| Parliamentary Joint Committee on Parliamentary Budget Office
Navigation: Previous Page | Contents | Next Page
Chapter 2 Rationale for a Parliamentary Budget Office
Over recent decades in Australia and internationally there has been a
growing trend in examining and questioning the adequacy of fiscal management,
the accuracy of government forecasting, cost overruns of major programs, the
transparency of public expenditure, and independence in the process of costing
In attempting to deal with these issues, many countries have found that
existing parliamentary institutions have limited resources to undertake a high
level of analysis on fiscal matters. To satisfy a need for greater support,
many parliaments have established specialist research and analytical units such
as Parliamentary Budget Offices (PBOs) which are independent from government to
varying degrees and which assist parliamentarians in their consideration of government
finances and expenditure.
The Organisation for Economic Co-operation and Development (OECD) has observed
that in recent years, there is an international trend in establishing
specialist budget research units. The OECD stated:
The growth of bodies to assist the legislature in budgetary
matters is a strong trend in OECD countries. They take a variety of forms but
their raison d’être is the same: Parliaments need specialised resources
in order to carry out their constitutional responsibilities vis-à-vis the
budget. The functions of such bodies include economic forecasts, baseline
estimates, cost estimation, analysis of the Executive’s budget proposals and
medium-term analysis. As such, they have the potential to improve transparency
and enhance the credibility of the Government’s Budget and public finances in
It is recognised that PBOs in other jurisdictions are products of the historical
and institutional frameworks of the parliaments they serve. As Mr Stephen
Bartos advised, there is ‘no “best practice” model or template that can be
applied from one jurisdiction to another’.
The case for establishing a PBO to serve the Australian Parliament must
be based on the potential contribution of the Office in relation to the role of
the Parliament in public expenditure, the adequacy of existing mechanisms to
support that role, and the need for expanding that support.
The role of the Parliament in the Budget process
One of the primary functions of the Parliament is to scrutinise and
approve proposals for the raising and spending of public money by the Executive
Government. While the Government may initiate an increase in taxation and
expenditure, authorisation of such proposed appropriations can only be granted
by the passage of legislation through the Parliament.
The Australian Constitution enshrines the principle of parliamentary
control over the expenditure of the Executive. This principle has long been
recognised as the fundamental means by which the Parliament can hold the Executive
Government to account.
The basic parameters for the role of the parliament in the budget
process are entrenched in a number of constitutional provisions.
The role of the Parliament in relation to the receipt and spending of public
money by the Executive Government is primarily derived from sections 81 and 83
of the Constitution:
Section 81. All revenues or moneys raised or received by the
Executive Government of the Commonwealth shall form one Consolidated Revenue
Fund, to be appropriated for the purposes of the Commonwealth in the manner and
subject to the charges and liabilities imposed by this Constitution.
Section 83. No money shall be drawn from the Treasury of the
Commonwealth except under appropriation made by law.
The ‘appropriation made by law’ is enacted through the passing of the
Appropriation Act which appropriates ‘money out of the Consolidated Revenue
Fund for the ordinary annual services of the Government, and for related
purposes’. Appropriations cannot be
made by a parliamentary vote or resolution, nor can an appropriation bill
originate in or be amended by the Senate.
Over time, the proportion of public expenditure authorised outside the
budget process as a special or standing appropriation has grown to over
80 per cent. This means that only about 20 per cent of Government
expenditure is regularly scrutinised by the Parliament through the annual
Parliamentary scrutiny of special appropriations is discussed later in
this chapter. The following sections focus on the annual budget process.
How the Parliament undertakes its role
The Budget bills comprise the Appropriation
Bills No. 1 and No. 2 and the Appropriation (Parliamentary Departments)
Bill. Appropriation Bill No. 1 is for the ordinary annual services of Government
which is unable to be amended by the Senate. This Bill provides for continuing
expenditure on existing programs.
Appropriation Bill No. 2 provides for expenditure for ‘other services’
apart from ‘ordinary annual services’, which may include the funding of new
policies, capital expenditure and grants to the states. The Senate is able to
amend Appropriation Bill No. 2.
Items which should not be included in ‘ordinary annual services of the
Government’ were, to some extent, agreed in a Compact between the Government
and the Senate in 1965. Several modifications to the Compact have been made
since then, most recently in June 2010.
The Budget speech, delivered by the Treasurer each May, is the second reading
speech introducing the Budget bills into the House of Representatives. The
related Budget Papers are also presented to the Parliament at this time.
