2015: $32,083 million). (c) Includes certain instruments with no specified maturity, such as Australian currency on issue.

Notes to the financial statements

139

Note 11C: Defined benefit superannuation plans

Accounting policy

The Australian Government recognises actuarial gains or losses immediately in Other Comprehensive Income in the year in which they occur. Interest on the net defined benefit liability is recognised in profit and loss. The return on plan assets excluding the amount included in interest income is recognised in Other Comprehensive Income.

Superannuation liabilities are calculated annually as the present value of future benefit obligations less the fair value of scheme assets. The rate used to discount future benefits is determined by reference to the long-term government bond rate. The long-term government bond rate decreased from 3.7 per cent at 30 June 2015 to 2.7 per cent at 30 June 2016, significantly increasing the superannuation liability in comparison to the prior year.

Overview of schemes

GGS employees will usually be members of the Commonwealth Superannuation Scheme (CSS), Public Sector Superannuation Scheme (PSS) or the Public Sector Superannuation Accumulation Plan (PSSAP). The PSS and the CSS are closed to new members, with the PSSAP available to most new employees who commenced employment on or after 1 July 2005. The CSS and PSS provide defined benefits. The PSSAP provides fully funded accumulation benefits to members, with no ongoing liability to the Australian Government.

Australian Government military personnel are members of the Defence Force Retirement and Death Benefits Scheme (DFRDB) or the Military Superannuation Benefits Scheme (MSBS). Both schemes are defined benefit schemes. The DFRDB was closed to new members in 1991. The MSBS was closed to new members from 1 July 2016. A new accumulation scheme, ADF Super, commenced for new military personnel who entered on or after 1 July 2016.

In addition to the above, several schemes have been established under legislation for specified personnel, including the Parliamentary Contributory Superannuation Scheme (PCSS) (closed to new members since 9 October 2004), Judges’ Pension Scheme (JPS), Governor-General Pension Scheme, Federal Circuit Court Judges Death and Disability Scheme (FCCJDDS) and the North American and London, Dublin and New Delhi pension schemes.

Notes to the financial statements

140

Several Public Corporations are responsible for defined benefit schemes for their employees, including:

Scheme title Responsible entities

AvSuper(a) Airservices Australia

Australia Post Superannuation Scheme (APSS)(a) Australia Post Corporation State Authorities Superannuation Scheme (SASS), State Superannuation Scheme (SSS), State Authorities Non-contributory Superannuation Scheme (SASCS)(a)

Australian Rail Track Corporation

Australian Submarine Corporation Superannuation Fund (ASCSF) Australian Submarine Corporation Reserve Bank of Australia Officers’ Superannuation Fund (OSF) and UK Pension Scheme (UKPS)(a) RBA

(a) As required under AASB 119, Employee Benefits, the rate used to discount the superannuation liability is determined by reference to market yields on government bonds. Certain for-profit public corporations have applied the market yield on high quality corporate bonds in discounting their long-term employee benefits. On consolidation into these statements, the discount rate and associated disclosures have been adjusted back to apply government bond rates.

For the purposes of this whole of government disclosure, ‘less material’ schemes have been grouped under ‘other’.

Composition

As at 30 June 2016, the composition of the Australian Government’s net liability for the defined benefit schemes (as reported in Note 8F) was as follows:

Scheme

2016 2015 2016 2015

$m $m $m $m

Commonwealth Superannuation Scheme (CSS) 86,124 76,798 86,124 76,798 Public Sector Superannuation Scheme (PSS) 100,613 74,800 100,613 74,800

Defence Force Retirement and Death Benefits Scheme (DFRDB) 50,359 42,945 50,359 42,945

Military Superannuation Benefits Scheme (MSBS) 74,369 51,156 74,369 51,156 Other schemes 2,714 2,355 3,360 2,384

Other superannuation liabilities 49 155 133 457

Total superannuation provision 314,228 248,209 314,958 248,540

General Government Australian Government

Notes to the financial statements

141

The following chart illustrates the relative mix of the Australian Government superannuation liability by scheme:

CSS 27%

PSS 32%

DFRDB 16%

MSBS 24%

Other 1%

The defined benefit plan asset of $34 million reported in Note 7B (2015: $266 million) relates to certain schemes sponsored by public corporations (included in ‘other’).

Regulatory framework

The following table details the enabling legislation for each of the individually disclosed defined benefits schemes and whether the scheme must comply with the requirements of the Superannuation Industry (Supervision) Act 1993.

Scheme Enabling Act Period open for new

members

Requirement

CSS Superannuation Act 1976 1 July 1976 to 30 June 1990 • Compliance with the Superannuation

Industry (Supervision) Act 1993.

PSS Superannuation Act 1990 1 July 1990 to 30 June 2005

MSBS Military Superannuation and Benefits Act 1991 From 1 October 1991

DFRDB Defence Force Retirement and Death Benefits Act 1973 1 October 1972 to 30 September 1991

• Exempt from Superannuation Industry (Supervision) Act 1993.

Notes to the financial statements

142

Funding arrangements

The funding arrangements for the various schemes are as follows:

Scheme Funding

CSS Partially funded. Contributions generally comprise basic member contributions and employer productivity (up to three per cent) contributions. Benefits are funded on an emerging cost basis. PSS MSBS DFRDB Unfunded. DFRDB’s member’s contribution rate is 5.5 per cent of the highest

incremental salary for rank plus Service Allowance, which is paid into consolidated revenue. Benefits are funded on an emerging cost basis.

The remaining schemes are a combination of unfunded, partially funded and funded defined benefit schemes.

Entitlements

The nature of the benefits provided under the schemes are as follows:

Scheme Benefits paid

CSS • Employer financed indexed pension defined by a set formula based on the member’s age at retirement, years of contributory service and final superannuation salary. Indexation occurs twice yearly (January and July) in line with changes in the CPI.

• Member’s basic contributions, employer productivity contributions and interest can be taken as a lump sum or an additional non-indexed lifetime pension. This benefit is determined by the value of contributions and investment returns.

• Members who resign before age 55 can claim a preserved resignation benefit on or after reaching that age. In this case, the indexed pension is calculated by applying age-based factors to the amount of two and a half times the member’s accumulated basic member contributions and interest.

PSS • On retirement a lump sum benefit is payable based on the member’s length of contributory membership, their rate of member contributions and final average salary (average of a member’s superannuation salary on their last three birthdays).

• Members can convert 50 per cent or more of their lump sum to a lifetime indexed pension based on the member’s age, indexed twice yearly (January and July) in line with changes in the CPI.

• Where a member resigns before age 55, generally the member’s lump sum benefit at that time is crystallised with the funded component of the benefit accumulating with interest and the unfunded component accumulating with changes in the CPI, until the benefit becomes payable.

Notes to the financial statements

143

Scheme Benefits paid

MSBS • Benefits payable comprise a lump sum of accumulated member contributions and an employer financed defined benefit.

• The defined benefit is calculated on the basis of the member’s final average salary and length of contributory service.

• Benefits arising from member’s contributions, the employer three per cent productivity contribution and amounts notionally carried over from the DFRDB are determined by the value of contributions and investment returns.

• May be taken as a lump sum or as a pension or as a combination of lump sum and pension.

DFRDB • Length of service is the primary factor that determines benefit entitlement. • Members who retire from the Australian Defence Force (Defence) after 20 years of effective service (or after 15 years of service at retirement age for rank) are entitled to a pension based on a percentage of their annual pay on

retirement.

• Members who have less than 20 years of service but have not reached their compulsory retiring age for rank are entitled to a refund of their contributions, a Superannuation Guarantee amount and a productivity benefit; and if applicable, a gratuity based on completed years of service.

