Bills Digest no. 97 2005–06
(No. 3) 2005-06
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
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Bill (No. 3)
Date introduced: 8 February 2006
House: House of
Portfolio: Finance and Administration
Commencement: On the day it receives Royal Assent
To appropriate sums, additional to those sought through
Appropriation Act (No. 1) 2005-06, for the ordinary annual services
of the Government.
Section 83 of the Constitution
No money shall be drawn from the Treasury of the
Commonwealth except under appropriation made by law.
There are two broad categories of appropriations:
- annual appropriations, and
- special (or standing) appropriations.
There are usually six annual appropriation Bills. They authorise
about 25 per cent of annual Commonwealth spending.
Special (or standing) appropriations the terms are often used
interchangeably authorise about 75 per cent of spending. An example
is the Social Security (Administration) Act 1999 under
which age pensions and other social security payments are made.
Three annual Appropriations Bills are introduced when the Budget
is brought down. They are:
- Appropriation Bill (No. 1)
- Appropriation Bill (No. 2 ), and
- Appropriation (Parliamentary Departments) Bill (No. 1).
These Bills are reproduced in Budget Paper No. 4.
The Bills authorise the payment of specified amounts for
particular purposes. Appropriation Bill (No.1) provides for the
appropriation of money from the Consolidated Revenue Fund for the
ordinary annual services of government. Appropriation Bill (No. 2)
provides for the appropriation of money from the Consolidated
Revenue Fund for purposes other than the ordinary services of
government. The division of items between the two Bills accords
with the 1965 compact between the House of Representatives and the
Appropriation Bill (No. 1) appropriates amounts according to
whether they are departmental or administered expenses.
Departmental expenses are those that agencies
control.(1) Examples are salaries, other cash expenses,
and non-cash expenses such as accruing employee entitlements and
depreciation. Administered expenses are those that agencies
administer on behalf of the government. [While some administered
expenses are paid under Appropriation Bill (No. 1), most are paid
under special appropriations].
Appropriation Bill (No. 2) provides appropriations for:
- administered expenses, and
- non-operating costs.
Administered expenses include:
- grants to the States and Territories (sometimes called section
96 grants because the grants are made under section 96 of the
- new administered outcomes.
Non-operating costs sometimes called capital costs comprise:
- equity injections which are provided to agencies to enable
investment in new capacity when normal cash flows are
- loans which are provided to agencies and used when an
investment is expected to result in a direct return such as an
- previous years outputs appropriations: these provide funding
for outputs that were delivered in a previous year. This can occur,
for example, when a decision is made to implement a new activity
after the date for inclusion in the additional appropriation Bills.
Such activities are funded initially from cash balances, which are
then replenished by the previous years outputs appropriation,
- administered assets and liabilities appropriations: they
provide funding for acquiring new assets, extending existing
assets, and discharging administered liabilities relating to
activities administered by agencies in their fiduciary capacity on
behalf of the Government.(2)
New policy proposals should not be included in Appropriation
Bill (No. 1) because they do not fall with the classification of
ordinary annual services. New policy measures are funded either
through Appropriation Bill (No. 2) or special appropriations.
The Parliamentary Departments have a separate Appropriation Bill
because Parliament is constitutionally separate and independent of
Section 53 of the Constitution states:
Proposed laws appropriating revenue or moneys, or
imposing taxation, shall not originate in the Senate. But a
proposed law shall not be taken to appropriate revenue or moneys,
or to impose taxation, by reason only of its containing provisions
for the imposition or appropriation of fines or other pecuniary
penalties, or for the demand or payment or appropriation of fees
for licences, or fees for services under the proposed law.
The Senate may not amend proposed laws imposing
taxation, or proposed laws appropriating revenue or moneys for the
ordinary annual services of the Government.
The Senate may not amend any proposed law so as to
increase any proposed charge or burden on the people.
The Senate may at any stage return to the House of
Representatives any proposed law which the Senate may not amend,
requesting, by message, the omission or amendment of any items or
provisions therein. And the House of Representatives may, if it
thinks fit, make any of such omissions or amendments, with or
Except as provided in this section, the Senate
shall have equal power with the House of Representatives in respect
of all proposed laws.
