Bills Digest no. 95 2008–09
Appropriation (Nation Building and Jobs) Bill (No. 1)
2008-09
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date introduced: 4 February 2009
House: House of Representatives
Portfolio: Finance and Deregulation
Commencement:
On Royal
Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To appropriate $89 million in
2008 2009 for the ordinary annual services of the Government as
part of the Nation Building and Jobs Plan. The use of the funds is
detailed on page 4 of this Digest.
On 3 February 2009, the Rudd Government announced the National
Building and Jobs Plan (the Plan).[1] The context is the deteriorating Australian and
world economies. The Plan s purpose is to provide additional fiscal
stimulus to counter the contraction in the economy. The Plan is the
fourth fiscal stimulus package and follows the Economic Security
Strategy,[2] the
Nation Building Package,[3] and the Council of Australian Governments (COAG) funding
package.[4]
The Plan has ten elements:
- Building the Education Revolution
- 20 000 social and defence homes
- energy efficient homes
- small business and general business tax breaks
- black spots, boom gates and community infrastructure
- tax bonus for working Australians
- single-income family bonus
- farmer s hardship bonus
- back to school bonus, and
- training and learning bonus.
To implement the Plan, the Government introduced six Bills:
- Appropriation (Nation Building and Jobs) Bill (No. 1)
2008-2009
- Appropriation (Nation Building and Jobs) Bill (No. 2)
2008-2009
- Household Stimulus Package Bill 2009
- Tax Bonus for Working Australians Bill 2009
- Tax Bonus for Working Australians (Consequential Amendments)
Bill 2009, and
- Commonwealth Inscribed Stock Amendment Bill 2009.
This Bills Digest deals with the Appropriation (Nation Building
and Jobs) Bill (No. 1) 2008-2009 (the Bill).
All six Bills were referred
to the Finance and Public Administration Committee for inquiry and
report by 10 February 2009. Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/fapa_ctte/stimulus_package/index.htm.
The Plan s cost is estimated at almost $42 billion over four
years. Of this, almost $13 billion is in 2008 09, more than $17
billion in 2009 10, more than $1.5 billion in 2010 11, and more
than $1.5 billion in 2011 12.[5]
The Bill appropriates a total of $89 million comprising:
- $39 million to the Department of the Environment, Water,
Heritage and the Arts under the Energy Efficient Homes Program,
and
- $50 million to the Australian Taxation Office under the Tax
Bonus for Working Australians component
- of this, $38.5 million is for departmental expenses, that is,
for the operational costs of the Australian Taxation Office to
ensure that the one-off payment for working Australians is
delivered expeditiously .[6] The balance of $11.5 million is for unspecified
administered expenses.
For information on the tax bonus for working Australians, see
the Bills
Digest for the Tax Bonus for Working Australians Bill 2009 and
the Tax Bonus for Working Australians (Consequential Amendments)
Bill 2009.[7]
Economists have debated the desirability and the efficacy of
measures to revive the economy through fiscal stimulus. The
following examines aspects of this debate.
The Plan is the Government s response to the global
financial/economic crisis that began in late 2007. Over 2008 and
into 2009, what was a financial crisis is now progressing to a
slump in the real economy, both in Australia and overseas.
Olivier Blanchard, chief economist at the IMF sums up the global
position as follows:
One way of summarizing our forecast is that we
expect the global economy to come to a virtual standstill in 2009.
There are important differences across countries. In the advanced
economies, we basically forecast the sharpest contraction in the
postwar period. To give you the basic numbers, we expect real
activity to contract to about minus 1.5 percent for the U.S., 2
percent for the Eurozone, and 2-1/2 percent for Japan. If you look
at the rest of the world, the numbers are better, but indeed the
emerging and the developing economies are going to do better than
in previous downturns, but relative to their underlying growth rate
they are still going to do quite poorly. For example, we now
forecast growth in China to be around 6.5 percent, and we forecast
growth in India to be around 5 percent. You can aggregate these
numbers using weights for national production. When you do this and
you use what we call PPP weights, then you get global growth to
basically be about half a percent in 2009, and this is the lowest
rate since World War II.[8]
In the context of these dire forecasts, many national
governments are implementing fiscal stimulus packages, as is the
Australian Government. There does not appear to be any standard or
normal type of package emerging internationally. Most countries are
opting for a diversified approach, utilising infrastructure
spending, tax cuts and transfer payments to varying degrees.
An article in the Economist magazine summarises the
dilemma confronting policy makers when making such a policy
choice:
Most economists agree that the red ink is both
unavoidable and appropriate. To prevent a steep recession becoming
a depression, governments must step in to forestall financial
collapse and counter the slump in private demand. Financial markets
seem to agree. Yields on government bonds in most rich countries
are extremely low as shell-shocked investors clamour for the safety
of public debt.