The passage of the bills through the House of Representatives follows
the same schedule as for other bills, which includes the second reading debate,
(budget debate) consideration in detail, and third reading stages.
The Budget debate usually continues over several weeks.
On Budget night, the Minister representing the Treasurer in the Senate
also presents the Budget Papers (but not the bills) to the Senate and the
Senate then refers the estimates of the proposed expenditure to its legislation
committees for examination and report.
The Senate Estimates process enables Senators to directly question
Ministers and senior public servants in relation to public expenditure
proposals. The eight Senate legislation committees undertake estimates hearings
over a period of two weeks in May. A further round of hearings is then held
later in the financial year to examine any additional estimates if the Government
requires further funding.
The Clerk of the Senate stated that the examination of estimates of
expenditure by Senate committees is the most extensive of the parliamentary
mechanisms available to scrutinise the Budget. Committee secretariats do not
have an active role in support of estimates hearings due to the ‘political’
nature of these hearings.
Other mechanisms of parliamentary scrutiny of Government expenditure and
service delivery include inquiries by general purpose standing committees and
parliamentary questions asked of the Executive.
The Joint Standing Committee of Public Accounts and Audit and the Senate
Finance and Public Administration Committee have also been involved with the
detailed scrutiny of expenditure, service delivery and financial transparency
outside of the annual budget process.
Financial scrutiny assistance to the Parliament
Assistance to the Parliament in relation to the scrutiny of the Budget
and public expenditure are provided by Government agencies through the
publication of information, the parliamentary departments by interpreting that
information, and specialist statutory bodies such as the Australian National
Audit Office (ANAO) which supplement that information, with for example, post
The Departments of the Treasury and of Finance and Deregulation
(Treasury and Finance) are jointly responsible for advising the Government on
the economy and government finances as well as preparing the annual Budget and
other reports and statements. The Departments also
have oversight of the transparency and Budget reform agenda of the Government.
Significant initiatives in relation to Budget reform over the past 20
years include the establishment of the National Commission of Audit, the move
to a full accrual budget and reporting system and the outcomes and output
framework, the enactment of the Charter of Budget Honesty Act 1998 (Cwlth)
(the Charter) and measures introduced as part of Operation Sunlight:
Enhancing Budget Transparency.
Operation Sunlight is the Government’s reform agenda to ‘improve the
openness and transparency of public sector budgetary and financial management
and to promote good governance practices’. Under Operation
Sunlight, a number of changes to Budget transparency have been implemented
- Providing further Budget
information, such as a register of Special Accounts and Standing
- Redesigning Portfolio
Budget Statements (PBS) to improve readability and to include greater
performance information and a new Resource Statement on the funds available to
financial statements in Budget Paper no.1 under Australian Accounting
Standard 1049; and
- Introducing program
reporting from the 2009-10 Budget in Portfolio Budget Statements.
The Charter was designed to improve economic policy and
transparency. The Charter requires government budgets to be based on ‘the
principles of sound fiscal management’. The principles are described, inter
... manage financial risks faced by the Commonwealth
prudently, having regard to economic circumstances, including by maintaining
Commonwealth general government debt at prudent levels; and ensure that its
fiscal policy contributes to achieving adequate national saving; and to
moderating cyclical fluctuations in economic activity, as appropriate, taking
account of the economic risks facing the nation and the impact of those risks
on the Government’s fiscal position...
The Charter also requires the Government to produce the following
reports and statements:
- Fiscal Strategy
- Budget Fiscal Outlook
- Mid-Year Outlook
- Final Budget Outcome
- Intergenerational Report
(published every five years)
- Pre-Election Economic
and Fiscal Outlook Report (published within ten days of the issue of the writ
for a general election)
- Costings of publicly
announced election policies, on request of the Government or Opposition.
Treasury and Finance suggested that the Charter has become an important
feature of Australia’s fiscal policy framework:
... especially since the legislation of the Charter,
Australia’s fiscal frameworks are already well regarded internationally,
particularly in respect of the detail and transparency provided through the
publicly released documentation.
In addition to the reports and statements required by the Charter,
ongoing formal reporting requirements are included in the Public Service Act
1999 (Cwlth), the Financial Management and Accountability Act 1997
(Cwlth), and the Commonwealth Authorities and Companies Act 1997
The Departments of the House of Representatives and the Senate (the
chamber departments) provide organisational, research and analytical support to
various parliamentary committees, as well as ensuring the effective operation
of the Houses.
In addition, officers of the Senate monitor the Government’s compliance
with the Compact and draw to the attention of the President of the Senate any
instances where new policy proposals appear to have been included within the
bill for the ordinary annual services of the Government.
