Bills Digest no. 98 2005–06
Appropriation Bill (No. 4) 2005-06
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
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Appropriation
Bill (No. 4) 2005-06
Date introduced: 8 February 2006
House: House of Representatives
Portfolio: Finance and Administration
Commencement: On the day it receives Royal
Assent
To appropriate sums, additional to those sought through Appropriation
Act (No. 2) 2005-06, for the ordinary annual services of the Government.
Section 83 of the Constitution
states:
No money shall be drawn from the Treasury of the Commonwealth
except under appropriation made by law.
There are two broad categories of appropriations:
- annual appropriations, and
- special (or standing) appropriations.
There are usually six annual appropriation Bills. They authorise about
25 per cent of annual Commonwealth spending.
Special (or standing) appropriations—the terms are often used interchangeably—authorise
about 75 per cent of spending. An example is the Social Security (Administration)
Act 1999 under which age pensions and other social security payments
are made.
Three annual Appropriations Bills are introduced when the Budget is brought
down. They are:
- Appropriation Bill (No. 1)
- Appropriation Bill (No. 2 ), and
- Appropriation (Parliamentary Departments) Bill (No. 1).
These Bills are reproduced in Budget Paper No. 4.
The Bills authorise the payment of specified amounts for particular purposes.
Appropriation Bill (No.1) provides for the appropriation of money from
the Consolidated Revenue Fund for the ‘ordinary annual services’ of government.
Appropriation Bill (No. 2) provides for the appropriation of money from
the Consolidated Revenue Fund for purposes other than the ordinary services
of government. The division of items between the two Bills accords with
the 1965 ‘compact’ between the House of Representatives and the Senate.
Appropriation Bill (No. 1) appropriates amounts according to whether
they are departmental or administered expenses. Departmental expenses
are those that agencies control.(1) Examples are salaries,
other cash expenses, and non-cash expenses such as accruing employee entitlements
and depreciation. Administered expenses are those that agencies administer
on behalf of the government. [While some administered expenses are paid
under Appropriation Bill (No. 1), most are paid under special appropriations].
Appropriation Bill (No. 2) provides appropriations for:
- administered expenses, and
- non-operating costs.
Administered expenses include:
- grants to the States and Territories (sometimes called section 96
grants because the grants are made under section 96 of the Constitution),
and
- new administered outcomes.
Non-operating costs—sometimes called ‘capital costs’—comprise:
- ‘equity injections’ which are provided to agencies to enable investment
in new capacity when normal cash flows are insufficient
- ‘loans’ which are provided to agencies and used when an investment
is expected to result in a direct return such as an efficiency saving
- previous years outputs appropriations: these provide funding for
outputs that were delivered in a previous year. This can occur, for
example, when a decision is made to implement a new activity after the
date for inclusion in the additional appropriation Bills. Such activities
are funded initially from cash balances, which are then replenished
by the previous years outputs appropriation, and
- ‘administered assets and liabilities’ appropriations: they provide
funding for acquiring new assets, extending existing assets, and discharging
administered liabilities relating to activities administered by agencies
in their fiduciary capacity on behalf of the Government.(2)
New policy proposals should not be included in Appropriation Bill (No.
1) because they do not fall with the classification of ordinary annual
services. New policy measures are funded either through Appropriation
Bill (No. 2) or special appropriations.
The Parliamentary Departments have a separate Appropriation Bill because
Parliament is constitutionally separate and independent of the Executive.
Section 53 of the Constitution states:
Proposed laws appropriating revenue or moneys, or imposing
taxation, shall not originate in the Senate. But a proposed law shall
not be taken to appropriate revenue or moneys, or to impose taxation,
by reason only of its containing provisions for the imposition or appropriation
of fines or other pecuniary penalties, or for the demand or payment
or appropriation of fees for licences, or fees for services under the
proposed law.
The Senate may not amend proposed laws imposing taxation,
or proposed laws appropriating revenue or moneys for the ordinary annual
services of the Government.