Yet a few signs of skittishness are emerging.
Prices of credit-default swaps on sovereign debt have risen
sharply, suggesting that investors see growing risks of default.
Within the rich world, risk premiums have risen dramatically for
already-indebted governments such as those of Greece and Italy.
Yields on America s 30-year bonds saw their biggest jump in two
decades in mid-January, as investors fretted about Uncle Sam s
demand for cash.
They go on to say:
When firms and consumers are gripped with
uncertainty, government spending is a surer way to boost demand.
Consumers and firms might save the money. The empirical evidence,
however, is less than conclusive. Economists estimates for the
multiplier effect of government spending and tax cuts vary widely,
with equally reputable studies showing opposite results. More
important, the scale of the global slump means that historical
multipliers may not mean very much. That suggests a broad strategy
involving both tax cuts and spending is prudent.[9]
There are a number of issues that will determine the success or
failure of this Plan. There is considerable debate within the
economics profession regarding the validity of using discretionary
fiscal stimulus. Even if the case for using discretionary fiscal
policy is made, there is still considerable disagreement as to the
form fiscal stimulus should take. There are three broad options for
policy makers. They can engage in tax cuts (either temporary or
permanent), increase transfer payments (either temporarily or
permanently) or they can spend directly on goods and services. Tax
cuts are seen as a drop in revenues, whereas the other methods
involve an increase in expenditure.
There are a couple of economic issues at play here.
The textbook Keynesian macroeconomic model predicts that the
response of national income to an increase in government spending
is greater than that of a comparable decrease in taxes. In
technical terms, the multiplier effect from government spending is
predicted to be greater than the multiplier effect from tax cuts.
The Keynesian model also predicts that fiscal policy changes can
lead to crowding out of private investment through the impact of
fiscal policy on interest rates. On the other hand,
supply‑side economists emphasise that cuts in taxes can
induce other, non-Keynesian effects, namely, increases in
investment and labour supply arising from other channels.
Therefore, they believe that tax cuts could be just as effective at
increasing economic growth (particularly over the medium to long
term), possibly more so than government spending.
So what does recent evidence indicate? The academic evidence is
not particularly clear or precise on this point, but there are some
key conclusions from a number of different studies.
Alesina et al. (1999) examine the effects of fiscal
policy on profits and investment. They find evidence of
non-Keynesian effects of fiscal policy and conclude:
This paper shows that in OECD countries changes
in fiscal policy have important effects on private business
investment. Interestingly, the strongest effects arise from changes
in primary government spending and, especially government wages. We
provide evidence consistent with a labor market channel through
which fiscal policy influences labor costs, profits, investment and
as a consequence, growth. Increases in public wages and/or
employment and transfers increase wage pressure in the private
sector, both in unionized and competitive labor markets
The driving channel of our results is the
effect of fiscal policy changes on current and expected
profits.[10]
Blanchard and Perotti (2002) attempt to characterise the dynamic
effects of changes in government spending and taxes on output. They
conclude:
Our main goal in this paper was to characterise
as carefully as possible the response of output to the tax and
spending shocks in the post-war period in the United States. From
the several specifications we have estimated and the different
exercises we have performed, we reach the following
conclusions.
- The first is consistent with standard wisdom: when government
spending increases, output increases, when taxes increase, output
falls.
- In most cases the multipliers are small, often close to one. In
the case of spending shocks, the proximate explanation is in the
opposite effects they have on the different components of output:
while private consumption increases following spending shocks,
private investment is crowded out to a considerable extent. Both
imports and exports also fall.
