CHAPTER 2 – GENERAL GOVERNMENT SECTOR OUTCOME
The net result from transactions for 2011-12 was $571 million.
Excluding the impact of net Commonwealth variations ($427 million) since the revised 2011-12
estimate was published in the 2012-13 Budget, the 2011-12 net result from transactions for the Victorian
general government sector would have been $144 million.
The Commonwealth provided to Victoria higher grants compared to the revised 2011-12 estimate,
largely by bringing forward its payment for a number of grants into 2011-12.
Total expenditure of $47.3 billion was within 1.2 per cent of the revised budget estimate of
$46.7 billion.
General government net infrastructure investment was $5.2 billion for 2011-12 which was broadly in
line with the revised budget estimate.
Net debt for the general government sector of $15.2 billion at 30 June 2012 was lower than estimated
in the revised budget.
FISCAL OBJECTIVES
The 2011-12 Budget Update set out the Government’s strategy to place the State’s finances back on a
sustainable footing. The key elements of that strategy were to maintain a budget surplus of at least
$100 million a year, implement savings in the public sector, maintain Victoria’s triple-A credit rating
and move towards sustainable levels of public debt.
The 2011-12 results are consistent with the Government’s fiscal strategy. The Government has taken
important steps toward improving the State’s financial sustainability by implementing substantial
savings, constraining overall spending growth over the forward estimates, and committing to a new
medium-term fiscal strategy in the 2012-13 Budget.
FINANCIAL PERFORMANCE
Table 2.1 shows that the Government delivered a 2011-12 net result from transactions of $571 million.
This was $445 million higher than the revised 2011-12 estimate of $126 million contained in the
2012-13 Budget.
Excluding the net impact of higher than budgeted Commonwealth grants in 2011-12 of around
$427 million since the 2012-13 Budget, the net result from transactions would be $144 million in
2011-12 which is consistent with the Government’s revised estimate as published in the 2012-13 Budget.
2011-12 Financial Report
Chapter 2
5
Table 2.1: Summary of operating statement
($ million)
Revenue
Taxation revenue
Interest
Dividends, income tax and rate equivalent
revenue
Sale of goods and services
Grants
Other revenue
Total revenue
Expenses
Employee expenses
Superannuation (a)
Depreciation and amortisation
Interest expense
Grants and other transfers
Other operating expenses
Total expenses
Net result from transactions – Net operating
balance
Total other economic flows included in net result
Net result
2010-11
Actual
2011-12
Actual
2011-12
Revised
Budget
%
variance Change
14 857.5
420.1
404.0
15 026.9
412.6
939.1
14 909.7
386.5
1 008.6
117.2
26.2
(69.6)
0.8
6.8
(6.9)
5 944.2
22 425.6
1 975.5
46 026.9
6 267.2
22 599.8
2 636.7
47 882.3
6 207.3
21 874.3
2 488.7
46 875.1
59.9
725.5
148.0
1 007.2
1.0
3.3
5.9
2.1
16 374.8
2 627.2
2 010.0
985.6
8 547.4
14 964.6
45 509.6
517.3
17 120.1
2 632.5
2 126.5
1 242.6
8 233.8
15 955.6
47 311.0
571.2
16 840.5
2 564.8
2 235.5
1 233.2
8 206.1
15 668.9
46 749.1
126.0
279.6
67.6
(109.0)
9.3
27.8
286.6
561.9
445.3
1.7
2.6
(4.9)
0.8
0.3
1.8
1.2
353.5
218.6 (10 298.6) (6 111.0) (4 187.6)
735.9 (9 727.3) (5 985.0) (3 742.3)
68.5
62.5
Note:
(a)
Includes superannuation interest expense and other superannuation.
The significant drivers of the variances to the revised 2011-12 estimate, and where significant to the
previous financial year are explained in more detail below.
Revenue
Total revenue for the year was $47.9 billion, $1.0 billion (or 2.1 per cent) higher than the revised
estimate and $1.9 billion (or 4.0 per cent) higher than in 2010-11.
Grants revenue of $22.6 billion in 2011-12 was $726 million (or 3.3 per cent) higher than the revised
estimate, primarily reflecting the Commonwealth bringing forward grants into 2011-12 for the Western
Ring Road Upgrade, the Housing Affordability Fund and grants for on-passing to local government.
After adjustments for the additional expenditure of $281 million associated with this Commonwealth
revenue, additional grants resulted in a net $427 million increase in the general government net result
from transactions.
When compared to 2010-11, grants revenue showed little growth at $174 million (or 0.8 per cent) with
increases in special purpose payments and other grants largely offset by a significant year on year
reduction in Natural Disaster Relief payments and GST revenue.
Table 2.2 shows State taxation revenue of $15.0 billion, 0.8 per cent higher than the revised estimate in
the 2012-13 Budget. The increase was largely driven by:

$42.6 million in additional payroll tax due to stronger than expected employment growth; and

$42.0 million in additional insurance tax in line with industry reports of higher than expected
premium growth.
6
Chapter 2
2011-12 Financial Report
Comparing year on year results, taxation revenue in 2011-12 was $169.4 million (or 1.1 per cent) higher
than in 2010-11. The increase was driven by:

$341.8 million in higher payroll tax in line with trend growth; and

$196.0 million in additional insurance taxes, mainly reflecting a boost in funding for the Country
Fire Authority.
These increases were substantially offset by a $603 million decrease in land transfer duty. This reflects a
more subdued property market, with the number of transactions similar to the 2008-09 downturn and
much lower than 2010-11.
Table 2.2: Taxation
($ million)
Taxes on employers' payroll and labour force
Taxes on immovable property
Land tax
Congestion levy
Metropolitan improvement levy
Property owner contributions to fire brigades
Total taxes on immovable property
Financial and capital transactions
Land transfer duty
Other property duties
Financial accommodation levy
Growth areas infrastructure contribution
Total financial and capital transactions
Gambling taxes
Private lotteries
Electronic gaming machines
Casino
Racing
Other
Total gambling taxes
Levies on statutory corporations
Taxes on insurance
Motor vehicle taxes
Vehicle registration fees
Duty on vehicle registrations and transfers
Total motor vehicle taxes
Franchise taxes
Other taxes
Total taxation
2011-12
Actual
4 695.8
2011-12
Revised
4 653.2
Budget
variance
42.6
%
Change
0.9
1 401.4
46.1
131.5
38.2
1 617.2
1 377.2
45.6
130.0
32.0
1 584.8
24.2
0.5
1.4
6.2
32.4
1.8
1.1
1.1
19.5
2.0
3 307.0
7.7
83.1
72.5
3 470.3
3 285.0
8.3
85.9
58.1
3 437.4
21.9
(0.6)
(2.8)
14.4
32.9
0.7
(7.6)
(3.3)
24.8
1.0
384.7
1 013.8
194.4
121.1
16.5
1 730.6
69.4
1 652.1
379.0
1 033.8
197.5
124.9
16.0
1 751.2
69.4
1 610.1
5.7
(19.9)
(3.1)
(3.8)
0.5
(20.6)
..
42.0
1.5
(1.9)
(1.6)
(3.1)
3.0
(1.2)
..
2.6
1 005.3
584.3
1 589.6
22.6
179.3
15 026.9
1 002.7
593.3
1 596.0
21.4
186.2
14 909.7
2.6
(9.0)
(6.4)
1.2
(6.9)
117.2
0.3
(1.5)
(0.4)
5.5
(3.7)
0.8
Source: Department of Treasury and Finance
Revenue from the sale of goods and services of $6.3 billion was largely consistent with the revised
budget estimate and $323 million (or 5.4 per cent) higher than in 2010-11, primarily reflecting increased
revenue in the health sector and increased capital assets charge revenue from VicTrack in line with
growing investment in the sector.
2011-12 Financial Report
Chapter 2
7
Other revenue of $2.6 billion was $148 million (or 5.9 per cent) higher than the revised estimate
primarily reflecting increased revenue from non-government sources received by health services and
the receipt of assets from local government.
Dividends, income tax and rate equivalent revenue was $70 million (or 6.9 per cent) lower than the
revised estimate, reflecting timing differences since the 2012-13 Budget. When compared to 2010-11,
this revenue increased by $535 million reflecting the underlying profitability of government entities and
the receipt of a dividend from the Victorian WorkCover Authority.
Expenses
Excluding the impact of additional grants to local government as a result of the Commonwealth
bringing these payments forward into 2011-12 as previously discussed, total expenses for the year were
consistent with the revised budget.
When compared to 2010-11, total expenses grew by $1.8 billion to $47.3 billion. This was primarily
due to:

normal salary increases for existing frontline service delivery staff, as well as additional police,
protective services officers and hospital staff;

increased demand driven funding paid to Registered Training Organisations, new initiatives funded
by Government in the health and human services sectors, growth funding for existing initiatives
and additional activity funded by hospitals own revenue;

increase in depreciation expenses reflecting the impact of the Government’s investment in
infrastructure over the year as well as the effect of asset revaluations on depreciation expense; and

