Bills Digest no. 106 2007–08
Appropriation Bill (No. 1) 2008-09
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Appropriation Bill
(No. 1) 2008-09
Date introduced: 13
May 2008
House: House
of Representatives
Portfolio: Finance
and Deregulation
Commencement: On
Royal Assent
Links: The relevant
links to the Bill, Explanatory
Memorandum and second reading speech can be accessed via BillsNet,
which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
To appropriate approximately $60.875 billion for the
ordinary annual services of the Government.
Section 83 of the Constitution provides that
no monies may be withdrawn from the Consolidated Revenue Fund (CRF) except
‘under an appropriation made by law’. Laws authorising spending are either:
- special appropriations, or
- six (usually) annual Appropriation Acts.
Special appropriations—which account of about three quarters of spending—are
spending authorised by Acts for particular purposes. Examples are age
pensions, carer payments, and the seniors concession allowance paid under
the Social Security (Administration) Act 1999, and the Family Tax
Benefits A and B paid under A New Tax System (Family Assistance) (Administration)
Act 1999.
Appropriation Bill (No. 1) 2008-2009 (the Bill) appropriates funds for
the ‘ordinary annual services of the Government’. By comparison Appropriation
Bill (No. 2) 2008-2009 appropriates funds for other annual services. Section
54 of the Constitution requires that there be a separate law appropriating
funds for the ordinary annual services of the Government. That is why
there are separate bills for ordinary annual services and for other annual
services. The distinction between ordinary and other annual services was
set out in a ‘Compact’ between the Senate and the Government in 1965 (the
Compact has been updated to take account of the adoption of accrual budgeting).
The amounts allocated to each portfolio and the breakdown between departmental
outputs and administered expenses, are set out in Schedule 1.
Departmental outputs are expenses that portfolio departments and agencies
control. They are essentially the cost of running agencies, for example,
salaries and other day-to-day operating expenses. The bulk of appropriations
in the Bill are for departmental expenses. Administered expenses are those
that agencies administer on the government’s behalf. While most administered
expenses are funded through special appropriations, some are funded through
the Bill. The Bass Strait Passenger Vehicle Equalisation Scheme is an
example of an administered expense funded through the Bill.
Departmental outputs and administered expenses contribute to outcomes.
They are the results or consequences for the community that the government
wishes to achieve. For example, under the Attorney-General’s portfolio,
the Bill appropriates funds for the Federal Magistrates Court of Australia
under Outcome 1 which is:
To provide the Australian Community with a simple
and accessible forum for the resolution of less complex disputes within
the jurisdiction of the Federal Magistrates Court of Australia.[1]
The Senate’s powers in relation to ordinary annual services
Section 53 of the Constitution provides that the Senate may not amend
proposed laws appropriating revenue or moneys for the ordinary annual
services of the Government. The Senate may, however, return to the House
of Representatives any such proposed laws requesting, by message, the
omission or amendment of any items or provisions therein.
The Bill introduces important changes to appropriation processes. The
following describes some of these changes.
A feature of this year’s Budget Papers is the change to the way so-called
CAC Act bodies are funded. The CAC Act is the Commonwealth
Authorities and Companies Act 1997. According to the Department
of Finance and Deregulation website, the CAC
Act regulates certain aspects of:
- the corporate governance, financial management and reporting of Commonwealth
authorities, which are in addition to the requirements of their enabling
legislation, and
- the corporate governance and reporting of Commonwealth companies,
which are in addition to the requirements of the Corporations Act
2001.
Matters the CAC Act covers include:
- reporting by an authority or a company to a Minister and, through
a Minister, to Parliament
- contents of the annual report of operations of an authority, and
- the audit of financial statements of an authority or a company by
the Auditor-General.
The Department of Finance and Deregulation maintains a list
of CAC Act bodies. Examples of these bodies are the Australian War Memorial,
the Australian Film Commission, and the Australian Broadcasting Corporation.
In the past, CAC Act bodies were funded ‘directly’ through the annual
appropriation acts and special appropriations. In 2008-09, funding is
channelled ‘indirectly’ through the relevant portfolio department. For
example, funding for the Australian Broadcasting Corporation and the Special
Broadcasting Corporation appear as a ‘payment to CAC Act bodies’ in the
statement of administered income and expenses of the Department of Broadband,
Communications and the Digital Economy. The Explanatory Memorandum contains
an explanation for the change:
A CAC Act body is defined in clause 3 to be a Commonwealth
authority or Commonwealth company within the meaning of the CAC Act.
