Bills Digest 85 1996-97 Charter of Budget Honesty Bill 1996

Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

• Passage History
• Purpose
• Background
• Main Provisions
• Concluding Comments
• Endnotes
• Contact Officer and Copyright Details

Passage History

Charter of Budget Honesty Bill 1996

Date Introduced: 11 December 1996
House: House of Representatives
Portfolio: Treasury
Commencement: On the date it receives Royal Assent

Purpose

Charter of Budget Honesty

Economic and Fiscal outlook reports as well as intergenerational reports

The main purpose of the Charter of Budget Honesty Bill 1996 (the Bill) is to provide for a Charter of Budget Honesty (the Charter) to improve fiscal policy outcomes by providing a framework for the conduct of Government fiscal policy. It seeks to achieve this objective by requiring the Government's fiscal strategy to be based on sound fiscal management and for the publication of regular reports setting out such fiscal strategy. The Bill also provides for the publication of an intergenerational report, at lease once every 5 years, which will assess the long term sustainability of current Government policies over the 40 years following the release of the report.

Pre-election reports and policy costings

The Bill also requires the publication of a pre-election report setting out the fiscal and economic outlook once a general election is called. The Bill also provides that the Government, or the Opposition, may request the Secretaries of the Departments of the Treasury and Finance to prepare a costing of any of its publicly announced policies once a general election has been called and for the publication of such costings. The request from the Opposition must be made through the Prime Minister and is subject to the agreement of the Prime Minister.

Enforceable rights and duties not created by the Charter of Budget Honesty

The Bill provides that nothing in the Charter of Budget Honesty creates rights and duties that are enforceable in judicial or other proceedings. To this extent the Charter of Budget Honesty is treated in the same manner as parliamentary machinery provisions which are generally not justiciable. The Charter of Budget Honesty will for the first time set out in a formal manner what Parliament and the public could expect of the Government in managing and reporting on the economy. This will facilitate informed decisions being made by the public based on the state and projected progress of the economy. Further, informed judgments could be made by the electorate on the performance of the Government and whether the economy could sustain the promises made by the Government and the Opposition before each Federal election. However, there is scope for arguing that the Bill has not gone far enough in creating enforceable rights and duties as in the case of New Zealand where the Fiscal Responsibility Act 1994 (1)is binding on the Crown.

Background

Commitment to a Charter of Budget Honesty

In his first Headland Speech(2), The Prime Minister, then Leader of the Opposition, spelt out the commitment of a future Coalition Government to a Charter of Budget Honesty with a view to 'Rebuilding Trust In Government'. The Headland Speech prefaced this commitment by a reference to what is now called the L-A-Wlaw tax cuts which were not delivered in the form legislated before the 1993 Federal Elections but subsequently amended to defer an instalment of these tax cuts with the promise that it would be delivered in the form of a co-payment for superannuation contributions. Apart from the commitment to a Charter of Budget Honesty there were measures promised in the Headland Speech to enhance the position of the Auditor-General and the Role of Parliament. The independence of the Auditor-General was to be enhanced by elevating the position to that of an officer of the Parliament who could act without intimidation by the Executive and achieve a fearless and authoritative surveillance of government departments. The independence of the Auditor-General would be further strengthened by funding from the Appropriation for the Parliament.(3) The Auditor-General Bill 1996, which was introduced into Parliament on 12 December 1996 will enhance the independence of the Auditor-General, draws heavily on the recommendations in the report of the Joint Committee of Public Accounts (JCPA) titled Guarding the Independence of the Auditor-General (4)and its previous reports(5). The Headland Speech also promised the appointment of a Commission of Audit to report on measures to rebuild confidence in the annual accounting process with the goal of Rebuilding Trust in Government. However, as will be seen from the comments under the main provisions of the Bill, there is no role for the Auditor-General in the Charter of Budget Honesty. There is a case for the Auditor-General, who will have a unique position under the Auditor-General Bill 1996 to withstand inappropriate influence either from the Executive or the Parliament, playing a key role in the Charter of Budget Honesty. Instances where a role for the Auditor-General who can fearlessly and independently give assurances to the Australian people that information supplied to them under the Charter of Budget Honesty have his or her approval or not, are indicated in this Digest.