- While the response of consumption is difficult to reconcile
with the neoclassical approach to fiscal policy, the response of
investment, which decreases in response to both increases in taxes
and increases in spending, is hard to reconcile with the Keynesian
approach. We believe that this result deserves further
investigation.[11]
Mountford and Uhlig (2008) also examine the effects of fiscal
policy changes. Their approach is considered agnostic towards both
the Keynesian and Neoclassical models. Previous approaches relied
on assumptions about sluggish adjustment of some economic
variables, most commonly wages and prices. As Blanchard and Perotti
state:
the evidence from large-scale econometric
models has been largely dismissed on the grounds that, because of
their Keynesian structure, these models assume rather than document
a positive effect of fiscal expansions on output.[12]
Mountford and Uhlig find that the maximum expansionary effect of
a deficit-financed increase in spending is much below that of a
deficit-financed tax cut and conclude the following:
An important lesson one can draw from the
results is that while a deficit-financed expenditure stimulus is
possible, the eventual costs are likely to be much higher than the
immediate benefits. For suppose that government spending is
increased by two percent, financed by increasing the deficit: this
results at maximum, in a less than 2 per cent increase in GDP. But
the increased deficit needs to be repaid eventually with a hike in
taxes. Even ignoring compounded interest rates, this would require
a tax hike of over two per cent. This tax hike results in a greater
than seven per cent drop in GDP. Thus, unless the policy maker s
discount rate is very high the costs of the expansion will be much
higher than the initial benefit
Although the best fiscal policy for stimulating
the economy appears to be a deficit‑financed tax cut, we wish
to point out that this should not be read as endorsing them. This
paper only points out that unanticipated deficit financed tax cuts
work as a (short lived) stimulus to the economy, not that they are
sensible. The resulting higher debt burdens may have long-term
consequences which are far worse than the increase in GDP, and
surprising the economy may not be good policy in any case.[13]
The main point to take from this is not that tax cuts are better
than spending increases, but rather that estimates of multipliers
are not precise, yet the studies above clearly provide evidence
that fiscal policy does not act precisely in the way that Keynesian
or Neoclassical models would predict. Definitions of what
constitutes a spending shock versus a tax or revenue shock are not
precise or consistent across studies and so direct comparison
between estimates is problematic. This issue requires further
research.
The second issue that arises is the extent to which the
temporary payments component of the package will actually feed into
real GDP growth. It depends on the propensities of each of the
groups that are being targeted with the payments to consume their
present income.
Individual households all face different financial circumstances
and so the impact on both immediate and long-term consumption from
a temporary increase in income, as is being proposed here,
is ambiguous.
The key factors in determining the marginal propensities to
consume out of current income are:
- whether a household is a net borrower or saver and their
current levels of financial wealth [14]
- access to credit markets
- percentage of income spent on essential items, like food,
shelter, energy and transport, and
- the amount of debt/savings relative to present income.
If households are neither savers nor borrowers (nor have any
significant holdings of assets) and are unable to borrow money at
similar rates to the interest they would receive on highly liquid
assets, such as savings deposits (i.e. they face liquidity
constraints ), then it may be optimal for them to consume all of
the windfall change to their current income and not smooth their
consumption over their lifetime. It is not very likely that a
significant percentage of the groups that are targeted in this
package would be liquidity‑constrained, so to the extent that
the targeted groups are less liquidity‑constrained, these
measures are less likely to induce additional consumption than the
previous round of payments made under the Economic Security
Strategy.
The percentage increase in current income for households will
vary by their existing income levels. The payments are structured
in a progressive manner (they decrease with income). Low-income
households will see a larger percentage change to their income than
high-income households. Given that low-income earners are more
likely to spend the extra income on essentials, rather than on
spend it on luxuries or save it, it is probable that low-income
households will spend the bulk of their additional payments as a
result of the package.
Households with large debts, all else being equal, are more
likely to save, rather than consume their windfall gain. One would
suspect that a significant number of eligible recipients of the
family payments would be likely to be paying a mortgage and so it
is likely that this group would, as a whole, have a low marginal
propensity to consume.
As for the infrastructure component of the package, this can be
viewed as direct government spending in the economy. As mentioned
above, it is by no means certain that direct government spending
will provide the most effective stimulus to the economy. In
addition to these concerns, there is uncertainty surrounding the
extent to which public spending will displace private spending.
Another key factor in determining the total effect of the
package is the degree to which increases in consumption and
government spending are directed to Australian-made goods and
services, rather than imports. Whilst there will still be some
stimulus to the domestic economy (for example, from retailers who
sell imports), all else being equal, the greater the proportion
spent on imports, the lower the stimulus to the domestic
economy.
There are three components under the Energy Efficient Homes
Package.[15]
- Free ceiling insulation up to a value of $1600 to all
Australian owner-occupiers of currently uninsulated homes. This
component will operate from 1 July 2009 to 31 December 2011.
Between 3 February and 30 June 2009, eligible owner-occupiers can
have insulation installed and seek reimbursement after the program
commences. The Government estimates that 2.2 million owner-occupied
homes will be insulated under the program, at a total cost of $2.7
billion.
- A rebate for landlords of $1000 on the cost of installing
ceiling insulation in their rental properties. This rebate will be
available from 3 February 2009 to 30 June 2011, and is an increase
on a $500 rebate that was previously available for landlords under
the Low Emissions Plan for Renters. The Government estimates that
500 000 rented homes will be insulated under the new arrangement.
Additional funding provided will amount to $612.5 million.
- A $1600 rebate on the cost of installing a solar hot water
system where the existing system is electric. This component will
operate from 3 February 2009 to 30 June 2012. The rebate is an
increase from the $1000 Solar Hot Water Rebate that was previously
available, and removes the previous means-testing requirement that
limited eligibility to those with household incomes under $100 000.