• Members are entitled to a productivity benefit under the Defence Force (Superannuation) (Productivity Benefit) Determination 1988 (issued under the Defence Act 1903). The amount of this productivity benefit varies according to the circumstances under which an individual member has left Defence. It is paid at the same time as DFRDB Scheme benefits are paid.

Generally, benefits may also be payable to any surviving eligible spouse and children on the death of a member or pensioner.

Notes to the financial statements

144

Governance

Commonwealth Superannuation Corporation (CSC), was established under the Governance of Australian Government Superannuation Schemes Act 2011 and is the trustee for eleven schemes, including the CSS, PSS, DFRDB and MSBS. CSC is responsible for:

• administration of each Scheme;

• management and investment of Scheme assets;

• compliance with superannuation and taxation laws and other applicable laws; and

• compliance with relevant legislation including the Governance of Australian Government Superannuation Schemes Act 2011.

CSC is supported by an administrator, a custodian and other specialist providers.

The governance arrangements for the ‘other’ defined benefit superannuation schemes are detailed in the annual reports of the respective employing entities.

Risks

The Australian Government is exposed to risks such as interest rate risk, investment risk, longevity risk and salary risk. The following pages identify and explain the amounts reported in these financial statements and detail the principal actuarial assumptions underpinning each of the major schemes, including an analysis of the sensitivity of changes in these assumptions to the amounts reported in the financial statements.

Notes to the financial statements

145

Reconciliation of the present value of the defined benefit obligation The reconciliation of the changes in the present value of defined benefit obligation is as follows:

Scheme CSS PSS DFRDB MSBS

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Present value of defined benefit obligations at beginning of the year (80,288) (75,322) (91,383) (80,213) (42,945) (41,279) (57,954) (47,362) (11,867) (11,323)

Current service cost (193) (233) (2,865) (2,761) (175) (166) (3,225) (2,391) (398) (319)

Productivity contributions (17) (20) (189) (196) - - - - - -

Obligation required - - - - - - - - - -

Interest cost (2,898) (3,005) (3,352) (3,255) (1,563) (1,664) (2,198) (1,985) (322) (415)

Contributions by scheme participants (62) (70) (534) (548) - - (329) (274) (54) (134)

Actuarial gains/(losses) arising from changes in demographic assumptions - (1,849) - (765) - - - - (11) (32)

Actuarial gains/(losses) arising from changes in financial assumptions (10,547) (3,401) (21,274) (5,289) (8,025) (2,537) (18,508) (4,614) (803) (381)

Actuarial gains/(losses) arising from liability experience 899 (426) 829 (26) 773 1,131 (123) (1,913) 38 92

Actuarial gains/(losses) arising from other assumptions - - - - - - - - 53 (118)

Benefits paid(a) 3,907 4,034 1,586 1,633 1,576 1,570 648 585 453 689

Taxes, premiums and expenses paid 3 4 36 37 - - - - - -

Past service cost - - - - - - - - - 91

Exchange rate gains/(losses) - - - - - - - - 8 (17)

Present value of defined benefit obligations at end of the year (89,196) (80,288) (117,146) (91,383) (50,359) (42,945) (81,689) (57,954) (12,903) (11,867)

Other

(a) Benefits paid includes estimate of net benefits paid and productivity payments.

Notes to the financial statements

146

Reconciliation of the fair value of scheme assets The reconciliation of the changes in the fair value of scheme assets is as follows:

Scheme CSS PSS DFRDB MSBS

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Fair value of scheme assets at beginning of the year 3,490 3,765 16,583 15,351 - - 6,799 5,765 9,488 8,890

Interest income 121 142 608 617 - - 259 243 259 317

Actual return on scheme assets less interest income (82) 202 (382) 1,231 - - (115) 485 (76) 536

Actuarial gains/(losses)- - - - - - - - (1) 2

Net appropriation from CRF3,374 3,329 623 310 1,576 1,570 697 617 90 84

Employer contributions productivity contribution 17 20 189 196 - - 329 274 205 220

Contributions by scheme participants 62 70 534 548 - - - - 54 134

Foreign currency exchange rate changes - - - - - - - - (8) 7

6,982 7,528 18,155 18,253 1,576 1,570 7,969 7,384 10,010 10,190

Less Benefits paid(a) 3,907 4,034 1,586 1,633 1,576 1,570 648 585 453 689

Taxes, premiums and expenses paid3 4 36 37 - - - - 12 13

3,910 4,038 1,622 1,670 1,576 1,570 648 585 465 702

Fair value of scheme assets at end of the year 3,072 3,490 16,533 16,583 - - 7,321 6,799 9,545 9,488

Other(b)

(a) Benefits paid includes estimate of net benefits paid and productivity payments. (b) For schemes categorised under ‘other’, the JPS had a net obligation of $1,204 million at 30 June 2016 (2015: $1,205 million), PCSS had a net obligation of $1,407 million at 30 June 2016 (2015: $1,057 million) and the RBA Officer’s fund had a net obligation of $684 million (2015: $305 million). The Australia Post Superannuation Scheme (APSS) reported a net asset position of $34 million (2015: $266 million) while the balances of the remaining schemes are immaterial

to the CFS.

Notes to the financial statements

147

Composition of scheme assets The fair value of scheme assets is represented by the following:

Scheme CSS PSS DFRDB MSBS Other

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Australian equity 24.0% 25.0% 24.0% 25.0% - - 18.0% 21.0% 9.4%22.5%

Market neutral hedge funds 10.0% 10.0% 10.0% 10.0% - - - - - -

International equity 27.0% 31.0% 27.0% 31.0% - - 21.0% 25.0% 18.4%1.9%

Fixed income - - - - - - - - 1.6%1.5%

Property 13.0% 12.0% 13.0% 12.0% - - 13.0% 12.0% 8.1%10.0%

Private equity - - - - - - 8.0% 8.0%11.4%6.4%

Credit 7.0% 7.0% 7.0% 7.0% - - - - - -

Debt instruments - - - - - - - - 18.3%15.1%

International bonds 5.0% 5.0% 5.0% 5.0% - - - - 0.0%0.1%

Diversfied growth funds - - - - - - - - 0.3%0.3%

Other 5.0% 5.0% 5.0% 5.0% - - 19.0% 17.0% 29.8%26.5%

Cash 9.0% 5.0% 9.0% 5.0% - - 21.0% 17.0% 2.7%15.7%

Total expense recognised The amount recognised in the operating statement for the year ended 30 June is as follows:

Scheme CSS PSS DFRDB MSBS Other

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Current service cost 193 233 2,865 2,761 175 166 3,225 2,391 398 319

Net interest 2,777 2,863 2,744 2,638 1,563 1,664 1,939 1,742 63 98

Past service cost - - - - - - - - - (91)

Superannuation expense 2,970 3,096 5,609 5,398 1,738 1,830 5,164 4,133 461 325

Notes to the financial statements

148

Principal actuarial assumptions The principal actuarial assumptions at 30 June are as follows:

Scheme CSS PSS DFRDB MSBS Other

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Discount rate (active members) 2.7% 3.7% 2.7% 3.7% 2.7% 3.7% 2.7% 3.7% 2.7-3.6% 3.6-4.9%

Discount rate (pensioners) 2.7% 3.7% 2.7% 3.7% 2.7% 0.0% 2.7% 0.0% 2.7% 3.7%

Expected rate of return on plan assets (active members) - - - - 0.0% 0.0% 2.7% 3.7% - -

Expected salary increase rate (a) 2.0% 1.5% 2.0% 1.5% 4.0% 4.0% 4.0% 4.0% 2.0-4.0% 1.5-5.0%

Expected pension increase rate (b) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.4-4.0% 2.5-4.0%

(a) For CSS and PSS general salary increases of 2 per cent pa apply to June 2019 then 4.0 per cent pa thereafter. (b) Not relevant for all schemes. See notes below for more information.

