Australian Bureau of Statistics, 2014, 5512.0 - Government Finance Statistics, Australia, 2012–13, May 28. Available at http://www.abs.gov.au/ausstats/abs@.nsf/mf/5512.0.
Blejer, Mario I., and Adrienne Cheasty, 1991, “The Measurement of Fiscal Deficits: Analytical and Methodological Issues,” Journal of Economic Literature, Vol. 29, No. 4, pp. 1644–78.
Buiter, Willem H., 1983, “Measurement of the Public Sector Deficit and Its Implications for Policy Evaluation and Design,” IMF Staff Papers, Vol. 30, No. 2, pp. 306–49.
Congressional Budget Office, 2006, Comparing Budget and Accounting Measures of the Federal Government’s Fiscal Condition, Congress of the United States, www.cbo.gov/sites/default/files/12-07-fiscalmeasures.pdf.
Chan, James L., and Yunxiao Xu, 2012, “How Much Red Ink: Comparing Economic and Accounting Approaches to Measuring Government Deficit and Debt,” World Economics, Vol. 13, No. 1, pp. 65–74.
FASAB (US Federal Accounting Standards Advisory Board), 2009, Reporting Extended Long-Term Fiscal Projections for the US Government: Statement of Federal Financial Accounting Standards 36, September 28, www.fasab.gov/pdffiles/sffas_36_.pdf.
Government of New Zealand, 2013, Financial Statements for the Government of New Zealand for the Year Ended 30 June 2013, www.treasury.govt.nz/government/financialstatements/yearend/jun13.
International Public Sector Accounting Standards Board, 2014, International Public Sector Accounting Standards, International Federation of Accountants.
Irwin, Timothy C., 2012, “Some Algebra of Fiscal Transparency: How Accounting Devices Work and How to Reveal Them,” IMF Working Paper WP/12/228, (Washington, DC: International Monetary Fund).
NZICA (New Zealand Institute of Chartered Accountants), 2005, Financial Reporting Standard 42: Prospective Financial Statements.
Stickney, Clyde P., Roman L. Weil, Katherine Schipper, and Jennifer Francis, 2010, Financial Accounting: An Introduction to Concepts, Methods, and Uses, 13th edition, (Mason, OH: South-Western).
UK Office for Budgetary Responsibility, 2013, Fiscal Sustainability Report July 2013, http://budgetresponsibility.org.uk/fiscal-sustainability-report-july-2013/.
US Treasury, 2011, 2011 Financial Report of the United States Government, www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/backissues.htm.
US Treasury, 2012, 2012 Financial Report of the United States Government, www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/12frusg.htm.
US Treasury, 2013, 2013 Financial Report of the United States Government, www.fiscal.treasury.gov/fsreports/pt/finrep/fr/13frusg.htm.
This paper has also been published in the OECD Journal on Budgeting, Vol. 2014, No. 3. It has benefited from comments from or discussions with Marco Cangiano, Adrienne Cheasty, Carlo Cottarelli, Derick Cullen, Vítor Gaspar, Torben Hansen, Richard Hughes, Tom Josephs, Kris Kaufman, Andy King, Abdul Khan, John Merrifield, Delphine Moretti, Jean-Paul Milot, Marvin Phaup, Steve Redburn, Mike Seiferling, Phil Stokoe, and Frans van Schaik.
There is no perfectly satisfactory terminology for these deficits. In particular, what is here called the financial deficit could also be called an accrual deficit or a modified-accrual deficit. The term financial is used here because the deficit is derived from what statisticians call financial accounts and to avoid confusion with what is called here the full-accrual deficit, as well as with the term modified accrual as that is used in US local-government accounting (Granof and Khumawala, 2011, p. 41). For a review of the literature on different ways of measuring the deficit, see Irwin (forthcoming).
The two kinds of problem―nonrecognition and mismeasurement―are related: nonrecognition is an extreme case of mismeasurement in which an asset or liability is wrongly measured at zero value.
In principle, the tradeoff might also be improved by reducing opportunities for the kind of manipulation that involves operations in unrecognized assets or liabilities, but this would mean preventing the government from engaging in certain transactions, not just prescribing how it reports the financial effects of those transactions. Moreover, many transactions that can be used to manipulate narrow deficit measures also have a nonaccounting justification. Thus, the attempt to improve the tradeoff is best focused on reducing the scope for mismeasurement.
The problem is not that the accounting is single-entry: because even cash accounting, as defined here, includes a (primitive) balance sheet, each transaction involves two entries. When the government receives taxes, for instance, it credits revenue and debits cash.
The value of such assets is thus equal to the increase in the net present value of the government’s cash flows that they are expected to cause, conditional on current government policy. The same approach is used in long-term fiscal projections and comprehensive accounts, which project cash flows conditional on current government policy. On the assumption that government policy is to repay its debt, valuation conditional on government policy also avoids the seemingly paradoxical result that an indebted government’s net worth improves when it becomes less creditworthy.
For the case of company accounting, see Stickney and Weil (2010, p. 108). As noted above, some government assets do not directly generate future cash inflows but rather reduce the future cash costs of carrying out current policies.
Although a single discount rate can be used for simplicity, the conceptually appropriate discount rate varies according to the timing and risk of the cash flow. Adjusting for the timing requires starting with a risk-free yield curve, rather than a single risk-free rate. Adjusting for risk requires adding or subtracting an appropriate risk premium.
The New Zealand Treasury’s long-term fiscal model is available at www.treasury.govt.nz/government/longterm/fiscalmodel.
An assumption underlying this addition is that it doesn’t involve significant double counting.