The Parliamentary Library, located within the Department of
Parliamentary Services (DPS), provides research, information, analysis and
advice to Members of Parliament in support of their parliamentary and
representation roles. The Parliamentary Librarian is a statutory office holder
required to provide timely, impartial and confidential service on the basis of
equality of access for all Senators and Members.
The Library’s Economics Section consists of about twelve research
specialists, including trained accountants and economists, who produce
publications and confidential responses to individual requests on the budget
and related matters. The Economics Section also runs annual seminars and
coordinates briefing material on aspects of the budget for parliamentarians. In
addition, the Statistics and Mapping section produces monthly statistical
publications on key economic indicators.
Other agencies that produce financial, budgetary and economic
information used by the Parliament include the Productivity Commission, and the
Australian Bureau of Statistics. These agencies were established to serve the Government
of the day and have no statutory role to provide a higher level of independent
advice on public expenditure for the Parliament.
The Auditor-General, supported by the ANAO, is tasked with providing auditing
services to the Parliament and public sector entities. While the ANAO has made
important contributions to public administration, service delivery and the
transparency of expenditure, it does not provide forward looking analysis on proposed
Government expenditure or comment on the direction of fiscal policy to the Parliament.
The Joint Committee of Public Accounts and Audit has parliamentary oversight of
the ANAO in addition to its role in the scrutiny of public expenditure.
Adequacy of existing financial scrutiny assistance to the Parliament
Despite the reforms to Budget reporting and the detail of information
published in the Budget Papers and other statements and reports, submissions have
raised concerns about the ability of Parliament to effectively discharge its
responsibilities in relation to the Budget and other financial matters.
The Public Policy Institute of the Australian Catholic University
advised that ... ‘parliamentary scrutiny of public expenditure is weak and
inadequate; scrutiny of revenue is largely non-existent outside a campaigning
According to Mr John Nethercote some existing scrutiny mechanisms have
at times become less focused on examining major issues in public expenditure
and administration, and more focused on the pursuit of what could otherwise be
considered trivial extravagances of Government.
Some major aspects of public expenditure are not scrutinised by Parliament
on an annual basis:
- There is no ongoing
process for the Parliament to review special appropriations which constitute
about 80 per cent of total Government expenditure. Special appropriations are
authorised by particular Acts, such as the Veterans’ Entitlements Act 1986
(Cwlth), to enable continued expenditure to be limited by entitlement.
Special appropriations are scrutinised by Parliament during the initial passage
of the legislation, but do not form part of the annual Budget scrutiny process.
- Nor is there an
on-going review process outside, or within the Parliament of tax expenditures
or tax concessions for specified activities of taxpayers.
Tax expenditures are estimated to be $113 billion in 2009-10, or around 8.8 per
cent of gross domestic product. According to Mr Stephen
Bartos, ‘tax expenditures are the unloved orphan of fiscal scrutiny, paid
little attention and not well understood and analysed.’
- Expenditure of
estimates of the Department of the House of Representatives.
From the perspective of parliamentary scrutiny, there are still some
weaknesses in Government financial reporting. The Budget papers are lengthy and
complex documents, and in addition to the array of other reporting
requirements, the task of sifting through Budget data to identify significant issues
for further examination may be difficult.
The Department of the House of Representatives commented that:
... while successive governments have made efforts to improve
the Budget Papers, we understand that concerns have still been expressed by
Members that the documents are difficult to read and that they do not have the
sort of information that Members want, especially in relation to individual
The annual economic and fiscal reports produced by Treasury under Part 5
of the Charter have no required presentation deadline and are not independently
verified. The Intergenerational Report does not include long term forecasts of
revenues and expenditure. It has also been suggested that the Intergenerational
Report has become more political in its promotion of contentious aspects of
The costing of election commitments under the Charter only applies
during the election period and excludes minor parties and independents. In its
2010 post election briefing for the incoming Government, Treasury noted that
the process for costing election commitments, in particular, has ‘not stood the
test of time’ and that a review of these provisions is required.
Executive Government is in a dominant position within the Parliament due
to its access to the resources, analysis and advice of the public service,
which under the Public Service Act 1999 (Cwlth), serves the Government
of the day.
The ability of the Parliament to draw on the support of its own
departments in relation to financial scrutiny is limited by the resources of
those departments and their other responsibilities. The DPS advised of its
current challenges in regard to its operational budget.