The Report of the National Commission of Audit (NCOA Report)

The National Commission of Audit was established in March 1996 and reported 3 months later. The key recommendations of the National Commission of Audit in relation to a Charter of Budget Honesty(6) were based on the finding that requiring governments to state objectives and assessing fiscal policy outcomes against established benchmarks will contribute towards enhancing fiscal policy transparency and accountability. There was a clear intention that legislation should make it mandatory for the Executive Government to comply with fiscal reporting standards.

The NCOA Report appropriately drew a distinction between fiscal reporting in the sense of financial reporting which is a requirement under the Audit Act 1901(8), and which is concerned with the internal management of Commonwealth agencies, and fiscal reporting that is concerned with the macroeconomic effects of government fiscal actions. Fiscal responsibility legislation in the form of a Charter of Budget Honesty would deal with the latter. It further pointed out that fiscal responsibility legislation could set specific fiscal targets or establish certain reporting standards or involve some combination of both approaches. In Recommendation11.2 the NCOA Report opted for the setting of clear fiscal strategy, which would require the Government of the day to set its own specific targets but not identifying such targets in legislation, in the interest of fiscal policy flexibility required by a National Government..

Recommendation 11.2: Setting of and reporting on fiscal strategy

The NCOA expressed concerns that unless fiscal reporting requirements were legislated governments may ignore them.

The Budget Speech of 20 August 1996

Charter of Budget Honesty

Before its election defeat on 2 March, the previous Government maintained that the budget would now be in underlying balance. The truth was nearly $10 billion to the contrary.

The Budget Papers 1996-97, also stated that Government has announced that it will introduce legislation in the Budget Sittings to establish a new fiscal framework which will implement the Government's Charter of Budget Honesty election commitment.It also indicated that the proposed legislation will incorporate many of the recommendations of the National Commission of Audit.(11)

Report by the Joint Committee of Public Accounts on Fiscal Responsibility Legislation

Discussion of the immediate background to the Bill will not be complete without a reference to the report of the Joint Committee of Public Accounts (JCPA) on Financial Reporting for the Commonwealth: Towards Greater Transparency and Accountability which was issued in November 1995(12). The JCPA examined whether it was necessary or appropriate to legislate for fiscal responsibility at the Commonwealth level, with particular reference to the success of attempts to legislate for fiscal responsibility in other jurisdictions. It also examined the relevance to the Commonwealth of the type of public reporting provisions contained in fiscal responsibility legislation in other jurisdictions.

The JCPA did not support fiscal responsibility legislation for the Commonwealth which attempts to define 'prudent' fiscal behaviour orwhich requires governments to adopt fiscal strategies in conformity with pre-determined fiscal targets or principles.(13) Nevertheless, the JCPA considered that there was a strong argument for specifying in any fiscal reporting legislation the key indicators against which governments must report and against which the performance of government is best assessed.(14)

However, the JCPA considered that the case for fiscal reporting legislation was compelling, as it provides a framework for governments to be accountable to the public for their management of the nation's finances. It envisaged that fiscal reporting legislation would be the vehicle in which parliament sets down the form, content and frequency of reporting that it considers necessary.

Recommendations 12 to 20 of the JCPA dealt with the framework, form, content, periodicity of reports and provision for parliamentary scrutiny of fiscal reports.(15) Anotable observation of the JCPA was that during the period of its examination of these issues in 1995, very few people or organisations in Australia had turned their minds to fiscal reporting. It therefore recommended that the Bill which would introduce measures for fiscal reporting should be referred to the JCPA prior to debate in the House of Representatives, for inquiry and report.(16)

