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| AAS |
Australian Accounting Standards |
| AEIFRS |
Australian Equivalents to International Financial Reporting Standards |
| ANAO |
Australian National Audit Office |
| CFS |
Consolidated Financial Statements |
| CRF |
Consolidated Revenue Fund |
| ERC |
Expenditure Review Committee |
| FBO |
Final Budget Outcome |
| FMA Act |
Financial Management and Accountability Act 1997 |
| GFS |
Government Finance Statistics |
| GST |
Goods and Services Tax |
| MYEFO |
Mid-Year Economic and Fiscal Outlook |
| PBS |
Portfolio Budget Statements |
| PEFO |
Pre-Election Economic and Fiscal Outlook |
The annual Budget is perhaps a Commonwealth government’s most important political, economic and social document. This paper contains an overview of the Budget process, explains key concepts, and discusses major features of the content and presentation of the Budget Papers and related documents.
The paper’s principal aim is to help Members of Parliament understand the Budget, find information, and be aware of some of the strengths and limitations of the Budget Papers and related documents. It is not a discussion paper. Readers who want a short review of Budget concepts and appropriations are referred to the ‘introduction’ in Budget Paper No. 4. A glossary at the end of this paper contains definitions of some commonly-used terms.
While the Budget process changes little from year to year, major changes have been made to the Budget’s content, format and reporting since 1999–2000. These changes include:
These and other measures constitute an integrated package.
From the perspective of achieving greater transparency and accuracy in financial reporting, the adoption of accrual accounting was a positive move. In particular, non-cash expenses—such as accruing employee entitlements and asset depreciation—are now included in expenses along with cash expenditure. Cost accounting methods are used to attribute all expenses to outputs and outcomes. While problems of cost attribution will always exist, the cost of providing goods and services is now measured more comprehensively and accurately than under cash accounting.
Under the previous cash budgeting system, agencies’ annual appropriations were based on their cash requirements. Under accrual budgeting, agencies’ annual appropriations are based on their accrual expenses (and capital requirements). Under the system of accrual budgeting, which was implemented in 1999–2000, agencies’ appropriations are based on their accrual expenses, that is, each agency receives an appropriation to cover its estimated expenses for the year including items such as accruing employee entitlements and depreciation. However, agencies now draw cash down only as and when required (the ‘just in time’ model).
Despite the move to accrual budgeting, much of the debate and commentary focuses on the underlying cash balance (and not the accrual fiscal balance) in discussions of Budget aggregates. One reason is that cash balances have some advantages for tracking spending in a fiscal year and in helping to identify the short-term effects of fiscal policy on the economy. In recent years, the Treasurer has used the cash balance in the Budget Speech when referring to Budget outcomes and projections.
Since 1999–2000, agencies have presented their Portfolio Budget Statements within an outcomes and outputs framework. Planned outcomes are the results or consequences for the community that the government wants to achieve. Outputs are the goods and services that agencies produce to attain outcomes. Agencies allocate expenses to outputs and hence to outcomes. The purpose of the framework is to hold agencies accountable for what they achieve (outcomes) rather than how they do it (inputs and outputs). Performance reporting assesses the extent to which agencies have attained planned outcomes.
Overall, the extent to which the outcomes/outputs framework has increased transparency and accountability is mixed. On the positive side, the framework contains new and more information, outcomes are fully costed, and agencies must provide information on how they have performed against outcomes. Problems include the overlapping of outcomes across and within agencies, changes to outcomes and outputs that make comparisons difficult, and poor performance data. Because appropriations are made against outcomes, agencies have some flexibility as to how they spend funds but this can be to the detriment of parliamentary control.
A theme of this paper is that Members of Parliament want information about programs; they are less concerned about how agencies group programs into outputs and outcomes. An example of the information that Members of Parliament find useful is the list of administered programs, funded through Appropriation Bills, in the Portfolio Budget Statements of the Department of Agriculture, Fisheries and Forestry. When the outcomes framework was introduced, many Members of Parliament were critical of the aggregation of data and the lack of information about spending on particular programs in the Portfolio Budget Statements. However, the trend for agencies to provide information in the form of line item spending on programs has improved the situation.
In their Portfolio Budget Statements, agencies set out the information they will use to assess their performance. Agencies report against indicators of effectiveness, quantity, quality, timeliness and cost in their annual reports. An issue is how well the performance information actually indicates or measures performance. Problems concerning performance data and indicators include instability of indicators, and the fact that the causal relationship between outputs and outcomes is sometimes difficult to define. An example of the latter is in education. The states and the Commonwealth both fund education. But since both state and Commonwealth funds are lumped together in state Budgets, it is not possible to disentangle the consequences of Commonwealth funding.
Expenses are classified in several ways. In the Portfolio Budget Statements, expenses are classified by outcome. In Budget Paper No. 1, expenses are classified by function such as health, education, and defence. There is, however, no link between the two. Consequently, some Members of Parliament who have tried to link spending under outcomes to the functional classification have been unable to do so. At a minimum, it would be useful if the functional classification identified all the agencies that contribute to a particular function.
Portfolio Budget Statements (PBS) are the main source of information at the agency level. Information in the PBS falls into two broad categories: agency resourcing and spending, and the information that agencies will collect to assess their performance against planned outcomes. The former contains information on how agencies will be funded, the use to which the funds will be put as defined by planned outcomes, and budgeted financial statements. The performance assessments are presented in agency annual reports. The Department of Finance and Administration has issued guidelines for the format of the PBS. As a result, the structure of the PBS is broadly similar across agencies. However, agencies have discretion to present their PBS in a format that presents information clearly so that the format differs somewhat across agencies. The range of information provided in the PBS has increased considerably since the outcomes/outputs framework was introduced and now includes information such as estimated spending under specific Acts and the outputs/outcomes to which that spending contributes.
An on-going area of contention is the lack of forward years data in the PBS for programs, outcomes and outputs. Such data are now available only for the Budget year (and estimated spending for the past Budget year). The budgeted financial statements in the PBS contain forward estimates, but these are highly aggregated. Several committees have recommended the inclusion of forward estimates for outcomes and outputs, at least for administered items, in the PBS. The Government rejected this recommendation on the grounds that there is already extensive reporting of forward estimates in Budget documentation. This position is debatable: the information is available, and some agencies do what the committees recommended. The Department of Education, Science and Training, for example, includes forward estimates of administered items under each output in an appendix.
Financial information for the general government sector is prepared in accordance with external reporting standards. They are the Government Finance Statistics (GFS) framework and Australian Accounting Standards (AAS).
The GFS framework is designed to allow economic analysis of the public sector. AAS apply to all sectors but have largely been developed for the private sector. The use of two sets of standards is confusing especially for non-specialists. Critics argue that the AAS should be dropped or modified for public sector use on the grounds that some business sector accounting concepts have little meaning in a public sector context. The Australian Accounting Standards Board is currently seeking to harmonise general government sector reporting under the two standards.