For the defined benefit obligation, assumptions have been made regarding rates of retirement, death (for active, preserved and pension members), mortality improvements, invalidity, resignation, retrenchment, retention and take up rates of pensions in the schemes. Assumptions have also been made for the ages of spouses and rates of member contributions.

Membership data for the CSS, PSS, DFRDB and MSBS as at 30 June 2015 was projected forward allowing for assumptions in accordance with the 2014 Long Term Cost Report. The data was then adjusted for the difference between actual benefit payments and those based on the assumed decrements. Members’ account balances were increased to be consistent with the estimated level of earning rates prevailing at 30 June 2016.

For the fair value of plan assets, assumptions have been made as to the expected rate of return. For certain schemes, the fair value of scheme assets as at 30 June 2016 was estimated using the audited fair value of scheme assets at 30 June 2015 rolled forward to 30 June 2016 adjusted for cash flows during the year.

Notes to the financial statements

149

Sensitivity analysis for significant actuarial assumptions

The impact of a change in the defined benefit obligation reported as at 30 June 2016 under several scenarios is presented below. The defined benefit obligation has been recalculated by changing the assumptions as outlined below, whilst retaining all other assumptions.

CSS Discount rate Salary growth rate Rate of CPI increase

PSS Discount rate Salary growth rate Rate of CPI increase

DFRDB and MSBS Discount rate Salary growth rate Rate of CPI increase

Other Discount rate(a) Salary growth rate(b) Rate of CPI increase(c) Discount rate(d) Salary growth rate(e) Pensioner mortality rate(f) Discount rate(g) Salary growth rate(h) Pension growth rate(i)

(14,260) 17,251

7

9,342 (9,303)

6,221

Impact on defined benefit obligation

125 (164)

Increase in Decrease in Change in assumption

0.5% 0.5% 5,472 (4,979)

$m

0.5% 6,559

0.5% (5,581)

8,542

0.5% (11,561) 13,471

0.5%

(7,661)

(6,090)

56 (53)

0.3% (76) 82

0.3% 21 (20)

0.3%

5.0% 0 (0)

1.0% (249) 287

1.0% 240 (209)

180

(7) 0.5%

0.5% (149)

0.5% 170 (141)

0.5%

0.5% 3,227 (3,005)

0.5%

$m

(a) Relates to the percentage change in discount rate applied to PCSS, Governor-General Pension Scheme (G-GPS), JPS, Federal Circuit Court Judges Death and Disability Scheme (FCCJDDS), ASCSF and other. (b) Relates to the percentage change in salary growth rate applied to G-GPS, JPS, FCCJDDS, ASCSF,

SASS, SSS, SANCS and other. (c) Relates to the percentage change in CPI rate applied to SASS, SSS, SANCS and other. (d) Relates to the percentage change in discount rate applied to APSS, SASS, SSS and SANCS. (e) Relates to the percentage change in salary growth rate applied to APSS. (f) Relates to the percentage change in pensioner mortality rate applied to SASS, SSS and SANCS. (g) Relates to the percentage change in discount rate applied to OSF. (h) Relates to the percentage change in salary growth rate applied to OSF. (i) Relates to the percentage change in pension growth rate applied to OSF.

Notes to the financial statements

150

Employer contributions

The following table shows the expected contributions for 2017 by scheme:

Scheme 2017

$m

Commonwealth Superannuation Scheme 15

Public Sector Superannuation Scheme 177

Defence Force Retirement and Death Benefits Scheme 120

Military Superannuation Benefits Scheme 1,238

Other schemes 296

Maturity profile of defined benefit obligation

The weighted average duration of the defined benefit obligation in years for each of the schemes is outlined below.

Scheme Commonwealth Superannuation Scheme 1976 13.6 years

Commonwealth Superannuation Scheme 1922 8.0 years

Public Sector Superannuation Scheme 22.2 years

Defence Force Retirement and Death Benefits Scheme 18.6 years

Defence Forces Retirement Benefits Scheme 10.0 years

Military Superannuation Benefits Scheme 31.0 years

Other AvSuper 10 years

Australia Post Superannuation Scheme 8.5 years

State Authorities Superannuation Scheme 16.8 years

State Superannuation Scheme 16.8 years

State Authorities Non contributory Superannuation Scheme 16.8 years

Australian Submarine Corporation Superannuation Fund 8 years

North American and London, Dublin and New Delhi pension schemes 14.4 years

Reserve Bank of Australia Officers' Superannuation Fund 21 years

UK Pension Scheme 16.4 years

Parliamentary Contributory Superannuation Scheme 17 years

Judges' Pension Scheme 15.3 years

Governor General Pension Scheme 10.0 years

Federal Circuit Court Judges Death and Disability Scheme 2.4 years

Weighted average duration of the defined benefit obligation in years

Notes to the financial statements

151

Note 12: Events occurring after balance date

In accordance with AASB 110 Events after the Reporting Period, reporting entities are required to disclose any event between the balance sheet date and the date the financial statements are authorised for issue that may affect the financial statements. The standard classifies these events as either ‘adjusting’ or ‘non-adjusting’.

No significant events have occurred after reporting date that require the CFS to be adjusted as at 30 June 2016, nor have there been significant non-adjusting events that have occurred after reporting date.

Note 13: Reconciliations and explanations

Prepared in accordance with AASB 1049, the whole of government and GGS financial statements provide users with information about the financial position, performance and cash flows of the Australian Government and its sectors; and information that facilitates assessments of the macro-economic impact of the Australian Government and its sectors.

Reporting at the whole of government and sector level is also distinguished by the following two characteristics:

• the application of two international reporting frameworks, being the accounting standards issued by the International Accounting Standards Board (through the AASB), and the system of GFS issued by the IMF and, in Australia, administered by the ABS; and

• the public release of budget information for the GGS.

To assist the differing users of these whole of government accounts, AASB 1049 requires the following reconciliations and explanations:

• reconciliation to ABS GFS measures (refer Note 13A) which compares the key financial measures contained in this financial report to the corresponding measures under the ABS GFS Manual and highlights the remaining differences between the two reporting frameworks;

• reconciliation to original budget (refer Note 13B) which compares the reported results to the original budget for 2015-16 as outlined in May 2015 with explanations for key movements; and

• glossary of key fiscal aggregates (refer Note 13C) which explains the key technical terms reported in the CFS and which are not common to financial reports prepared by other entities.

Notes to the financial statements

152

Note 13A: Reconciliations to ABS GFS measures The following tables provide a reconciliation of key fiscal aggregates on the face of the financial statements where the amounts reported differ from the corresponding key fiscal aggregates measured under the ABS GFS Manual as at 1 July 2014(a).

