Budget Guide

Past E-Briefs


Where to Start
Key Terms and Concepts
- Accrual Budgeting and Accounting
- Outcomes and Outputs
- Administered and Departmental Items
- Financial Statements
Appropriations and Estimates
- Annual Appropriations
- Special and Standing Appropriations
- Additional Estimates
- Advance to the Minister of Finance
- Forward Estimates
- Contingency Reserve


Tax Expenditures
Documentation and Finding Information
Budget Papers and Other Documentation
- Budget Papers
- Portfolio Budget Statements
- Ministerial Statements and Media Releases
Subsequent Documentation and Information
- Final Budget Outcome
- Mid-Year Economic and Fiscal Outlook
- Senate Estimates
- Annual Reports


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 are:

  • 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 Concepts

Jargon and acronyms are barriers to understanding the Budget. The Glossary contains definitions of terms and a list of Acronyms. The following discusses some of the more important terms and concepts.

Accrual 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 year.

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 budgets.

Outcomes and Outputs

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 information.

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 structure.

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.

Administered and Departmental Items

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.

Agency-level Financial Statements

Agencies produce four financial statements: operating statement, statement of assets and liabilities, cash flow statement and capital statement.

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 surplus.

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 liabilities.

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.

Appropriations and Estimates

Annual Appropriations

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.

Special 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 Act.

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 pensions.

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).

Additional Estimates

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 through 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 Portfolio Additional Estimates are grouped on the Department of Finance and Administration site but are also available on agency websites.

Advance to the Minister of Finance

The 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

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.

Contingency Reserve

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 outcomes.

Tax Expenditures

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 billion.

 Documentation and Finding Information

Budget Papers and Other Documentation

The 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 Papers

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 the aged.

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 Australian economy.

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 reform.

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 8Trends 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 9Government 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 1970s.

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

The 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 information.

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 agencies.

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 http://www.aph.gov.au/house/committee/jpaa/accrualbudget/inqinde2.htm .

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.

Ministerial 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.

Subsequent Documentation and Information

Final Budget Outcome

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 Estimates.

Mid-Year 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.

Senate Estimates

Senate Estimates 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.

Annual Reports

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 outcomes.

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:

Internet email: Richard.Webb@aph.gov.au

This e-brief was prepared by Richard Webb in the Economics, Commerce and Industrial Relations Group.

27 August 2001

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