A recommendation of the Committee which might ensure that governments comply with the fiscal reporting measures which the Bill proposes is that it should provide for establishing a joint committee of Parliament to examine and report on fiscal reports produced pursuant to the legislation. It further recommended that all fiscal reports should stand referred to the proposed committee for inquiry and report, with specific provision for the proposed committee to call relevant Ministers of State to give evidence(17). This measure may give the public a forum to express its views on a government's fiscal performance, as the Bill does not create rights and duties enforceable in judicial or other proceedings. Such a measure may also enhance the credibility of the fiscal reporting measures in the Charter of Budget Honesty. However, this forum may be of no avail to the public in relation to non compliance with the pre-election economic and fiscal outlook reports and costing of election commitments, as there are doubts as to whether a Joint Committee of Parliament comprised of Senators and Members can meet during the caretaker period after a dissolution of the House of Representatives. Even were such a meeting to be convened, there would be further concerns as to whether the committee can while so meeting enjoy the powers, privileges and protections normally available(18). In the circumstances, in relation to the pre-election reports and costings, there may be a role for an independent Auditor-General to certify the reports prepared by the Secretary to the Treasury and the Secretary to the Department of Finance, in the absence of effective parliamentary scrutiny in the caretaker period.

Main Provisions

There are only three Clauses in the Bill and the Charter of Budget Honesty is set out in Schedule 1. This Digest will deal with the main provisions of the Bill and the more significant aspects of Items of Schedule 1 where the Explanatory Memorandum to the Bill does not fully deal with the implications of those Clauses.

Date of Commencement

Clauses 1 and 2 of the Bill provide for the Charter of Budget Honesty Act 1996 to commence from the day it receives Royal Assent.

No enforceable Rights and Duties created under the Charter of Budget Honesty

The Bill provides that the Charter of Budget Honesty does not create rights and duties which are enforceable in judicial or other proceedings.

Clause 3 of the Bill states:

1. The Charter of Budget Honesty is set out in Schedule 1.
2. Nothing in the Charter of Budget Honesty creates rights or duties that are enforceable in judicial or other proceedings.

In consequence, there would be no redress in the courts of law or in administrative appeals tribunals to a failure to publish the reports relating to fiscal strategy required by the Charter. Although it appears that the pre-election reports on fiscal and economic outlook and policy costings are not strictly part of the Charter of Budget Honesty, the non-publication of these reports and costings will also not be subject to judicial or similar proceedings.

It may be noted that in a Treasury Submission to the JCPA inquiry into the Whole of Government Reporting and Fiscal Responsibility Legislation, the point was made that there is no legislative requirement for the tabling of Budget Papers and that the content of Budget Papers is the prerogative of the government of the day.(19)However, the JCPA observed that notwithstanding the absence of legislative requirements in regard to the form and content of Budget Papers which 'is the prerogative of the Government', conventions as to budget presentation have been developed, and respected over time.(20)The JCPA stopped short of expressing the view that this convention was one that impacted on the powers conferred on the Executive Government under the Constitution driven possibly by the requirement of accountability of the Executive Government to Parliament and the electorate under a democracy.

The Explanatory Memorandum to the Bill offers no explanation as to why no enforceable rights and duties are created by the Bill. In the Second Reading Speech, the Treasurer after referring to the increase in Commonwealth general government debt in the recent past, simply states that the effect of the Bill will be to enhance accountability by the present as well as future Commonwealth Governments.

As Sub-clause 3(2) of the Bill does not create rights and duties which are enforceable in judicial or other proceedings, thesanctions available if a government ignores the need to comply with the provisions of the Charter of Budget Honesty will rest with the Parliament and ultimately with the electorate. Given that the Executive Government of the day will normally have the numbers in the House of Representatives to withstand a no-confidence motion to compel it to comply with the requirements of the Charter of Budget Honesty, it will be left to the Senate, where the Government of the day may not have the numbers, to have recourse to the extreme sanction of denying supply.

In the Second Reading Speech, Treasurer Peter Costello, referring to the pre-election reports added:

Part 8 of Schedule 1 of the Bill deals with the costing of election commitments. Whilst Item 29(1)(a) provides that the Prime Minister may request the responsible Secretaries to prepare costings of the publicly announced Government policies, Item 29(1)(b) states that a request by the Leader of the Opposition to have costings of publicly announced Opposition costings is subject to the agreement of the Prime Minister. Further the responsible Secretaries are under Item 29(4) not obliged or authorised to take any action unless the Prime Minister has referred the request to them.

