Bills Digest no. 98 2005–06
Appropriation Bill (No. 4) 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
Contact Officer & Copyright Details
Bill (No. 4)
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. 2) 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 Bill seeks a total of $1,368,647,000 for basic
appropriations, that is, almost $1.4 billion.
Basic appropriations can be supplemented by 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 $215
million for all of financial year 2005-06.
Note: the numbers in brackets below are
references (where possible) to the relevant page numbers in the
Economic and Fiscal Outlook 2005-06.
According to the Minister s second reading speech, the Bill
seeks additional funding to agencies for:
- expenses in relation to grants to the states under section 96
of the Constitution and for payments to the Northern Territory and
the Australian Capital Territory, and
- non-operating purposes such as equity injections and
The principal factors contributing to the additional requirement
since the 2005-06 Budget include $744.4 million in additional
payments to the states and territories, such as:
- $346.3 million in GST compensation payments
- an additional $304.3 million to support primary producers in
regions that have been declared eligible for exceptional
circumstances assistance (88)
- $18 million under the Tasmanian Community Forest Agreement to
fund additional plantation establishment and productivity
improvements in existing plantations and native forests (93)
- $16.3 million for mental health under the Australian health
care agreements, and
- an additional contribution of up to $10 million to Victoria to
enhance and extend the scope of the Melbourne 2006 Commonwealth
Games opening ceremony.
The Bill also proposes $333.8 million in additional
appropriations for non-operating expenses, including:
- $131 million to the Department of Health and Ageing to purchase
and store antivirals, vaccines, intravenous antibiotics and
protective equipment for the national medical stockpile, in
preparation for a potential pandemic influenza (198)
- $27.9 million will be allocated to the Department of Defence to
fund a Special Forces Task Group to Afghanistan, and a further $27
million will be provided to deploy helicopters and support elements
in Afghanistan; these increases have been fully offset by savings
arising in the department s non-operating budget (117)
- a total of $34.3 million to the Australian Federal Police to
fund the Joint Airport Intelligence Group and to implement phase 1
of community policing at airports
- $40.9 million to the Department of Employment and Workplace
Relations to implement the workplace relations reform package
- $11.4 million to the Australian Security Intelligence
Organisation to fund additional temporary accommodation (106),
- $290.5 million has been re-appropriated to the Department of
Transport and Regional Services as a new administered expense for
the Roads to Recovery program to facilitate the direct payment of
these funds to local councils.
The provisions in the Bill are identical to those in
Appropriation Act (No. 4) 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 7(3),
8(3), 11(9), 11(10),
12(3), 13(5), 15(4) and
- inserting under definitions in clause 3, the
definition of Portfolio Supplementary Estimates Statements
- with respect to adjustments to departmental items (see below),
subclause 12(1) inserts during the current year
when referring to when the Finance Minister may make a
determination increasing the amount for a departmental item
- this amendment has the effect of limiting to the 2005-06
financial year the ability of the Finance Minister to make
determinations under clause 12
- clause 13 deals with the
Advance to the Finance Minister. Paragraph
13(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 13. Were it not for
this amendment, the Finance Minister could issue the funds made
available under clause 13 in other financial years.
Clause 6 provides that the basic appropriation
is $1,368,647,000, that is, almost $1.4 billion. The amounts
allocated to each agency are set out in Schedule
Clause 7 empowers the Finance Minister to issue
money from the Consolidated Revenue Fund to entities so that the
entities can make payments to the states.
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 2), 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 11 deals 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 12 deals with the power of the Finance
Minister to increase the amount allocated to a departmental item up
to a maximum of $20 million for the 2005-06 financial year. As
noted, departmental expenses are essentially the costs of running
agencies such as salaries and rent. Clause 12 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 12(3) provides
that such as determination is a legislative instrument. This
provides some accountability for the Finance Minister s
Clause 13 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 $215 million.
Clause 14 provides, that when an item of
spending or revenue falls within the purpose for which a Special
Account has been created, then that item may be respectively
debited or credited to the Special Account.
Clause 15 deals with the terms and conditions
under which payments are made to the states. In essence, clause 15
provides that payments to the states must be made in accordance
with relevant terms and conditions [subclause
15(2)]. Subclause 15(5) defines
applicable terms and conditions as they relate to payments to the
states. In essence, these are the conditions that the Minister
responsible for determining conditions applicable to payments,
decides upon. Subclause 15(6) provides that a
determination of terms and conditions, mentioned in the definition
of applicable terms and conditions, is not a legislative
- 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
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
professional legal opinion.
IRS staff are available to discuss the paper's
contents with Senators and Members and their staff but not with
members of the public.
© Commonwealth of Australia 2006
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by members
of the Australian Parliament in the course of their official
Published by the Parliamentary Library, 2006.
Back to top