Additional funding for the rebate amounts to $507 million.
Only one component of the package can be claimed, i.e. either
insulation or solar hot water, but not both. All state programs can
still be accessed.
The insulation must be installed by an installer who owns or is
employed by a registered thermal insulation installation business.
The insulation program applies only to ceiling insulation and only
to homes that currently have no ceiling insulation. It is not
available for new or rebuilt homes.
The solar hot water rebate is only available for replacing
existing electric storage hot water systems, and is not available
for new or rebuilt homes. Applicants can be either the owner or
tenant of the dwelling where the system is to be installed. The
dwelling must be a principal place of residence, but need not be
the applicant s principal place of residence. Applicants can apply
for rebates for systems at more than one dwelling, including
investment properties.
The cash balance impact of the Energy Efficient Homes Package
over the period of the Nation Building and Jobs Plan is given in
the table below.
|
Year
|
2008-2009
|
2009-2010
|
2010-2011
|
2011-2012
|
Total
|
|
Impact $m
|
-39
|
-1 540
|
-1 544
|
-736
|
-3 859
|
|
Source: Updated economic and fiscal outlook.[16]
According to the Australian Bureau of Statistics (ABS), out of a
total of 8.2 million homes in Australia in 2008, 5.1 million had
some form of insulation installed, 1.6 million were entirely
without insulation, and occupants of the remainder (1.6 million)
did not know whether their home was insulated. In total, 61 per
cent of homes were known to be insulated, up from 52 per cent in
1994. Of the different dwelling types, detached or separate houses
were most likely to be insulated (70 per cent), compared to
semi-detached or town houses (49 per cent) and apartments (22 per
cent). The proportion of occupants who did not know whether their
home was insulated was much higher in apartments (48 per cent) than
semi-detached (31 per cent) or detached houses (13 per cent).
Of the insulated homes, 98 per cent had roof or ceiling
insulation. In households without insulation, the main reason given
for not installing insulation (accounting for 34 per cent of
respondents) was that the occupier was not the owner or not
responsible for the home. A further 17 per cent identified cost as
the main barrier to installation.[17]
The ABS reports that 46 per cent of Australian households have
electric hot water systems, while 37 per cent are gas and 7 per
cent solar (11 per cent were unaware of their hot water energy
source). Eighty per cent of solar hot water systems use an electric
booster.[18]
The Government states that under the Energy Efficient Homes
Package:[19]
- almost all Australian homes will achieve a minium two star
energy rating by 2011;
- adding ceiling insulation to uninsulated homes will reduce
heating and cooling bills by up to 40 per cent, or around $200 per
year;
- households replacing electric hot water systems with solar hot
water could save $300 to $700 on their annual energy bills;
- greenhouse gas emissions will be reduced by around 4.7 million
tonnes of carbon dioxide equivalent (MtCO2e) per year or
a total of 49.4 MtCO2e by 2020. This is equivalent to
taking more than one million cars off the road; and
- insulating homes will reduce condensation on walls and ceilings
and lead to improved health outcomes including a reduction in
respiratory illnesses.
The Clean Energy Council states that the proposed
measures could cut electricity bills by at least 15-20 per
cent.[20] It is
estimated that roof and ceiling insulation can save up to 35 per
cent on energy consumption for heating of homes (wall insulation
can save an additional 20 per cent).[21] The energy savings depend on the
climate zone of the dwelling, and may be lower in areas that
experience lower extremes in temperature.
Although space cooling accounts for only a few per cent of total
residential energy consumption, the high demand at peak periods on
hot summer days across cities presented by use of air conditioning
can create severe problems for electricity generation and
transmission and distribution systems. The ABS reports that the
number of households using air conditioning more than doubled from
1994 (2.1 million homes or 33 per cent) to 2008 (5.5 million homes
or 66 per cent),[22] while the Department of the Environment, Water,
Heritage and the Arts (DEWHA) projects space cooling to grow at a
rate of 16 per cent per annum from 1990 to 2020.[23] The addition of adequate
insulation in uninsulated homes is expected to reduce summer peak
electricity demand by mitigating the need for and use of air
conditioners.
Energy used for residential space heating accounts for about 42
per cent of total residential energy use and is expected to amount
to an average of about 184 petajoules (PJ) or 51 terawatt-hours
(TWh, 1012 Wh) per year over the next decade.[24] Approximately 35 per
cent of households use electric heating sources, while 31 per cent
use gas and 10 per cent wood.[25] The International Energy Agency reports that in
2005, Australia s CO2 emissions from electricity and
heat production from coal-fired plants were 990 grams per
kilowatt-hour (kWh); and from gas-fired plants were 627 grams per
kWh.[26] Neglecting
the transport contribution, emissions from wood-fired heaters can
be considered to be near zero since they are offset by the carbon
absorbed by the trees during their growth. If the addition of
ceiling insulation in 2.7 million or 33 per cent of households
reduces their energy consumption for heating by 35 per cent, then
accounting for the relative proportion of electric and gas heat
sources and their related emissions, this may therefore roughly
translate to a total reduction in greenhouse gas emissions of about
3 million tonnes of CO2 per year, or 30 million tonnes
of CO2 over a ten year timeframe.