(a) Reconciliation to GFS net operating balance

2016201520162015201620152016201520162015

$m$m$m$m$m$m$m$m$m$m

Net result from transactions - net operating balance reported in Operating Statement(34,658)(37,767)(2,710)(1,820)1,199957(3,339)(2,572)(39,508)(41,202)

Convergence differences: Unwinding of concessional interest costs(b)(106)(47)------(106)(47)

Concessional interest costs(b)675860------675860

Seigniorage(c)(145)(111)------(145)(111)

Movement in deferred tax assets and deferred tax liabilities--(91)111(1)892(119)--

Dividends to GGS from other sectors(d)(1,338)(649)(123)(110)(1,955)(1,549)3,4162,308--

Total convergence differences(914)53(214)1(1,956)(1,541)3,5082,189424702

GFS Net operating balance(35,572)(37,714)(2,924)(1,819)(757)(584)169(383)(39,084)(40,500)

Government corporations corporations netting Government

General Public non-financial Public financial Eliminations and Australian

(a) Under AASB 1049, the financial statements are reconciled to the ABS GFS Manual effective at the beginning of the comparative reporting period (1 July 2014). The amounts reported may differ to the aggregates subsequently reported by the ABS in the 2015-16 GFS publication because of changes in methodology, differences in interpretation and/or updated information availability subsequent to the release of the financial statements. (b) The financial statements discount concessional loans by a market rate of a similar instrument whereas the ABS GFS Manual uses nominal value. (c) The financial statements treat the profit between the cost and sale of circulating coin (seigniorage) as revenue whereas the ABS GFS Manual treats circulating coin as a

liability and the cost to produce the coins as an expense. (d) The financial statements treat dividends to the GGS as a distribution to owners whereas the ABS GFS Manual treats dividends to owners as an expense. The financial statements recognise the RBA dividends in the year profit was earned whereas the ABS GFS Manual recognises dividends when the Treasurer makes a determination.

Notes to the fin

ancial statements

153

(b) Reconciliation to GFS total change in net worth

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Total change in net worth before transactions with owners in their capacity as owners as reported in Operating Statement (114,680) (38,424) (2,804) (1,678) 3,270 6,153 (481) (1,768) (114,695) (35,717)

Convergence differences: Relating to net operating balance (914) 53 (214) 1 (1,956) (1,541) 3,508 2,189 424 702

Relating to change in treatment of defence weapons and inventory(a) - 43,760 - - - - - - - 43,760

Relating to other economic flows 1,263 658 (4,017) (3,030) 1,979 (2,614) 715 2,288 (60) (2,698)

Relating to transactions with owners - - 7,035 4,707 (3,293) (1,998) (3,742) (2,709) - -

Total convergence differences 349 44,471 2,804 1,678 (3,270) (6,153) 481 1,768 364 41,764

GFS Total change in net worth (114,331) 6,047 - - - - - - (114,331) 6,047

Government corporations corporations netting Government

General Public non-financial Public financial Eliminations and Australian

(a) Consistent with AASB 1049, the Australian Government elected not to apply Chapter 2 Amendments to Defence Weapons Platforms of the ABS publication Amendments to Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0.55.001) — published on the ABS website on 5 April 2011 — until the 2014-15 reporting period. The 2013-14 period was prepared on the previous basis and impacts the 2014-15 comparative.

Notes to the financial statements

154

(c) Reconciliation to GFS net lending / (borrowing)

2016201520162015201620152016201520162015

$m$m$m$m$m$m$m$m$m$m

Net lending/(borrowing) as reported in Operating Statement(37,508)(40,473)(7,399)(4,749)1,130974(3,534)(2,559)(47,311)(46,807)

Convergence differences: Relating to net operating balance(914)53(214)1(1,956)(1,541)3,5082,189424702

Auction sales of spectrum(a)-(1,965)-------(1,965)

Total convergence differences(914)(1,912)(214)1(1,956)(1,541)3,5082,189424(1,263)

GFS Net lending/(borrowing)(38,422)(42,385)(7,613)(4,748)(826)(567)(26)(370)(46,887)(48,070)

Government corporations corporations netting Government

General Public non-financial Public financial Eliminations and Australian

(a) The financial statements recognise the disposal of spectrum licences at the point of issue whereas the ABS GFS Manual recognises spectrum licences at the time of auction and the proceeds from their sale at the point of auction, reflected on the balance sheet as a receivable.

Notes to the fin

ancial statements

155

(d) Reconciliation to GFS net worth

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

$m $m $m $m $m $m $m $m $m $m

Net worth as reported in Balance Sheet (413,514) (299,302) 19,890 15,639 24,782 24,802 (45,184) (40,955) (414,026) (299,816)

Convergence differences: Provision for doubtful debts(a) 28,374 25,076 18 15 1 1 (1) - 28,392 25,092

Concessionality on loans and investments(b) 7,150 9,435 - - - - - - 7,150 9,435

Investment in other sector entities(c) (1,007) (707) - - - - 1,007 707 - -

Deferred tax assets(d) - - (820) (909) (5) (4) 825 913 - -

Seigniorage(e) (4,006) (3,861) - - - - - - (4,006) (3,861)

Deferred tax liability(d) - - 468 648 - - (468) (648) - -

Dividends(f) (1,338) (649) - - 1,338 649 - - - -

Shares and other contributed capital(g) - - (19,556) (15,393) (26,116) (25,448) 43,821 39,983 (1,851) (858)

Total convergence differences 29,173 29,293 (19,890) (15,639) (24,782) (24,802) 45,184 40,955 29,685 29,807

GFS Net worth (384,341) (270,009) - - - - - - (384,341) (270,009)

General Public non-financial Public financial Eliminations and Australian

Government corporations corporations netting Government

(a) The financial statements treat provisions for doubtful debts as an offset to the asset in the balance sheet. The ABS GFS Manual does not consider the creation of a provision to be an economic event and therefore excludes it from the balance sheet. (b) The financial statements discount concessional loans by a market rate of a similar instrument whereas the ABS GFS manual uses nominal value. (c) The financial statements apply AASB 13 to the valuation of the GGS’s investment in public corporations whereas the ABS GFS Manual values public corporations at

their net assets unless the shares in a public corporation are publicly traded. A convergence difference arises where the application of AASB 13 results in a valuation other than net assets. (d) Deferred tax assets and deferred tax liabilities are reported in the financial statements whereas the ABS GFS Manual does not recognise these items. (e) The financial statements treat the profit between the cost and sale of circulating coin (seigniorage) as revenue whereas the ABS GFS Manual treats circulating coin as a liability and the cost to produce the coins as an expense. (f) The financial statements recognise the RBA dividends in the year profit was earned whereas the ABS GFS Manual recognises dividends when the Treasurer makes a determination. (g) The financial statements treat shares and other contributed capital in public corporations as part of net worth whereas the ABS GFS Manual deducts shares and other contributed capital in the calculation of net worth (with net worth calculated as assets less liabilities less shares and other contributed equity).

Notes to the financial statements

156

The ABS GFS Manual measures inventory at market value (rather than the lower of cost and net realisable value). It also does not recognise the provision for decommissioning/restoration costs. The above reconciliation has not been adjusted for these items on the basis of materiality and information availability.

Reconciliation to GFS cash surplus/(deficit) is disclosed on the face of the cash flow statement.

Note 13B: Reconciliation to original budget

The following tables provide a comparison of the original 2015-16 Budget to the final actual results for the GGS. Explanations are provided for major variances, which are typically those amounts greater than $1 billion.

The Australian Government does not present budgets at the whole of government level, and therefore, only the GGS is presented in this note. The Budget is not audited.