The Senate may not amend any proposed law so as to increase
any proposed charge or burden on the people.
The Senate may at any stage return to the House of Representatives
any proposed law which the Senate may not amend, requesting, by message,
the omission or amendment of any items or provisions therein. And the
House of Representatives may, if it thinks fit, make any of such omissions
or amendments, with or without modifications.
Except as provided in this section, the Senate shall
have equal power with the House of Representatives in respect of all
proposed laws.
In short, the Senate cannot amend any laws for appropriating monies for
the ordinary annual services of the government such as this Bill. The
Senate can, however, amend any appropriations for other purposes.
Funding requirements often change after the Budget is brought down. Governments
make new policy commitments which have to be funded. Agencies reassess
their requirements and, if necessary, submit requests for additional funding.
The Government may agree to additional funding if the amounts in the Appropriation
Acts are inadequate. The process whereby additional funds are provided
is called additional
estimates, and begins around November. The approved additional estimates
are incorporated into Appropriation Bill (No. 3), Appropriation Bill (No.
4), and Appropriations (Parliamentary Departments) Bill (No. 2). These
Bills are the counterparts of Appropriation Bill (No. 1), Appropriation
Bill (No. 2), and Appropriations (Parliamentary Departments) Bill (No.
1) respectively.
Portfolio Additional Estimates Statements are the additional estimates
counterparts of Portfolio Budget Statements, and contain explanations
of Appropriation Bill (No. 3), Appropriation Bill (No. 4), and Appropriation
(Parliamentary Departments) Bill (No. 2).
New policy proposals should not be included in Appropriation Bill (No.
3) because they do not fall with the classification of ordinary annual
services. New policy measures are funded either through Appropriation
Bill (No. 4) or special appropriations.
Further annual appropriation bills can be introduced during the year
if required. They are called ‘supplementary’ additional estimates.
The Advance
to the Finance Minister (AFM) provides flexibility to the system of
appropriating funds. The AFM is a contingency fund from which the Minister
for Finance can spend for emergency or unforeseen circumstances. Authority
for payments derives from the annual Appropriation Acts. According to
Department of Finance and Administration guidelines, funding is available
only if agencies meet two tests:
- the need for funding must be urgent, and
- the need was unforeseen or arose because of erroneous omission or
understatement.
The Appropriation Acts also require the Finance Minister to account to
Parliament for spending from the AFM, which the Minister does by tabling
monthly and annual statements.
In addition to the amount sought as a ‘basic’ appropriation and the AFM,
the Bill provides for agencies to spend income received under ‘net appropriations’
agreements (also known as section 31 agreements, a reference to section
31 of the Financial Management and Accountability Act 1997).
In January 2006, the Australian National Audit Office released a report
titled Management
of Net Appropriation Agreements. The report describes net appropriations
as follows:
2. … net appropriation arrangements are a longstanding
feature of the Commonwealth’s financial framework. They provide a means
by which an agency’s appropriation item in the annual Appropriation
Acts can be increased by amounts received from non-appropriation sources.
This provides the agency with the appropriation authority to retain
and spend those amounts …
4. Under the Commonwealth’s current financial framework,
Section 31 of the Financial Management and Accountability Act 1997 (FMA
Act) allows the Finance Minister to enter into net appropriation agreements
(known as Section 31 agreements) for the purposes of appropriation items
in Appropriation Acts that are marked “net appropriation”. The FMA Act
requires that an agreement be made with the Minister responsible for
the appropriation item or, in the case of items for which the Finance
Minister is responsible, with the Chief Executive of the agency for
which the appropriation is made.
5. A Section 31 agreement specifies the types of departmental
and/or administered receipts that will be eligible to be retained by
the relevant agency, and the terms on which the relevant appropriation
item will be increased for those receipts by operation of the agreement.