Further emissions reductions may be achieved from use of solar
energy for water heating. Water heating represents about 23 per
cent of household energy consumption. Solar systems provide between
50 per cent and 90 per cent of hot water through solar energy, with
the remainder requiring use of an electricity or gas booster.
Greenhouse gas emissions from energy used in water heating depend
on the climate zone as well as the energy source (even among
electric systems, emissions vary between locations due to different
primary energy sources used in electricity generation, such as
coal, gas or hydro). For example, for electric hot water systems in
medium-sized households, average emissions amount to about 4.1
tonnes per year in Brisbane, and 5.8 tonnes per year in Melbourne.
In contrast, equivalent emissions from solar hot water systems with
gas boosters are 0.2 tonnes per year in Brisbane and 0.5 tonnes per
year in Melbourne. Emissions from solar systems with electric
boosters range from 0.4 tonnes per year in Brisbane to 1.4 tonnes
per year in Melbourne. Solar hot water systems have a longer
lifetime than electric systems and the payback period for the
investment through energy savings ranges from 5 to 10
years.[27]
The Government has not provided an estimate of the expected rate
of uptake of the solar hot water rebate; however, the additional
funding allocated is sufficient for about 320 000 rebates from now
until June 2012. Assuming replacement of an electric water heater
with a solar water heater saves about 3 tonnes per solar system,
this investment may result in a reduction in emissions of about 0.3
million tonnes per year, or 3 million tonnes over a ten-year
period.
Insulation has been shown to reduce the incidence of respiratory
illnesses. In a New Zealand study, households in which at least one
person exhibited symptoms of respiratory illness were selected from
low-income communities to be retrofitted with ceiling insulation to
examine its effect on the incidence of respiratory illness and
comfort level during winter.[28] The results demonstrated significant health
benefits from insulation:
The study found insulation resulted in a 30%
reduction in the frequency with which occupants were exposed to
temperatures below 10 degrees C; mean relative humidity causing
dampness, down by 3.8%, and decreased energy consumption with
insulated houses used 81% of energy of non-insulated. The last
factor may also result in greater disposable income, which can be
spent on food and clothes.
These results show significant improvements (10
- 11%) in the health and quality of life of the occupants.
Importantly it was reported that adults and children have reduced
wheezing, colds and respiratory problems (40 - 50% reduction).
People living in insulated houses are also less likely to take days
off work and school (40 - 50% reduction) than people in houses
without insulation. There were also fewer visits to GPs and fewer
hospital admissions for respiratory conditions.[29]
Insulation has also been shown to reduce the health and
mortality risks that extreme warm temperatures or heat waves
present to the elderly or people with pre-existing medical
conditions. A study of risk factors for death of elderly people
during the August 2003 heat wave in Europe found that:
Housing characteristics associated with death
were lack of thermal insulation and sleeping on the top floor,
right under the roof In the long term, building insulation and
urban planning must be adapted to provide protection from possible
heat waves.[30]
The Government estimates the cost of installing ceiling
insulation in an average-sized house to be around $1200.[31] Insulation Council of
Australia and New Zealand (ICANZ) agrees that $1600 should be
sufficient to cover the costs of installing ceiling insulation in
all but the largest of homes.[32] ICANZ President Dennis D Arcy welcomed the plan,
saying it could create 4000 new jobs in the insulation and
manufacturing industries. He said:
We see it as a great stimulus in an industry
that is suffering a bit at the moment as people aren t building the
same number of new houses as they were 12 months ago.[33]
Concern has been expressed about the capacity of the industry to
meet the expected increase in demand for insulation with the
package. However, Mr D Arcy has said that training for installers
requires only a six hour course, and business groups expect that
the industry will expand accordingly. For example, Bradford
Insulation group have a newly commissioned plant in Brisbane, and
marketing manager Ray Thompson said this plant would immediately
move to 24/7 production, with new jobs being created.[34]
Peter Ruz, the national marketing manager for Australia s
biggest insulation service, Fletcher Insulation, said that until
now, fewer than 50 000 old homes were being fitted with insulation
per year. He said that Fletcher Insulation had laid off 20 workers
at its Melbourne plant last December, but it hopes to reverse that
decision in the light of the insulation package.[35] Plans to cut jobs at its Sydney
facility would also be dropped. Mr Ruz also suggested that the
company may need to build another manufacturing plant to meet
demand.[36]
The Clean Energy Council has noted that most insulation and
solar hot water systems sold in Australia are also manufactured in
Australia, which means that the proposed investment would stay in
Australia. It endorsed the plan as a smart energy solution that
would help to protect thousands of Australian manufacturing jobs