Notes to the financial statements

157

General government sector operating statement 2015-16 2016 Original Budget Revised

Actual budget(a) variance budget(b) $m $m $m $m

Revenue from transactions Taxation revenue 368,937 380,074 (11,137) 371,923

Sales of goods and services 7,619 9,542 (1,923) 7,697

Interest income 2,931 4,083 (1,152) 3,506

Dividend income 6,240 3,143 3,097 5,564

Other 9,326 8,508 818 7,706

Total revenue 395,053 405,350 (10,297) 396,396

Expenses from transactions Gross operating expenses Wages and salaries 18,675 19,801 (1,126) 19,767

Superannuation 7,854 4,760 3,094 7,052

Depreciation and amortisation 8,132 7,182 950 7,165

Supply of goods and services 84,395 85,046 (651) 81,414

Other operating expenses 6,332 5,510 822 5,483

Total gross operating expenses 125,388 122,299 3,089 120,881

Superannuation interest expense 9,106 9,869 (763) 9,167

Interest expenses 16,673 17,270 (597) 16,774

Current transfers Current grants 126,135 128,415 (2,280) 128,393

Subsidy expenses 12,053 12,654 (601) 12,763

Personal benefits 131,574 133,123 (1,549) 133,416

Total current transfers 269,762 274,192 (4,430) 274,572

Capital transfers Mutually agreed write-downs 1,193 2,199 (1,006) 1,722

Other capital grants 7,589 8,641 (1,052) 8,354

Total capital transfers 8,782 10,840 (2,058) 10,076

Total expenses 429,711 434,470 (4,759) 431,470

Net operating balance (34,658) (29,120) (5,538) (35,074)

Other economic flows included in operating result Net write-downs of assets (8,747) (8,638) (109) (7,106)

Assets recognised for the first time 283 335 (52) 296

Net gain/(loss) from the sale of assets 6,222 - 6,222 -

Net foreign exchange gains 429 46 383 (9)

Net swap interest gains/(losses) (508) - (508) (437)

Other gains/(losses) (20,911) 9,229 (30,140) (3,960)

Amortisation of non-produced assets (55) - (55) -

Net result from associates and joint ventures 15 - 15 -

Total Other economic flows (23,272) 972 (24,244) (11,216)

Operating Result (57,930) (28,148) (29,782) (46,290)

Other non-owner movements in equity Revaluation of equity investments (2,970) (2,221) (749) (3,026)

Revaluation of non-financial assets 2,866 - 2,866 -

Actuarial revaluations of superannuation (56,913) 105 (57,018) 1,032

Other economic revaluations 267 135 132 371

Total other economic flows included in equity (56,750) (1,981) (54,769) (1,623)

Comprehensive result - Total change in net worth (114,680) (30,129) (84,551) (47,913)

Net operating balance (34,658) (29,120) (5,538) (35,074)

less Net acquisition of non-financial assets Purchases of non-financial assets 11,141 11,408 (267) 11,559

less Sales of non-financial assets 477 491 (14) 404

less Depreciation and amortisation 8,132 7,182 950 7,165

plus Change in inventories 413 352 61 310

plus Other movements in non-financial assets (95) (234) 139 56

Total net acquisition of non-financial assets 2,850 3,853 (1,003) 4,356

Fiscal balance (net lending/borrowing) (37,508) (32,973) (4,535) (39,430)

(a) Original budget for 2015-16 as presented in the 2015-16 Budget papers released in May 2015. (b) Revised budget for 2015-16 as presented in the 2016-17 Budget papers released in May 2016.

Notes to the financial statements

158

Revenue

Line item Variance Explanation

Taxation revenue ($11.1b) Total taxation revenue was $11.1 billion lower than the original budget, primarily driven by:  lower company tax of $6.3 billion, reflecting weaker than expected corporate profitability and lower than expected capital

gains;

 lower individuals and other withholding tax of $4.3 billion, due to weaker than expected growth in wages and salaries;  lower superannuation fund tax of $2.3 billion, driven by lower than expected net capital gains, higher foreign exchange losses

and dividend franking credits;  higher customs duty of $4.6 billion, partially offset by lower excise duty of $3.3 billion as result of the greater than anticipated shift from domestic tobacco production to imported

tobacco products; and  higher Visa Application Charges (VAC) of $1.9 billion due to the reclassification of VAC revenue from non-taxation to taxation revenue at the 2015-16 Mid-Year Economic Fiscal Outlook

(MYEFO) to reflect the sustained change of the nature of this revenue.

Sales of goods and services ($1.9b) Sales of goods and services was $1.9 billion lower than the original budget, primarily due to the reclassification of VAC revenue to

taxation revenue at the 2015-16 MYEFO (refer to the Taxation Revenue explanation above).

Interest income ($1.2b) Dividend income was $3.1 billion higher than the original budget, primarily driven by higher revenue of $2.8 billion from the Reserve Bank of Australia (RBA). This was the result of higher RBA earnings from realised foreign exchange gains in 2015-16. In addition, the investment portfolio held by the Future Fund6 returned higher dividend revenue of $0.3 billion and lower interest income of $1.2 billion compared to the original budget.

Dividend income $3.1b

Expenses

Line item Variance Explanation

Wages and salaries ($1.1b) Total employee expenses (wages and salaries, and other operating expenses) were $0.3 billion lower than the original budget. This was attributable to variances across a number of entities, with the most significant contributor being the Australian Taxation Office (ATO), due to unexpected delays in recruiting additional staff at lower classification levels.

Other operating expenses

$0.8b

6 The 2015-16 Budget was based on the assumption that the mandated return for the Future Fund is achieved for each forward estimates year. CPI is estimated in the Budget numbers. In that context, the original budget, including related investment costs, was based on the estimated mandated return. Therefore, the actual results will always deviate from these assumed returns. For 2015-16, the Future Fund generated a net of costs return of $5.59 billion (4.8 per cent), a 33 per cent decrease from the budgeted amount. For comparative purposes, the mandated return used for budget purposes for the equivalent period was 7.2 per cent. For further information on the Future Fund, refer to http://www.futurefund.gov.au/About-us/annual-reports.

Notes to the financial statements

159

Line item Variance Explanation

Superannuation $3.1b Superannuation expenses were $3.1 billion higher than the original budget, primarily due to the different discount rates used to calculate the CFS and original budget superannuation liability amounts. For the Budget, a discount rate of 6 per cent applied by actuaries in preparing Long Term Cost Reports is used to value the superannuation liability. This reflects the average annual rate estimated to apply over the term of the liability and it reduces the volatility in reported liabilities that would occur from year to year if the long-term government bond rate was used. The long-term government bond rate as at 30 June 2016 (2.7 per cent) is used to calculate the actual superannuation liability for the CFS. This lower discount rate results in a higher superannuation liability, higher superannuation expenses and lower nominal superannuation interest expense in the CFS compared to the budget.

Current grants ($2.3b) Grants expenses were $3.4 billion lower than the original budget, spread across a number of entities. The largest variance related to lower Financial Assistance Grant payments ($1.1 billion), due to payments being brought forward in June 2015. Capital grants ($1.1b)

Personal benefits ($1.5b) Personal benefits expenses were $1.5 billion lower than the original budget, mainly resulting from a reclassification since the original budget between personal benefits and supply of goods and services expenses reflecting more accurate information on the distinction between benefits provided to households directly in cash (direct personal benefits) and benefits provided in goods and services (indirect personal benefits) for social services and health-related programs.

Mutually agreed write-downs ($1.0b) Mutually agreed write-downs were $1.0 billion lower than the original budget. This was due to lower penalty and interest charge remission

expenses for the ATO, as a result of a restatement for its revised settlement policy (which was amended after the budget estimate was prepared).

Other economic flows

Line item Variance Explanation

Net gain/(loss) from the sale of assets $6.2b The net gain from the sale of assets was $6.2 billion higher than the original budget, primarily attributable to Future Fund

7 gains on the

sale of investments ($5.8 billion). This variance is due to the original budget for this amount being reflected in Other gains/(losses).