There is thus no obligation on the part of the Prime Minister of the day to have Government policies costed by the responsible Secretaries nor is there any obligation on the Part of the Prime Minister to request the responsible Secretaries to cost publicly announced Opposition policies. The provisions of Part 8 of Schedule 1 would not come into operation at all should the Prime Minister of the day not request the Secretaries to cost Government policies nor agree to refer the request of the Leader of the Opposition for a costing of Opposition policies.As the Bill creates no enforceable rights or duties, the ultimate sanction for failure to bring Part 8 into operation will rest with the electorate.

'More equal access' to Treasury and Finance would be achieved if the Prime Minister of the day is obliged to refer the request of the Leader of the Opposition for costing, as the Government of the day has access to Treasury and Finance at all times leading up to and including the caretaker period.

Constitutional concerns for not creating rights and duties enforceable in judicial or other proceedings

The reasons for not creating rights and duties enforceable in judicial or other proceedings in the Bill may centre around the constitutionality of a legislative measure which restricts the executive power of the Commonwealth to follow whatever fiscal strategy it deems necessary in an ever changing economic environment without being fettered in any way by the legislature or the judiciary. However, the Bill avoids this as it does not legislate for targets which governments must meet but only requires the government of the day to set its own targets which would be benchmarks against which its performance is to be measured. Hence the provisions in Sub-clause 3(2) of Bill may be considered to be overly protective of the Executive Government at the expense of Parliament and the public, particularly as it extends to all aspects of the Charter of Budget Honesty including its fiscal reporting requirements and pre-election costings which do not impact on the discretion of the Executive Government in caretaker mode to run the national economy.

Basically, the constitutional concerns which Sub-clause 3(2) attempts to allay, stem from the doctrine of the separation of powers with the lines separating the legislature, the executive and the judiciary being blurred by the provisions of the Constitution itself, the conventions as well as by judicial interpretation. However, as will be observed from the following paragraph any constitutional concerns, would not extend to legislation which makes it mandatory for the Executive Government to report to Parliament the outcomes of fiscal strategy pursued by the Executive Government. Nor would there be any constitutional concerns in regard to legislation requiring the publication of pre- election policy costings.

Executive power of the Commonwealth under the Constitution

The main source of the Commonwealth's executive power is section 61 of the Constitution which provides:

Dr Max Spry has in a recent Research Paper titled The Executive Power of the Commonwealth: its scope and limits(23) considered the scope and limits of the executive power of the Commonwealth. The uncertainties in the demarcation between the legislative and executive powers is well summed up in the concluding paragraph of that Research Paper as follows.

As the inclusion of matters relating to the national government of Australia would appear to come within the executive powers under section 61 of the Constitution, it is doubtful whether legislation could be introduced to require the government of the day to set a clear fiscal strategy, which would include setting targets and benchmarks. However, as mentioned earlier, the Bill does not set targets and hence this constitutional pitfall has been avoided.

However, legislation may require accountability reports from the executive to state what strategy it proposes to follow generally over the short, medium or long term and the outcomes of those strategies. Such legislative measures would not infringe on the executive power and will be in keeping with the ascendancy of Parliament over time and the recognition that the executive is accountable to Parliament.

It would appear that the scheme of the Bill is to leave it to the electorate to make a judgment on the questionwhetherthe performance of a government has been matched by the strategies in the formulation of budgets in accordance with the guidelines set out in the Charter of Budget Honesty. While this is the ultimate redress in the democratic political process, the insistence onfiscal responsibility by Governments at all times, which this Bill seeks to achieve, may be better served by building into the Bill the duty and right enforceable in judicial or other proceedings, for the publication of the reports, includingpre-election reports and policy costings, listed in the Charter of Budget Honesty.

