Economics, Commerce and Industrial Relations Group - Guide to
the Budget Papers and Documentation
Introduction
The annual Budget is perhaps the government's most important political,
economic and social document. It contains information on matters such
as fiscal policy, the provision of goods and services, priorities with
respect to resource allocation, and income distribution objectives. Budgets
also contain information needed to assess how efficiently agencies use
resources and how effectively agencies discharge government initiatives.
The aim of this brief is to assist readers who are unfamiliar with budget
terminology and documents to understand key concepts and terms and find
information in the Budget
Papers and Documentation, and is an update of the brief dated 18 May
2001. The brief is not primarily concerned with the budgetary process,
that is, how the Budget is prepared and the roles of the various agencies
and bodies such as the Expenditure
Review Committee. The brief also discusses important changes to the
Budget over recent years. The main changes are:
- the move from cash to accrual budgeting, and the presentation of agency
financial statements on an accrual instead of cash accounting basis,
with effect from 1999-2000
Where to Start
The Department of Finance and Administration
has the most comprehensive information on the Budget. The best starting
point is the Overview,
which summarises the budget process and contains links to Budget documents.
Easy
Steps to Budgeting contains a step-by-step description of the budget
process.
Key Terms and Concepts
Jargon and acronyms are barriers to understanding the Budget. The Glossary
contains definitions of terms and a list of Acronyms.
The following discusses some of the more important terms and concepts.
Accrual Budgeting and Accounting
Most countries employ cash budgeting for public finance purposes but
the Commonwelath and State governments use accrual
budgeting. The first accrual Commonwealth Budget was for 1999–2000.
Cash budgeting and cash accounting recognise activities only when a cash
transaction takes place. Accrual accounting, on the other hand, recognises
activities in the year they occur and not just when there is a cash transaction.
For example, in the case of public service superannuation, accrual accounting
brings to account both cash payments to superannuants and the increase
in the liability for future payments. Similarly, cash budgeting and cash
accounting recognise the purchase of an asset only when there is a cash
transaction. Accrual accounting, on the other hand, brings the asset into
the balance sheet and depreciates
the asset over its life. Accrual accounting thus measures all resource
use and availability within a budget year.
The move from cash to accrual accounting has entailed changes to terminology.
The term 'expenses' has replaced 'outlays', which was used under cash
budgeting. Expenses are the total value of resources used in producing
goods and services. Expenses thus include both cash and non-cash items
such as depreciation.
It is important to bear in mind that it may not be possible to make valid
comparisons of data between accrual and cash budgets.
Outcomes and Outputs
Since 1999-2000, agencies have been required to present Portfolio Budget
Statements (discussed below) on an Outcomes and Outputs
framework. In particular, agencies now allocate expenses in their Portfolio
Budget Statements to planned outcomes and outputs. Planned outcomes
are the results or consequences that the government seeks for the community.
Outputs are the goods and services agencies produce to attain outcomes.
The outcomes–output framework was introduced simultaneously with
accrual budgeting. The outcomes–output framework emphasises ends,
that is, what the government wants to achieve as distinct from the means
of attaining those ends. Examples of outcomes are 'stronger families',
'well functioning markets' and an 'efficiently functioning Parliament'.
Previously, agencies presented their Portfolio Budget Statements on a
program basis. For example, the Attorney-General's portfolio had six programs
in 1998-99. One program was 'administration of justice' which encompassed
the activities of the courts and tribunals. Another program was 'maintenance
of law, order and safety'. In 2001-02, the portfolio has two outcomes:
'an equitable and accessible system of federal law and justice' and 'coordinated
security, crime prevention and law enforcement arrangements'.
Contrary to the rhetoric about how the accrual-outcomes framework would
increase transparency and accountablilty, the availability and ease of
finding information in the Budget papers and documentation, especially
the Portfolio Budget Statements, have fallen sharply. Indeed, the 1999-2000
Budget marked a low point in that it was one of the least informative
ever. Subsequent Budgets have progressively provided more information.
But much of the information that Members of Parliament frequently require,
and which was available before 1999-2000, is still not available. The
paucity of information has also meant that it is now necessary to contact
agencies more frequently than before to obtain information.