while saving energy and benefiting the environment. Chief executive
officer Matthew Warren said:
The government is to be congratulated for
taking a big first step towards delivering energy savings across
Australian households. Insulation saves energy, money, jobs and the
environment so it s a win-win-win-win.[37]
Green groups welcome the energy efficiency measures, but say
they are insufficient to effectively address climate change and
reduce greenhouse gas emissions. Australian Conservation Foundation
executive director Don Henry noted:
Insulation is a good step for household energy
efficiency but it should be part of a broader package that includes
massive investment in public transport and tax reform to encourage
greener commercial buildings.[38]
Greenpeace head of campaigns Steve Campbell also expressed
reservations, saying:
Whilst it is a good baby step, it is still
tinkering around the edges and it s not enough to deal with the
climate crisis.[39]
Consumer organisation Choice said the package did not go far
enough in promoting energy conservation:
It is a positive start in assisting households
with energy efficiency, but we d like to see the government commit
to a much broader package that helps consumers reduce their energy
consumption, that works with industry to improve the energy
performance of our homes and the products we buy.[40]
In the context of emission trading, the Australia Institute has
criticised the emissions reduction value of household energy
conservation measures, saying that the design of the Carbon
Pollution Reduction Scheme merely shifts the emissions
elsewhere.[41]
Executive director of the Australia Institute Richard Denniss
said:
The way the Emissions Trading Scheme is
designed, every kilogram of emissions saved by a household frees up
an extra permit for a big polluter. So while it s true this scheme
will help reduce households use of energy, it won t reduce
Australia s emissions at all. What they do is take those permits
freed up by what the individuals have done and sell those permits
to the aluminium industry or the steel industry or anyone else who
wants them.[42]
On 4 February 2009, in a speech to the House of Representatives,
the Leader of the Opposition, the Hon. Malcolm Turnbull, set out
the Coalition s position on the Plan in general and the insulation
element in particular. The following are excerpts from that
speech.
Our judgement is that a more appropriate level
of stimulus is in the order of 1 to two per cent of GDP, or between
$15 billion and $20 billion We do not support a further round of
cash handouts The incentives to save rather than to spend are
therefore a lot greater. So we would support as an alternative the
bringing forward of the 1 July 2010 tax cuts to 1 January this year
We would welcome a renewal, indeed acceleration, of the Investing
in Our Schools Program. However, we have to ask this question: is
the most urgent infrastructure deficiency requirement in Australia
primary school assembly halls and libraries? What about hospitals?
What about nursing homes and aged care? What indeed about the
National Broadband Network? What about water infrastructure, and
what about expanding, and above all maintaining, our National
Transmission Network? In an indication of the specific responses we
would bring to this plan, we would support a renewed Investing in
Our Schools Program. Based on our experience, we believe that $3
billion over three years could be, and would be, well spent and,
depending on demand, and of course on the economic conditions,
consideration can always be given to allocating more funding We
believe an element of a stimulus package should be that it lowers
the cost of employing Australians. A key focus should be making it
easier to keep Australians in their jobs, especially for small
business. The proposed accelerated investment allowance has some
merit, but a small business which is struggling with declining
revenues would be better off with additional cash flow that it can
deploy as it sees fit. We want to discuss practical measures with
the government that will put cash into the hands of small
businesses. One proposal which we have seen and which has
considerable merit would be for the Commonwealth to cover, for a
period, a portion of the superannuation guarantee levy.
Appropriately costed within the framework of a more prudent
stimulus, this would provide support for small business, lower the
cost of employment and provide an incentive across the board to
every small business.
Insulation, however, is an energy efficiency
measure that pays for itself, and government subsidies for
insulation should recognise that. The $1,600 subsidy will,
according to Mr Peter Ruz of Fletcher Insulation, who is quoted in
the newspapers today, mean that over 90 per cent of jobs would be
completed at no cost to the owner. The subsidy is not means tested.
We would support an insulation subsidy of a lower amount, and I
would suggest for the government s consideration one that is, for
example, $500 for all houses, increasing to $1,000 subject to a
means test. That would reduce the cost of the measure considerably
but remain a very significant incentive to the insulation industry.
A similar approach could be taken to solar hot water ... [43]
The Australian Greens welcomed the planned investment in
education, community and defence housing and energy efficiency
programs, and claimed that the Rudd Government had adopted part of
the Greens plan to retrofit homes to reduce energy consumption.
