TY  - JOUR
AU  - Au-Yeung, Wilson
AU  - McDonald, Jason
AU  - Sayegh, Amanda
TI  - Australian Government Balance Sheet Management
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12302
PY  - 2006
Y2  - June 2006
DO  - 10.3386/w12302
UR  - http://www.nber.org/papers/w12302
L1  - http://www.nber.org/papers/w12302.pdf
N1  - Author contact info:
Wilson Au-Yeung
Langton Crescent
Canberra ACT 2600, Australia
Australia
E-Mail: ayw@treasury.gov.au

Jason McDonald
Australia
E-Mail: jmcdonald@treasury.gov.au

Amanda Sayegh
Langton Crescent
Canberra ACT 2600, Australia
Australia
E-Mail: azs@treasury.gov.au
M1  - published as Wilson Au-Yeung, Jason McDonald, Amanda Sayegh. "Australian Government Balance Sheet Management," in Takatoshi Ito and Andrew K. Rose, editors, "Fiscal Policy and Management in East Asia" University of Chicago Press (2007)

AB  - Since almost eliminating net debt, the Australian Government%u2019s attention has turned to the financing of broader balance sheet liabilities, such as public sector superannuation. Australia will be developing a significant financial asset portfolio in the %u2018Future Fund%u2019 to smooth the financing of expenses through time. This raises the significant policy question of how best to manage the government balance sheet to reduce risk.
	This paper provides a framework for optimal balance sheet management. The major conclusions are that:
%u2013 fiscal sustainability depends on both the expected path of future taxation and the risks around that path;
%u2013 optimal balance sheet management requires knowledge of how risks affect the balance sheet (and therefore volatility in tax rates); and
%u2013 the government%u2019s financial investment strategy should reduce the risk to government finances from macroeconomic shocks that permanently affect the budget.
	Based on this framework, we find that a Future Fund portfolio that included (amongst other potential investments) domestic nominal securities and equities of selected countries would reduce overall balance sheet risk.
ER  -