Many CAC Act bodies receive funding directly from appropriations. However,
these bodies are legally separate from the Commonwealth and as a result,
do not debit appropriations or make payments from the CRF. The Bill
is the first annual appropriation bill since 1999 to clearly recognise
CAC Act bodies with a separate item.[2]
The change will complicate comparison of time series data. A consequence
of the change is that the Department’s administered revenue and expenses
are both ‘inflated’ in 2008-09 by the amount received for and paid to
CAC bodies compared with previous years. To obtain comparable data, it
will be necessary either to add the revenue for and payments to CAC bodies
to the department’s previous year’s data, or subtract the CAC body revenue
and payments from the data for 2008-09 and future years.
It is sometimes the case that an appropriation for a departmental expense
exceeds what is needed. In these circumstances, a ‘reduction process’
to extinguish the unspent funds 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 expense appropriation. This process
is dealt with in clause 10.
From 2008-09, appropriations for administered expenses will be subject
to a different process to extinguish unspent appropriations. Until now,
appropriations for administered expenses have been subject to determinations
by the Finance Minister as to the amounts that can be issued from the
Consolidated Revenue Fund. By convention, the Finance Minister issued
determinations dealing with administered expenses after the end of each
financial year. The effect of the determinations was to prevent any amount
that was not expensed from being issued. The determinations did not, therefore,
reduce the appropriation. Rather, the determinations set the maximum amount
that could be issued from each appropriation. Consequently, appropriations
that were not been expensed in a year could not be spent in later years.
Under the process introduced in the Bill, from 2008‑09, appropriations
for administered expenses will be subject to an annual process by which
amounts, which are not required to fund activities in the year, will be
extinguished. Agencies’ financial statements—as published in their annual
reports—will govern the amounts to be extinguished. This process is designed
to ensure that the amounts that are not required in the year are extinguished
permanently. If, in the future, the government wishes to spend the extinguished
amount, it will have to seek an appropriation in a new appropriation bill.
The process for reducing administered items is dealt with in clause
11.
CAC Act bodies
Clause 12 introduces a process for reducing payments to CAC Act
bodies. This is necessitated by the change to the way CAC Act bodies are
funded.
The Bill appropriates from consolidated revenue more than $60.874 billion
(compared with $58.986 billion in Appropriation Bill (No. 1) 2007-08).
As usual, the largest single portfolio appropriation is for defence with
some $19.923 billion. Whilst aggregate appropriations for the various
portfolios are set out in Schedule 1, some information on what
the funds will be spent on can be found in Portfolio Budget
Statements.
Clause 3 contains definitions. Most definitions are unchanged
from previous appropriation acts. Several changes are noteworthy:
- the clause introduces a definition of a ‘CAC Act body’. This is a
Commonwealth authority or company within the meaning of the Commonwealth
Authorities and Companies Act 1997
- Clause 3 defines a ‘CAC Act body payment item’. This is the
total amount set out in Schedule 1 of the Bill in relation to a CAC
Act body under the heading “Administered Expenses”. For example, for
the Broadband, Communications and the Digital Economy portfolio, page
47 of Schedule 1, shows payments to the Australian Broadcasting Corporation
of more than $858 million and $191 million for the Special Broadcasting
Service Corporation
- Clause 3 changes the definition of a ‘departmental item’ compared
with previous appropriation acts by substituting ‘Agency’ for ‘item’,
and
- the definition of ‘item’ is expanded compared with previous years
by the insertion of ‘a CAC Act body payment item’ into the definition.
The purpose of this change is to ensure that administered expenses include
payments to CAC Act bodies.
Part 2—Appropriations Items—was titled ‘Basic Appropriations’
in previous appropriation acts and now includes CAC Act body payment items,
along with departmental and administered items.
