Appropriation Bill (No. 3) 2011–2012

Bills Digest no. 110 2011–12

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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.

Bernard Pulle
Economics Section
14 February 2012

Contents
Purpose
Background
Financial implications
Key provisions


Date introduced:  8 February 2012
House:  House of Representatives
Portfolio:  Finance and Deregulation
Commencement:  This Act commences on the day this Act receives the Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

To appropriate about $2.828 billion for the ordinary annual services of government, additional to those provided in the 2011-2012 Budget.

Background[1]

Constitutional aspects

Annual appropriations

Section 83 of the Australian Constitution provides that no money may be withdrawn from the Treasury except ‘under appropriation made by law’. Acts authorising expenditure are either:

  • special appropriations, or
  • one of (usually) six annual appropriation Acts.

Special appropriations—which account for more than 80 per cent of expenditure—are expenditure authorised by Acts for particular purposes. An example of a special appropriation is the Tax Benefits A and B paid under the A New Tax System (Family Assistance) (Administration) Act 1999. The remainder of expenditure is funded by annual appropriations. Appropriation Bill (No. 3) 2011-2012 (the Bill) is an annual appropriation Bill.

Ordinary and other annual services

Section 54 of the Australian Constitution requires that there be a separate law appropriating funds for the ordinary annual services.[2] There are therefore separate annual appropriation 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.[3]

The Senate’s powers in relation to ordinary annual services

Section 53 of the Australian Constitution provides, among other things, 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.

Additional Estimates

Each year, 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.

Funding requirements usually change after the Budget is brought down. The Government may agree to additional funding if the amounts in the three Budget Appropriation Acts are inadequate and so has to seek parliamentary approval for additional expenditure. The process whereby additional funds are provided is called ‘Additional Estimates’ and usually begins around November of the Budget year. The approved additional funding is incorporated into Appropriation Bills (No. 3) and (No. 4) and Appropriation (Parliamentary Departments) Bill (No. 2). These Bills are the counterparts of Appropriation Bills (No. 1) and (No. 2) and Appropriation (Parliamentary Departments) Bill (No. 1) respectively.

Terms used in the Bill

Departmental and administered expenses

Departmental expenses are the costs incurred in running agencies, for example, salaries, supplies of goods and services, and other day-to-day operating expenses. Administered expenses are the costs of providing the programs that agencies administer. Most administered expenses are funded through special appropriations but some are funded through the Appropriation Bills.

Reduction processes

Appropriations can be reduced. 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 expenditure 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.

A process exists for reducing payments to bodies to which the Commonwealth Authorities and Companies Act 1997 (CAC Act) applies (see below). This process is almost identical to that for departmental items.

Outcomes and programs

Departmental expenses and administered expenses contribute to outcomes. Outcomes are the results or consequences for the community that the Government wishes to achieve. Programs contribute to achieving outcomes.

Advance to the Finance Minister

The Advance to the Finance Minister (AFM) provides flexibility in the Budget process by authorising the Finance Minister to expend money when the Finance Minister is satisfied that there is an urgent need for expenditure during the financial year but for which there is not a sufficient appropriation. The Finance Minister can expend money from the AFM only if the proposed expenditure meets certain criteria, namely, there is an urgent need for the expenditure that is not provided for, or is insufficiently provided for, because of an omission or understatement or because of unforeseen circumstances.

Portfolio Budget Statements

When the Budget is brought down, the Government releases Portfolio Budget Statements (PBSs).[4] They contain, amongst other things, information on all sources of funding for an agency—including annual Appropriation Bills—and how the agency proposes to spend those funds.

Clause 3 of the Bill provides that ‘Portfolio Budget Statements’ means the Portfolio Budget Statements that were tabled in the Senate or the House of Representatives in relation to the Bill for the Appropriation Act (No. 1) 2011-2012 and the Bill for the Appropriation Act (No. 2) 2011-2012.

Portfolio Additional Estimates Statements

Clause 3 of the Bill also provides that ‘Portfolio Statements’ means the Portfolio Budget Statements and the ‘Portfolio Additional Estimates Statements’.

Clause 3 of the Bill further provides that ‘Portfolio Additional Estimates Statements’ (PAES) means the Portfolio Additional 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 Act (No. 4) 2011‑2012.[5] Thus, PAESs are the counterparts of PBSs and contain explanations of the funding sought through the additional estimates Appropriation Bills.

