Alternative financing of government policies: understanding the fiscal costs and risks of loans, equity injections and guarantees

Budget Fiscal policy Government expenditure Public finance Australia

Under successive governments there has been a shift toward delivering more government policies using alternative financing arrangements rather than direct payments. These arrangements usually involve the government undertaking an equity investment, loan or guarantee.

The underlying cash balance is the metric by which the government’s fiscal position is frequently assessed in public commentary. In most cases this is appropriate, since the impact of policy decisions on the fiscal position is broadly in line with the impact on the underlying cash balance. But this is not the case for policies that are funded using alternative financing. For these policies, understanding the fiscal impact also requires an understanding of the value of assets acquired.

Recent experience has shown that these arrangements can have a significant impact on the fiscal position through revaluation-related costs. For example, successive governments’ equity investments in NBN Co had resulted in a $20.8 billion deterioration in the balance sheet as at 30 June 2019, which is not captured in the underlying cash balance. Similarly, a material share of loans issued under the Higher Education Loan Program (HELP) is never expected to be repaid – partly by design. The debt that is not expected to be repaid is not fully captured in the underlying cash balance, yet was worth $1.2 billion for new HELP loans issued in 2018–19.

While detail is provided in budget documents about most government spending and taxation, very limited information is provided about revaluation-related impacts. This makes it difficult to understand the balance sheet impact of policies using alternative financing arrangements when they are announced and to assess their performance over time. There are a number of ways in which the transparency of budget reporting could be improved, with some possible enhancements set out in this paper.

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Report No. 01/2020