increase in interest expense due to higher borrowings to fund the general government sector
infrastructure investment program.
Savings
The 2011-12 Budget outlined a total savings package of $2.2 billion over five years, including
$475 million in 2011-12. These savings focused on cutting waste and duplication. These savings were
achieved through an overall reduction in departmental budgets and built on the $164 million of savings
achieved in 2010-11.
The ongoing achievement of savings outlined in this package underpins the Government’s efforts to
constrain expenditure growth, as will realising the additional savings measures from 2012-13 set out in
the 2011-12 Budget Update and the 2012-13 Budget.
Other economic flows included in the net result
The net result from transactions is the Government’s net surplus measure for the purposes of its fiscal
strategy.
The overall net result is a different measure. The difference between the net result and the net result
from transactions is due to other economic flows, which includes various revaluation gains and losses
such as actuarial gains and losses on the superannuation liability. Actuarial gains and losses on
superannuation arise due to variations between actual experience and the assumptions used to
determine the superannuation expense from transactions. These assumptions include the rate of future
salary increases, the length of employee tenure, the expected rate of return on superannuation assets
and the discount rate that is used to determine the present value of the superannuation liability.
8
Chapter 2
2011-12 Financial Report
The discount rate used to calculate the superannuation liability is based on Commonwealth
Government bond yields. Movements in these bond yields can have a significant impact on the
valuation of the superannuation liability. Commonwealth Government bonds yields fell markedly over
the course of 2011-12, which greatly increased the reported superannuation liability. However, it is
important to note that increases in reported superannuation liability arising from bond rate movements
have no impact on the amount of cash required to fund the liability over time.
Other economic flows included in the net result for 2011-12 totalled a net loss of $10.3 billion, of
which $9.3 billion related to an actuarial loss on superannuation. This actuarial loss was primarily due
to adverse movements in the bond yields that are used to value this liability during the year as well as
lower than expected investment returns on superannuation assets. Overall, the reported net result for
the year was a loss of $9.7 billion, compared to a revised estimate loss of $6.0 billion. This variation
was primarily due to an increase in the actuarial loss on superannuation since the revised estimate was
published due to a further fall in bond yields and investment returns.
MEASURES OF FINANCIAL PERFORMANCE
Fiscal aggregates are analytical balances that are useful for assessing the impact of the financial
transactions of government and its controlled agencies on the economy. These measures are derived
from the information disclosed in the audited financial statements in Chapter 4. Five operating fiscal
aggregate measures are shown in Table 2.3.
Table 2.3: Operating fiscal aggregates
($ million)
2010-11
Actual
517.3
735.9
(2 253.6)
5 459.7
(1 805.7)
Net result from transactions – net operating balance
Net result
Net borrowing
Comprehensive result – total change in net worth
Cash deficit
2011-12
Actual
571.2
(9 727.3)
(1 710.5)
(8 209.2)
(640.3)
2011-12
Revised
126.0
(5 985.0)
(2 294.4)
(2 588.0)
(980.6)
The net result from transactions for 2011-12 for the general government sector was a surplus of
$571 million. This measure excludes the effects of revaluations arising from changes in market prices.
The main reasons for this result and the net result, which includes such changes, have been discussed
previously.
The net borrowing measure for 2011-12 was $1.7 billion. This measure reflects the overall impact on
financial markets of the transactions of the general government sector. This lower net borrowing result
reflects the higher than expected net result from transactions and the commercial acceptance of the
Biosciences Research Centre not being achieved in 2011-12 as originally anticipated.
The comprehensive result – total change in net worth in 2011-12 was a loss of $8.2 billion. This was
mainly as a result of an actuarial loss on superannuation defined benefit plans which has been
discussed previously under other economic flows included in the net result.
The cash deficit of $640 million in 2011-12 was $340 million lower than the revised estimate and
$1.2 billion lower than the same time last year due to a higher than expected net result from
transactions and lower infrastructure investment.
2011-12 Financial Report
Chapter 2
9
FINANCIAL POSITION
Table 2.4 shows that total general government sector net assets decreased by $8.2 billion (or 7.4 per
cent) to $111 billion in 2011-12.
The main driver of this decrease in net assets has been a $9.8 billion increase in the reported value of
the superannuation liability of the general government sector, due primarily to a fall in the discount rate
used to value the superannuation liability. This was partially offset by the impact of revaluations of
non-financial assets of $2.0 billion.
Net assets as at 30 June 2012 were also $5.7 billion lower than predicted in the May budget which was
primarily due to the decrease in the discount rate used to value the superannuation liability in the June