In short, the Senate cannot amend any laws for appropriating
monies for the ordinary annual services of the government such as
this Bill. The Senate can, however, amend any appropriations for
Funding requirements often change after the Budget is brought
down. Governments make new policy commitments which have to be
funded. Agencies reassess their requirements and, if necessary,
submit requests for additional funding. The Government may agree to
additional funding if the amounts in the Appropriation Acts are
inadequate. The process whereby additional funds are provided is
additional estimates, and begins around November. The approved
additional estimates are incorporated into Appropriation Bill (No.
3), Appropriation Bill (No. 4), and Appropriations (Parliamentary
Departments) Bill (No. 2). These Bills are the counterparts of
Appropriation Bill (No. 1), Appropriation Bill (No. 2), and
Appropriations (Parliamentary Departments) Bill (No. 1)
Portfolio Additional Estimates Statements are the additional
estimates counterparts of Portfolio Budget Statements, and contain
explanations of Appropriation Bill (No. 3), Appropriation Bill (No.
4), and Appropriation (Parliamentary Departments) Bill (No. 2).
New policy proposals should not be included in Appropriation
Bill (No. 3) because they do not fall with the classification of
ordinary annual services. New policy measures are funded either
through Appropriation Bill (No. 4) or special appropriations.
Further annual appropriation bills can be introduced during the
year if required. They are called supplementary additional
Advance to the Finance Minister (AFM) provides flexibility to
the system of appropriating funds. The AFM is a contingency fund
from which the Minister for Finance can spend for emergency or
unforeseen circumstances. Authority for payments derives from the
annual Appropriation Acts. According to Department of Finance and
Administration guidelines, funding is available only if agencies
meet two tests:
- the need for funding must be urgent, and
- the need was unforeseen or arose because of erroneous omission
The Appropriation Acts also require the Finance Minister to
account to Parliament for spending from the AFM, which the Minister
does by tabling monthly and annual statements.
In addition to the amount sought as a basic appropriation and
the AFM, the Bill provides for agencies to spend income received
under net appropriations agreements (also known as section 31
agreements, a reference to section 31 of the Financial
Management and Accountability Act 1997).
In January 2006, the Australian National Audit Office released a
Management of Net Appropriation Agreements. The report
describes net appropriations as follows:
2. net appropriation arrangements are a
longstanding feature of the Commonwealth s financial framework.
They provide a means by which an agency s appropriation item in the
annual Appropriation Acts can be increased by amounts received from
non-appropriation sources. This provides the agency with the
appropriation authority to retain and spend those amounts
4. Under the Commonwealth s current financial
framework, Section 31 of the Financial Management and
Accountability Act 1997 (FMA Act) allows the Finance Minister to
enter into net appropriation agreements (known as Section 31
agreements) for the purposes of appropriation items in
Appropriation Acts that are marked net appropriation . The FMA Act
requires that an agreement be made with the Minister responsible
for the appropriation item or, in the case of items for which the
Finance Minister is responsible, with the Chief Executive of the
agency for which the appropriation is made.
5. A Section 31 agreement specifies the types of
departmental and/or administered receipts that will be eligible to
be retained by the relevant agency, and the terms on which the
relevant appropriation item will be increased for those receipts by
operation of the agreement. For example, the agreement may require
certain receipts to be shared with the Budget in nominated
proportions. The annual Appropriation Acts provide that, if a
Section 31 agreement applies to an appropriation item, the amount
specified in the item is taken to be increased in accordance with
the agreement, on the conditions set out in the agreement. The
increase cannot be more than the relevant receipts covered by the
The Bill refers to Special Accounts. In essence, they are
ledgers in the Consolidated Revenue Fund that are used to record
all spending and revenue relevant to a particular activity. Special
accounts are thus a means of simplifying the recording and keeping
track of amounts of money associated with that activity. Special
Accounts can be established in two ways: by the Finance Minister
under the Financial Management and Accountability Act 1997
or by another Act.
The amount sought as basic appropriations is $1,258,101,000,
that is, almost $1.3 billion.
Basic appropriations can be supplemented by net appropriations,
adjustments to departmental items, and by spending from the AFM.