Agencies prepare their financial statements in accordance with AAS. In 2005–06, agencies’ financial statements were, for the first time, based on standards that incorporate international standards. The Australian standards that incorporate the international standards are called the Australian Equivalents to International Financial Reporting Standards (AEIFRS). To provide comparative data, agencies recast their 2004–05 accounts to comply with the AEIFRS.
The Charter of Budget Honesty Act 1998 has increased transparency of reporting. The Act requires, among other things, that the government prepare an economic and fiscal outlook report with each Budget, a mid-year economic and fiscal outlook report, and a Final Budget Outcome (FBO) report. The Act thus imposes an obligation to provide information that has traditionally been available.
The FBO is not audited. The reason given is that auditing the FBO would compromise its timeliness and end-of-year usefulness. Still, the Joint Committee of Public Accounts and Audit recommended that the Australian National Audit Office audit the FBO.
The Act also requires the public release of a pre-election economic and fiscal outlook (PEFO) report within 10 days of the issue of the writ for a general election. The publication of the PEFO has reduced disputes over the state of finances that sometimes surrounds election campaigns. Similarly, the Financial Management and Accountability Act 1997 requires the Finance Minister to publish monthly financial statements in a form consistent with the Budget estimates, and annual consolidated financial statements.
The Charter of Budget Honesty Act contains provisions dealing with the costing of election commitments. The purpose of the provisions is to provide confidence in costings by having the Secretaries of the Treasury and the Department of Finance and Administration prepare them. The Prime Minister and Leader of the Opposition may request costings. In the latter case, the request has to be given to the Prime Minister, who may then agree to refer it to the Secretaries.
Debate sometimes focuses on the level of spending and revenue, especially when measured as a proportion of gross domestic product. But the revenue and expenses data do not take account of the revenue forgone from tax concessions, that is, from ‘tax expenditures’. Governments use taxation concessions to allocate resources to different activities in much the same way they do through ‘direct’ spending. But in the Budget Papers, tax expenditures are not added to direct spending. This has the effect of ‘understating’ the size of the government sector. For example, in 2005–06, if estimated tax expenditures of around $31 billion were added to estimated GFS expenses of $229 billion, total spending would be 14 per cent higher.
Given the magnitude and importance of tax expenditures, an issue is their transparency and parliamentary scrutiny. The tables of tax expenditures in Budget Paper No. 1 are aggregated. However, since the 1980s, Treasury has published details of tax expenditures.
The Budget Papers mostly treat the GST as if it were not a Commonwealth tax. The Government argues that the policy intent of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations—which governs Commonwealth–state financial relations—is that GST is collected by the Australian Taxation Office, as an agent for the states and appropriated to the states. But the Australian Bureau of Statistics and the Auditor-General correctly reject this argument on the grounds that the GST is imposed and administered under Commonwealth legislation. Their argument is that the fact that the Commonwealth has chosen to give the GST revenue to the states as grants is not a reason for excluding the revenue or grants from Commonwealth financial statements.
The consequences of not including the GST as a Commonwealth tax and grants to the states as expenses are to ‘understate’ expenses and revenue in tables where they are excluded. In 2005–06, estimated GST payments to the states are about $37 billion or around four per cent of gross domestic product. The treatment of the GST inevitably gives rise to the suspicion that it is intended to reduce the apparent size of government at the Commonwealth level.
The annual Budget, which is brought down in May, is perhaps a Commonwealth government’s most important political, economic and social document. The sheer size of the Budget—spending is equivalent to more than one quarter of gross domestic product—attests to its influence over the size, as well as the allocation, of resources within the economy. The Budget contains information on matters such as its economic consequences, the provision of goods and services, the government’s social and political priorities, and information on how the government intends to attain these priorities.
This paper describes the Budget process beginning with the first steps in the November before the Budget is brought down through to the presentation of agency annual reports. The paper also explains key concepts as well as major changes to the content and presentation of the Budget papers and associated documents that have been made in recent years. The terms used are explained throughout the paper including by the use of e-links, which are underlined.
The paper aims to help Members of Parliament understand accrual budgeting and accounting. It also seeks to help Members find information, and alert them to some of the strengths and limitations of the Budget Papers and related documents. The paper does not purport to be a discussion or issues paper. A glossary at the end of the paper contains definitions of some commonly-used terms.
This paper updates a 2003 paper to take account of subsequent changes at the whole of government level.(1)
The 1999-2000 Budget implemented several major changes. They included:
The highlight of the process is Budget night in May.(2) However, a ‘typical’ cycle begins in the November before Budget night and ends four to five months after the Budget year taking into account the Senate estimates hearings on annual reports.
The preparation of a Budget involves a large number of participants. The Expenditure Review Committee—a Cabinet committee of senior ministers chaired by the Prime Minister—is primarily responsible for developing the Budget. However, a number of central agencies—notably the Treasury (together with the Australian Taxation Office), the Department of Finance and Administration, and the Department of the Prime Minister and Cabinet—together with line agencies, provide advice and support to the Expenditure Review Committee. Broadly, the Department of Finance and Administration coordinates the preparation of the Budget and prepares forward estimates, and is responsible for statements of expenses and non-tax revenue. Treasury is responsible for assessments of the economic and fiscal outlook and estimates of tax revenues. Other agencies support the process by compiling data needed for inclusion in the Budget estimates and documents, and by providing other necessary information.
Chart 1 shows some main stages in the Budget process,
which begins in November when the forward estimates are updated. Also
in November, peak industry and community organisations are invited to
provide input into Budget deliberations.
Chart 1: Key stages in the Budget process
Source: Adapted from M. Chan, M. Nizette, L. LaRance,
C. Broughton and D. Russell, Australia, OECD Journal on Budgeting,
Vol. 1, No. 4, 2002.
Forward estimates are rolling estimates of what would be appropriated based on the assumption that government policy is on-going. These estimates are for the three years following the Budget year; for example, in the 2006–07 Budget, the forward years were 2007–08, 2008–09 and 2009–10. The estimates include decisions made since the Budget but exclude new programs, the expansion of existing programs that the government has not agreed to, and programs that are expected to end. The forward estimates are thus the base on which the Budget and future years spending estimates are built. In November, the forward estimates are updated so that the Expenditure Review Committee (see section 1.4) can make decisions based on the most up-to-date information.
In November or December, a senior ministers’ review of ministers’ proposals, new policies and lapsing programs, and expected major pressures on agency budgets is held. The senior ministers are the Prime Minister, the Deputy Prime Minister, the Treasurer and the Minister for Finance and Administration. The review establishes priorities for the coming Budget.
