Budget Treatment of Future Fund Earnings and Costs
The Future Fund's gross earnings have been excluded from the underlying cash balance since its establishment in 2006. This was on the basis that Future Fund earnings, while accounted for as Government receipts, are not available for recurrent spending but are instead quarantined and reinvested to meet the Government’s future public sector superannuation liabilities.
While Future Fund’s gross earnings had been excluded from the underlying cash balance since its establishment, its operational costs had been included in the underlying cash balance until recently (refer to the change to the budget treatment of Future Fund costs).
Once payments are made from the Future Fund (eg. from 1 July 2020), the earnings and future costs of the Future Fund will be included in the underlying cash balance.
Future Fund gross earnings are included in the fiscal balance, the accrual counterpart to the underlying cash balance. This is to reflect that superannuation expenses are recorded in the fiscal balance estimates at the time they are incurred, rather than at the time cash payments are made.
Change to the Budget Treatment of Future Fund Costs
The Government announced a review of the budget treatment of the Future Fund in the 2012-13 Budget regarding the issue of whether net earnings should be excluded from the calculation of the underlying cash balance. Essentially, the review questioned whether both Future Fund’s earnings and costs should be excluded from the underlying cash balance. Previously gross earnings only had been excluded.
Following consultation with stakeholders, the Government announced in the 2012-13 Mid-Year Economic and Fiscal Outlook that the Future Fund’s net earnings would be excluded from the calculation of the underlying cash balance. This is considered appropriate as the Fund’s earnings are required to be reinvested to meet future superannuation payments, and the Future Fund is required to meet all of its operating costs from its earnings. This therefore enables Future Fund earnings and costs to be treated consistently in the calculation of the underlying cash balance.
As a result of this change in budget treatment, the historical series for the Australian Government fiscal aggregates have been revised to account for Future Fund net earnings in the underlying cash balance.
The exclusion of Future Fund costs from the underlying cash balance would have no impact on the fiscal balance.
Consultation on Budget Treatment of Future Fund Costs
In accordance with the Government’s announcement in the 2012-13 Budget that it would review the budget treatment of the Future Fund, the Department of Finance and the Department of the Treasury reviewed the budget treatment during the second half of 2012. For details please refer to Budget Treatment of Future Fund Costs in the Australian Government Budget and Financial Documents.
Last updated: 27 May 2015