There are several reasons the revised presentation has been less than
successful. First, with respect to outcomes, the usefulness of the outcomes
depends crucially on how they are specified. Outcomes are prepared at
an agency level and so reflect administrative arrangements. But these
arrangements do not necessarily coincide with broader objectives. For
example, it could be argued that some of the functions of the Department
of Foreign Affairs and Trade contribute indirectly to Australia's defence
and could therefore be included in the Department of Defence outcome:
'The defence of Australia and its national interests'. The Department
of Transport and Regional Services outcome is 'A better transport system
for Australia and greater recognition and opportunites for local, regional
and territory communities'. But the Department provides only some regional
services; other agencies contribute to the funding of services in regional
areas such as health and education. Some outcomes are highly abstract
while others are more specific. The Senate Finance and Public Administration
Legislation Committee's Report, The Format
of the Portfolio Budget Statements-Second Report, published in October
1999, expressed concern over the widely differing levels of specificity.
The Committee also pointed out that the amounts allocated to outcomes
ranged from $271 000 to more than $17.5 billion. Some agencies have recast
their outcomes and outputs and further recasting is likely. For example,
in 2001-02, the Department of Environment and Heritage changed its output
structure.
As noted, Portfolio Budget Statements classify expenses by outcome. Some
readers may find the classification of expenses by function more useful.
Examples of functions are defence, health, education, and public order
and safety. Expenses are also classified by sub-function. For example,
under the 'transport and communication' function, sub-functions are comunication,
rail transport, air transport, road transport, sea transport and other
transport and communication. In the 2001-02 Budget, expenses are classified
on a functional basis in Statement 6 of Budget Paper No. 1. The 1999-2000
and 2000-01 Budgets classified expenses on a portfolio basis with administered
and departmental expenses separated. For 2001-02, expenses by agency can
be found in Appendix A of Statement No. 10 in Budget Paper No. 1.
Administered and Departmental
Items
Budget documentation distinguishes between administered and departmental
(also called agency) items. Administered
items are revenues, expenses, assets and liabilities that agencies
manage on the government's behalf. Examples of administered expenses are
social security payments and grants to the States for roads, health etc.
Examples of administered revenue are taxes, fees, and fines. Departmental
items are the resources that agencies control and use to produce outputs.
Examples are plant and equipment, and revenues from running cost appropriations
and user charges.
Agency-level Financial Statements
Agencies produce four financial statements: operating statement, statement
of assets and liabilities, cash flow statement and capital statement.
The operating statement contains the cost of activities and the
operating result from these activities. The operating statement can be
thought of as the counterpart of a business profit and loss statement
albeit with obvious differences in the functions of government agencies
and their sources of revenue compared to businesses. Items that affect
the operating statement affect the budget surplus or deficit.
The balance sheet contains assets and liabilities and shows the
Commonwealth's equity position. Items that affect the balance sheet only
do not affect the budget surplus or deficit. For example, the sale of
assets would generally be reflected only in the balance sheet. The sale
of an asset would be a change in the type of asset from, say, a financial
investment to cash with no change in the Commonwealth's net equity position.
Any profit or loss on the sale of an asset, however, has to be brought
into the operating statement and hence would affect the budget deficit
or surplus.
The cash flow statement shows the Commonwealth's sources and uses
of cash including the cash balance.
The capital statement shows additional assets that agencies buy
from their own resources and from additional capital that the government
provides in the forms of loans and capital injections. The capital statement
also shows how the capital will be used, that is, either to buy new assets
or reduce liabilities.
The usefulness of the financial statements in a public sector context
is limited. For example, equity in a business is an indicator of its solvency,
creditworthiness, net worth etc. These concepts have limited meaning for
an agency whose main functions are to provide policy advice and administer
appropriations. Similarly, an agency operating statement does not have
the same purpose or meaning as that of a company operating for profit.
Appropriations and Estimates
Annual Appropriations
Section 83 of the Constitution
states that 'No money shall be drawn from the Treasury of the Commonwealth
except under appropriation made by law'. Only around 25 per cent of spending
is authorised by the passing of Appropriation
Bills 1 and 2 that are introduced with the Budget. These Bills authorise
the payment of specified amounts for particular purposes. Appropriation
Bill No. 1 provides for the appropriation of funds from the Consolidated
Revenue Fund — which is the Commonwealth's main working fund —
for the ordinary annual services of government. Appropriation Bill No.