To seek funding for new policy proposals, agencies prepare Portfolio Budget Submissions based on the outcome of the senior ministers’ review. The submissions outline all major proposals and potential savings. Agencies also advise the Finance Minister of minor proposals, and the secretary of the Department of Finance and Administration of achievements against previous savings measures. Agencies cost the submissions and agree the costings with the Department of Finance and Administration. The submissions are circulated for coordination comment and lodged with the Cabinet Office, usually late in February.
Summaries of cost-recovery impact statements that agencies prepare are attached to the Portfolio Budget Submissions. The Department of Finance and Administration reviews all cost-recovery impact statements, and briefs the government about compliance with cost-recovery policy.
As noted, the Expenditure Review Committee (ERC) is primarily responsible for developing the Budget against the background of the government’s political, social and economic priorities. The ERC is a Cabinet committee. It comprises the Prime Minister as Chairman; the Treasurer; and the Ministers for Trade; Environment and Heritage; Finance and Administration; and Revenue.(3) The ERC is responsible, among other things, for deciding which proposals will be funded and by how much. The ERC first meets around early March and reviews new policy proposals and on-going spending as well as savings proposals. The ERC recommends to Cabinet proposals for inclusion in the Budget. When examining new policy proposals and savings options, the ERC draws on the Portfolio Budget Submissions and briefs that the Department of Finance and Administration and other agencies prepare.
After the ERC process, the Ad Hoc Revenue Committee—also a Cabinet committee—meets to decide the revenue components of the Budget, which are based on proposals and options generally formulated or reviewed by Treasury.
Around April and after Cabinet has agreed to new policies, agencies update their estimates for the preparation of the Budget documents and Appropriation Bills.
Concurrent with the ERC process, agencies begin to prepare Budget documents. Agencies prepare two components: the Portfolio Budget Statements and the Statement of Risks(4) (which appeared in Statement 11 of Budget Paper No. 1 in 2006–07). Agencies may be called upon to assist with the drafting of the ‘measures’ descriptions. The latter are consolidated in Budget Paper No. 2.(5) Budget Paper No. 2 consists of three parts:
Note that measures are divided between those taken before the Mid-Year Economic and Fiscal Outlook and those taken after.
The following chart shows key components of the other
Budget Papers.
Chart 2: The Budget Papers 2006–07: Key Components
The Budget is usually brought down on a Tuesday in early May, that is, before the end of the financial year. A consequence is that financial outcomes of the Budget for the year before the Budget year can only be estimated. Actual spending and revenue data are not available until the Final Budget Outcome is released in September and agencies present their annual reports.
The government introduces Appropriation Bills No. 1 and No. 2 and the Appropriation (Parliamentary Departments) Bill when it brings down the Budget, and presents the Budget Papers and related documents.(6) The Treasurer summarises the Budget in the Budget Speech which is traditionally presented at 7.30 pm and lasts for about half an hour.(7) The Australian Broadcasting Corporation broadcasts the speech and also broadcasts, at a later date, the ‘address in reply’ by the Leader of the Opposition.
After the Budget is tabled, the Senate estimates committees scrutinise the Appropriation Bills and other Budget documentation. In particular, the committees scrutinise the Portfolio Budget Statements, which form the basis for their inquiries. The basic function of the committees is to require the presence of, and seek explanations from ministers who formulate policy and departmental officers who implement policy, regarding proposed spending and revenue. The committees are portfolio-based and review all agencies falling within the respective portfolios so that all spending is scrutinised. For example, one such committee is the Employment, Workplace Relations and Education Committee. The estimates committee process is generally finished in time for parliament to pass the Appropriation Bills before the end of June. Although there is a delay in their release, the committee reports contain valuable information that agencies do not otherwise make publicly available. This information takes the forms of responses to questions on notice as well as verbal responses from senior public servants to questions from senators. Hansards of estimates proceedings are available on the Senate website. Answers to questions on notice are published separately in hard-copy form. The estimates committees also examine additional estimates (see section 5.2).
The Senate estimates committees also review agency annual reports. The reports are referred to the relevant committees for consideration. In practice, the committees review the annual reports in conjunction with additional estimates because most agencies have presented their annual reports by the end of October, that is, not long before the additional estimates hearings.
Around November of the Budget year, the process begins whereby additional funds are provided to agencies. This process is called additional estimates. The approved additional estimates are incorporated into Appropriation Bills 3 and 4 and Appropriation (Parliamentary Departments) Bill No. 2. These Bills are traditionally introduced in the spring sittings of parliament. In recent years, however, the Bills have usually been introduced early in the autumn sittings of parliament. The Senate estimates committees also review the additional estimates.
In September, the Final Budget Outcome (FBO) for the financial year just ended is tabled.(8) The Charter of Budget Honesty Act 1998 requires the Treasurer to release publicly and table a FBO report for each financial year no later than three months after the end of the financial year. The report must contain Commonwealth general government sector fiscal outcomes for the financial year.
The FBO is discussed in more detail in section 9.1.3.
In October, agencies present their annual reports for the previous financial year. They include financial and other information including agency performance against agreed performance indicators. The Department of the Prime Minister and Cabinet website contains the requirements for annual reports to which agencies must adhere.(9) The requirements were prepared pursuant to subsections 63(2) and 70(2) of the Public Service Act 1999 and were approved by the Joint Committee of Public Accounts and Audit on 29 June 2005.
The Senate Legal and Constitutional Committee publishes a report on the annual reports in March and September of each year.(10) Annual reports also stand referred to House of Representative general purpose standing committees under Standing Order 215(b).
The Charter of Budget Honesty Act 1998 requires the Treasurer to release publicly and table a Mid-Year Economic and Fiscal Outlook (MYEFO) report by the end of January in each year or within six months after the last Budget, whichever is later.(11) In practice, the MYEFO has recently been released in December. The MYEFO updates the economic and fiscal outlooks and the budgetary position, and updates the general government sector financial statements. In particular, the MYEFO takes account of decisions since the Budget was brought down that affect expenses and revenues, and so updates the Budget spending and revenue estimates.
The MYEFO is discussed in more detail in section 9.1.2.
The move from cash accounting and cash budgeting to accrual accounting and accrual budgeting in the 1999–2000 Budget was a major change. The rationale for this move derives from the logic behind accrual accounting. Cash accounting recognises only monetary transactions, and then only in the period when money changes hands. Accrual accounting, on the other hand, recognises financial obligations as well as monetary transactions, and records them in the period when they take place. For example, under cash accounting, a credit sale is brought to account only when the purchaser pays the debt. Under accrual accounting, the sale and the payment are treated as two events. In the case of Public Service superannuation, cash accounting recognises only payments to superannuants whereas accrual accounting also brings to account the increase in liabilities for future payments.(12) In the case of purchases of assets such as buildings and plant, cash accounting recognises only the purchase. Accrual accounting recognises the purchase of such assets by bringing them into the balance sheet and then depreciates them (as an expense) over their lifetimes. Accrual accounting also recognises other changes in the value of assets when they occur.