Protection of Crown immunities and prerogatives

The provisions of Sub-clause 3(2) of the Bill appear to replicate the doctrine of the Shield of the Crown with its immunity from suit and its claim on public interest grounds to prevent the disclosure of information. Over time and with the ascendancy of Parliament and the accountability of the executive to Parliament, this doctrine has been whittled away by the Courts which have subjected claims for immunity from disclosure of information to judicial scrutiny. The 1992 report of the Senate Standing Committee on Legal and Constitutional Affairs on The Doctrine of the Shield of the Crown , citing the 1978 decision of the High Court in Sankey v Whitlam (25)stated this succinctly :

Since the 1978 decision in Sankey v Whitlam, the Freedom of Information Act 1982(Cth) (FOI Act) has contributed to more open governmentwith access to information subject to certain exemptions. Section 36 exempts documents thatwould disclose matter in the nature of advice, opinion or recommendation prepared for the purposes of the deliberative process of an agency or Minister if disclosure would be contrary to the public interest. Clause 3 of the Bill would appear to reinforce the exemption in section 36 of the FOI Actby excluding any form of judicial or other proceedings for obtaining information relating to the reports and costings thatmust be prepared under the Charter of Budget Honesty.

Section 36 has been criticised as being a catch-all provision with the Administrative Appeals Tribunal holding that it covers all the 'thinking process' of an agency involved in its functions. The title of the section 36 exemption is 'Internal working documents' and a Review of the FOI Act in 1994 recommended that section 36 should be retitled 'Documents revealing deliberative processes' but the Review did not recommend any legislative narrowing down of this exemption.(27)

Sub-clause 3(2) of the Bill may also be similarly criticised as being a retrograde step and not being in line with trends in other jurisdictions. For example, section 3 of the New Zealand Fiscal Responsibility Act 1994 provides that the Act shall bind the Crown(28).

Schedule 1 - Charter of Budget Honesty

The Explanatory Memorandum to the Bill explains succinctly the measures introduced by various Items in Schedule 1 and it is suggested that the reader should make reference to it for further information on the reporting requirements under the Charter of Budget Honesty. In the following paragraph this Digest gives a brief comparison of the new reports which will be issued under the Charter of Budget Honesty with those already issued.

New and Existing Reports

Some of the reports covered in the Charter are already currently published by the Commonwealth Government. These are the Budget Economic and Fiscal Outlook Report, the Mid-Year Economic and Fiscal Outlook Report, and the Final Budget Outcome Report. However, it seems to be intended that the information provided in these reports will now be more extensive and useful, as a result of the implementation of the Charter.

Costings of policy proposals have also been regularly undertaken in the recent past, but it is now proposed that this process be formalised through the Charter, so that it becomesa standard, and very valuable, part of the political and policy process at the national level.

Three reports/ statements are proposed in the Charter which have not been published before. These are the Fiscal Strategy Statement, the Pre-Election Economic and Fiscal Outlook Report and the Intergenerational Report.

The Fiscal Strategy Statement will outline the fiscal plans of the Government, for both the short term and the longer term. In the past, such plans have regularly been discussed in the Budget Papers and the Budget Speech, but it now seems to be intended that such discussion will be more extensive and more rigorous in its analysis.

The Pre-Election Report will have contents very similar to that of the Budget and Mid-Year Reports, but will be based upon information available, and assessments made, right up to the time of its writing. This will provide the electorate with extremely valuable and timely information and analysis and will probably much help with their voting deliberations.

The Intergenerational Report will be the most novel of all since it will attempt to assess the viability and sustainability of current Government policies in the 40 years following its publication. Essentially, it seems that such analysis will project the effects of current policy decisions/ stances on spending, revenue and budget deficit patterns over 40 years, on the basis of "reasonable" assumptions about demographic change and growth in output, employment, productivity, wages and prices, etc. If large increases in aggregate spending or substantial deficits are projected to result then current policies will presumably be pronounced to be "unsustainable".

Concluding Comments

General

The measures in the Bill go a long way on the yet uncharted waters of accountability of the Executive Government to Parliament and the public. Some might argue that the expectations of a Charter of Budget Honesty which will be binding on all governments, present and future, may have been better served by measures which create more than a 'moral obligation' to comply. Sub-clause 3(2) of the Bill appears to have been designed to remove any doubts that the measures in the Bill might result in the erosion of the power of the Executive Government under the Constitution and its conventions to pursue a flexible course in handling the national economy. However, it may be argued that as the measures in the Bill do not set out fiscal targets to be met by governments, the catch-all provisions of Sub-clause 3(2) is an overreaction to any lingering constitutional doubts on this aspect of the Charter of Budget Honesty. The fiscal reporting requirements proposed in the Bill are measures for greater accountability of the Executive Governmentto Parliament as well as the public and there are no constitutional or administrative constraints to making them legally binding. The reports on the costing of election promises envisaged in the Bill certainly fall outside the scope of discretionary matters of the Executive Government of the day in dealing with the national economy. It is merely an administrative arrangement for using the resources of Treasury and Finance and there is no barrier to making it obligatory, if the Government so decides, in the interest of enhancing the credibility of the Charter of Budget Honesty and the benefit of the electorate, which must make an informed decision on the choices placed before them.

