The annual Budget is perhaps the government's most important
political, economic and social document. It contains information on
matters such as fiscal policy, the provision of goods and services,
priorities with respect to resource allocation, and income
distribution objectives. Budgets also contain information needed to
assess how efficiently agencies use resources and how effectively
agencies discharge government initiatives.
The aim of this brief is to assist readers who are unfamiliar
with budget terminology and documents to understand key concepts
and terms and find information in the
Budget Papers and Documentation, and is an update of the brief
dated 18 May 2001. The brief is not primarily concerned with the
budgetary process, that is, how the Budget is prepared and the
roles of the various agencies and bodies such as the
Expenditure Review Committee. The brief also discusses
important changes to the Budget over recent years. The main changes
- the move from cash to accrual budgeting, and the presentation
of agency financial statements on an accrual instead of cash
accounting basis, with effect from 1999-2000
Where to Start
The Department of Finance and
Administration has the most comprehensive information on the
Budget. The best starting point is the
Overview, which summarises the budget process and contains
links to Budget documents.
Easy Steps to Budgeting contains a step-by-step description of
the budget process.
Key Terms and
Jargon and acronyms are barriers to understanding the Budget.
Glossary contains definitions of terms and a list of
Acronyms. The following discusses some of the more important
terms and concepts.
Budgeting and Accounting
Most countries employ cash budgeting for public finance purposes
but the Commonwelath and State governments use
accrual budgeting. The first accrual Commonwealth Budget was
for 1999–2000. Cash budgeting and cash accounting recognise
activities only when a cash transaction takes place. Accrual
accounting, on the other hand, recognises activities in the year
they occur and not just when there is a cash transaction. For
example, in the case of public service superannuation, accrual
accounting brings to account both cash payments to superannuants
and the increase in the liability for future payments. Similarly,
cash budgeting and cash accounting recognise the purchase of an
asset only when there is a cash transaction. Accrual accounting, on
the other hand, brings the asset into the balance sheet and
depreciates the asset over its life. Accrual accounting thus
measures all resource use and availability within a budget
The move from cash to accrual accounting has entailed changes to
terminology. The term 'expenses' has replaced 'outlays', which was
used under cash budgeting. Expenses are the total value of
resources used in producing goods and services. Expenses thus
include both cash and non-cash items such as depreciation.
It is important to bear in mind that it may not be possible to
make valid comparisons of data between accrual and cash
Since 1999-2000, agencies have been required to present
Portfolio Budget Statements (discussed below) on an Outcomes
and Outputs framework. In particular, agencies now allocate
expenses in their Portfolio Budget Statements to planned outcomes
and outputs. Planned outcomes are the results or
consequences that the government seeks for the community.
Outputs are the goods and services agencies produce to
attain outcomes. The outcomes–output framework was introduced
simultaneously with accrual budgeting. The outcomes–output
framework emphasises ends, that is, what the government wants to
achieve as distinct from the means of attaining those ends.
Examples of outcomes are 'stronger families', 'well functioning
markets' and an 'efficiently functioning Parliament'. Previously,
agencies presented their Portfolio Budget Statements on a program
basis. For example, the Attorney-General's portfolio had six
programs in 1998-99. One program was 'administration of justice'
which encompassed the activities of the courts and tribunals.
Another program was 'maintenance of law, order and safety'. In
2001-02, the portfolio has two outcomes: 'an equitable and
accessible system of federal law and justice' and 'coordinated
security, crime prevention and law enforcement arrangements'.
