Accounting at the ABC

Did you ever wonder why the ABC’s budget figures never seem to quite add up?

This is the government budgeting to have a $29.4 billion deficit for 2017-18 (page 11-7):

Deficit

In short:

  • $433.5 billion in receipts;
  • minus $459.7 billion in payments;
  • minus $3.2 in net Future Fund earnings;
  • equals a $29.4 billion deficit.

Let’s keep that $459.7 billion spending figure in mind…

But first, allow me to digress

This is our billion-dollar-plus ABC quoting the government’s $29.4 billion deficit figure in it’s 2017-18 budget ‘cheat sheet’:

Some important numbers

The Government says there’ll be a forecast deficit of $29.4 billion in 2017-18.

It’s still projecting a return to a $7.4 billion surplus in 2020-21.

NB: yes, that’s really the start and the end of the ABC’s ‘important numbers’ in their ‘cheat sheet’.

NB2: yes, really.

Indeed, it’s amusing that the ABC would call this article a ‘cheat sheet to understanding what’s what’ without ever actually saying what overall revenue and spending are:

Too busy to watch the Treasurer deliver his budget speech in Parliament last night?

Don’t worry.

We’re like that awesome mate at uni who went to all the lectures then shared the notes with you.

Here’s your cheat sheet to get you up to speed.

(Read: if you’re a goon that refuses to attend class and can’t pass on your own merits – and you actually think that listening to the Treasurer’s budget speech alone is enough to sufficiently understand the budget – then you’re just the kind of apathetic thought-outsourcer that this article is perfect for: because you’ll have little idea of how poor and uninformative it is).

Ok, I’m done digressing for now.

Unhomogenised maths

Its junk articles aside, the ABC’s real problem is that its overall budget numbers don’t add up.

This is what the ABC has to say:

ABC1

ABC2

(I’ll wait while you go back up to the deficit table above and confirm that spending is indeed budgeted to be $459.7 billion – and not $464.4 billion – when it comes to calculating the deficit for 2017-18).

Now, I’m no mathematician, but where I come from:

  • $433.5 billion in revenue;
  • minus $464.3 billion in expenses;
  • minus $3.2 in net future fund earnings;
  • equals a $34 billion deficit – and not a $29.4 billion one.

Did I forgot to homogenise something?

Not quite.

To be fair to the ABC, it didn’t simply pluck the spending number out of nowhere: it simply doesn’t understand the difference between cash and accrual accounting*. That is, despite having enough money to hire an army of accountants, the ABC doesn’t appear to understand that:

  • a budget surplus or deficit is the government’s underlying cash balance – and is calculated using cash accounting principles; and
  • reporting on government expenses is done on both a cash and accrual basis.

Here is the government’s expense summary (prepared on an accrual basis) indicating a budgeted figure of $464.3 billion (see page 6-7):

Expenses 2017

So what happened?

The ABC has used a cash figure for revenue and an accrual figure for expenses in its numbers – which explains why its figures don’t add up.

Has the ABC done this before?

Yes.

For example, for the  2016-17 budget, the ABC said that:

  • revenue was budgeted to be $411.3 billion (cash figure); and
  • expenses were budgeted to be $450.8 billion (the accrual figure – the cash figure was $445.0 billion – see page 10-6);

For the 2014-15 budget, the ABC said that:

  • revenue was budgeted to be $385.8 billion (cash figure); and
  • expenses were budgeted to be $414.8 billion (the accrual figure – the cash figure was $412.5 billion – see page 10-7;

What a shambles.


(*) For those who would like the nutshell explanation:

The main difference between cash accrual accounting is the timing of when revenue and expenses are recorded. Cash accounting records revenue when the money is received and expenses when the money is paid out. Whereas, accrual accounting records revenue when it is earned and expenses when they are incurred.

Cash accounting only records when money changes hands, either when it is received or paid. It does not record payables and receivables. Accrual accounting records all transactions in the reporting period, when income is earned or expenses are incurred – this includes recording payables and receivables.

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15 Responses to Accounting at the ABC

  1. Bruce of Newcastle

    The ABC is a debtor from which us conservatives never receive any payment.
    Can we appoint receivers please?

  2. J-man

    Technically, the cash term for revenue is receipts. Your use of revenue when talking about cash and accrual income makes a similar mistake to the ABCs, albeit it does not impact on the addition of receipts and payments to come up with underlying cash balance.

  3. Hydra

    All this is assuming the Federal Government complies with the Accounting Standards, which is unlikely: http://www.afr.com/technology/web/nbn/government-rejects-calls-to-write-down-30b-nbn-investment-as-bevan-slattery-predicts-mobile-advances-20170412-gvjl5a

    The NBN should not be held at cost. It should be held at almost zero as it is not a recoverable asset.

  4. Hydra

    Technically, the cash term for revenue is receipts. Your use of revenue when talking about cash and accrual income makes a similar mistake to the ABCs, albeit it does not impact on the addition of receipts and payments to come up with underlying cash balance.

    Marcus doesn’t get paid $1,200,000,000.

  5. Chris

    Can we appoint receivers please?

    Watch out for sky fridges – they won’t like that one!

  6. Tim Neilson

    I’d really like to deliver a fridge to Ultimo. (NADT)

  7. Mother Lode

    I have heard in QLD they have ‘drop-fridges’.

    Very vicious.

  8. Marcus

    J-man – that’s my point. Notice how I’ve used the terms correctly at the top, but then how the ABC’s method made it impossible for me to do so thereafter.

  9. J-man

    J-man – that’s my point. Notice how I’ve used the terms correctly at the top, but then how the ABC’s method made it impossible for me to do so thereafter.

    Fair enough, although I think your sentence later in the article should say, “The ABC has used a cash figure for revenue receipts and an accrual figure for expenses payments in its numbers…”

    This sentence need not be limited by the ABC’s poor understanding.

  10. Bad Samaritan

    I’m confused…..$433 Billion income – $459 Billion outgoings = a deficit of $26 Billion. Then there are future fund earnings of net $3 Billion, which should then reduces the total deficit to $23 Billion.

    However the article says that an extra $3 Billion in earnings increases the deficit to $29 Billion.

    Please help.

  11. Faye

    Isn’t it time for the people to rise up and demand that the ABC be told to earn its own keep? They think they are superior in intellect so let’s see how long they last in real business mode.

  12. J-man

    I’m confused…..$433 Billion income – $459 Billion outgoings = a deficit of $26 Billion. Then there are future fund earnings of net $3 Billion, which should then reduces the total deficit to $23 Billion.

    I think you will find that Future Fund Earnings are included in Total Receipts. As the Government will not have access to these earnings, because they will be reinvested, they need to be subtracted from the cash balance.

  13. Marcus

    Your Right J-man, I’ll amend next time I park myself in front of the computer.

  14. Marcus

    You’re right J-man, I’ll amend next time I park myself in front of the computer.

  15. Marcus

    Damn mobile phones…

Comments are closed.