For example, the agreement may require certain receipts to be shared
with the Budget in nominated proportions. The annual Appropriation Acts
provide that, if a Section 31 agreement applies to an appropriation
item, the amount specified in the item is taken to be increased in accordance
with the agreement, on the conditions set out in the agreement. The
increase cannot be more than the relevant receipts covered by the agreement.(3)
The Bill refers to Special Accounts. In essence, they are ledgers in
the Consolidated Revenue Fund that are used to record all spending and
revenue relevant to a particular activity. Special accounts are thus a
means of simplifying the recording and keeping track of amounts of money
associated with that activity. Special Accounts can be established in
two ways: by the Finance Minister under the Financial Management and
Accountability Act 1997 or by another Act.
The Bill seeks a total of $1,368,647,000 for basic appropriations, that
is, almost $1.4 billion.
Basic appropriations can be supplemented by adjustments to departmental
items, and by spending from the AFM. Adjustments are subject to a maximum
of $20 million for all of financial year 2005-06. Similarly, spending
under the AFM is limited to $215 million for all of financial year 2005-06.
Note: the numbers in brackets below are references (where possible)
to the relevant page numbers in the Mid-year
Economic and Fiscal Outlook 2005-06.
According to the Minister’s second reading speech, the Bill seeks additional
funding to agencies for:
- expenses in relation to grants to the states under section 96 of
the Constitution and for payments to the Northern
Territory and the Australian
Capital Territory, and
- non-operating purposes such as equity injections and loans.
The principal factors contributing to the additional requirement since
the 2005-06 Budget include $744.4 million in additional payments to the
states and territories, such as:
- $346.3 million in GST compensation payments
- an additional $304.3 million to support primary producers in regions
that have been declared eligible for exceptional circumstances assistance
(88)
- $18 million under the Tasmanian Community Forest Agreement to fund
additional plantation establishment and productivity improvements in
existing plantations and native forests (93)
- $16.3 million for mental health under the Australian health care
agreements, and
- an additional contribution of up to $10 million to Victoria to enhance
and extend the scope of the Melbourne 2006 Commonwealth Games opening
ceremony.
The Bill also proposes $333.8 million in additional appropriations for
non-operating expenses, including:
- $131 million to the Department of Health and Ageing to purchase and
store antivirals, vaccines, intravenous antibiotics and protective equipment
for the national medical stockpile, in preparation for a potential pandemic
influenza (198)
- $27.9 million will be allocated to the Department of Defence to fund
a Special Forces Task Group to Afghanistan,
and a further $27 million will be provided to deploy helicopters and
support elements in Afghanistan;
these increases have been fully offset by savings arising in the department’s
non-operating budget (117)
- a total of $34.3 million to the Australian Federal Police to fund
the Joint Airport Intelligence Group and to implement phase 1 of community
policing at airports
- $40.9 million to the Department of Employment and Workplace Relations
to implement the workplace relations reform package (130-134)
- $11.4 million to the Australian Security Intelligence Organisation
to fund additional temporary accommodation (106), and
- $290.5 million has been re-appropriated to the Department of Transport
and Regional Services as a new administered expense for the Roads to
Recovery program to facilitate the direct payment of these funds to
local councils.
The provisions in the Bill are identical to those in Appropriation
Act (No. 4) 2004-05 except for several minor changes. The changes
include:
- dropping ‘for the purposes of the Legislative Instruments Act
2003’ from the subclauses dealing with whether an item is a legislative
instrument, and editorial changes that simplify the English expression
[subclauses 7(3), 8(3), 11(9), 11(10), 12(3),
13(5), 15(4) and 15(6)].
- inserting under ‘definitions’ in clause 3, the definition
of Portfolio Supplementary Estimates Statements
- with respect to adjustments to departmental items (see below), subclause
12(1) inserts ‘during the current year’ when referring to when the
Finance Minister may make a determination increasing the amount for
a departmental item
- this amendment has the effect of limiting to the 2005-06 financial
year the ability of the Finance Minister to make determinations
under clause 12
- •clause 13 deals with the Advance to the Finance Minister.