However, unlike the PBS, the PAES summarise only the changes in resourcing by outcome since the Budget, that is, they update the resourcing for the agency. The PAES include new measures, summarise the changes by Appropriation Bill, and, where relevant, by Special Appropriation and Special Account.

Special appropriations (including standing appropriations) are an amount of money appropriated by a particular Act of Parliament for a specific purpose and number of years. For special appropriations the authority to withdraw funds from the Consolidated Revenue Fund does not generally cease at the end of the financial year. Standing appropriations are a sub‑category consisting of ongoing special appropriations— the amount appropriated will depend on circumstances specified in the legislation.

The PBS and the PAES are ‘relevant documents’ for the purposes of paragraph 15AB of the Acts Interpretation Act 1901 as provided in clause 4 of the Bill. This means that the PBS and PAES can be used to help interpret an Act.

CAC Act body

Clause 3 of the Bill provides that a ‘CAC Act body’ means a Commonwealth authority or a Commonwealth company within the meaning of the Commonwealth Authorities and Companies Act 1997 (CAC Act).

Examples of CAC Act bodies are the Australian War Memorial and the Australian Broadcasting Corporation. CAC Act bodies are legally and financially separate from the Commonwealth and so do not debit appropriations or make payments from the Consolidated Revenue Fund. Payments to CAC Act bodies used to be made ‘directly’ to the bodies. Since 2008–09, in recognition of the fact that CAC Act bodies are legally and financially separate, payments to CAC Act bodies have been made ‘indirectly’ through portfolio departments. For example, funding for the Australian Broadcasting Corporation and the Special Broadcasting Corporation are made through the Department of Broadband, Communications and the Digital Economy, this being the relevant portfolio department. The department then passes the funds to the CAC Act bodies.

Special Accounts

A Special Account is an appropriation mechanism that notionally sets aside an amount within the Consolidated Revenue Fund to be spent for specific purposes. Clause 3 of the Bill provides that ‘Special Account’ has the same meaning as in the Financial Management and Accountability Act 1997 (FMA Act).  The appropriation authority is section 20 or 21 of the FMA Act.  The type of appropriation provided by a Special Account is a special appropriation. The appropriation amount is limited up to the balance of the Special Account and this remains available until the Special Account is abolished. An example of a Special Account is that established for the Future Fund. A Special Account can be established by:

  • a legislative instrument made by the Finance Minister under section 20 of the FMA Act, or
  • an enabling Act, under section 21 of the FMA Act.

Basis of policy commitment

In his second reading speech, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten MP, described the broad basis for the appropriations by this Bill, and the Appropriations Bill (No. 4) 2011-2012, as follows:

There are two additional estimates bills this year: Appropriation Bill (No. 3) and Appropriation Bill (No. 4).  The additional estimates bills seek appropriation authority from the parliament for the additional expenditure of money from the Consolidated Revenue Fund. These funds are sought in order to meet requirements that have arisen since the last budget as well as to take into account impacts on Australia’s economic and fiscal outlook that have arisen as a result of the European sovereign debt crisis and instability on the global financial markets. The total additional appropriation being sought through additional estimates bills 3 and 4 this year is a little over $3.1 billion.

The recent Mid-Year Economic and Fiscal Outlook identified several impacts on the Australian economy that have implications for Australia’s near-term outlook.

Since last year’s budget, the European sovereign debt crisis has had an increased impact on international growth and overall market stability. Despite the pressures this has placed on the Australian economic and fiscal outlook, Australia continues to outperform the developed world in economic growth, low unemployment, resources investment and strong public finances. The government remains on track to deliver a budget surplus in the 2012-13 financial year.[6]

Schedule 1 of the Bill sets out the services for which money is appropriated.

Schedule 1 – Services for which money is appropriated

Note:    See sections 6 and 15.