Adjustments are subject to a maximum of $20 million for all of
financial year 2005-06. Similarly, spending under the AFM is
limited to $175 million for all of financial year 2005-06.
According to the Minister s second reading speech, some of the
items for which funds are sought appear in the Mid-year
Economic and Fiscal Outlook 2005-06 (MYEFO). The following
lists the items mentioned in the second reading speech.
Note: the numbers in brackets below are
references (where possible) to the relevant page numbers in the
$124 million to the Department of Agriculture, Fisheries and
Forestry to provide:
- $104 million in business exit assistance as part of the fishing
structural adjustment package to support the sustainability of
Australian government managed fisheries (90), and
- $20 million support for the hardwood timber industry as part of
the Tasmanian Community Forest Agreement (96).
An additional $29.2 million to the Attorney-General s
Department, which includes:
- $18.1 million for security costs associated with the APEC
Leaders Week 2007 (97)
- $10.5 million for enhancement of the national urban search and
rescue capability (107)
- a total of $54.6 million to the Australian Federal Police for
airport policing measures, in particular:
- $27.2 million for phase 1 of community policing at
- $18.2 million to provide a first response counter-terrorism
capability at relevant airports, and
- $9.2 million to establish joint airport investigation teams
with the Australian Customs Service, who will also receive an
additional $1 million for this initiative (98)
- an additional $16.5 million to increase the apprehension,
detention and prosecution of illegal foreign fishers operating in
Australia s northern waters. As part of this measure the Australian
Customs Service will receive $13.7 million (102), and
- $10.6 million has been allocated to the Australian Customs
Service to increase air-side patrols at airports (99).
The Bill proposes an increase of $155.8 million to the
Department of Defence, which includes:
- $40.9 million to provide a Special Forces Task Group to
- $16 million to fund the deployment of helicopters and support
elements in Afghanistan
- $25.1 million in indexation adjustments, and
- a net increase of $73.8 million, consisting substantially of a
reclassification of appropriation to revise Defence s depreciation
and inventory related estimates.
A net increase of $167.1 million to the Employment and Workplace
Relations portfolio, the major components of which are:
- $110.7 million to fund the Workplace Relations Reform Package
- $52.4 million in additional funding to meet the increased
demand for the highly disadvantaged stream of Job Network
$28.5 million is to be provided to the Department of the
Environment and Heritage as additional supplementation for the
Great Barrier Reef structural adjustment package.
A net increase of $42 million to the Department of Foreign
- a $10 million contribution to the American Red Cross as part of
Australia s response to the devastation caused by Hurricane Katrina
in the United States (153), and
- supplementation of $19.8 million for increased passport
A net increase of $41.2 million to the Department of Immigration
and Multicultural Affairs, including:
- $16.2 million to implement the government s response to the
Palmer and Comrie Reports (179)
- $9.3 million to implement more flexible and timely immigration
detention arrangements arising from amendments to the migration
legislation (177), and
- $8.3 million to introduce a visa requirement for all maritime
crew arriving in Australia (178).
$11.9 million has been provided to the Department of Transport
and Regional Services to improve security of international
passenger aircraft through increased inspection of air cargo
A total of $22.1 million has been provided to the Australian
Taxation Office, the Australian Crime Commission, the Australian
Securities and Investments Commission and the Australian Federal
Police to conduct investigations and prosecutions arising from
An useful innovation is the tabling with the Bill of a document
titled Statement of Savings Expected in Annual Appropriations
made by Act No. 72 of 2004 Appropriation Act (No. 1) 2005-06 and
Act No. 73 of 2004 Appropriation Act (No. 2) 2005-06. The
footnote on the front page states that the savings are from
The document is useful in that it identifies the areas of
expected underspending by agency, outcome, and type of expense
(departmental or administered). The benefit of the document would,
however, be enhanced by some explanation of the reasons for the
The bulk of additional spending promised during the 2004
election was introduced in the 2005-06 Budget. The proposed
spending in the Bill is for subsequent policy measures.