Other gains/(losses) ($30.1b) Other gains/(losses) were $30.1 billion lower than the original budget, primarily due to the Australian Government Securities (AGS) yields being lower than anticipated at the time the budget estimate was prepared.

Revaluation of non-financial assets $3.1b Revaluation of non-financial assets were $3.1 billion higher than the original budget, primarily as a result of the different measurement

basis used for SME in the CFS (fair value basis) and original budget (cost basis). Furthermore, the Budget does not include estimates for these revaluations.

Actuarial revaluations of superannuation ($57.0b) Actuarial revaluations of the superannuation liability were $57.0 billion higher than the original budget, primarily due to the

lower discount rate used to calculate the liability in the CFS (refer to the Superannuation expense explanation).

7 Refer to footnote 6 on page 158.

Notes to the financial statements

160

General government sector balance sheet as at 30 June 2016 2016 Original Budget Revised

Actual budget(a) variance budget(b)

$m $m $m $m

Assets Financial assets Cash and deposits 3,638 3,435 203 3,512

Advances paid 46,898 52,901 (6,003) 52,782

Other receivables 45,043 42,932 2,111 44,000

Investments, loans and placements 149,994 137,947 12,047 153,233

Equity investments 87,230 92,335 (5,105) 84,536

Total financial assets 332,803 329,550 3,253 338,063

Non-financial assets Land 10,620 9,144 1,476 9,729

Buildings 25,547 26,927 (1,380) 25,992

Plant, equipment and infrastructure 70,498 59,766 10,732 59,692

Intangibles 7,281 6,547 734 6,881

Investment property 164 195 (31) 200

Inventories 8,567 8,211 356 8,195

Heritage and cultural assets 11,462 10,852 610 11,697

Other non-financial assets 4,638 3,504 1,134 4,972

Total non-financial assets 138,777 125,146 13,631 127,358

Total assets 471,580 454,696 16,884 465,421

Liabilities Interest bearing liabilities Deposits held 217 211 6 218

Government securities 483,361 464,298 19,063 476,999

Loans and other interest bearing liabilities 16,824 14,148 2,676 16,425

Other borrowing 1,607 1,428 179 1,569

Total interest bearing liabilities 502,009 480,085 21,924 495,211

Provisions and payables Superannuation liability 314,228 173,921 140,307 169,308

Other employee liabilities 18,302 16,105 2,197 17,004

Suppliers payable 5,335 4,914 421 5,868

Personal benefits payable 3,820 4,506 (686) 4,514

Subsidies payable 539 784 (245) 492

Grants payable 2,659 2,034 625 2,307

Other payables and provisions 38,202 33,787 4,415 35,744

Total provisions and payables 383,085 236,051 147,034 235,237

Total liabilities 885,094 716,135 168,959 730,448

Net worth (413,514) (261,439) (152,075) (265,027)

(a) Original budget for 2015-16 as presented in the 2015-16 Budget papers released in May 2015. (b) Revised budget for 2015-16 as presented in the 2016-17 Budget papers released in May 2016.

Notes to the financial statements

161

Assets

Line item Variance Explanation

Advances paid ($6.0b) Advances paid were $6.0 billion lower than the original budget, mainly due to the different measurement basis used for the advances paid to the International Development Association (IDA) and Asian Development Fund (ADF) in the CFS and budget. In the Budget, IDA and ADF advances are recorded at nominal value while fair value is used for the CFS (refer to Note 1.3 ‘Basis of accounting’ for more detail).

Other receivables $2.1b Other receivables were $2.1 billion higher than the original budget. This was driven by variances across a number of entities, with the largest variance relating to a higher than expected dividend receivable from the RBA, resulting from higher RBA earnings from realised foreign exchange gains in 2015-16.

Investments, loans and placements $12.0b Investments, loans and placements were $12.0 billion higher than original budget, primarily due to:

 a higher value of deposits and securities ($9.3 billion) held by the Australian Office of Financial Management (AOFM), primarily due to a more conservative cash management approach and due to imprecisions in projecting the highly volatile daily flows of revenue, expenditure and financing items across the GGS;  residential mortgage-backed securities were higher than

projected as a result of the divestment program being suspended due to unfavourable market conditions;  a higher value of investments ($5.2 billion) managed by the Future Fund8; and  a change in classification in the treatment of the Department of

Education's investment in the Australian National University ($2.1 billion) - this is reported against Investments, loans and placements in the original budget and as an equity investment for the CFS resulting in a corresponding variance between these two balance sheet items. In addition, the Future Fund

9 managed a lower value of equity

investments ($7.0 billion) than included in the original budget.

Equity investments ($5.1b)

Non-financial assets $13.6b Total non-financial assets, excluding Other non-financial assets, were $12.5 billion higher than the original budget. The key driver was the revaluation of non-financial assets ($11.1 billion) (refer to the Other economic flows explanation). Other non-financial assets were $1.1 billion higher than the original budget, mainly driven by higher prepayments to the Foreign Military Sales Account in the United States for purchases of military equipment.

Liabilities

Line item Variance Explanation

Government securities (AGS) $19.1b AGS were $19.1 billion higher than the original budget, driven by the AOFM having a larger financing task than projected and lower yields

than anticipated on AGS increased the fair value of the debt on issue.

8 Refer to footnote 6 on page 158. 9 Refer to footnote 6 on page 158.

Notes to the financial statements

162

Line item Variance Explanation

Loans and other interest bearing liabilities

$2.7b Loans and other interest bearing liabilities were $2.7 billion higher than the original budget, mainly due to:  higher International Monetary Fund (IMF) promissory notes of $1.4 billion, primarily as a result of changes in the exchange

rate; and  higher swap principal payables of $0.7 billion managed by the Future Fund 10

.

Superannuation liability $140.3b The superannuation liability was $140.3 billion higher than the original budget, primarily due to the lower discount rate used to calculate the liability in the CFS (refer to the Superannuation expense explanation). Other employee liabilities

$2.2b Other employee liabilities were $2.2 billion higher than the original budget, primarily due to the provision for military compensation liability. This provision is difficult to estimate due to the uncertainty surrounding the inputs that determine this long-term liability.

Other payables and provisions $4.4b Other provisions and payables were $4.4 billion higher than the original budget, primarily resulting from:

 later than expected Natural Disaster Relief and Recovery Arrangement payments ($1.4 billion), which are paid on the basis of appropriate acquittals;

 additional grant expenditure relating to interest and service costs ($1.2 billion) stemming from the actuarial review of the Higher Education Superannuation Program; and

 higher health care provisions ($1.2 billion) as a result of an adjustment to the military compensation provisions calculated by the Australian Government Actuary.