2 provides for the appropriation of funds from the Consolidated Revenue
Fund for purposes other than the ordinary services of government. The
latter include expenses incurred in providing grants to the States, administered
expenses for new outcomes, and equity injections and loans to agencies.
Parliamentary Departments have a separate annual Appropriation Bill because
Parliament is constitutionally separate and independent of the government.
The introduction to Budget Paper No. 4 (see below) contains a useful
overview of the annual appropriations system.
Special and Standing
Appropriations
The bulk of expenditure (around 75 per cent) is by Standing or Special
Appropriation Bills. Unlike the Appropriation Bills, funds provided under
Standing or Special Appropriations are usually not subject to annual review
and approval by Parliament. Rather, authority for spending derives from
various Acts. For example, the Australian Land Transport Development
Act 1988 authorises grants to the States and Territories for spending
on roads and the government decides how much it wishes to spend on roads
under this Act.
Standing Appropriations are 'open-ended' in that the amount appropriated
for a particular purpose is determined by the eligibility and other provisions
in the relevant Act. An example of a Standing Appropriation is age pensions.
In this case, the Budget contains an estimate of the amount likely to
be spent on age pensions.
Special Appropriations are appropriations for a specific amount
of money for a specific time. (To confuse matters, the term 'special appropriations'
is often applied to encompass both Standing Appropriations and Special
Appropriations).
Additional Estimates
Agencies' funding requirements often change after the Budget. The government
may agree to additional funding if the amounts in the Appropriation Acts
are inadequate. These funds are provided through Additional
Estimates which are normally incorporated in Appropriation Bills No.
3 and No. 4, which are respectively the counterparts of Appropriation
Bills No. 1 and No. 2. Links to Portfolio Additional Estimates
are grouped on the Department of Finance and Administration site but are
also available on agency websites.
Advance to the Minister
of Finance
The Advance
to the Minister of Finance provides flexibility to the system of appropriating
funds by providing funds for unforseen and urgent expenditures. The Minister
for Finance and Administration is required to account to Parliament for
spending from the Advance by tabling statements containing details of
its use.
Forward Estimates
Forward Estimates are rolling three-year estimates of what would be appropriated
assuming that government policy is on-going. Forward Estimates therefore
do not include new programs, the expansion of existing programs that the
government has not agreed to, or programs that are expected to end.
Contingency Reserve
Difficulties in calculating estimates for the current and future budget
years inevitably result in uncertainty as to the reliability of the estimates.
The Contingency
Reserve is the means of trying to ensure that the aggregate estimates
are soundly based. The amount in the Contingency Reserve can be found
in Statement 6 of Budget Paper No. 1, and the revised amount in the Mid-Year
Economic and Fiscal Outlook (discussed below).
The Australian National Audit Office
conducted a study ('Management of the Commonwealth Budgetary Processes',
Audit Report No. 38, 1998–99) of the cash budgeting process and found
that no apparent systemic problems existed in the processes of the agencies
reviewed that would lead to material statistical inaccuracies in projected
financial outcomes.
Tax Expenditures
Much attention is focused on the level of revenue and expenses when the
Budget is brought down. But a large amount of revenue is foregone through
tax concessions. Tax Expenditures are estimates of the financial benefits
derived by the recipients of tax concessions. Concessions take the forms
of tax exemptions, deductions and rebates, and reduced tax rates. Concessions
lower the tax burden by either reducing the amount of, or delaying the
collection of, taxation revenue. Appendix D of Statement 5 in Budget Paper
No. 1 (see below) in the 2001-02 Budget contains a statement of tax expenditures.
Treasury publishes a more comprehensive Tax
Expenditures document. This shows that the aggregate cost of tax expenditures
was around $27.3 billion in 1999–2000. For comparison, actual expenses
in the 1999-2000 were $153 billion.
Documentation
and Finding Information
Budget Papers and
Other Documentation
The Budget
Papers and Documentation consist of the Budget Speech, Budget Highlights,
four Budget Papers, Ministerial Statements, and Portfolio Budget Statements.
Ministerial media releases and budget kits can also be useful sources
of information.