Clause 6—Summary of appropriations—states that the total of the
items specified in Schedule 1 is $60 874 689 000. The Explanatory Memorandum
contains a useful exposition of the components of appropriations.[3]
Clause 7 of Part 2 inserts a much shortened definition
of ‘departmental items’ compared with previous appropriation acts. Clause
7 provides that the amount specified in a departmental item for an
agency may be applied for its departmental expenditure. The new ‘Note’
to the clause observes that the Finance Minister manages the expenditure
of public money under the Financial Management and Accountability Act
1997. The Explanatory Memorandum contains a plain English definition
and explanation of what departmental items are, including discussions
of the fact that they do not automatically lapse and of the procedure
for reducing unspent amounts.[4]
Clause 8 substitutes a new and shorter definition of ‘administered
items’. Subclause 8(1) confirms that if an amount is specified
as an administered item for an outcome, then money can be expended to
achieve that outcome. Subclause 8(2) provides that where the Portfolio
Budget Statements indicate an activity is for an outcome, the amount in
the administered item is taken to contribute towards the achievement of
that outcome.
Clause 9 is a new clause and deals with ‘CAC Act body payment
items’. Subclause 9(1) provides that the amount designated as a
payment for a CAC Act body may be paid to that body for its purposes.
Subclause 9(2) provides that if there is an Act, which requires
that amounts must to be paid to a CAC Act body for that body’s purposes,
and Schedule 1 contains a CAC Act payment item for that body, that body
must be paid the full amount in Schedule 1. According to the Explanatory
Memorandum:
The purpose of subclause 9(2) is to clarify that subclause
9(1) is not intended to qualify any obligations in other legislation
regulating a CAC Act body, where that legislation requires the Commonwealth
to pay the full amount appropriated for the purposes of the body.[5]
Part 3—Adjusting appropriation items—deals with adjusting departmental,
administered and CAC Act body payments.
The process for adjusting departmental expenses described above is essentially
unchanged from previous appropriation acts. Subclause 10(1) specifies
who can request reductions in departmental expenses. Paragraph 10(1)(a)
enables the Minister for an agency to ask the Finance Minister to reduce
a departmental item for that agency, while paragraph 10(1)(b) enables
the Chief Executive, of an agency for which the Finance Minister is responsible,
to ask the Finance Minister to reduce a departmental item for that agency.[6]
Subclause 10(2) specifies that the Finance Minister may make a
determination reducing a departmental item by the amount in the request.
Subclause 10(3) provides that the determination will be
null and void if its effect is to reduce the departmental item below nil.
Clause 11—Reducing administered items— is mostly new compared
with previous appropriations acts. As noted, this clause introduces a
new process for reducing administered items. Subclause 11(1) provides
that if the amount shown in the financial statements of an agency’s annual
report shows that the expensed amount of an administered item is less
than the amount appropriated for that item, then the amount of the reduction
is the difference between the appropriated amount and the amount in the
annual report.
According to the Explanatory Memorandum, subclause 11(2) enables
the Finance Minister to determine that an amount, published in the financial
statements of an agency, is taken to be the amount specified in his or
her determination, while paragraph 11(2)(b) ensures that the amount
published in the annual report can be corrected.[7]
In previous appropriation acts, the Finance Minister’s determinations
were legislative instruments. Similarly, 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. In brief, this means
that the Minister’s determinations are disallowable by Parliament, but
once made, will not expire.
Clause 12 is also entirely new and follows from the revised arrangements
for payments to CAC Act bodies. The wording is this clause is almost identical
to that in clause 10, which relates to reducing departmental items.
Whereas paragraph 10(1)(b) enables the Chief Executive of an agency
for which the Finance Minister is responsible to ask the Finance Minister
to reduce a departmental item for that agency, paragraph 12(1)(b)
enables the Secretary of the Department for which the Finance Minister
is responsible to request a reduction for a CAC Act body. The reason the
Secretary of the Department is empowered to request a reduction follows
from the fact that payments to CAC Act bodies are channelled through the
relevant portfolio departments. Subclause 12(2) empowers the Finance
Minister to make a determination reducing a CAC Act body payment by the
amount requested. Subclause 12(5) provides that proposed subsection
9(2) does not limit the reduction of a CAC Act body payment under
this section. According to the Explanatory Memorandum:
Subclause 12(5) clarifies that the full amount that
is required to be paid to a CAC Act body by subclause 9(2) of the Bill
may be reduced in accordance with this clause.[8]
However, it is not obvious that subclause 12(5) does this.