10 Refer to footnote 6 on page 158.

Notes to the financial statements

163

General government sector cash flow statement 2015-16 2016 Original Budget Revised

Actual budget(a) variance budget(b) $m $m $m $m

OPERATING ACTIVITIES Cash received Taxes received 361,962 370,140 (8,178) 364,507

Receipts from sales of goods and services 7,592 9,475 (1,883) 7,686

Interest receipts 2,936 3,334 (398) 2,842

Dividend receipts 5,540 4,623 917 5,332

Other receipts 8,480 8,549 (69) 7,321

Total cash received 386,510 396,121 (9,611) 387,688

Cash used Payments for employees (27,122) (27,891) 769 (27,893)

Payments for goods and services (85,115) (85,076) (39) (80,834)

Grants and subsidies paid (145,866) (150,792) 4,926 (149,656)

Interest paid (14,977) (14,953) (24) (14,822)

Personal benefits (133,822) (134,744) 922 (134,887)

Other payments (5,921) (5,218) (703) (5,308)

Total cash used (412,823) (418,674) 5,851 (413,400)

Net cash from discontinued operating activities - - - -

Net cash from/(used by) operating activities (26,313) (22,553) (3,760) (25,712)

INVESTING ACTIVITIES Cash flows from investments in non-financial assets Sales of non-financial assets 414 1,859 (1,445) 339

Purchases of non-financial assets (10,341) (11,161) 820 (11,559)

Net cash flows from investments in non-financial assets (9,927) (9,302) (625) (11,220)

Cash flows from investments in financial assets for policy purposes Net advances repaid/(paid) (12,684) (12,908) 224 (14,553)

Net cash flows from investments in financial assets for policy purposes (12,684) (12,908) 224 (14,553)

Cash flows from investments in financial assets for liquidity purposes Decrease/(Increase) in investments (5,255) (3,129) (2,126) (9,396)

Net cash flows from investments in financial assets for liquidity purposes (5,255) (3,129) (2,126) (9,396)

Net cash from discontinued investing activities - - - -

Net cash from/(used by) investing activities (27,866) (25,339) (2,527) (35,169)

FINANCING ACTIVITIES Cash flows from financing activities Cash received Borrowings 57,102 50,790 6,312 63,753

Other financing - 11 (11) 6

Total cash received 57,102 50,801 6,301 63,759

Cash used Other financing (2,441) (2,620) 179 (2,522)

Total cash used (2,441) (2,620) 179 (2,522)

Net cash from discontinued financing activities - - - -

Net cash flows from financing activities 54,661 48,181 6,480 61,237

Net (decrease)/increase in cash held 482 289 193 356

Notes to the financial statements

164

General government sector cash flow statement 2015-16 (continued) 2016 Original Budget Revised

Actual budget(a) variance budget(b) $m $m $m $m

Cash at beginning of year 3,156 (38) 3,194 3,156

Cash at end of year 3,638 251 3,387 3,512

Key fiscal aggregate Net cash flows from operating activities (26,313) (22,553) (3,760) (25,712)

Net cash flows from investments in non-financial assets (9,927) (9,302) (625) (11,220)

Cash surplus/(deficit) (36,240) (31,855) (4,385) (36,932)

Finance leases and similar arrangements (165) (1) (164) (2)

GFS cash surplus/(deficit) (36,405) (31,856) (4,549) (36,934)

(a) Original budget for 2015-16 as presented in the 2015-16 Budget papers released in May 2015. (b) Revised budget for 2015-16 as presented in the 2016-17 Budget papers released in May 2016.

The variances for the cash flow statement reflect the movements in the operating statement and balance sheet.

Note 13C: Glossary of key fiscal aggregates Key technical terms

Balance sheet

The balance sheet shows stocks of assets, liabilities and net worth. In accordance with the Accrual Uniform Presentation Framework, net debt, net financial worth and net financial liabilities are also reported in the balance sheet.

Comprehensive result (total change in net worth before transactions with owners as owners)

The net result of all items of income and expense recognised for the period. It is the aggregate of operating result and other movements in equity, other than transactions with owners as owners.

Fiscal balance

The fiscal balance (or net lending/borrowing) is the net operating balance less net capital investment. Thus, the fiscal balance includes the impact of net expenditure (effectively purchases less sales) on non-financial assets rather than consumption (depreciation) of non-financial assets.

The fiscal balance measures the Australian Government’s investment-saving balance. It measures in accrual terms the gap between government savings plus net capital transfers, and investment in non-financial assets. As such, it approximates the contribution of the GGS to the balance on the current account in the balance of payments.

Mutually agreed bad debts

Financial assets written off where there was prior knowledge and consent by the counterparties.

Notes to the financial statements

165

Net actuarial gains

Includes actuarial gains and losses on defined benefits superannuation plans.

Net financial liabilities

Total liabilities less financial assets, other than equity in PNFCs and PFCs. This measure is broader than net debt as it includes significant liabilities, other than borrowings (for example accrued employee liabilities such as superannuation and long service leave entitlements). For the PNFC and PFC sectors, it is equal to negative net financial worth.

Net financial worth

Net financial worth is equal to financial assets minus liabilities. It is a broader measure than net debt in that it incorporates provisions made (such as superannuation, but excluding depreciation and bad debts) as well as holdings of equity. Net financial worth includes all classes of financial assets and liabilities, only some of which are included in net debt.

Net lending/borrowing

This is the net operating balance minus the net acquisition/(disposal) of non-financial assets. It is also equal to transactions in the net acquisition/(disposal) of financial assets minus the net incurrence of liabilities. It indicates the extent to which financial resources are placed at the disposal of the rest of the economy or the utilisation of financial resources generated by the rest of the economy. It is an indicator of the financial impact on the rest of the economy.

Net other economic flows

The net change in the volume or value of assets and liabilities that does not result from transactions.

Net operating balance

This is calculated as income from transactions minus expenses from transactions.

Net result from transactions — net operating balance

The revenue from transactions minus expenses from transactions. It is a summary measure of the ongoing sustainability of operations. It excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. It is the component of the change in net worth that is due to transactions and can be attributed directly to government policies.

Net worth

The net worth of the GGS, PNFC and PFC sectors are defined as assets less liabilities. This differs from the ABS GFS definition for the PNFC and PFC sectors where net worth is defined as assets less liabilities less shares and other contributed capital. Net worth is an economic measure of wealth, reflecting the Australian Government’s contribution to the wealth of Australia.

Notes to the financial statements

166

Operating result

A measure of financial performance of the operations for the period. It is the net result of items of revenue, gains and expenses (including losses) recognised for the period, excluding those that are classified as ‘other non-owner movements in equity’.

Operating statement

The operating statement presents details of transactions in revenues, expenses, the net acquisition of non-financial assets (net capital investment) and other economic flows for an accounting period.

Transactions

Interactions between two units by mutual agreement or an action within a unit that is analytically useful to treat as a transaction.

Unilaterally determined bad debts

Financial assets written off without an agreement with the debtor in cases such as bankruptcy of the debtor.

Note 14: Audit expenses

With the exception of a small number of entities, audit services within the reporting entity are provided by the Auditor-General. The cost of these services which include performance and financial statement audits, totalled $77.1 million (2015: $76.6 million). The audit of the CFS cost $1.2 million (2015: $1.1 million).

Notes to the financial statements

167

Note 15: List of Australian Government reporting entities

The following is a list of Australian Government reporting entities which have been consolidated for the purposes of the financial report. Unless otherwise noted, all such entities are wholly owned. The list is based on the Australian Government Administrative Arrangement Orders in place at 30 June 2016.