Budget Papers
Budget Paper No. 1 is the most important explanatory document. Budget
Paper No. 1 for 2001-02 contained eleven Statements dealing among other
things with fiscal policy, the outlook for the economy, assumptions underlying
the projections of growth, unemployment, revenue and expenses and other
matters. Budget Paper No. 1 is prepared in accordance with the Charter of Budget
Honesty Act 1998, which the Howard Government introduced. This requires
that, inter alia, the government provide a statement of its fiscal strategy
and a report on the economic and fiscal outlook as well as risks to the
outlook.
The eleven statements are as follows.
Statement 1 — Fiscal Strategy and Budget Priorities. This
contains a statement of fiscal strategy and the Government's budget priorities
in areas such as health and the aged.
Statement 2 — Fiscal Outlook. This discusses variations to
expense and revenue estimates and the Commonwealth's net debt and worth
positions.
Statement 3 — Economic Outlook. This Statement discusses
domestic and international influences on the Australian economy.
Statement 4 — A More Productive Australia - Policy and Technology.
This Statement is one of a series in recent Budgets which discuss various
aspects of the economy. The comparable Statement in the 2000-01 Budget
dealt with tax reform.
Statement 5 — Revenue. This contains a discussion of budget
and forward year revenue estimates. The Appendices contained very useful
information including details of revenue measures and revenue statistics
going back to 1990-91.
Statement 6 — Expenses and Net Capital Investment. This is
a statement of the expense and net capital investment estimates. The appendices
contain very useful data including expense measures by agency.
Statement 7 — Budget Funding. This contains details of the
Commonwealth's recent and prospective net funding requirements and budget
funding activities.
Statement 8 — Trends in Public Sector Finances. This
discusses and contains data on trends in public sector finances including
fiscal balance and net debt and net worth. The Appendices contain data
on the size of the public sector and other information.
Statement 9 — Government Finance Statistics
Statements. The Australian Bureau of Statistics has a uniform
framework for presenting financial data for all levels of government known
as the Government Finance Statistics (GFS).GFS statistics differ in a
number of respects from those required by Accounting Standard No. 31,
which applies to government financial statistics. This Statement presents
Commonwealth statistics in accordance with the GFS for 2001-02 and the
three following ('out') years.
Statement 10 — Australian Accounting Standard No. 31 Budget
Financial Statements. This Statement is similar to Statement
9 except that data are presented to accord with Accounting Standard No.
31.
Statement 11 — Budget Concepts and Historical Data.
This Statement discusses key budget concepts such as fiscal balance, the
underlying cash balance and the headline cash balance, and the GFS and
Accounting Standard No. 31. Part II of this Statement is one of the most
important but often overlooked sources of data. For example, Part II contains
data on revenues, outlays, surplus/deficit, and net debt going back to
the early 1970s.
Budget Paper No. 2 titled 'Budget Measures' contains details of the changes
to expenses and revenues by portfolio. Budget Paper No. 2 does not give
totals of spending for these purposes. Particularly useful are the tables
summarising changes to revenue and expenses measures since and up to the
Mid-Year Economic and Fiscal Outlook (discussed below). These tables are
a quick way of finding the changes the government has made which have
budgetary implications. The tables are located at the beginning of the
parts dealing respectively with revenue and expense measures.
Budget Paper No. 3 deals with Commonwealth payments to the States and
Territories, and local government. In particular, Budget Paper No. 3 contains
estimates of GST payments to the States and Territories, and Specific
Purpose Payments to the States classified by function, e.g., transport
and communications.
Budget Paper No. 4 contains Appropriation Bills No. 1 and No. 2 and the
Appropriation Bill for the Parliamentary departments. The introduction
to Budget Paper No. 4 contains a useful overview of the annual appropriations
system.
Portfolio Budget Statements
The Portfolio
Budget Statements (PBS) are the main source of information about the
activities of individual agencies. Agencies have some discretion in the
way they present their PBS. Consequently, the quantity and level of detail
provided differ among agencies with some portfolios providing less information
than others. Some agencies, such as the Department of Transport and Regional
Services, continue to provide quite detailed information.