Abstract

 

 

Page Reference

Portfolio

Total
$'000

14

Agriculture Fisheries and Forestry

132 170

16

Attorney‑General’s

26 534

27

Broadband Communications and the Digital Economy

10 411

31

Climate Change and Energy Efficiency

1 186 776

33

Defence

11 758

36

Education Employment and Workplace Relations

350 951

38

Families Housing Community Services and Indigenous Affairs

49 671

40

Finance and Deregulation

756

42

Foreign Affairs and Trade

80 656

46

Health and Ageing

44 188

49

Human Services

74 524

51

Immigration and Citizenship

332 546

54

Industry Innovation Science Research and Tertiary Education

12 756

57

Infrastructure and Transport

1 921

59

Prime Minister and Cabinet

3 395

62

Regional Australia Local Government Arts and Sport

73 872

65

Resources Energy and Tourism

310 348

67

Sustainability Environment Water Population and Communities

91 424

69

Treasury

33 011

 

Total

2 827 668

Note: The page reference in the above table is to the page in the Bill where details of the purposes for which the money is appropriated for each portfolio is given.

 

The Bill goes on to provide summary of Appropriations for 2011-2012. That table while providing in bold figures the appropriations proposed by the Bill for various agencies, also indicates in italics the figures of Budget Appropriations made for those agencies under the Appropriations Act (No. 1) 2011.

As explained above, information on some of the proposed expenditure can be also found in the Mid-Year Economic and Fiscal Outlook 2011-12, Appendix A.[7]

The Assistant Treasurer highlighted the following major expenditure proposals in the second reading speech to the Bill.

  • $1.3 billion in appropriations across several agencies to support its commitment to a clean energy future for Australia
  • $1 billion to the Department of Climate Change and Energy Efficiency to provide cash to highly emissions-intensive coal-fired power stations to assist their transition to a carbon price
  • $106 million to the Department of Climate Change and Energy Efficiency to complete remaining complex inspections and rectification services under the Home Insulation Safety Plan
  • $37 million to the Department of Climate Change and Energy Efficiency for the establishment of the Clean Energy Regulator, which will administer the carbon-pricing mechanism. The regulator will be responsible for monitoring and assessing the emissions data as well as enforcing compliance with the carbon-pricing mechanism
  • a further $100 000 in 2011-12 for the Department of Finance and Deregulation to conduct gateway reviews of the establishment and operation of the Clean Energy Regulator
  • $6 million to the Department of Climate Change and Energy Efficiency to assist the delivery of information about the implications of a carbon price on small businesses and other community organisations
  • $222 million to the coalmining industry, through the Department of Resources, Energy and Tourism, to assist the most emissions-intensive coalmines to transition to a carbon price. The assistance includes a Coal Sector Jobs Package and a Coal Mining Abatement Technology Support Package
  • $36 million to the Department of Sustainability, Environment, Water, Population and Communities to establish a Biodiversity Fund. This fund will support the establishment, restoration, protection and management of biodiverse carbon stores, for example, reforestation and revegetation in areas of high conservation value, including wildlife corridors, and action to prevent the spread of invasive species across connected landscapes. The department will also be provided with $2 million as part of a package to support the Tasmanian forest industry as it transitions to a more sustainable and diversified industry
  • $49 million to the Department of Sustainability, Environment, Water, Population and Communities to support the management of extractive industry activities, especially coal seam gas and major coalmining developments. This initiative aims to build scientific evidence and understanding of the impacts on water resources of coal seam gas extraction and large coalmines
  • $30 million to AusAID, in Official Development Assistance as part of Australia’s contribution to the Horn of Africa as it deals with drought and famine. This humanitarian assistance will be provided through various organisations, such as the United Nations High Commissioner for Refugees, the World Food Program and other non-government organisations
  • a further $10 million to AusAID to implement the International Mining for Development Centre, provide scholarships through the Australian Mining Awards program and build administrative capacity in Africa
  • $36 million to the Department of Human Services to facilitate payments to assist households in meeting the additional costs associated with a carbon price
  • $24 million to the Department of Agriculture, Fisheries and Forestry to support businesses within the live cattle exports industry affected by the temporary suspension of live cattle exports to Indonesia and to improve animal welfare outcomes. The assistance will include a combination of assistance payments and the subsidisation of low-interest loans to support businesses directly affected by the interruption in trade
  • $30 million to the Department of Agriculture, Fisheries and Forestry to extend the Carbon Farming Initiative to include two new programs, Carbon Farming Futures and the Indigenous Carbon Farming Fund
  • $45 million to the Department of Agriculture, Fisheries and Forestry to support the Tasmanian forest industry support initiative being led by the Department of Sustainability, Environment, Water, Population and Communities
  • $9 million to the Department of Industry, Innovation, Science, Research and Tertiary Education to assist the manufacturing industry transition to a low-carbon economy. The assistance will comprise direct assistance to manufacturing businesses with an energy consumption of at least 300 megawatt hours of annual electricity or five terajoules of natural gas. The assistance will include grants to trade exposed industries such as metal forging and foundry industries as well as targeted assistance to improve energy efficiencies within these industries
  • $14 million to Norfolk Island through the Department of Regional Australia, Local Government, Arts and Sport. The funding will support the Norfolk Island Government in the provision of essential services. The funding will also help the Norfolk Island Government to develop reforms that will improve its efficiency and effectiveness
  • $16 million to the Department of Regional Australia, Local Government, Arts and Sport to support the Tasmanian forestry industry support being led by the Department of Sustainability, Environment, Water, Population and Communities
  • $15 million to the Department of Regional Australia, Local Government, Arts and Sport for the redevelopment of Bellerive Oval in Tasmania. The redevelopment will include an increased capacity for the venue and upgraded facilities. This project will ensure that Tasmanians will get to see more sporting events in Hobart, and
  • $10 million to the Department of Human Services to facilitate payments to strengthen incentives for parents to have their children immunised. This funding supports changes to the eligibility criteria for the Family Tax Benefit Part A as well as expanding the immunisation program to include meningococcal C, pneumococcal and chicken pox vaccines.