Cash accounting and accrual accounting can yield different results. For example, the Budget cash outcome (the ‘underlying cash balance’) in 2004–05 was a surplus of $13.6 billion while the accrual outcome (the ‘fiscal balance’) was a surplus of $10.8 billion.(13)
Under cash budgeting, agencies’ annual appropriations were based on their cash requirements. Under accrual budgeting, agencies’ annual appropriations are based on their accrual expenses (and capital requirements). The system of accrual budgeting has changed since it was implemented in 1999–2000. Initially, under the Agency Banking Incentive Scheme, agencies received cash for all expenses as and when they were incurred and not just when they had to be paid (the ‘cash-in-hand’ model). Agencies received cash, for example, for increases in employee entitlements such as long service leave, and depreciation of assets even though agencies did not actually have to pay out the additional liabilities or replace assets in the year in which cash was given to agencies. Agencies invested unspent funds until they were needed. A criticism of these arrangements was it did not seem desirable to give to an agency, in a given year, cash that the agency did not need in that year:
… it is probably better that the appropriations be cash based, which can be deducted from the accrual accounts, rather than paying for expenses that are not going to require any expenditure in the year ahead.(14)
The change that was made was to remove the Agency Banking Incentive Scheme under which agencies invested unused funds until they were needed in the current or future years. Under current arrangements, agencies’ appropriations continue to be based on their accrual expenses, that is, each agency receives an appropriation to cover its estimated expenses for the year including accruing employee entitlements and depreciation expenses. However, agencies now draw down cash only as and when required (the ‘just in time’ model).
The move to accrual accounting means that some data comparisons may not be possible. In particular, it may not be possible to compare some data up to and including 1998–99 with data for subsequent years. It should be noted that agencies presented financial statements in their annual reports on an accrual basis for a number of years before 1999–2000 when accrual accounting and reporting became obligatory.
It is, however, possible to compare items which continue to be presented in a cash format. A problem of cash comparisons is that they may contain ‘lumpy’ items, for example, a major asset purchase that takes place in one year. Accrual fiscal balance data from 1996–97 can be found in Statement 12 of Budget Paper No. 1. Statement 13 of Budget Paper No. 1 contains tables with underlying cash balance figures going back to 1972–73 as well as other data. Note, however, that the data on receipts and payments exclude GST receipts and payments to the states and territories, and so understate actual Commonwealth cash receipts and payments.
With the establishment of the Future Fund, the definition of the ‘underlying cash balance’ that appears in Statement 13 of Budget Paper No. 1 has changed. The new definition excludes Future Fund earnings. The rationale for excluding these earnings may be that Fund earnings are not available for current spending but are to be set aside for future spending.
Despite the move to accrual budgeting, many economic commentators focus on the underlying cash balance and not the accrual fiscal balance in discussions of fiscal policy. One reason they do so is because cash balances have some advantages for tracking expenditures in a fiscal year and in helping to identify the short-term effects of fiscal policy on the economy.(15) In recent years, the Treasurer has usually used the underlying cash amount when referring to Budget outcomes.
As part of the accrual budgeting reforms, agency financial statements for 1999–2000 to 2002–03 contained a capital use charge. The charge was implemented:
… to improve agency resource allocation, by ensuring that the full cost of competing activities are shown and the cost of capital is reflected in the pricing structures of equivalent outputs produced by the public or private sectors.(16)
The underlying concept is that the capital tied up in assets is not free. Rather, there is an implicit cost to using capital that is not reflected in the cost of running an agency. The capital use charge sought to make this cost explicit and so was included in each agency’s expenses. The charge was based on the agency’s net assets, and the rate was set annually.(17) Agencies had to meet the charge, which was offset by a departmental appropriation. Following the ‘Review of Budget Estimates and Framework’, the Government decided that the charge would cease on 30 June 2003.
Since 1999–2000, agencies have presented their Portfolio Budget Statements (see section 5.5) within an outcomes and outputs framework.(18) The framework was introduced at the same time as accrual budgeting. However, it should be noted that accrual budgeting and the outcomes/outputs framework are independent, that is, it is possible to have accrual budgeting without the framework and vice versa.
The outcomes/outputs framework was part of broader reforms to the public service and financial management and reporting. Other reforms were the devolution of responsibility to agencies, the repeal of the Audit Act 1901, and the passage of the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997. The devolution of responsibility, among other things, gave agencies greater flexibility as to how they report their activities within the framework.
The focus of the reporting framework is planned outcomes. They are the results or consequences for the community that the government seeks to achieve. Ministers approve the outcomes for their portfolios. An example of a planned outcome is the Department of Immigration and Multicultural Affairs outcome one, namely, ‘contributing to Australia’s society and its economic advancement through the lawful and orderly entry and stay of people’.
Outputs are the goods and services that agencies produce that contribute to the attainment of outcomes. For example, the Department of Immigration and Multicultural Affairs has five outputs which contribute to outcome one, namely, ‘migration and temporary entry’, ‘refugee and humanitarian entry and stay’, ‘enforcement of immigration law’, ‘safe haven’, and ‘offshore asylum seeker management’.
According to the Department of Finance and Administration, the framework helps answer three fundamental questions:
The framework was introduced to encourage agencies to focus on ends and not means. The system of budgeting, which preceded the outcomes/outputs framework, grouped outlays into identifiable programs. For example, the Attorney-General’s portfolio had six programs in 1998–99. One was ‘administration of justice’ which encompassed the activities of the courts and tribunals. Another program was ‘maintenance of law, order and safety’. A criticism of program budgeting was that it focused too much on inputs and the reasons for producing outputs and not enough on outputs. For example, under program budgeting, there was a tendency to focus on the cost of information technology rather than on the uses to which it was put.
Outcomes and outputs are costed by attributing all costs to outputs and thence to outcomes. The objective is to measure as accurately as possible the cost of producing outputs and outcomes. While problems remain—for example, the allocation of costs that contribute to more than one output or outcome—the trend is towards improved costing as agencies develop cost allocation models that attribute expenses more accurately to outputs.