Contrary to the rhetoric about how the accrual-outcomes
framework would increase transparency and accountablilty, the
availability and ease of finding information in the Budget papers
and documentation, especially the Portfolio Budget Statements, have
fallen sharply. Indeed, the 1999-2000 Budget marked a low point in
that it was one of the least informative ever. Subsequent Budgets
have progressively provided more information. But much of the
information that Members of Parliament frequently require, and
which was available before 1999-2000, is still not available. The
paucity of information has also meant that it is now necessary to
contact agencies more frequently than before to obtain
There are several reasons the revised presentation has been less
than successful. First, with respect to outcomes, the usefulness of
the outcomes depends crucially on how they are specified. Outcomes
are prepared at an agency level and so reflect administrative
arrangements. But these arrangements do not necessarily coincide
with broader objectives. For example, it could be argued that some
of the functions of the Department of Foreign Affairs and Trade
contribute indirectly to Australia's defence and could therefore be
included in the Department of Defence outcome: 'The defence of
Australia and its national interests'. The Department of Transport
and Regional Services outcome is 'A better transport system for
Australia and greater recognition and opportunites for local,
regional and territory communities'. But the Department provides
only some regional services; other agencies contribute to the
funding of services in regional areas such as health and education.
Some outcomes are highly abstract while others are more specific.
The Senate Finance and Public Administration Legislation
Committee's Report, The
Format of the Portfolio Budget Statements-Second Report,
published in October 1999, expressed concern over the widely
differing levels of specificity. The Committee also pointed out
that the amounts allocated to outcomes ranged from $271 000 to more
than $17.5 billion. Some agencies have recast their outcomes and
outputs and further recasting is likely. For example, in 2001-02,
the Department of Environment and Heritage changed its output
As noted, Portfolio Budget Statements classify expenses by
outcome. Some readers may find the classification of expenses by
function more useful. Examples of functions are defence, health,
education, and public order and safety. Expenses are also
classified by sub-function. For example, under the 'transport and
communication' function, sub-functions are comunication, rail
transport, air transport, road transport, sea transport and other
transport and communication. In the 2001-02 Budget, expenses are
classified on a functional basis in Statement 6 of Budget Paper No.
1. The 1999-2000 and 2000-01 Budgets classified expenses on a
portfolio basis with administered and departmental expenses
separated. For 2001-02, expenses by agency can be found in Appendix
A of Statement No. 10 in Budget Paper No. 1.
Budget documentation distinguishes between administered and
departmental (also called agency) items.
Administered items are revenues, expenses, assets and
liabilities that agencies manage on the government's behalf.
Examples of administered expenses are social security payments and
grants to the States for roads, health etc. Examples of
administered revenue are taxes, fees, and fines. Departmental items
are the resources that agencies control and use to produce outputs.
Examples are plant and equipment, and revenues from running cost
appropriations and user charges.
Agencies produce four financial statements: operating statement,
statement of assets and liabilities, cash flow statement and
The operating statement contains the cost of activities
and the operating result from these activities. The operating
statement can be thought of as the counterpart of a business profit
and loss statement albeit with obvious differences in the functions
of government agencies and their sources of revenue compared to
businesses. Items that affect the operating statement affect the
budget surplus or deficit.
The balance sheet contains assets and liabilities and
shows the Commonwealth's equity position. Items that affect the
balance sheet only do not affect the budget surplus or deficit. For
example, the sale of assets would generally be reflected only in
the balance sheet. The sale of an asset would be a change in the
type of asset from, say, a financial investment to cash with no
change in the Commonwealth's net equity position. Any profit or
loss on the sale of an asset, however, has to be brought into the
operating statement and hence would affect the budget deficit or
The cash flow statement shows the Commonwealth's
sources and uses of cash including the cash balance.
The capital statement shows additional assets that
agencies buy from their own resources and from additional capital
that the government provides in the forms of loans and capital
injections. The capital statement also shows how the capital will
be used, that is, either to buy new assets or reduce
The usefulness of the financial statements in a public sector
context is limited. For example, equity in a business is an
indicator of its solvency, creditworthiness, net worth etc. These
concepts have limited meaning for an agency whose main functions
are to provide policy advice and administer appropriations.
Similarly, an agency operating statement does not have the same
purpose or meaning as that of a company operating for profit.
