RDP 9011: Inflation and Corporate Taxation in Australia Appendix: Data

Gross debt excludes non-financial debt such as trade creditors and provisions for such items as deferred income tax. Equity is the book value of shareholders' equity (share capital, reserves, retained profits) less intangible assets, priority interests and preference capital, on which firms are obliged to pay dividends.

With the exception of convertible securities such as notes and debentures, which are included in equity, debt represents the firm's interest bearing liabilities and equity represents the firm's non-interest bearing liabilities.

The sample includes some firms that came into public existence during the period in question and completely excludes those which went out of public existence during the period. Hence it would be misleading to graph the levels of debt and equity separately – to do so would overstate the rise in the respective levels. The rise in the ratio of the two will be understated if those firms which ceased to exist during the 1980s were typically highly leveraged. But this is likely to be of second order importance.

A comparison of the 1989 sample with the 1988 sample illustrates this point. Apart from the observation for 1987/88, the two series are very similar. Most of the difference between the two observations for 1987/88 (0.95, down from 1.06) is due to the subsequent dropping out of highly geared companies.

While the amount of intra-corporate sector lending may have risen markedly over the period, there are no compelling reasons to believe the amount of corporate lending to those outside the corporate sector grew disproportionately. Hence movements in aggregate gross debt should be fairly representative of movements in aggregate net debt.

Banks have extremely high debt to equity ratios as deposits are regarded as debt. Consequently they were deleted from the sample.