Some agencies seek to recover the cost of some of their activities. There is now a government–wide cost-recovery policy including cost-recovery guidelines.(19)
As noted, the purpose of the outcomes/output framework is to hold agencies accountable for what they achieve (outcomes) rather than how they do it (inputs and outputs). Implementing the outcomes/outputs framework has encountered conceptual and other difficulties. The framework’s success depends crucially on how well outcomes are specified. One problem is the overlapping of outcomes across agencies and portfolios. Outcomes reflect administrative arrangements. But these arrangements often do not coincide with broader objectives. For example, it could be argued that some functions of the Department of Foreign Affairs and Trade contribute indirectly to Australia’s defence and therefore overlap with some Department of Defence outcomes. In June 2002, the Joint Committee of Public Accounts and Audit reported that some agency outcomes were so broad and far reaching as to be, in effect, outcomes shared with other agencies. The Committee recommended that agencies with a shared outcome should:
In May 2003, the Government responded to these recommendations and agreed, in principle, with the shared-outcome recommendations.(21)
A second problem is overlapping outcomes within a portfolio or agency. Overlapping outcomes create problems of accountability and reporting since agencies have discretion how they classify an activity. For example, the Department of Transport and Regional Services has two outcomes: ‘a better transport system for Australia’ and ‘assisting regions to manage their own futures’. The Department funds roads in regional areas. Arguably, such spending contributes to both outcomes.
The number and specificity of outcomes are important for transparency and accountability. The Senate Finance and Public Administration Legislation Committee, in its second report on the format of the Portfolio Budget Statements, expressed concern over the widely differing levels of specificity of outcomes(22) while the Joint Committee of Public Accounts and Audit recommended that where agencies have a single broad-ranging outcome or a small number of highly aggregated outcomes, intermediate outcomes should be specified.(23) The number and specificity of outcomes are less of an issue than when the outcomes framework was introduced. Then, there was a tendency for agencies to reduce the number of outcomes and outputs. This trend has since been reversed. The Department of Defence, for example, has moved from one outcome to seven. Another trend is for agencies to disaggregate broad outcomes into more outputs and sub-outputs. For example, Outcome 1 for the Department of the Environment and Heritage is ‘the environment, especially those aspects that are matters of national environmental significance, is protected and conserved’. This outcome is broken down into five outputs and fourteen sub-outputs.
Another issue is instability in outcomes and outputs as agencies change their outcomes and output structures. While it is unrealistic to expect complete stability in outcomes and outputs as agencies respond to new developments and as the government develops new policies, the instability of outcomes makes data comparisons difficult.
Overall, the extent to which the outcomes/outputs framework has increased transparency and accountability is mixed. A review prepared for the OECD of results-oriented financial management in Australia (and Britain) concluded:
When the effects of the results-oriented financial management reforms are examined, it can be stated that the reforms are not a panacea which will solve all financial management problems, but do generate positive as well as negative effects.(24)
On the positive side, the review concluded that the framework contains new and more information, outcomes are fully costed, and agencies must provide information on how they have performed against outcomes. Problems include the overlapping of outcomes across and within agencies, changes to outcomes and outputs that make comparisons difficult, and poor performance data. Appropriating against outcomes gives agencies greater flexibility as to how they spend funds but:
… parliamentary control has weakened because authorisation now takes place on a very aggregated level …(25)
When the outcomes framework was introduced, many Members of Parliament were critical of the aggregation of data in the Portfolio Budget Statements. They were particularly critical of the lack of information about the cost of individual programs. This is less of an issue now that agencies are increasingly providing this information. Examples of the information that Members of Parliament find useful are:
Budget Paper No. 1 contains a Statement titled ‘expenses and net capital investment’. This Statement classifies expenses by function (the Final Budget Outcome also contains a functional classification). Examples of functions are health, education, transport and communications, and defence. Some functions are classified into sub-functions. For example, in the 2006–07 Budget, education was divided into higher education, vocational and other education (which was sub-divided into non-government schools and government schools), student assistance, general administration, and school education-specific funding.
The functional classification is based on the Australian Bureau of Statistics government purpose classification(26) which, in turn, is based upon the United Nation’s Classification of the Functions of Government, which is also applied in the International Monetary Fund Government Finance Statistics system.
The classification of activities to functions can change, causing breaks in the series and loss of comparability. The changes are noted at the end of the tables. For example, expenses for assistance to the aged were reclassified from ‘health’ to ‘social security and welfare’ in Table 3 of Statement 6 in Budget Paper No. 1 for 2001–02.
A welcome practice is ‘boxes’ that deal with specific topics. For example, Budget Paper No. 1 for 2006–07 contained a box titled ‘pharmaceutical services and benefits’. This box contained trends in the major components of the pharmaceutical services and benefits scheme broken down by components, and included forward years data. Those who seek this sort of information find the boxes a very convenient and compact source of information. The use of boxes is to be encouraged since they contain information often not readily available elsewhere.
Spending in the Budget is classified in several ways. As noted, in Statement 6 of Budget Paper No. 1, spending is classified by function. In the Portfolio Budget Statements, agencies classify spending by outputs and outcomes. However, there is nothing in the Budget Papers that links the two.
The functional classifications in Budget Paper No. 1 do not always identify the agencies that contribute to the functions. Consequently, the reader has to guess which agencies contribute to a particular function. In some instances, this is self-evident but it is not true in all cases. Further, functions do not align with agency responsibilities. Even when the main contributor is clear, it is not possible to identify other contributors. For example, in the 2006–07 Budget, ‘assistance to people with disabilities’ was a sub-function in the ‘social security and welfare’ function. The Department of Family and Community Services is the main source of spending on this sub-function. Other agencies also contribute to this sub-function but the reader does not know who they are, how much they contribute, and under which outcomes. At a minimum, it would be useful if the functional classification identified the agencies that contribute to the function.
The functional classification of expenses under ‘other purposes’ includes an item called the contingency reserve (CR). The CR is a means of trying to ensure that the aggregate estimates are robust and based on the best information available at the time of publication. The major components of the CR for the Budget and forward estimates include:
The amount and the movements in the reserve need to be kept in context. Total expenses for 2006–07 are projected to be in the vicinity of $260 billion, so $747 million is a small fraction of that total. Even the $13 billion for 2009–10 is less than five per cent of projected expenses for that year.
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The amount in the reserve can fluctuate considerably. In the 2005–06 Budget, for example, the amount for 2005–06 was $187 million; in the 2003–04 Budget, it was negative $144 million for 2003–04. In general, the amount in the reserve, for the forward years, increases the further the projections are into the future. This reflects the increasing uncertainty about with the cost of programs the further they are in the future plus the associated cumulative effects across multiple years. Thus in the 2006–07 Budget, the figure for 2006–07 was $747 million, $3.6 billion for 2007–08, and $7.3 billion for 2008–09, and $13 billion for 2009–10. |
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 are (usually) contained in six Appropriation Acts. The first three are:
(The other three Acts are called ‘additional estimates’; they are discussed in section 5.2).
