As the government prepares to unveil a second multi-billion dollar stimulus package to help shore up the economy, analysis by the Parliamentary Budget Office shows the underlying cash balance does not take full account of the effect of major expenses such as the National Broadband Network and student loans on government finances.

The PBO said the NBN alone had resulted in a $20.8 billion deterioration in the budget bottom line as at June 30 last year.

While revaluations of assets like the NBN investment do not directly appear in budget balances, they highlight concerns that the underlying cash balance does not fully capture the government's true financial position.

In its most recent budget update, released late last year, the government estimated there would be a $5 billion surplus in 2019-20, gradually increasing to reach $8.4 billion in 2021-22.

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But even before the COVID-19 outbreak, expectations of a surplus had been dashed by the combined effect of summer's natural disasters, including the drought and the bushfires. The PBO analysis adds to concerns about the strength of government finances.

Instead of relying solely on direct spending, governments have made increasing use of alternative financing arrangements to fund their policies, including investments, loans and guarantees.

The PBO said the effect of these arrangements on the budget bottom line were not fully captured by the underlying cash balance, which is the measure most often used.

It said the effect could be significant, such as when the value of the government's NBN investments were written down or a substantial proportion of Higher Education Loan Program loans were written off.

Rather than the underlying cash balance, the PBO said the net cash flow provided a more comprehensive way to assess the degree to which alternative funding arrangements are being used to implement policy.

Its analysis found that in the past 20 years the government's net cash flow from investments had dropped from almost 1 per cent of gross domestic product to negative 1.1 per cent in 2017-18 - its lowest point since the 1970s.

According to the PBO, the net cash flow has been negative - which means more money going out than coming in - since 2008-09 and was hovering around minus 0.7 per cent of GDP last financial year.

The office said there were sound policy reasons for governments to use alternative financing arrangements to fund policies, but current budget reporting practices made it hard to determine their financial impact.

It said there was a risk that decisions on funding policy could be made according to how it might be treated and presented in the budget, and the lack of transparency made effective scrutiny of government spending more difficult.

"Regardless of the financing arrangement used to fund a policy ... parliamentarians and the public need to be able to assess and understand the full costs involved."

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