The Parliamentary Library has limited capacity and resources to
undertake detailed economic modelling and financial analysis. The work of the
Library is based on open source information published by universities, Government,
and the like. Certain requests made of the Library cannot be answered or can
only be partially answered due to a lack of available information.
The Joint Standing Committee on the Parliamentary Library was of the view
that funding pressures will inevitably lead to staff cuts:
The continuing pressure of increasing salary costs and the
need to meet senators’ and members’ expectations for information resources to
move with the times and to take up and offer improved online resources,
combined with the efficiency dividend will lead to a further reduction in the
number of staff delivering research services, simply because of the
predominance of salaries in the Research Branch budget (over 96%).
The need for further financial scrutiny assistance to the Parliament
The committee was advised of the need for an external check on the
statements and reports of the Government. The Business Council of Australia
(BCA) stated that ‘there is no institutionalised independent external assurance
or interpretation of the “official” view of the Budget and government
The Parliamentary Librarian advised that ‘the Library has regularly
received feedback that senators and members do not receive sufficient independent
analysis and advice on budget and expenditure issues’.
The Parliamentary Library’s Pre-Election Policy Unit (PEPU) commissioned
economic modelling on behalf of non government senators and members in the 2010
election period. An evaluation of the service identified an unmet need within
the Parliament for economic modelling and recommended that the PBO ‘should
include the provision of the kinds of assistance offered by the PEPU in 2010,
such as costing and economic modelling’. 
Between 5 July 2010 and polling day on 21 August 2010, the PEPU received
a number of substantial requests that were beyond the ‘business as usual’
capacity of the Parliamentary Library. The Parliamentary Librarian advised:
The sorts of inquiries that we were handling from the
pre-election policy service were questions that were above and beyond what we
had ever anticipated we would do. If clients had asked for that level of detail
in the past, we would have said, ‘No, we are unable to provide it with our
The Clerk of the Senate commented on the need for further assistance to
the Parliament in relation to financial scrutiny and stated:
I see that there is a lot of economic and financial
information that is produced by government that does not get picked up in the
parliamentary process. It is prime material for good scrutiny, if that is what
members of parliament want. I think there is a need for some kind of assistance
for members of parliament to access that information.
Options for improving financial scrutiny assistance to the Parliament
Broad options presented to the committee for improving the assistance to
Parliament can be summarised as: expanding existing mechanisms, establishing a
PBO, and establishing a fiscal authority outside of the Parliament.
Improving existing mechanisms
One way of improving the scrutiny of public expenditure by the Parliament
could be to expand the role of existing bodies. This approach was suggested as
an option by the DPS. Expanding existing
mechanisms could be a means of complementing the work of the ANAO and the
An international example of building on existing mechanisms was
the establishment of the Scrutiny Unit (the Unit) of the United Kingdom’s House
of Commons. The Unit was established in November 2002 to
assist in providing additional resources and expertise to parliamentary committees
in undertaking scrutiny of Government expenditure.
The main aim of the Unit is to support the Parliament
through its select committees to perform its scrutiny function in the areas of
Government expenditure, performance reporting and pre and post legislative
scrutiny. The Unit also
provides staff to support the work of joint committees and House of Commons
public bill committees in their examination of draft legislation.
The Unit does not undertake work for individual Members
and its work is not usually published. Its main outputs are written briefings
for committees. Administratively, the Unit forms part of the House of
Commons Committee Directorate and is not separately funded.
While the work of the Unit is valued in terms of its contribution to
committee activity, it is recognised that it is a basic model of support and
that its services could grow over time into a comprehensive Parliamentary
Also building on existing mechanisms, a Financial Scrutiny Unit within
the existing Research and Library Service of the Northern Ireland Assembly was
proposed. However, the Financial Scrutiny Unit was established as an interim
measure, while a committee investigates the role of the Parliament in scrutinising
Government expenditure. That committee is also investigating the need for a PBO
as part of its inquiry.
A Parliamentary Budget Office
A range of benefits in establishing a dedicated independent fiscal body
such as a PBO or external fiscal authority were suggested during the course of
the inquiry. These were to:
- Provide a source of
high-quality, independent analysis on Budget and related matters
and thereby improve the quality of parliamentary debate and enhance decision
accountability and transparency.
- Ensure integrity and
sustainability of fiscal policy.
- Strengthen the
credibility of the Budget process.
- Address perceived
bias in the role of Treasury and Finance in undertaking the election policy costings.
- Enhance Australia’s
international reputation for good governance.