The Bills for the first three Acts are introduced at the same time as the Budget and are reproduced in Budget Paper No. 4. The Acts authorise the payment of specified amounts for particular purposes. Appropriation Act (No. 1) provides for the appropriation of money from the Consolidated Revenue Fund for the ordinary annual services of government. Appropriation Act (No. 2) provides for the appropriation of money from the Consolidated Revenue Fund for purposes other than the ordinary services of government.
The question of what constitutes ordinary annual services was agreed between the Senate and the government in 1965, and the division of items between the two Acts accords with the 1965 ‘compact’ between the House of Representatives and the Senate.(27) In practice, when the government introduces administered funding under a new outcome that is not funded under a special appropriation, or administered funding for an existing outcome, the program is initially funded under Appropriation Act (No. 2). Thereafter, the program is considered to be an ordinary annual service and is funded under Appropriation Act (No. 1). Under section 53 of the Constitution, the Senate may not amend proposed laws appropriating funds for the ordinary annual services of government, although the Senate can effectively reject Bills by returning them to the House of Representatives or reject the legislation outright. The Senate can also reject such legislation outright.
Appropriation Act (No. 1) sets out agency appropriations by outcome and distinguishes between administered and departmental expenses. About two-thirds of funds appropriated under this Act are for departmental expenses. The data in Appropriation Act (No. 1) are highly aggregated but additional information is contained in Portfolio Budget Statements.(28)
Appropriation Act (No. 2) provides funds for administered items and so-called ‘non-operating’ costs. Items in Appropriation Act (No. 2) include:
The parliamentary departments have a separate Appropriation Act because the services of the departments are not ordinary annual services of the government or services of the government as such.
Appropriations items in annual appropriation Acts may be marked ‘net appropriation’. Where an appropriation is marked ‘net appropriation’, section 31 of the Financial Management and Accountability Act 1997 (FMA Act) allows an agreement (known as a ‘net appropriation agreement’ or a ‘section 31 agreement’) to be made with the Finance Minister, for the purposes of that appropriation. The net appropriation provisions of the annual appropriation Acts provide that, if a net appropriation agreement applies to an appropriation item, then the amount of that appropriation is taken to be increased, in accordance with the agreement, and on the conditions set out in the agreement. The increase cannot be more than the relevant receipts covered by the agreement. In short, the effect on a net appropriation is to increase the agency’s budget.
The effect of these provisions is that, where an agency has an appropriation marked ‘net appropriation’ in an annual appropriation Act, and a net appropriation agreement, the amount of the appropriation will be increased by an amount equivalent to amounts the agency receives, where those amounts are ‘relevant receipts’ covered by the agency’s net appropriation agreement. As a result, the agency will have the legal authority to retain and spend those additional amounts that it receives.
An example of an agreement is the one for the Productivity Commission, made between the Finance Minister and the Treasurer.(29) In this agreement, the receipts covered by the agreement include proceeds from the sale, leasing, hiring out of, or other dealing with goods, and receipts from the sub-leasing of real property, or the resale of goods used in fitting out premises. For agencies which supply services, and charge to recover the cost of providing those services, revenue covered by a net appropriation agreement can be substantial. An example of such an agency is the Australian Federal Police, which generates revenue by providing policing services to the Australian Capital Territory.
Funding requirements usually change after the Budget is brought down. Governments make new policy commitments that need 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 three Budget Appropriation Acts are inadequate and so has to seek parliamentary approval for additional spending. The process whereby additional funds are provided is called ‘additional estimates’ and begins around November of the Budget year. The approved additional estimates are incorporated into Appropriation Bills 3 and 4 and Appropriation (Parliamentary Departments) Bill No. 2.(30) These Bills are the counterparts of Appropriation Bills No. 1 and 2 and Appropriation (Parliamentary Departments) Bill No. 1 respectively. These Bills were traditionally introduced in the spring sittings of parliament. In recent years, however, the Bills have usually been introduced early in the autumn sittings of parliament.
Portfolio Additional Estimates Statements are the additional estimates counterparts of Portfolio Budget Statements and contain explanations of Appropriation Bills 3 and 4 and Appropriations (Parliamentary Departments) Bill No. 2.(31) The Senate estimates committees also scrutinise the additional estimates Bills. Parliament usually passes the additional estimates Bills around April. The Department of Finance and Administration has guidelines for the preparation of the Portfolio Additional Estimates Statements.
The government can introduce as many Appropriation Bills as it believes necessary. In 2004–05, for example, the Government introduced the Appropriation (Tsunami Financial Assistance) Bill 2004-05, the Appropriation (Tsunami Financial Assistance and Australia-Indonesia Partnership) Bill 2004-05, Appropriation Bill (No. 5) 2004–05 and Appropriation Bill (No. 6) 2004–05.(32) These Bills were supplementary to the usual three additional estimates Bills and brought to 10 the total number of annual Appropriation Bills. (The Government introduced similar Bills in 2003–04 and 2005-06). Such bills are called supplementary additional estimates bills.
A third series of bills occurs occasionally. On average, there has been an Appropriation Bill No. 5 every fourth year over the past 30-odd years, although the 2003–04 one was the first for about a decade.
Annual appropriations account for around only 25 per cent of government expenses.(33) The remaining 75 per cent are funded under special (or standing) appropriations—the terms are sometimes used interchangeably.(34) A special appropriation is an appropriation that appears in an Act—other than in the annual Appropriation Acts—which appropriates money from the Consolidated Revenue Fund for a particular purpose. For example, payments for the age pension, the disability support pension, and other social security payments are made under the Social Security (Administration) Act 1999. Some special appropriations are for a specific amount in which case they are said to be ‘limited by amount’. Standing appropriations are usually ‘open-ended’ in that the amount appropriated for a particular purpose is determined by the eligibility and other provisions of the relevant Act. An example is the eligibility conditions for the age pension prescribed by the Social Security (Administration) Act 1999.
This highlights a number of differences between the annual and special appropriations. First, whereas the Appropriation Acts specify amounts, the amounts in the Budget for special appropriations are estimates of spending under each Act. Second, whereas spending under the annual Appropriation Acts is subject to annual review and approval by parliament, special appropriations are approved by parliament when the legislation is initially created, and can only be removed or amended by repealing or amending that legislation, which also requires parliamentary approval. Information on the estimated payments under special appropriations can be found in Portfolio Budget Statements.
The Portfolio Budget Statements show estimated spending under special appropriations, and link this spending to the outputs or outcomes affected. For example, in 2006–07, the Department of Transport and Regional Services listed four Acts, the estimated spending under each Act, and the outcome to which the spending was allocated. The Department of Family, Community Services and Indigenous Affairs (FaCSIA) is a good example of reporting of spending under special appropriations. FaCSIA lists each Act, breaks down spending by program under each Act, and identifies the outcome to which the program contributes. For example, in 2006–07, total spending under the Social Security (Administration) Act 1999 is estimated at more than $24 billion. Of this, estimated spending on the age pension is about $22 billion, which contributes to outcome 2 (‘seniors, people with disabilities, carers, youth and women are supported, recognised and encouraged to participate in the community’).