Section 83 of the Constitution
states that 'No money shall be drawn from the Treasury of the
Commonwealth except under appropriation made by law'. Only around
25 per cent of spending is authorised by the passing of
Appropriation Bills 1 and 2 that are introduced with the
Budget. These Bills authorise the payment of specified amounts for
particular purposes. Appropriation Bill No. 1 provides for the
appropriation of funds from the Consolidated Revenue Fund —
which is the Commonwealth's main working fund — for the
ordinary annual services of government. Appropriation Bill No. 2
provides for the appropriation of funds from the Consolidated
Revenue Fund for purposes other than the ordinary services of
government. The latter include expenses incurred in providing
grants to the States, administered expenses for new outcomes, and
equity injections and loans to agencies.
Parliamentary Departments have a separate annual Appropriation
Bill because Parliament is constitutionally separate and
independent of the government.
The introduction to Budget Paper No. 4 (see below) contains a
useful overview of the annual appropriations system.
and Standing Appropriations
The bulk of expenditure (around 75 per cent) is by Standing or
Special Appropriation Bills. Unlike the Appropriation Bills, funds
provided under Standing or Special Appropriations are usually not
subject to annual review and approval by Parliament. Rather,
authority for spending derives from various Acts. For example, the
Australian Land Transport Development Act 1988 authorises
grants to the States and Territories for spending on roads and the
government decides how much it wishes to spend on roads under this
Standing Appropriations are 'open-ended' in that the
amount appropriated for a particular purpose is determined by the
eligibility and other provisions in the relevant Act. An example of
a Standing Appropriation is age pensions. In this case, the Budget
contains an estimate of the amount likely to be spent on age
Special Appropriations are appropriations for a
specific amount of money for a specific time. (To confuse matters,
the term 'special appropriations' is often applied to encompass
both Standing Appropriations and Special Appropriations).
Agencies' funding requirements often change after the Budget.
The government may agree to additional funding if the amounts in
the Appropriation Acts are inadequate. These funds are provided
Additional Estimates which are normally incorporated in
Appropriation Bills No. 3 and No. 4, which are respectively the
counterparts of Appropriation Bills No. 1 and No. 2. Links to
Additional Estimates are grouped on the Department of Finance
and Administration site but are also available on agency
the Minister of Finance
Advance to the Minister of Finance provides flexibility to the
system of appropriating funds by providing funds for unforseen and
urgent expenditures. The Minister for Finance and Administration is
required to account to Parliament for spending from the Advance by
tabling statements containing details of its use.
Forward Estimates are rolling three-year estimates of what would
be appropriated assuming that government policy is on-going.
Forward Estimates therefore do not include new programs, the
expansion of existing programs that the government has not agreed
to, or programs that are expected to end.
Difficulties in calculating estimates for the current and future
budget years inevitably result in uncertainty as to the reliability
of the estimates. The
Contingency Reserve is the means of trying to ensure that the
aggregate estimates are soundly based. The amount in the
Contingency Reserve can be found in Statement 6 of Budget Paper No.
1, and the revised amount in the Mid-Year Economic and Fiscal
Outlook (discussed below).
The Australian National Audit
Office conducted a study ('Management of the Commonwealth
Budgetary Processes', Audit Report No. 38, 1998–99) of the
cash budgeting process and found that no apparent systemic problems
existed in the processes of the agencies reviewed that would lead
to material statistical inaccuracies in projected financial
Much attention is focused on the level of revenue and expenses
when the Budget is brought down. But a large amount of revenue is
foregone through tax concessions. Tax Expenditures are estimates of
the financial benefits derived by the recipients of tax
concessions. Concessions take the forms of tax exemptions,
deductions and rebates, and reduced tax rates. Concessions lower
the tax burden by either reducing the amount of, or delaying the
collection of, taxation revenue. Appendix D of Statement 5 in
Budget Paper No. 1 (see below) in the 2001-02 Budget contains a
statement of tax expenditures.
Treasury publishes a more comprehensive
Tax Expenditures document. This shows that the aggregate cost
of tax expenditures was around $27.3 billion in 1999–2000.
For comparison, actual expenses in the 1999-2000 were $153
and Finding Information
Papers and Other Documentation
Budget Papers and Documentation consist of the Budget Speech,
Budget Highlights, four Budget Papers, Ministerial Statements, and
Portfolio Budget Statements. Ministerial media releases and budget
kits can also be useful sources of information.