Specific suggestions for improving the Charter of Budget Honesty

The following suggestions are made with a view to improving the transparency and accountability of fiscal policy as well as enhancing the credibility of the Charter of Budget Honesty.

1. Disclosure of Methods of Calculation

The Budget Papers currently do not reveal much about the methods by which both economic forecasts and estimates/ projections for spending and revenue are calculated.

It may therefore be useful to require, as part of the Charter, that detailed methods of calculation be published along with the already-envisaged final results, for all forecasts/ estimates/ projections/ policy costings contained in the reports mentioned in the Charter. This could greater facilitate policy transparency and accountability in fiscal policy.

The Explanatory Memorandum states that it is the intention of the Charter that the methodology for policy costings be published, along with the final results. However, this requirement might be explicitly included in the Charter, and also extended to all reports covered by the latter.

The key issue is that final results can be 'right for the wrong reasons' and 'wrong for the right reasons'. A method may have several mistakes which largely cancel each other out so that the final result is approximately correct. Similarly, a method may be largely correct but may contain just one significant factual error which makes the final result quite wrong and inaccurate. In both cases, exposing methods to public scrutiny can help correct these problems and ensure that calculations are "right for the right reasons".

A comparison with academic work is apt. In academic work a scholar must make available not just his/her final results but also the methods of calculation and all data used. This facilitates scrutiny by one's peers as they examine the entire intellectual construct. The same considerations apply, with probably greater force, to official presentations on, and discussions of, fiscal policy.

Scrutiny of methods can also reveal important information about how the Government's official advisors view the workings of the economy and its linkages with the world economy. It can reveal the economic relationships where official advisors have precise and confident views and those where they are less certain and more reliant upon hunches, intuitive judgements and the views of other analysts.

2. Calculation and Disclosure of Estimates of Indirect Budgetary Effects

In regard to policy costings, it may be useful to calculate and publish estimates of both direct and indirect effects on the Budget. For example, a proposed tax concession or expenditure item will entail a direct cost to the Budget but may have a strong effect on general revenue and social security spending through its effects upon the growth of output and employment. These indirect effects can either magnify or nullify the direct effects.

Indeed, it is possible that policies entailing a direct cost to the Budget could generate sufficient extra revenue or reduced social security spending to produce a net move towards surplus in the Budget. The converse case of indirect effects increasing the overall cost to the Budget is equally important. There have been several recent discussions of policies where these indirect effects seem to have been significant (29).

In these cases of significant indirect effects, the publication of just the direct costs would be most misleading, and would actually hamper policy transparency and accountability rather than enhance them. When presenting both direct and indirect costings, as noted above, it will be important to publish detailed methods of calculation as well, in order to enhance public scrutiny.

Of course, it would need to be acknowledged that the calculation of indirect budgetary effects would often entail more uncertainty than calculation of the direct effects. This is because the former involves estimating the effects of the policy in question on output and employment growth, wage and price developments and the like.

Thus, some 'sensitivity analysis' would probably need to be undertaken in which a plausible range of indirect budgetary effects would need to be calculated, based upon a plausible range of assumed policy effects upon the economy.

All of these requirements on estimates of indirect budgetary effects could be explicitly included in the Charter.