A Special Account is a ledger account recording a right to draw money from the Consolidated Revenue Fund in accordance with designated purposes.(35) The Financial Management and Accountability Act 1997 (FMA Act) provides the appropriation authority for expenditure up to the balance of a Special Account. As to their purpose, the Department of Finance and Administration has stated:
[Special Accounts] provide a useful method of delivering some government programs, particularly ones funded by, say, indirect taxes or other compulsory imposts, contributions by other governments or discretionary contributions by members of the community. Special Accounts allow money in the CRF to be set aside for particular spending purposes, and moneys in a Special Account can only be spent for the purposes nominated.
… Special Accounts may be used for proper trustee type moneys, where the Commonwealth is holding money on behalf of other parties, so genuine trustees’ moneys can fit into the Special Account definition. Also, where we are holding moneys on behalf of the States and for other similar uses, Special Accounts are an appropriate vehicle as well.(36)
Special Accounts are established in two ways:
Special Accounts have been established, for example, to:
Details of Special Accounts can be obtained from the notes to the Consolidated Financial Statements.
In January 2004, the Australian National Audit Office (ANAO) investigated the use of Special Accounts in a report titled Agency Management of Special Accounts.(37) ANAO found that many agencies needed to improve management of Special Accounts, and had not complied with a number of legislative requirements. ANAO concluded that its audit demonstrated that there was significant scope for agencies to improve their financial management and reporting practices in respect of Special Accounts, and made 13 recommendations to improve management of and accountability for Special Accounts.
The Department of Finance and Administration reviewed the Special Accounts framework. In particular, it:
Agencies include estimates of Special Accounts flows and balances in their Portfolio Budget Statements. Agency annual reports are required to show broadly aggregated transactions on Special Accounts.
The Advance to the Finance Minister (AFM) provides flexibility in that it allows the spending of funds for unforseen contingencies.(38) The AFM is a provision authorised by the annual Appropriation Acts and made available to the Finance Minister as a central contingency fund to provide urgent funding to agencies throughout the financial year. Examples of the AFM provision are found in section 12 of Appropriation Act (No. 1) 2005-2006 and section 13 of Appropriation Act (No. 2) 2005-2006.
AFM funding is available only if agencies meet two tests:
A determination to make an AFM is a legislative instrument(39) and, as such, is registered on the Federal Register of Legislative Instruments in accordance with the Legislative Instruments Act 2003.(40) All legislative instruments are tabled in the House of Representatives and the Senate within six sitting days after registration.
Some of the reports on spending from the AFM contain minimal information and so are not very informative. For example, the Issues from the Advance to the Finance Minister as a Final Charge shows only the agencies to which payments were made and under what outcomes.(41) However, the Explanatory Statements to the legislative instruments contain detailed explanations.
As identified earlier in this chapter, in accordance with section 83 of the Constitution, no money can be draw from the Treasury of the Commonwealth unless supported by an appropriation. This requirement means that money received by FMA Act agencies must be supported by a valid appropriation. Section 31 net appropriation agreements and Special Accounts (as mentioned above) generally provide FMA Act agencies with the necessary appropriation authority to receive and spend money from external sources.
CAC Act bodies as entities that are legally separate to the Commonwealth are not generally subject to the requirements of Section 83 of the Constitution unless they are handling public money and are therefore subject to the FMA Act. CAC Act bodies that receive revenues whether they are paid to the CAC Act body by the Commonwealth (an FMA Act agency) or are received from external sources are available for expenditure by the CAC Act body in accordance with the CAC Act, their enabling legislation or their company constitution (as applicable).
Expenses are classified as either departmental or administered. Departmental expenses are the resources that agencies control and use to produce outputs. In essence, departmental expenses are the cost of running agencies. Examples of departmental expenses are salaries, other employee entitlements, and the use of equipment. Departmental expenses are appropriated as a single amount for each agency.
Administered expenses are spending that agencies manage on the government’s behalf. Examples of administered expenses are subsidies, grants and benefit payments, and the financial assistance grants the Commonwealth makes to local governments. Spending by some agencies is overwhelmingly administered. Indeed, about 80 per cent of agency expenses are administered. Most administered expenses are paid under various special appropriations; most of the remainder—for example, payments for the Bass Strait Passenger Vehicle Equalisation Scheme—are paid under Appropriation Act No. 1.
The terms ‘price of outputs’ or the ‘departmental price of outputs’ are used in the Portfolio Budget Statements for the total resources available for spending on departmental outputs. The price of outputs has two components: revenue from government—that is, from annual and special appropriations—and revenue from other sources. For most agencies, revenue from government is the main source of funds.
The use of the term ‘price’ to describe departmental expenses is confusing for those not familiar with the underlying concept. The term derives from the underlying model in which, in theory, the government buys services from agencies, in arms-length transactions, for a price. This price is the market price, which is assumed to be the efficient price. Hence there may be a difference between the efficient price and the actual cost of production.
Outsourcing and competitive tendering for the purchase of inputs are ways of obtaining market prices; benchmarking is another technique. This model is, however, problematic because market or benchmarked prices for many of the services that government ‘buys’ are not available. A sceptical Joint Committee of Public Accounts and Audit concluded that:
… not all departmental outputs readily lend themselves to benchmarking for the purpose of contestability … [and] … the use of price may not always be appropriate in relation to expenditure in the general government sector.
Further:
The Committee considers it would be worthwhile to identify in the PBS the pricing model used to derive the price of agency outputs, for example, whether the price simply represents the cost of output delivery or is based on ‘cost-plus’ or on some other model. This would assist Parliament’s understanding of the basis on which funding is sought and indicate the extent to which it is considered that a market exists for the output.(42)
The Department of Finance and Administration and the Australian Accounting Standards Board are reviewing the classifications of administered and departmental expenses as part of the Financial Framework Simplification Scoping Study. The purpose of the Study is to examine options for the simplification of the financial framework as it applies to agencies to which the Financial Management and Accountability Act 1997 applies.(43)
Users of the Portfolio Budget Statements will also encounter administered receipts. They are receipts that agencies manage on the government’s behalf. An example is the revenue from the aircraft noise levy that the government collects at Adelaide and Sydney airports. In the case of the Department of Foreign Affairs and Trade, passport and consular fees are administered receipts. The Portfolio Budget Statements contain tables which list administered receipts.