Unlike a fiscal authority or council, the key quality of a PBO is that
it is a body dedicated to serving the needs of the Parliament. Treasury and
... a PBO could present an opportunity for members of
Parliament, particularly non-government members, to have available additional
analysis of the Budget, evaluation of fiscal policy settings independently from
government and policy costing advice.
The Clerk of the House of Representatives advised that ‘the benefit from
the work of the [PBO] might be to promote understanding on how the estimates
are derived, including the assumptions involved and how sensitive the estimates
are to these assumptions.’
The Clerk of the Senate advised that a PBO could support the scrutiny
function of Senate estimates committees. The Clerk of the Senate stated:
I think there is a strong possibility that a PBO could
enhance the estimates process by providing analysis of budget documentation.
... It could possibly provide senators with a tailored service: ‘I’m interested
in X, Y and Z; please pull out what you’ve got on those topics and give me a
briefing on where there might be some gaps in the documentation, or holes or
flaws that we need to look at—all those sorts of things.’
The DPS was of the view that the broader impacts of a PBO could well
outweigh the costs and stated:
Even if the enhanced deliberations of Parliament were to
influence the priorities for (say) 1% of the annual budget, this would amount
to some $3 billion, which is several magnitudes greater than the operating
costs contemplated for a Commonwealth PBO.
A key message to the committee regarding the potential contribution of a
PBO is the value to the Parliament of a source of high-quality analysis and
advice, independent from Executive Government. The importance of establishing
an independent PBO and measures to support its independence are discussed
further in Chapter 4.
An external fiscal authority
The idea of an external fiscal authority outside the Parliament and
independent from the Government was the third broad option suggested. The
primary purpose of an external fiscal authority would be to assist policy
development and scrutiny by indirectly serving both the Parliament and the Government.
BCA proposed a ‘permanent independent Commission of Budget Integrity’ as
a Commonwealth owned company funded by the Government. It was argued that such
a Commission could promote fiscal sustainability, strengthen accountability,
improve the effectiveness of spending and enhance the credibility and
transparency of Budget estimates.
The main focus of the proposed Commission would be to prepare fiscal
sustainability reports, conduct value for money evaluations of Government
programs and review Government expenditure. Further, the Commission would
publish an analysis on the annual budget modelled on the current review of the
defence Budget undertaken by the Australian Strategic Policy Institute.
BCA proposed that the Commission of Budget Integrity receive an annual
funding of approximately $10 million to support 30 to 40 staff. It was
suggested that the funding for the Commission could be raised from reductions
to tax expenditures on business income.
Budget Papers remain lengthy and complex documents. The range of
statutory reporting requirements, particularly since the 1990s, has resulted in
more information being made available on public spending. However, linking the
various reports and statements available, making sense of the information and
identifying issues for further examination continues to present a challenge for
Governments have responded to some of these issues through the
establishment of the Charter of Budget Honesty and Operation Sunlight.
While these processes are intended to improve transparency and therefore
accountability, it is recognised that the agencies charged with implementing
these measures are directly responsible to the Government of the day.
However, the committee recognises that, over time, the task of the Parliament
in effectively discharging its responsibilities in relation to scrutinising Government
expenditure has become increasingly difficult. This is despite the array of Government
statements and reports and previous reforms to the way information is presented.
Existing information scrutiny mechanisms, including those provided
through the parliamentary departments, are constrained because of limited
resources, competing responsibilities, limited access to Government information
and the unavailability of expertise. Expanding the role of these mechanisms to provide
specialised analysis and advice would dilute their primary focus.
The committee recognises that there is a logical limit to the time that
parliamentarians can spend scrutinising the annual Budget and examining related
economic issues at other times of the year and there is a similar limit to the detail
of these matters that can be effectively scrutinised.
While it is unrealistic to expect that the Parliament could be resourced
to match the level of research and expertise of Executive Government, some of
the disadvantages faced by non government members in their access to high
quality analysis and advice on financial matters can be addressed.
The requests made of the Pre-Election Policy Unit service offered
through the Parliamentary Library demonstrated that there is an unmet need for
additional and higher level economic analysis and modelling among non
government parliamentarians. Other evidence to the inquiry suggests a further
demand for simplifying the complexity of Budget Papers and government reporting
and identifying issues for parliamentary scrutiny.
The committee considers that the current arrangements to support the
role of the Parliament in exercising its responsibilities in relation to Government
expenditure and fiscal policy are inadequate. The establishment of a
specialised Office dedicated to providing the Parliament with high quality
analysis and advice on Budget related matters is warranted.
The committee recommends that the Australian Government
establish a Parliamentary Budget Office dedicated to serving the Australian