Senator Bob Brown pledged that the Greens would ensure that school
buildings and community housing are designed to be energy
efficient. Senator Brown also said that the package should also
include a permanent $30 a week increase to people on income
support, including aged pensioners and the unemployed. Senator
Brown also pledged that the Greens would move to ensure the needs
of people who have missed out in this package are addressed in the
May budget.[44]
Family First Senator, Steve Fielding, reportedly backs the Plan
but wants $4 billion set aside to create 100,000 jobs in local
communities.[45]
Senator Fielding has called for more money for the
unemployed.[46]
Independent Senator, Nick Xenophon, has questioned how the money
would be spent. He is quoted as saying:
When you have a number of leading commentators
saying that we should be looking at fixing at the Murray Darling
Basin for instance, spending the money on fundamental
infrastructure that will improve productive capacity in the
economy. That's the sort of thing that needs to be considered.
Senator Xenophon has also
questioned why rich private schools are getting millions of
dollars:
The need can't be shown on any objective
basis.[47]
Section 83 of the Constitution provides that no monies may be
withdrawn from the Consolidated Revenue Fund except under an
appropriation made by law . Laws authorising spending are
either:
- special appropriations, or
- one of (usually) six annual appropriation Acts.
The Bill is an annual appropriation Bill for ordinary services
(see below).
Special appropriations which account for about three quarters of
spending are spending authorised by Acts for particular purposes.
An example is age pensions, carer payments, and the seniors
concession allowance paid under the Social Security
(Administration) Act 1999. The remaining quarter of spending
is funded by annual appropriations.
Section 54 of the Constitution requires that there be a separate
law appropriating funds for the ordinary annual services of the
government. That is why there are separate Bills for ordinary
annual services and for other annual services. The distinction
between ordinary and other annual services was set out in a Compact
between the Senate and the Government in 1965 (the Compact was
updated to take account of the adoption of accrual budgeting).
Appropriation Bill (No. 1) is introduced with the Budget and
appropriates funds for the ordinary annual services of the
Government . Appropriation Bill (No. 2) which is also introduced
with the Budget appropriates funds for other annual services. A
third Appropriation Bill Appropriation (Parliamentary Departments)
Bill No. 1 funds the parliamentary departments.
Section 53 of the Constitution provides that the Senate may not
amend proposed laws appropriating revenue or moneys for the
ordinary annual services of the government. The Senate may,
however, return to the House of Representatives any such proposed
laws requesting, by message, the omission or amendment of any items
or provisions therein.
Departmental and
administered expenses
Departmental expenses (outputs) are costs incurred in running
agencies, for example, salaries, depreciation and other day-to-day
operating expenses. Administered expenses (items) are the costs of
providing the programs that agencies administer. While most
administered expenses are funded through special appropriations,
some are funded through the Appropriation Bills. The Bass Strait
Passenger Vehicle Equalisation Scheme is an example of an
administered expense funded as an ordinary annual service.
Departmental outputs and administered expenses contribute to
outcomes. Outcomes are the results or consequences for the
community that the government wishes to achieve. An example, in the
Attorney-General s portfolio, is:
An equitable and accessible system of federal
civil justice.[48]
Reduction processes
It is sometimes the case that an appropriation for a
departmental expense exceeds what is needed. However, departmental
items do not automatically lapse if they are not spent. In these
circumstances, a reduction process to extinguish the unspent amount
is available. Under this process, on request in writing from a
minister, the Finance Minister may issue a determination to reduce
the agency s departmental expenses appropriation. In short, the
excess of the amount allocated over the amount expended can be
extinguished.
Appropriations for administered expenses are also subject to an
annual process to extinguish amounts that are not required. The
amount identified as spending on administered expenses in agencies
financial statements as published in their annual reports is the
basis for this process. In short, the amount of the reduction is
the difference between the amount appropriated and the amount spent
as shown in the agency s financial statements.
Most of the provisions in the Bill are virtually identical to
those in the Appropriation Bill (No. 3) 2008-09.[49] The main difference between the
Bill and Appropriation Bill (No. 3) 2008-09 is that the Bill does
not contain the provisions dealing with the Advance to the Finance
Minister.
Clause 3 contains definitions. It defines
Portfolio Supplementary Additional Estimates Statements to mean the
Portfolio Supplementary Estimates Statements that were tabled in
the Senate or the House of Representatives in relation to the bill
for this Act and the Bill for the Appropriation (Nation Building
and Jobs) Act (No. 2) 2008-09.