Budget Paper No. 1 is the most important explanatory document.
Budget Paper No. 1 for 2001-02 contained eleven Statements dealing
among other things with fiscal policy, the outlook for the economy,
assumptions underlying the projections of growth, unemployment,
revenue and expenses and other matters. Budget Paper No. 1 is
prepared in accordance with the Charter
of Budget Honesty Act 1998, which the Howard Government
introduced. This requires that, inter alia, the government provide
a statement of its fiscal strategy and a report on the economic and
fiscal outlook as well as risks to the outlook.
The eleven statements are as follows.
Statement 1 — Fiscal Strategy and Budget
Priorities. This contains a statement of fiscal strategy
and the Government's budget priorities in areas such as health and
Statement 2 — Fiscal Outlook. This
discusses variations to expense and revenue estimates and the
Commonwealth's net debt and worth positions.
Statement 3 — Economic Outlook. This
Statement discusses domestic and international influences on the
Statement 4 — A More Productive Australia - Policy
and Technology. This Statement is one of a series in
recent Budgets which discuss various aspects of the economy. The
comparable Statement in the 2000-01 Budget dealt with tax
Statement 5 — Revenue. This contains a
discussion of budget and forward year revenue estimates. The
Appendices contained very useful information including details of
revenue measures and revenue statistics going back to 1990-91.
Statement 6 — Expenses and Net Capital
Investment. This is a statement of the expense and net
capital investment estimates. The appendices contain very useful
data including expense measures by agency.
Statement 7 — Budget Funding. This
contains details of the Commonwealth's recent and prospective net
funding requirements and budget funding activities.
Statement 8 — Trends in Public
Sector Finances. This discusses and contains data on
trends in public sector finances including fiscal balance and net
debt and net worth. The Appendices contain data on the size of the
public sector and other information.
Statement 9 — Government Finance
Statistics Statements. The Australian Bureau of Statistics
has a uniform framework for presenting financial data for all
levels of government known as the Government Finance Statistics
(GFS).GFS statistics differ in a number of respects from those
required by Accounting Standard No. 31, which applies to government
financial statistics. This Statement presents Commonwealth
statistics in accordance with the GFS for 2001-02 and the three
following ('out') years.
Statement 10 — Australian Accounting Standard No.
31 Budget Financial Statements. This Statement is similar
to Statement 9 except that data are presented to accord with
Accounting Standard No. 31.
Statement 11 — Budget Concepts and Historical
Data. This Statement discusses key budget concepts such as
fiscal balance, the underlying cash balance and the headline cash
balance, and the GFS and Accounting Standard No. 31. Part II of
this Statement is one of the most important but often overlooked
sources of data. For example, Part II contains data on revenues,
outlays, surplus/deficit, and net debt going back to the early
Budget Paper No. 2 titled 'Budget Measures' contains details of
the changes to expenses and revenues by portfolio. Budget
Paper No. 2 does not give totals of spending for these purposes.
Particularly useful are the tables summarising changes to revenue
and expenses measures since and up to the Mid-Year Economic and
Fiscal Outlook (discussed below). These tables are a quick way of
finding the changes the government has made which have budgetary
implications. The tables are located at the beginning of the parts
dealing respectively with revenue and expense measures.
Budget Paper No. 3 deals with Commonwealth payments to the
States and Territories, and local government. In particular, Budget
Paper No. 3 contains estimates of GST payments to the States and
Territories, and Specific Purpose Payments to the States classified
by function, e.g., transport and communications.
Budget Paper No. 4 contains Appropriation Bills No. 1 and No. 2
and the Appropriation Bill for the Parliamentary departments. The
introduction to Budget Paper No. 4 contains a useful overview of
the annual appropriations system.
Portfolio Budget Statements (PBS) are the main source of
information about the activities of individual agencies. Agencies
have some discretion in the way they present their PBS.