quarter of 2012, as well as lower than estimated revaluations of road assets.
Table 2.4: Summary balance sheet
($ million)
Actual
Actual
2011 movement
Assets
Financial assets
Non-financial assets
Investments in other sector entities
Public financial corporations
Public non-financial corporations
Total assets
Liabilities
Superannuation
Borrowings
Other liabilities
Total liabilities
Net assets
Actual
2012
Budget
variance
Revised
2011-12
9 767.1
95 079.2
984.1
3 906.7
10 751.3
98 986.0
(46.4)
(2 365.1)
10 797.7
101 351.1
1 064.7
64 108.5
170 019.6
(27.6)
1 603.8
6 467.1
1 037.1
65 712.3
176 486.6
(245.3)
(94.0)
(2 750.8)
1 282.4
65 806.2
179 237.4
22 780.3
17 734.4
10 581.2
51 095.9
118 923.6
9 817.2
4 659.5
198.1
14 674.7
(8 207.7)
32 597.5
22 393.9
10 779.3
65 770.7
110 716.0
3 525.7
(276.5)
(279.6)
2 969.6
(5 720.4)
29 071.8
22 670.4
11 058.9
62 801.1
116 436.4
Assets
Financial assets in Table 2.4 include cash assets, investments and loans and placements. The value of
the financial assets held by the general government sector increased by $984 million to $10.8 billion
during the financial year in line with the revised budget. This is primarily due to an increase in cash
deposits to meet short-term requirements.
Non-financial assets primarily consist of the general government’s holdings of infrastructure assets.
These increased by $3.9 billion during the year which is mainly due to the Government’s new
purchases of infrastructure ($3.6 billion), partially offset by the annual depreciation charge
($2.1 billion), revaluations of existing assets ($2.0 billion), primarily relating to roads, and the
recognition of the Royal Children’s Hospital which was commissioned during the year ($0.9 billion).
10
Chapter 2
2011-12 Financial Report
Liabilities
Total general government sector liabilities increased by $15 billion to $66 billion in 2011-12, primarily
due to an increase in the superannuation liability and increased borrowings to fund the Government’s
infrastructure investment program. Total liabilities as at 30 June 2012 were $3.0 billion higher than
estimated in the revised budget, mainly due to the impact of higher than estimated actuarial losses on
superannuation since the May budget, as outlined above.
The superannuation liability relates to public sector defined benefit superannuation schemes and
represents the present value of expected future benefits that scheme members have accrued to date,
less the value of superannuation assets.
MEASURES OF FINANCIAL POSITION
Key measures of the general government sector’s financial position include net debt and net financial
liabilities and are highlighted in Table 2.5. In the 2012-13 Budget the Government committed to reduce
net debt as a percentage of GSP over the decade to 2022 as part of its medium-term fiscal strategy.
Table 2.5: Balance sheet fiscal aggregates
($ million)
2010-11
Actual
118 923.6
23 844.4
41 328.8
11 836.8
Net worth
Net financial worth
Net financial liabilities
Net debt
2011-12
Actual
110 716.0
11 730.0
55 019.4
15 236.9
2011-12
Revised
116 436.4
15 085.3
52 003.4
16 082.9
Source: Department of Treasury and Finance
The net worth measure is equal to net assets outlined in Table 2.4.
The general government net financial worth measure is equal to total financial assets less total
liabilities. In 2011-12, net financial worth decreased by $12.1 billion to $11.7 billion, primarily due to
the actuarial losses on superannuation previously outlined as well as the impact of funding part of the
infrastructure program through borrowing.
Net financial liabilities are determined by the value of total liabilities less financial assets (excluding
investments in other sector entities). Net financial liabilities increased by $13.7 billion in 2011-12 to
$55 billion as at 30 June 2012, due largely to the same factors that impacted on the net financial worth
measure above.
Net debt is determined by deducting liquid financial assets from gross debt. Net debt increased by
$3.4 billion in 2011-12 to $15 billion as at 30 June 2012. This reflects the increase in borrowings to
partially fund the Government’s infrastructure investment program as well as the recognition of the
finance lease for the Royal Children’s Hospital during the year.
2011-12 Financial Report
Chapter 2
11
CASH FLOWS
Table 2.6 outlines the use of cash resources to fund Victoria’s infrastructure investment program. It
provides a summary of cash generated through the operations of Victorian government departments
and other general government sector agencies, and how that cash is applied to infrastructure
investment.
A detailed statement of cash flows is provided in Chapter 4. In 2011-12, approximately half of the
general government sector infrastructure investment program of $5.2 billion was funded from net cash
flows from operating activities.
Table 2.6: Application of cash resources
($ million)
Net result from transactions – net operating balance
Add back: Non-cash revenues and expenses (net) (a)
Net cash flow from operating activities
Less:
Net investment in fixed assets
Expenditure on approved projects
Sale of non-financial assets
Net investment in fixed assets
Finance leases
Other investment activities (net)
Increase in net debt
2011-12
Actual
571.2
2 186.3
2 757.5
2011-12
Revised
126.0
2 341.2
2 467.2
5 396.0
(167.1)
5 228.9
916.0
12.7
(3 400.1)
5 818.6
(303.2)
5 515.5
1 210.6
(12.8)
(4 246.1)
Note:
(a)
Includes depreciation and non-cash movements in liabilities such as superannuation and employee benefits.
12
Chapter 2
2011-12 Financial Report