Committee consideration

The Bill was referred to the House of Representatives, Economics Committee for inquiry and report. However, a statement was made discharging the Committee’s requirement to provide a report.

Financial implications

The Bill appropriates about $2.828 billion for the ordinary annual services of government compared with the Budget appropriation of about $72.71 billion by Appropriation Act (No.1) 2011-12.  Schedule 1 shows the amounts and portfolios for which funds are appropriated.

Key provisions

Part 2 – Appropriation items

Clause 6—Summary of appropriations—states that the total of the items specified in Schedule 1 is $2 827 668 000.

Clause 7 provides that the amount specified in a departmental item for an agency may be applied for the departmental expenditure of the agency. The note to the clause observes that the Finance Minister manages the expenditure of public money under the Financial Management and Accountability Act 1997 (FMA Act) through the issue of drawing rights. The Finance Minister manages the payment from departmental items by agencies through the issuing of drawing rights under sections 26 and 27 of the FMA Act. The conditions and limits set by the Finance Minister or the delegate of the Finance Minister in issuing drawing rights is a control measure and in addition it may stipulate who may spend from appropriations.

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 Statements indicate that an activity is for an outcome, the amount in the administered item is taken to contribute towards the achievement of that outcome.

Clause 9 deals with ‘CAC Act body payment items’. Subclause 9(2) provides that if a CAC Act body is subject to another Act, and that Act requires that amounts, appropriated by Parliament for the purposes of that body are to be paid to the body, then the full amount of the CAC Act body payment must be paid to the body.

Part 3 – Adjusting appropriation items

As discussed above, a process exists whereby unspent departmental expenses appropriations 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 Prime minister or the Minister acting on behalf of the Prime Minister to make a written request to the Finance Minister to reduce a departmental item for an Agency.

Paragraph 10(1)(b) allows the Minister who is responsible for an agency to ask the Finance Minister to reduce a departmental item for that agency, while paragraph 10(1)(c) enables the Chief Executive of an agency, for which the Finance Minister is responsible, to request the Finance Minister in writing 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 specified 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 an amount in the financial statements of an agency’s annual report shows that the expensed amount for 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 the effect of paragraph 11(2)(b) is to ensure 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 applies to the determination, but that Part 6 (relating to sunsetting provisions) of the Legislative Instruments Act 2003 does not apply to the determination.

Clause 12 contains the process for reducing CAC Act body payments. This is almost identical to that for departmental items in clause 10.

As noted above, the Advance to the Finance Minister (AFM) provides flexibility in the Budget process by authorising the Finance Minister to expend money, by determination, in certain circumstances. Clause 13 deals with the AFM.

Subclause 13(1) provides that if the Finance Minister has made a determination under subsection 13(2) of Appropriation Act (No. 1) 2011-2012 before the Bill commences—thereby changing an amount authorised under Appropriation Act (No. 1) 2011-2012—then the determined amount is to be disregarded for the purposes of section 13(3) of Appropriation Act (No. 1) 2011-2012 when the Bill commences. The effect of subclause 13(1) is to ensure that the amount of the AFM remains at $295 million and is not reduced by the amount of a determination. As the Note to subclause 13(1) states:

This means that, after the commencement of this Act, the Finance Minister has access to $295 million under section 13 of the Appropriation Act (No. 1) 2011-2021, regardless of amounts that have already been determined under that section.