Clause 13 deals with section 31 agreements (also referred to as
‘net appropriations’). Before the Financial Management and Accountability
Act 1997 (FMA Act) was amended on 1 January 2008, section 31
of the FMA Act allowed an agreement (known as a ‘section 31
agreement’) to be made between an agency and the Finance Minister regarding
the agency’s use of certain revenue it receives. The section 31 provisions
of the annual appropriation Acts provided that, if a section 31 agreement
applied to an agency’s appropriation item, then the amount of that appropriation
was taken to be increased in accordance with that agreement. Thus when
an agency had an appropriation marked ‘net appropriation’ in an annual
appropriation Act, the amount of its appropriation was increased by an
amount equal to the amount the agency received under a section 31
agreement. The agency therefore had the legal authority to retain
and spend the additional amount it received. An example of section 31
revenue is that which the Australian Federal Police receives from providing
policing services to the Australian Capital Territory. The provisions
of clause 13 are transitional because section 31 agreements are
being phased out.
Section 14 deals with the ‘Advance to the Finance Minister’. Compared
with previous appropriation Acts, subclause 14(1) recasts slightly
the criteria under which the Finance Minister can make payments from
the Advance. For a payment to be made from the Advance, the Finance Minister
must be satisfied that an urgent need exists for expenditure, and that
no funds were allocated—or that the amount allocated was inadequate—because
of erroneous omission or understatement [paragraph
14(1)(a)], or because the need for expenditure was unforeseen [paragraph
14(1)(b)]. Subclause 14(2) provides that where the Finance
Minister has authorised a payment from the Advance, Schedule 1
is changed accordingly. Subclause 14(3) provides that the amount
of the Advance is $295 million. This is an increase of $120 million over
the amount of $175 million, which has been provided over several years.
As with earlier appropriation Acts, subclause 14(4) provides that
determinations authorising payments made from the Advance are legislative
instruments. These must be tabled in Parliament but are not subject to
the disallowance or sunsetting provisions of the Legislative
Instruments Act 2003.
Clause 15 deals with ‘Flexible Funding Pool receipts’.
The provisions dealing with these receipts were introduced following the
Commonwealth government’s Northern Territory Emergency Response. A special
account titled the Northern Territory Flexible Funding Pool Special Account
(NTFFP) was established to fund employment creation initiatives under
the Response.[9] Clause 15 recasts the provisions
in Appropriation Act (No. 3) 2007-08 but retains their purpose.
According to the Explanatory Memorandum, clause 15 is included
because section 12 of previous appropriation Acts did not cover all the
agencies that might need appropriations for administered items.[10] Subclause 15(1) provides
that an amount from the NTFFP may be added to an item in Schedule 1
if the amount is debited from the NTFFP to be applied by an agency for
the purpose of achieving an outcome for an administered item [paragraph
15(1)(a)], and if the Finance Minister specifies that item in a written
determination [paragraph 15(1)(b)]. As in previous appropriation
Acts, subclause 15(4) provides that a determination made under
paragraph 15(1)(b) is a legislative instrument, but that it is
not subject to the disallowance or sunsetting provisions of the Legislative
Instruments Act 2003. [The reference to paragraph 15(1)(c) in paragraph
63 of the Explanatory Memorandum should be to paragraph 15(1)(b)].
When an agency incurs a Comcare-related expense, the effect of that payment
is to reduce the funds available to that agency. The purpose of clause
16— which deals with ‘Comcare receipts’—is to ensure that any payment
that Comcare makes to the agency becomes available for that agency’s use.
The provisions in clause 16 are broadly similar to those in previous
appropriation acts.
Part 4—Reducing administered items in previous Acts—is a totally
new. The Explanatory Memorandum explains that the reason for Clause
17 is to prevent amounts of administered expenses, determined under
previous appropriation Acts, from being re-determined and spent. Subclause
17(4) lists the Acts affected.
For the first time, the annual appropriations Bills are accompanied by
Explanatory Memorandums. These are useful additions in that they contain
explanations of the appropriations processes and of the terminology used
in the Bills. The Explanatory Memorandums also contain explanations of
the purposes and effects of various clauses. In some instances, these
purposes are not evident from the wording of the clauses. Note that clause
4 provides that the Portfolio Budget Statements are aids to the interpretation
of the clauses under section 15AB of the Acts Interpretation Act 1901.
Richard Webb
23 May 2008
Bills Digest Service
Parliamentary Library
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