Clause 4 provides that the Portfolio Budget
Statements, Portfolio Supplementary Estimates Statements, Portfolio
Additional Estimates Statements, and Portfolio Supplementary
Additional Estimates Statements are relevant documents for the
purposes of section 15AB of the Acts Interpretation Act
1901.[50]
Clause 6 Summary of
appropriations states the total of the items specified in
Schedule 1 is $89 000 000. Schedule
1 lists the agencies that are to be funded, the amount of
funding, and whether the item is departmental or administered.
Clause 8 deals with administered items .
Subclause 8(1) confirms that if an amount is
specified as an administered item for an outcome, then money can be
expended to achieve that outcome. Subclause 8(2)
provides that where the Portfolio Budget Statements, Portfolio
Supplementary Estimates Statements, Portfolio Additional Estimates
Statements or Portfolio Supplementary Additional Estimates
Statements Portfolio Statements indicate that an activity is for a
particular outcome, the amount in the administered item is taken to
contribute towards the achievement of that outcome.
A CAC Act Body is a Commonwealth authority or company within the
meaning of the
Commonwealth Authorities and Companies Act 1997 (the
CAC Act) [51].
Clause 9 deals with a CAC Act body payment item .
This is the total amount set out in Schedule 1 of
the Bill in relation to a CAC Act Body. The Bill does not, however,
appropriate any new money for a CAC Act Body.
As noted, a process exists whereby appropriations for
departmental expenses that are not needed can be abolished.
Clause 10 Reducing departmental items contains
this process. Subclause 10(1) specifies who can
request reductions in departmental expenses. Paragraph
10(1)(a) empowers the Minister for an agency to ask the
Finance Minister to reduce a departmental item for that agency,
while paragraph 10(1)(b) enables the Chief
Executive of an agency, for which the Finance Minister is
responsible, to ask the Finance Minister to reduce a departmental
item for that agency. Subclause 10(2) specifies
that the Finance Minister may make a determination reducing a
departmental item by the amount in the request. Subclause
10(3) provides that the determination will have no effect
to the extent that it would reduce the departmental item below
nil.
Clause 11 Reducing administered items contains
the process for extinguishing appropriations for administered items
that are not needed. Subclause 11(1) provides that
if the amount shown in the financial statements of an agency s
annual report shows that the expensed amount of an administered
item is less than the amount appropriated for that item, then the
amount of the reduction is the difference between the appropriated
amount and the amount in the annual report. Subclause
11(2) enables the Finance Minister to determine that an
amount, published in the financial statements of an agency, is
taken to be the amount specified in his or her determination, while
paragraph 11(2)(b) ensures that the amount
published in the annual report can be corrected. Subclause
11(3) provides that the Finance Minister s determination,
made under subclause 11(2), is a legislative
instrument, that section 42 (relating to disallowance) of the
Legislative Instruments Act 2003[52] applies to the determination,
but that Part 6 (relating to sunsetting provisions) of the
Legislative Instruments Act 2003 does not apply to the
determination. In short, this means that the Finance Minister s
determinations are disallowable by Parliament, but once made, will
not expire.
Clause 12 contains the process for reducing CAC
Act body payments. This is almost identical to that for
departmental items (clause 10). One difference is
that whereas paragraph 10(1)(b) enables the Chief
Executive of an agency, for which the Finance Minister is
responsible, to ask the Finance Minister to reduce a departmental
item for that agency, paragraph 12(1)(b) enables
the Secretary of the Department for which the Finance Minister is
responsible to request a reduction for a CAC Act body. The reason
for this difference is that payments to CAC Act bodies are
channelled through the relevant portfolio departments.
Subclause 12(2) empowers the Finance Minister to
make a determination reducing a CAC Act body payment by the amount
requested. Subclause 12(5) provides that
subclause 9(2) does not limit the reduction of a
CAC Act body payment under this section.
It is uncertain to what extent the Plan will stimulate the
economy because there are so many unknowns. For example, we do not
know how much of the Tax Bonus for Working Australians will be
saved as distinct from spent on consumption. At a time when
households are generally limiting borrowings or even reducing debt
levels, some (unknown) portion of the tax cuts will be saved. The
higher the proportion of the tax cuts saved, the smaller the
multiplier effects discussed above. Even where the tax cuts are
spent on consumption, some will leak into imports depending on the
(unknown) proportion of consumption that is spent on tradeable as
distinct from non-tradeable goods and services. Timing will also be
crucial in that the effects of the Plan on the economy will depend
on how soon the measures can be implemented.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2464.
[30]. S.
Vandentorren, et al., August 2003 Heat Wave in France: Risk Factors
for Death of Elderly People Living at Home , European Journal
of Public Health, vol. 16, pp. 583-591, abstract at: http://eurpub.oxfordjournals.org/cgi/content/abstract/16/6/583.
Accessed 9 February 2009.
Richard Webb and Scott Kompo-Harms
10 February 2009
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
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