3. A role for an independent Auditor-General in the Charter of Budget Honesty

This sectionsets out briefly the contribution that may be expected of the Auditor-General in aspects of the Charter of Budget Honesty where an independent referee is required. The referee should be functionally independent of both the Treasury and the Department of Finance whose Ministers and Secretaries have key roles in the Charter of Budget Honesty. Under the Auditor-General Bill 1996 the independence of the office of Auditor-General and its special relationship to Parliament is emphasised by declaring the Auditor-General to be an 'Independent Officer of the Parliament' whilst preserving the functional independence of the Office. The proposed Joint Committee of Public Accounts and Audit (JCPAA) will have a role which includes advising the Auditor-General of audit priorities, if any, of the Parliament to which the Auditor-General must have regard. Any proposal for recommending a person to be Auditor-General by the Prime Minister must be approved by the Parliament through the JCPAA and a person so approved is appointed by the Governor-General for a single term of 10 years: a term which could straddle at least three federal elections. The Auditor-General cannot be removed from Office unless the Governor-General is requested by both Houses of Parliament to do so on the ground of misbehaviour or physical or mental incapacity. This enhanced independence should assist the Auditor-General to have a role in the Charter of Budget Honesty in the situations indicated in this Digest.

It is arguable that the Auditor-General might be drawn into the political arena if he certifies or qualifies the pre-election reports prepared by the Department of the Treasury and the Department of Finance. This argument applies equally to the Secretaries of the two department who will prepare these pre-election reports and the overriding consideration is the public interest of supplying credible information on the basis of which the electorate could make informed decisions. However, with the enhanced independence the Auditor-General will achieve under the measures in the Auditor-General Bill 1996, as an independent officer of the Parliament, he or she will be better equipped to hold the scales evenly in certifying or qualifying the pre-election reports without fear of the outcome of an election.

Reporting on compliance with external reporting standards in the Fiscal Strategy Statement

A feature of the proposed fiscal framework is that governments will have to comply with external reporting standards such as those for ABS government finance reporting and standards set by the accounting profession. Where there is a departure from these reporting standards, the proposed approach and the reasons for such departure should be explained in the Fiscal Strategy Statement. An independent Auditor-General responsible directly to Parliament, could be required to report whether the external reporting standards have been complied with and if not complied with, the extent of the departure and the consequences of departure to the projections in the Fiscal Strategy Statement.

Tax Expenditure Statements

The NCOA report recommended that tax expenditure should be treated as far as possible like program expenditure in all published fiscal reports and statements and in all budgetary processes(30). This will result in estimates of the revenue cost of tax concessionsbeing included in budget statements and the scrutiny of tax concessions and their effectiveness. The Auditor-General could be involved in an independent examination of statements of tax expenditures prepared by the Treasury and the relevant departments.

Reporting on pre-election estimates of revenue expected from ant-tax avoidance measures

Recent experience is that there is a tendency to bring up the question of additional revenue available from new measures to curb tax avoidance or tax minimisation schemes in the run up to an election. This occurred in the pre-election 1992 Budget and in the caretaker period preceding the 1996 federal election. These instances are covered in the section of theParliamentary Research Service Budget Review 1996-97 dealing with anti-avoidance measures(31).

The question of relevance to the Charter of Budget Honesty is that when a statement of significant future revenue impact, arising from potential Australian Taxation Office (ATO) compliance activities, is made in the Budget preceding an election or in the course of an election campaign by a Treasurer or Prime Minister in their caretaker roles, should the Secretary to the Treasury and the Secretary to the Department of Finance be required to certify to the general public by way of a Confirmatory Statement that there is a reasonable basis for such additional revenue collection?

Such a Confirmatory Statement may not only bolster the credibility of the assertions made by the Government but might also assist the Opposition in that such additional achievable revenue could be factored into the pool from whichOpposition election promises could be funded. Most importantly, it will contribute towards accountability of public officials and act as a safeguard against public officials being drawn into positions driven by political expediency. Ministerial responsibility and accountability of public servants to Parliament and the general public merge in a grey area at normal times, but when the Government is in caretaker mode the accountability of public servants to the public must assume a new dimension in the context of a Charter of Budget Honesty.

In addition, the Auditor-General could be required to express an opinion on the Confirmatory Statements of the revenue potential from the new anti-avoidance measures. This particular role of the Auditor-General may be facilitated if the Treasury and the Department of Finance periodically estimate the 'Tax Gap', which is the difference between the tax due under the taxation laws of the Commonwealth administered by the ATO and the tax actually collected by the ATO. Estimates of the revenue potential from pre-election new anti-avoidance initiatives can then be measured against the most recent segmental estimate of the 'tax gap' which the new measures are intended to narrow.