Paragraph 13(1)(a) inserts ‘in the current year’
- this amendment has the effect of limiting to the 2005-06 financial
year the ability of the Finance Minister to issue funds made available
under clause 13. Were it not for this amendment, the Finance
Minister could issue the funds made available under clause 13
in other financial years.
Clause 6 provides that the basic appropriation is $1,368,647,000,
that is, almost $1.4 billion. The amounts allocated to each agency are
set out in Schedule 2.
Clause 7 empowers the Finance Minister to issue money from the
Consolidated Revenue Fund to entities so that the entities can make payments
to the states.
Clause 8 deals with administered items in the basic appropriation.
Subclause 8(1) limits the amount of money the Finance Minister
can issue from the Consolidate Revenue Fund to the amount specified (in
Schedule 2), and the amount that the Finance Minister includes in a determination.
The general procedure with respect to the latter is as follows:
Appropriations for administered expenses are subject
to a determination by the Finance Minister on the amounts to be issued.
The effect of that determination is to prevent any part of the appropriation
that has not been expensed in the year from being issued from the Consolidated
Revenue Fund. By convention the Finance Minister issues determinations
in relation to administered expenses appropriations following the completion
of each financial year. … the determinations for administered expenses
do not reduce the appropriation. Rather, they are a declaration by the
Finance Minister of the maximum amount that may be issued for the respective
items.(4)
Clause 11 deals with reductions of appropriations. The general
process for reductions is as follows:
Amounts appropriated for departmental expenses and for
non-operating costs can be subject to a reduction process first introduced
in the additional estimates appropriations acts for 2003-2004. Under
this process, on request in writing from a responsible minister for
an agency, the Finance Minister may issue a determination to reduce
the agency’s departmental expense or non-operating costs appropriation.
Requests for amounts to be lapsed may arise, for example, because the
appropriation is no longer required. Until the Finance Minister issues
a determination under this process, moneys appropriated for departmental
expenses and non-operating costs may be issued from the CRF.(5)
Clause 12 deals with the power of the Finance Minister to increase
the amount allocated to a departmental item up to a maximum of $20 million
for the 2005-06 financial year. As noted, departmental expenses are essentially
the costs of running agencies such as salaries and rent. Clause 12 provides
flexibility in that when situations arise where an agency finds that it
does not have enough funds for departmental expenses and the shortfall
cannot be met through the normal additional estimates processes, it may
request additional funds by means of a determination that the Finance
Minister issues. Subclause 12(3) provides that such as determination
is a legislative instrument. This provides some accountability for the
Finance Minister’s actions.
Clause 13 deals with the AFM. Subclause 12(3) limits the
combined total the Finance Minister can issue under Appropriation Act
(No. 1) 2005-06 and the Bill to $215 million.
Clause 14 provides, that when an item of spending or revenue falls
within the purpose for which a Special Account has been created, then
that item may be respectively debited or credited to the Special Account.
Clause 15 deals with the terms and conditions under which payments
are made to the states. In essence, clause 15 provides that payments to
the states must be made in accordance with relevant terms and conditions
[subclause 15(2)]. Subclause 15(5) defines ‘applicable terms
and conditions’ as they relate to payments to the states. In essence,
these are the conditions that the Minister responsible for determining
conditions applicable to payments, decides upon. Subclause 15(6)
provides that a determination of terms and conditions, mentioned in the
definition of applicable terms and conditions, is not a legislative instrument.
- Agency Resourcing 2005-06, Budget Paper No. 4, p. 4.
- For a more comprehensive discussion, see, ibid., p. 5.
- Australian National Audit Office, Management of Net Appropriation
Agreements, Audit Report no. 28, 2005-06, p. 13.
- Budget Paper No. 4, op. cit., p. 6.
- ibid., p. 6.
Richard Webb
Economics, Commerce and Industrial Relations Section
16 February 2006
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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