The provisions in the Bill are identical to those in
Appropriation Act (No. 3) 2004-05 except for several minor
changes. The changes include:
- dropping for the purposes of the Legislative Instruments
Act 2003 from the subclauses dealing with whether an item is a
legislative instrument, and editorial changes that simplify the
English expression [subclauses 8(3),
11(3) and 12(5)]
- under subclauses 9(9), 11(3)
and 12(5), the Finance Minister s determinations
are legislative instruments but are not disallowable and not
subject to sunset requirments
- inserting under definitions in clause 3, the
definition of Portfolio Supplementary Estimates Statements
- dropping the Australian National Training Authority from the
definition of entity in clause 3
- clause 10(4) recognises as net
appropriations certain administered items for the Department of
Families, Community Services and Indigenous Affairs
- in 2004-05, the comparable clause applied to the
Attorney-General s Department, the Department of Family and
Community Services, the Department of Foreign Affairs and Trade,
and the Department of Immigration and Multicultural and Indigenous
- with respect to adjustments to departmental items (see below),
subclause 11(1) inserts during the current year
when referring to when the Finance Minister may make a
determination increasing the amount for a departmental item
- clause 12
deals with the Advance to the Finance Minister. Paragraph
12(1)(a) inserts in the current year
- this amendment has the effect of limiting to the 2005-06
financial year the ability of the Finance Minister to issue funds
made available under clause 12. Were it not for
this amendment, the Finance Minister could issue the funds made
available under clause 12 in other financial years
Clause 6 provides that the basic appropriation
is $1,258,101,000. The amounts allocated to each agency, and the
breakdown between departmental and administered items, are set out
in Schedule 1.
Subclause 7(1) empowers the Finance Minister to
issue money from the Consolidated Revenue Fund for departmental
items for an entity but restricts the total to that specified in
Clause 8 deals with administered items in the
basic appropriation. Subclause 8(1) limits the
amount of money the Finance Minister can issue from the Consolidate
Revenue Fund to the amount specified (in Schedule 1), and the
amount that the Finance Minister includes in a determination. The
general procedure with respect to the latter is as follows:
Appropriations for administered expenses are
subject to a determination by the Finance Minister on the amounts
to be issued. The effect of that determination is to prevent any
part of the appropriation that has not been expensed in the year
from being issued from the Consolidated Revenue Fund. By convention
the Finance Minister issues determinations in relation to
administered expenses appropriations following the completion of
each financial year. the determinations for administered expenses
do not reduce the appropriation. Rather, they are a declaration by
the Finance Minister of the maximum amount that may be issued for
the respective items.(4)
Clause 9 deal with reductions of
appropriations. The general process for reductions is as
Amounts appropriated for departmental expenses and
for non-operating costs can be subject to a reduction process first
introduced in the additional estimates appropriations acts for
2003-2004. Under this process, on request in writing from a
responsible minister for an agency, the Finance Minister may issue
a determination to reduce the agency s departmental expense or
non-operating costs appropriation. Requests for amounts to be
lapsed may arise, for example, because the appropriation is no
longer required. Until the Finance Minister issues a determination
under this process, moneys appropriated for departmental expenses
and non-operating costs may be issued from the
Clause 11 deals with the power of the Finance
Minister to increase the amount allocated to a departmental item up
to a maximum of $20 million. As noted, departmental expenses are
essentially the costs of running agencies such as salaries and
rent. Clause 11 provides flexibility in that when situations arise
where an agency finds that it does not have enough funds for
departmental expenses and the shortfall cannot be met through the
normal additional estimates processes, it may request additional
funds by means of a determination that the Finance Minister issues.
Subclause 11(3) provides that such as
determination is a legislative instrument. This provides some
accountability for the Finance Minister s actions.
Clause 12 deals with the AFM. Subclause
12(3) limits the combined total the Finance Minister can
issue under Appropriation Act (No. 1) 2005-06 and the Bill
to $175 million.
- Agency Resourcing 2005-06, Budget Paper No. 4, p. 4.
- For a more comprehensive discussion, see, ibid., p. 5.
- Australian National Audit Office, Management of Net
Appropriation Agreements, Audit Report no. 28, 2005-06, p.
- Budget Paper No. 4, op. cit., p. 6.
- ibid., p. 6.
Economics, Commerce and Industrial Relations Section
16 February 2006
Bills Digest Service
Information and Research Services
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© Commonwealth of Australia 2006
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