Agriculture and Water Resources Portfolio

General Government:

Australian Fisheries Management Authority Australian Grape and Wine Authority Australian Pesticides and Veterinary Medicines Authority Cotton Research and Development Corporation

Department of Agriculture and Water Resources Fisheries Research and Development Corporation Grains Research and Development Corporation Murray-Darling Basin Authority Rural Industries Research and Development Corporation

Attorney-General’s Portfolio

General Government:

Administrative Appeals Tribunal Attorney-General's Department Australian Commission for Law Enforcement Integrity Australian Crime Commission Australian Federal Police Australian Financial Security Authority

Australian Human Rights Commission Australian Institute of Criminology Australian Law Reform Commission Australian Security Intelligence Organisation

Australian Transaction Reports and Analysis Centre (AUSTRAC) CrimTrac Agency Family Court and Federal Circuit Court Federal Court of Australia High Court of Australia National Archives of Australia Office of the Australian Information Commissioner Office of Parliamentary Counsel Office of the Director of Public Prosecutions

Communications and the Arts Portfolio

General Government:

Australia Council Australian Broadcasting Corporation Australia Business Arts Foundation Ltd (Creative Partnerships Australia) (company limited by guarantee) Australian Communications and Media Authority Australian Film, Television and Radio School Australian National Maritime Museum Bundanon Trust (company limited by guarantee) Department of Communications and the Arts

National Film and Sound Archive of Australia National Gallery of Australia National Library of Australia National Museum of Australia National Portrait Gallery of Australia Old Parliament House Screen Australia Special Broadcasting Service Corporation

Public Non-Financial Corporations:

Australian Postal Corporation

NBN Co Ltd

Defence Portfolio

General Government:

AAF Company (company limited by guarantee) Army and Air Force Canteen Service Australian Military Forces Relief Trust Fund (Army Relief Trust Fund) Australian Strategic Policy Institute Ltd (company limited by guarantee)

Royal Australian Air Force Veterans’ Residences Trust Fund Royal Australian Air Force Welfare Recreational Company (company limited by guarantee) Royal Australian Air Force Welfare Trust Fund

Notes to the financial statements

168

Australian War Memorial Defence Housing Australia Department of Defence Department of Veterans’ Affairs

Royal Australian Navy Central Canteens Board Royal Australian Navy Relief Trust Fund

Education and Training Portfolio

General Government:

Australian Curriculum, Assessment and Reporting Authority Australian Institute for Teaching and School Leadership Ltd (company limited by guarantee) Australian Institute of Aboriginal and Torres Strait Islander Studies

Australian Research Council Australian Skills Quality Authority (National Vocational Education and Training Regulator) Department of Education and Training Tertiary Education Quality and Standards Agency

Employment Portfolio

General Government:

Asbestos Safety and Eradication Agency Comcare Department of Employment Fair Work Commission Office of the Fair Work Building Industry Inspectorate (Fair Work Building and Construction)

Office of the Fair Work Ombudsman Safe Work Australia Seafarers Safety, Rehabilitation and Compensation Authority (Seacare Authority) Workplace Gender Equality Agency

Public Financial Corporation:

Coal Mining Industry (Long Service Leave Funding) Corporation

Environment Portfolio

General Government:

Australian Renewable Energy Agency Bureau of Meteorology Clean Energy Finance Corporation Clean Energy Regulator Climate Change Authority

Department of the Environment Director of National Parks Great Barrier Reef Marine Park Authority Sydney Harbour Federation Trust

Finance Portfolio

General Government:

Australian Electoral Commission Commonwealth Superannuation Corporation

Department of Finance Future Fund Management Agency

Public Non-Financial Corporation:

ASC Pty Ltd

Foreign Affairs and Trade Portfolio

General Government:

Australian Centre for International Agricultural Research Australian Secret Intelligence Service Australian Trade and Investment Commission

Department of Foreign Affairs and Trade Export Finance and Insurance Corporation (National Interest Account) Tourism Australia

Public Financial Corporation:

Export Finance and Insurance Corporation

Notes to the financial statements

169

Health Portfolio

General Government:

Australian Aged Care Quality Agency Australian Commission on Safety and Quality in Health Care Australian Digital Health Agency Australian Institute of Health and Welfare Australian National Preventive Health Agency Australian Organ and Tissue Donation and Transplantation Authority (Organ and Tissue Authority) Australian Radiation Protection and Nuclear Safety Agency Australian Sports Anti-Doping Authority Australian Sports Commission

Australian Sports Foundation Ltd (company limited by guarantee) Cancer Australia Department of Health Food Standards Australia New Zealand Independent Hospital Pricing Authority National Blood Authority National Health and Medical Research Council National Health Funding Body National Health Performance Authority National Mental Health Commission Professional Services Review Scheme

Immigration and Border Protection Portfolio

General Government:

Department of Immigration and Border Protection

Industry, Innovation and Science Portfolio

General Government:

Australian Institute of Marine Science Australian Nuclear Science and Technology Organisation Commonwealth Scientific and Industrial Research Organisation

Department of Industry, Innovation and Science Geoscience Australia IIF Investments Pty Ltd IP Australia National Offshore Petroleum Safety and Environmental Management Authority

Public Non-Financial Corporation:

ANSTO Nuclear Medicine Pty Ltd

Infrastructure and Regional Development Portfolio

General Government:

Australian Maritime Safety Authority Australian Transport Safety Bureau Civil Aviation Safety Authority Department of Infrastructure and Regional Development

Infrastructure Australia National Capital Authority National Transport Commission Administration of Norfolk Island

Public Non-Financial Corporations:

Airservices Australia Australian Rail Track Corporation Ltd

Moorebank Intermodal Company Ltd

Prime Minister and Cabinet Portfolio

General Government:

Aboriginal Hostels Ltd (company limited by guarantee) Australian National Audit Office Australian Public Service Commission Department of the Prime Minister and Cabinet Digital Transformation Office Indigenous Business Australia Indigenous Land Corporation

Office of National Assessments Office of the Commonwealth Ombudsman Office of the Inspector-General of Intelligence and Security Office of the Official Secretary to the Governor-General Outback Stores Pty Ltd Torres Strait Regional Authority

Notes to the financial statements

170

National Australia Day Council Ltd (company limited by guarantee)

Public Non-financial Corporation:

Voyages Indigenous Tourism Australia Pty Ltd

Social Services Portfolio

General Government:

Australian Institute of Family Studies Department of Human Services Department of Social Services

National Disability Insurance Scheme Launch Transition Agency (National Disability Insurance Agency)

Public Non-Financial Corporation:

Australian Hearing Services (Australian Hearing)

Treasury Portfolio

General Government:

Australian Bureau of Statistics Australian Competition and Consumer Commission Australian Office of Financial Management Australian Prudential Regulation Authority Australian Securities and Investments Commission Australian Taxation Office Commonwealth Grants Commission

Corporations and Markets Advisory Committee Department of the Treasury Inspector-General of Taxation National Competition Council Office of the Auditing and Assurance Standards Board Office of the Australian Accounting Standards Board Productivity Commission Royal Australian Mint

Public Financial Corporations:

Australian Reinsurance Pool Corporation

Reserve Bank of Australia

Parliamentary Departments

General Government:

Department of Parliamentary Services Department of the House of Representatives Department of the Senate Parliamentary Budget Office

Entity changes during 2015-16

Entities no longer consolidated

Australian Customs and Border Protection Service (1 July 2015) Australian Government Solicitor (1 July 2015) Comsuper (1 July 2015) Defence Materiel Organisation (1 July 2015) Migration Review Tribunal and Refugee Review Tribunal (1 July 2015) Private Health Insurance Administration Council (1 July 2015) Private Health Insurance Ombudsman (1 July 2015) Telecommunications Universal Service Management Agency (1 July 2015)

Notes to the financial statements

171

Entities newly controlled/established in 2015-16

Australian Digital Health Agency (30 January 2016) Digital Transformation Office (1 July 2015)

Entities with name changes

Australian Trade and Investment Commission (previously Australian Trade Commission) Department of Agriculture and Water Resources (previously the Department of Agriculture) Department of Communications and the Arts (previously the Department of

Communications) Department of Industry, Innovation and Science (previously the Department of Industry and Science)

The Australian Government Organisations Register (www.finance.gov.au/resource-management/governance/agor/) provides information on the function, composition, origins and other details of more than 1,200 Australian Government entities and bodies, including the reporting entities consolidated in the financial statements.