Consequently, the quantity and level of detail provided differ
among agencies with some portfolios providing less information than
others. Some agencies, such as the Department of Transport and
Regional Services, continue to provide quite detailed
Now that agencies allocate expenses in their Portfolio Budget
Statements to planned outcomes and outputs, the PBS no longer
provide details of agency programs and sub-programs and how they
are resourced. A feature of the PBS since 1999-2000 is the
aggregation of information and this limits its usefulness.
Aggregation has been at two levels. First, the number of expense
items has been compressed into fewer outputs and even fewer
outcomes. Consequently, it is often not possible to find in the PBS
some of the information that was previously available. For example,
whereas it was possible in some cases to associate a particular
expense with a particular piece of legislation, this is often no
longer possible. In such cases, it is often necessary to approach
the agency directly for information. The second level of
aggregation is in agency budgeted financial statements. For
example, the Department of the Environment and Heritage's
administered expenses are broken down into three categories
(suppliers, grants, and other) but it is not obvious how the grants
are allocated over outputs and outcomes. However, the
notes to the statements sometimes contain breakdowns of
the aggregate figures but this varies considerably among
The PBS are built around a framework that is designed to allow
comparisons of promised performance and actual performance, using
the same performance indicators. The indicators of promised
performance are contained in the PBS. Agencies report on actual
performance in their annual reports.
The Department of Finance and Administration has responded to a
number of issues raised as concerns by the Joint Committee of
Public Accounts and Audit in the Committee's current Review of the
Accrual Budget Documentation at
It will probably take a number of years for the outcomes/outputs
framework and the PBS to be refined to a point where they provide
more useful information to readers.
Statements and Media Releases
At the time of the Budget, some Ministers issue Ministerial
Statements. For example, when the 2001-02 Budget was brought down ,
the Minister for Agriculture, Fisheries and Forestry issued a
Statement titled 'Safeguarding Our Rural Resources'. Another
Statement dealt with regional Australia. These Statements can
contain much useful information. However, it should be remembered
that the Statements and Media Releases are political documents and
their contents tend to stretch the definition of what their titles
suggest they contain. Media Releases are available on Ministers'
web sites soon after the Budget is brought down. Ministerial
Statements are in a book form.
Documentation and Information
The final stage in the budget process is when the Final
Budget Outcome is tabled. Because the Budget is usually brought
down in May, it contains estimates of the financial outcomes for
the previous financial year. For example, the Budget for 2001-02
contains estimates of the financial outcomes for the Budget for
2000-01. The Final Budget Outcome, which is published around
September, contains actual financial outcomes for the financial
year just ended. Much of the data in the Final Budget Outcome are
highly aggregated and so are of limited use, but the document
contains a comprehensive section dealing with payments to the
States and Territories.
Additional information on actual financial outcomes for the
financial year just ended can sometimes be found in the Additional
Economic and Fiscal Outlook
The Charter of Budget Honesty Act 1998 requires the
government to provide a report, by the end of January each year,
which updates some of the information contained in the Budget. This
is contained in the
Mid-Year Economic and Fiscal Outlook (MYEFO). In particular,
the MYEFO contains revisions of the economic and fiscal outlooks
and updates estimates of revenues and expenses. The MYEFO
incorporates the effects of decisions made after the Budget.
Committees examine agency estimates after the Budget is
presented. The Senate Estimates process provides Senators with the
opportunity to question officials and portfolio Ministers about
programs and policy implementation. Although there is a delay in
the release of the proceedings, the committee reports contain
information often not readily available elsewhere.
Agencies are required to provide a wide range of information in
their Annual Reports. In particular, agencies are required to
prepare financial statements on an accrual accounting basis, so
annual reports are a source of information on actual financial
Annual reports also contain information on agency performance.
But the value of performance measures and indicators is often
limited. While an agency may contribute to a particular outcome,
the agency's contribution is often only one of many factors
contributing to the final outcome. For example, Commonwealth
funding contributes to the community's health and education. But
many other factors affect health and education so it is difficult
if not impossible to determine the importance of the Commonwealth's
contribution. In such cases, it is difficult to assess how well
agencies have performed against outcomes.
For further information, contact:
This e-brief was prepared by Richard Webb in the Economics,
Commerce and Industrial Relations Group.
27 August 2001
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