Estimation and Publication of the Tax Gap

The Internal Revenue Service (IRS) in the United States takes the view that publication of tax gap details is warranted by the need to maintain public confidence in the integrity, efficiency andfairness of the Internal Revenue Service.

It is arguable that a Charter of Budget Honesty might not be complete if the majority of taxpayers who pay their taxes honestly are not taken into confidence by the Government in the same way that the US Government does, by requiring the IRS to publish periodic estimates of the tax gap. More details on the approach of the IRS to estimating the tax gap will be found in the Parliamentary Research Service Budget Review 1996-97(33)

Endnotes

1. New Zealand Statutes (1994); Vol 1; p. 177
2. The Role of Government : A Modern Liberal Approach; 6 June 1995; pp 5 & 6; The Menzie
3. Research Centre - The 1995 National Lecture Series
4. Ibid., p. 23
5. Report 346 of the Joint Committee of Public Accounts (JCPA) Guarding the Independenc
6. o
7. the Auditor-General (October 1996) (AGPS)
8. JCPA Reports 296 and 331
9. National Commission of Audit - Report to the Commonwealth Government (June 1996
10. AGPS; pp 273 to 300
11. p. 277
12. The Audit Act 1901 is to be replaced by a package of Bills comprising the Auditor-Genera
13. Bill 1996, the Financial Management and Accountability Bill 1996, the Financia
14. Management Bill 1996 and the Commonwealth Authorities and Companies Bill 1996 as wel
15. as the Audit (Transitional and Miscellaneous) Amendment Bill 1996.
16. Opcit., p. 279
17. Budget Speech 1996-97; p. 3
18. Budget Statements 1996-97; Budget Paper No. 1; p. 1-15 and pp 1-26 to 1-28
19. Report 341 of the Joint Committee of Public Accounts (November 1995); Financia
20. Reportin
21. for the Commonwealth: Towards Greater Transparency and Accountability
22. Ibid., para. 3.252; p. 126
23. Ibid., para. 3.263; p. 129
24. Ibid., paras. 3.306 to 3.314; pp. 136 to 141.
25. Ibid., Recommendation 19; para. 3.313; p. 141
26. Ibid., Recommendation 18; para. 3.312; p. 140
27. Odgers' Australian Senate Practice (7th edition); p. 52 & 522. House of Representative
28. Practice (Second Edition); p. 268
29. Opcit., para. 3.23; p. 64
30. Ibid., para. 3.189; p. 110
31. Current House Hansard; 11 December 1996 [Proof]; p. 7805
32. Ibid., p. 7806
33. Research Paper No. 28 1995-96; Parliamentary Research Service - Published by th
34. Department of the Parliamentary Library, 1996
35. Ibid., p. 21 [ Wooltops Case - Commonwealth v Colonial Combing, Spinning & Weavin
36. Co(1921-1922) 31 CLR 421]
37. (1978) 142 CLR 1
38. Report of the Senate Standing Committee on Legal and Constitutional Affairs (Decembe
39. 1992) - The Doctrine of the Shield of the Crown - para. 3.6; p. 24; ([8] - Sankey v Whitlam)
40. Open Government: a joint review of the Federal Freedom of Information Act 1982 by th
41. Australian Law Reform Commission (Report No 77) and the Administrative Review Counci
42. (Report No 40) (AGPS) 1995; para. 9.15; p. 114
43. New Zealand Statutes (1994); Vol 1; p. 177
44. For an example see: Piggott, John and Chapman, Bruce. "Costing and Job Compact"
45. Economic Record, no. 215, December 1995., pp. 313-328
46. Ibid., p. 297
47. Research Paper No. 28 1995-96; Parliamentary Research Service - Published by th
48. Department of the Parliamentary Library, 1996; p. 21
49. Net Tax Gap and Remittance Gap Estimates; IRS Publication 1415, 19 April 1990: Supplement to Publication 7285: p. iii
50. Opcit., p 21 to 22

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