Subclause 13(2) provides that if the Bill appropriates an amount for particular expenditure (paragraph 13(2)(a)) and if, before the Bill commences, the Finance Minister has determined an amount—the advanced amount—under section 13 of the Appropriation Act (No. 1) 2011-2012 for the expenditure, the amount the Bill appropriates is taken to be reduced (but not below nil) by the advanced amount. Subclause 13(2) is designed to ensure that expenditure on the same item is not authorised twice: once under the AFM and once under the Bill.

The Explanatory Memorandum contains the following example:

For example if the Bill provides $20 million for a grants program and an advanced amount of $5 million is determined by the Finance Minister under [Appropriation Act (No. 1) 2011-2012] for a particular grant payment under that program, then the amount appropriated by the Bill, once enacted, will be reduced by $5 million (i.e. appropriating only $15 million for the grants program).[8]

Part 4 - Miscellaneous

Clause 15—Appropriation of the Consolidated Revenue Fund provides that the Consolidated Revenue Fund is appropriated as necessary for the purposes of the Bill including the operation of the Bill as affected by the Financial Management and Accountability Act 1997. These appropriations are made at the time of commencement, on the day of Royal Assent.

Glossary

AEs

Additional Estimates

AFM

Advance to the Finance Minister

AI Act

Acts Interpretation Act 1901

CAC Act

Commonwealth Authorities and Companies Act 1997

CRF

Consolidated Revenue Fund

FMA Act

Financial Management and Accountability Act 1997

FMA Regulations

Financial Management and Accountability Regulations 1997

GST

Goods and Services Tax

LI Act

Legislative Instruments Act 2003

PAES

Portfolio Additional Estimates Statements

PBS

Portfolio Budget Statements

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2469.


 

[1].       The structure of the Appropriation Bill (No. 3) 2011-2012 and the Appropriation Bill (No. 4) 2011-2012 is very similar to the structure of the corresponding Appropriation Bill (No. 3) 2010-2011 and the Appropriation Bill (No. 4) 2010‑2011 respectively. The concepts and definitions that are covered in these Bills have not changed since Bills Digest, no. 66 of 21 February 2011 for the Appropriation Bill (No. 3) 2010-2011 and Bills Digest, no. 68 of 23 February 2011 for the Appropriation Bill (No. 4) 2010-2011 were written by my colleague Mr R Webb. The author acknowledges that the paragraphs in the Background and the Key Provisions of the Bills Digest for Appropriation Bill (No. 3) 2011-2012 and the Bills Digest for Appropriation Bill (No. 4) 2011-2012 have been taken and or adapted from corresponding sections of the Bills Digests of the previous year, where the concepts and definitions were so succinctly and ably dealt with in the following Bills Digest: R Webb, Appropriation Bill (No. 3) 2010‑2011, Bills Digest, no. 66, 2010-11, Parliamentary Library, Canberra, 2011, viewed 11 February 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F570461%22 and R Webb, Appropriation Bill (No. 4) 2010-2011, Bills Digest, no. 68, 2010-11, Parliamentary Library, Canberra, 2011, viewed 11 February 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F574773%22

[2].       Section 54 states that any proposed law which appropriates revenue or moneys for the ordinary annual services of the Government shall deal only with such appropriations.

[3].       The Compact was updated to take account of accrual accounting.

[4].       Australian Government, Portfolio budget statements 2011-12, Budget website, viewed 11 February 2012,

http://www.budget.gov.au/2011-12/content/pbs/html/index.htm

[5].       Australian Government, Portfolio additional estimates statements 2011-12, Budget website, viewed 11 February 2012,

http://www.budget.gov.au/2011-12/content/paes/html/index.htm

[7].       Australian Government, ‘Mid-year economic and fiscal outlook 2011-12’, Budget website, viewed 10 February 2012, http://www.budget.gov.au/2011-12/content/myefo/html/prelims.htm.

[8].        Explanatory Memorandum, Appropriation Bill (No. 3) 2011-2012, p. 15, paragraph 48.

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