Now that agencies allocate expenses in their Portfolio Budget Statements
to planned outcomes and outputs, the PBS no longer provide details of
agency programs and sub-programs and how they are resourced. A feature
of the PBS since 1999-2000 is the aggregation of information and this
limits its usefulness. Aggregation has been at two levels. First, the
number of expense items has been compressed into fewer outputs and even
fewer outcomes. Consequently, it is often not possible to find in the
PBS some of the information that was previously available. For example,
whereas it was possible in some cases to associate a particular expense
with a particular piece of legislation, this is often no longer possible.
In such cases, it is often necessary to approach the agency directly for
information. The second level of aggregation is in agency budgeted financial
statements. For example, the Department of the Environment and Heritage's
administered expenses are broken down into three categories (suppliers,
grants, and other) but it is not obvious how the grants are allocated
over outputs and outcomes. However, the notes to the statements
sometimes contain breakdowns of the aggregate figures but this varies
considerably among agencies.
The PBS are built around a framework that is designed to allow comparisons
of promised performance and actual performance, using the same performance
indicators. The indicators of promised performance are contained in the
PBS. Agencies report on actual performance in their annual reports.
The Department of Finance and Administration has responded to a number
of issues raised as concerns by the Joint Committee of Public Accounts
and Audit in the Committee's current Review of the Accrual Budget Documentation
at http://www.aph.gov.au/house/committee/jpaa/accrualbudget/inqinde2.htm
.
It will probably take a number of years for the outcomes/outputs framework
and the PBS to be refined to a point where they provide more useful information
to readers.
Ministerial Statements
and Media Releases
At the time of the Budget, some Ministers issue Ministerial Statements.
For example, when the 2001-02 Budget was brought down , the Minister for
Agriculture, Fisheries and Forestry issued a Statement titled 'Safeguarding
Our Rural Resources'. Another Statement dealt with regional Australia.
These Statements can contain much useful information. However, it should
be remembered that the Statements and Media Releases are political documents
and their contents tend to stretch the definition of what their titles
suggest they contain. Media Releases are available on Ministers' web sites
soon after the Budget is brought down. Ministerial Statements are in a
book form.
Subsequent Documentation
and Information
Final Budget Outcome
The final stage in the budget process is when the Final Budget
Outcome is tabled. Because the Budget is usually brought down in May,
it contains estimates of the financial outcomes for the previous financial
year. For example, the Budget for 2001-02 contains estimates of the financial
outcomes for the Budget for 2000-01. The Final Budget Outcome, which is
published around September, contains actual financial outcomes for the
financial year just ended. Much of the data in the Final Budget Outcome
are highly aggregated and so are of limited use, but the document contains
a comprehensive section dealing with payments to the States and Territories.
Additional information on actual financial outcomes for the financial
year just ended can sometimes be found in the Additional Estimates.
Mid-Year Economic and
Fiscal Outlook
The Charter of Budget Honesty Act 1998 requires the government
to provide a report, by the end of January each year, which updates some
of the information contained in the Budget. This is contained in the Mid-Year
Economic and Fiscal Outlook (MYEFO). In particular, the MYEFO contains
revisions of the economic and fiscal outlooks and updates estimates of
revenues and expenses. The MYEFO incorporates the effects of decisions
made after the Budget.
Senate Estimates
Senate Estimates Committees
examine agency estimates after the Budget is presented. The Senate Estimates
process provides Senators with the opportunity to question officials and
portfolio Ministers about programs and policy implementation. Although
there is a delay in the release of the proceedings, the committee reports
contain information often not readily available elsewhere.
Annual Reports
Agencies are required to provide a wide range of information in their
Annual Reports. In particular, agencies are required to prepare financial
statements on an accrual accounting basis, so annual reports are a source
of information on actual financial outcomes.
Annual reports also contain information on agency performance. But the
value of performance measures and indicators is often limited. While an
agency may contribute to a particular outcome, the agency's contribution
is often only one of many factors contributing to the final outcome. For
example, Commonwealth funding contributes to the community's health and
education. But many other factors affect health and education so it is
difficult if not impossible to determine the importance of the Commonwealth's
contribution. In such cases, it is difficult to assess how well agencies
have performed against outcomes.
Contact
For further information, contact:
Internet email: Richard.Webb@aph.gov.au
This e-brief was prepared by Richard Webb in the Economics, Commerce
and Industrial Relations Group.
27 August 2001
|
