Do you know how the government calculates its Deficit?
During the Annual Budget Debate, some questions have come up about changes in the way the government calculates the budget deficit. Although the government has changed how it calculates the deficit, this has not affected the overall deficit position, only the way it is presented.
Before FY2018/ 2019, recurrent expenditure included the cost of debt repayment. To calculate the recurrent deficit, recurrent expenditure was deducted from government revenue. Capital expenditure was then subtracted from the recurrent deficit to amount for the total deficit amount. However, prior to FY2018/2019, the cost of debt repayment was included in recurrent expenditure, so this amount was added to the total deficit to arrive at the correct Government Finance Statistic (GFS) deficit.
Using the presentation adopted since FY2018/2019, the cost of debt repayment has been excluded from recurrent expenditure, simplifying the calculation. The GFS deficit is now calculated by adding recurrent expenditure to capital expenditure. The total of recurrent and capital expenditure is subtracted from government revenue, resulting in the same GFS deficit amount as before.
This change in presentation is in keeping with the IMF’s Government Finance Statistic methodology. In this method, while interest payments are included as an expenditure by government, borrowings and repayment of debt are accounted for during the fiscal period in which it was obtained as financing activities and hence are not included as an expenditure item.
See this example from FY2016/2017
Fiscal Summary 2016/17
Source: Draft Estimates of Revenue and Expenditure 2016/17
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