SUPERANNUATION ACCOUNTING CHANGES IN THE BUDGET

22 May 2013

NSW Treasurer Mike Baird today outlined an important change to accounting standards that will be reflected for the first time in the 2013-14 State Budget on June 18.

The revision of accounting standard AASB 119, which was foreshadowed in the 2012-13 Budget papers, means earnings on the state’s superannuation assets will be now calculated using the Commonwealth 10-year bond rate.           

Previously, the earnings were calculated using a market-based forecast of what the assets (which are currently valued at around $30 billion in the general government sector) would on average earn.

Mr Baird told the Institute of Chartered Accountants Australia Business Forum the replacement of forecast earnings with the bond rate, currently around 3.25 per cent, would reduce the expected return on superannuation  assets from an accounting perspective, as previous forecasts earnings were built on the historical 8.6 per cent rate.

The change thus increases the overall superannuation interest cost shown in the operating statement – that is, the difference between interest on obligations and expected return on assets -- by more than $1 billion in 2013-14.

This is despite the fact interest earned is expected to be in line with historical averages.

“This change is being introduced by all the states and the Commonwealth as a result of international accounting standard changes,” Mr Baird said.

“It is important to stress this is a change in accounting that does not affect the underlying financial position of the State.

“It does not affect our funding position, our cash result, our debt position, our overall balance sheet, or our credit worthiness.

“Because ratings agencies focus on the cashflow statement, which is not affected by the changes, we expect there will be no impact on the rating as a result of the accounting changes.

“Earlier this month, the Victorian budget included results under both methodologies, with a difference of around $600 million.

“Like my Victorian counterpart Michael O’Brien, I will be including both numbers in the Budget, to enable cross-border comparisons, but also to allow ease of comparison between the numbers in this Budget and those contained in the 2012-13 Budget and the Mid-Year Review.”

The Treasurer also released his Economic Update for May, which describes a general softening in NSW taxation revenues in the final quarter of the financial year.

“Along with initial estimates of a further $860 million GST writedown in the Federal Budget last week, this increases the magnitude of the fiscal challenges facing the O’Farrell Government,” Mr Baird said.

“Nevertheless, we will continue to improve services for the people of NSW and clear the infrastructure backlog left behind by Labor.

“This means we must make the right, tough decisions in our Budget next month.”

 

NSW CONSUMERS REMAIN SECOND MOST OPTIMISTIC IN THE COUNTRY

22 May 2013

Treasurer Mike Baird today said NSW consumers remain the second most optimistic in the nation, despite an overall decline in confidence following last week’s Federal Budget.

Notwithstanding a slight fall in NSW by 1.5 per cent, the Westpac – Melbourne Institute NSW Consumer Sentiment Index released today shows the NSW index is now 4.5 per cent higher compared to this time last year.

“While today’s survey points to a significant drop in consumer confidence nationally driven by a sharply negative response to the Federal Budget, NSW consumer confidence continues to be relatively robust,” said Mr Baird.

“NSW consumers remain the second most optimistic in the nation and only marginally behind those in Western Australia. This is the fifth consecutive month that the NSW Index has been above 100, and NSW remains the only state apart from Western Australia where the index is above 100.

“It’s no wonder Australians are feeling uncertain about the country’s economy with the chaos coming out of Canberra under Federal Labor. But it’s pleasing that NSW households are feeling considerably more confident about their financial situation.

“More jobs and higher confidence led consumers to spend at a faster rate in the March quarter than at any time since before the GFC, which is good for the economy and good for the state.

“It’s clear that consumers are feeling increasingly confident in NSW under a Government that is delivering strong, stable and responsible economic management,” said Mr Baird.

The NSW economy is performing markedly better on a number of measures including:

• Economic growth – NSW economic growth is the second strongest of all the States on a quarterly and annual basis.

• Jobs – NSW jobs growth is the strongest of all states since coming to Government. NSW’s unemployment rate (5.3%) has been below the national average for the past 15 months and is the second lowest in the nation. Under the O’Farrell Government, 130,600 new jobs have been created in NSW.

• Housing – NSW posted its highest number of new home approvals over a 12 month period since October 2005.