The distinction between departmental and administered expenses is based on the concept of ‘control’ as defined in accordance with Australian Accounting Standard 29, Financial Reporting by Government Departments.(44) While control is the principle used to determine whether items are administered or departmental, it is not the accounting standard that determines the classification. Rather, it is the government’s decisions surrounding transactions that determine whether items are administered or departmental. The Department of Finance and Administration has issued a guidance which includes principles to be used in determining whether items should be classified as departmental or administered.(45)
The distinction between administered and departmental items is not always clear. The Senate Finance and Public Administration Legislation Committee, in its third report on the format of the Portfolio Budget Statements observed:
3.22 It became evident, during the 2000–01 budget estimates hearings, that a number of activities had been reclassified from ‘administered’ to ‘departmental’ and hence their funding could be varied at agency discretion. For example, a range of programs in the Department of Environment and Heritage, including grant schemes, became ‘departmental’ and were listed as such in the PBS. The distinction, and its implications, was not the subject of particular questioning on this occasion.
3.23 The committee could find no examples of reclassifications in the other direction. The committee concedes that the concept of ‘control’ is at times a matter of judgement; it also notes that reclassifications cannot be done unilaterally by agencies but the approval of DOFA must be sought. Representatives of a number of agencies stressed that funding flexibility was needed to meet changing priorities and to deal with the unexpected. While accepting this argument, the committee is nevertheless concerned that any such reclassifications not be used to thwart accountability.(46)
Several points are noteworthy. First, it is not easy to transfer items from one classification to the other, and transfers are subject to Australian Accounting Standards. Second, even if an item is transferred from administered to departmental, funding for departmental items is contained in appropriation bills, which parliament has to pass. Classifying an item as departmental does, however, give agencies greater spending discretion.
As noted, the government releases the Budget Papers and documentation on Budget night. Ministers also issue media releases and hard copy information kits. The Budget Papers(47) and other Budget documents consist of:
The Budget speech is the printed version of the speech that the Treasurer delivers on Budget night. The speech contains Budget highlights and details of the government’s priorities. The Speech and the Budget Papers are loaded onto the parliamentary computing network on Budget night or soon thereafter.
As its name suggests, the Budget Overview (sometimes called Budget Highlights) summarises key features of the Budget. The contents and length of the document vary from year to year. Its main use is as a quick reference to key features of the Budget.
There are four Budget Papers. The contents of each vary from year to year. The following outlines the Budget Papers for 2006–07.
Budget Paper No. 1 can be seen as the ‘overview’ document. Budget Paper No. 1 for 2006–07 contained thirteen Statements dealing, among other things, with fiscal policy, the outlook for the economy, the assumptions underlying the projections of growth, unemployment, revenue and expenses, and other matters. The precise contents and the number of Statements vary from year to year. For example, Statement 4 was a ‘one-off’ article titled ‘Australia in the world economy’. Budget Paper No. 1 is prepared in accordance with the Charter of Budget Honesty Act 1998, which requires that the government provide, among other things, a statement of its fiscal strategy and a report on the economic and fiscal outlook as well as risks to the outlook.
Statement 1: Fiscal Strategy and Budget Priorities. This contains sections dealing with the fiscal and economic outlooks, fiscal strategy and the government’s priorities in areas such as welfare, health, education and transport.
Statement 2: Fiscal Outlook. This statement contains sections dealing with Budget aggregates, variations to expense and revenue estimates and their consequences for the fiscal balance, the Commonwealth’s net debt and net worth positions, and cash flows.
Statement 3: Economic Outlook. This Statement discusses developments in the domestic and international economies, and uncertainties in the outlooks for both.
Statement 4: Australia in the World Economy. This Statement is one of a series that discuss various aspects of the economy. In earlier years, Statement 4 dealt with topics such as tax reform, productivity, unemployment, and the terms of trade.
Statement 5: Revenue. This contains an overview and discussion of Budget year and forward years revenue estimates. For example, revenue from taxes such as excise on petrol and diesel can be found in this Statement. Statement 5 does not include information on the GST. This can be found in Budget Paper No. 3.
The Appendices contain much useful information. For example, Appendix G contains revenue statistics, on a cash basis, going back to 1994–95 with revenue classified by type (for example, company tax).
Statement 6: Expenses and Net Capital Investment. This is one of the most used Statements because it contains information on the spending side of the Budget. Expenses are divided on a functional basis, for example, defence, education, health, and social security and welfare. Another part of this Statement deals with general government net capital investment. The first appendix contains estimates of expenses by function and sub-function for the past year, the Budget year, and the forward years. The second appendix contains information on the contingency reserve.
Statement 7: Debt Management. This contains details of Budget funding mechanisms, and the Commonwealth’s recent and prospective borrowing programs. A particular focus in 2005–06 was the Future Fund.
Statement 8: Financial Reporting Standards and Budget Concepts. This Statement explains and discusses key Budget concepts such as fiscal balance, the underlying cash balance, the headline cash balance, and the two financial reporting standards: Government Finance Statistics and Australian Accounting Standard No. 31. Table 1 in this Statement contains selected differences between the two standards, while Tables 2 and 3 contain reconciliations of these two standards for revenues and expenses, and for the net operating result and the fiscal balance, respectively.
Statement 9: Government Finance Statistics Statements. This Statement contains financial statements that accord with the Government Finance Statistics framework. The data cover five years from 2004–05 through the three forward estimates years. The statements include the general government operating statement, balance sheet, and cash flow statement.
Statement 10: Australian Accounting Standards Financial Statements. This Statement contains the income statement, balance sheet, statement of changes in equity, and cash flows statement that accord with Australian Accounting Standards. The Notes to the accounts contain useful information in that they disaggregate the information in the whole-of-government accounts. Appendix A contains, among other things, information on expenses and net capital investment by agency, and estimates of average staffing levels by agency.
Statement 11: Statement of Risks. This Statement deals with risks to the assumptions underlying the Budget. Risks to the Budget include changes to economic parameters, the possibility that contingent liabilities will become actual liabilities, and other risks such as an extended drought. The Statement divides contingent liabilities between those that are quantifiable and those that are not.
Statement 12: Trends in Public Sector Finances. This contains and discusses data on trends in public sector finances including fiscal balance, net debt, and net worth. The Appendices contain data on the size of the public sector and other information.
Statement 13: Historical Australian Government Data. This Statement is one of the most important—but often overlooked—sources of historical data. The Statement contains, among other things, aggregate Budget data on receipts, payments, the deficit or surplus, in some cases going back to the early 1970s. Note, however, that the receipts and payments data exclude the GST.
Budget Paper No. 2 titled ‘Budget Measures’ summarises all the measures—such as changes to tax rates and spending initiatives—that the government is proposing. The merit of Budget Paper No. 2 is that it brings all these measures together in one document. The measures are grouped by portfolio, with the individual measures listed under the relevant agencies. There are three parts to Budget Paper No. 2: revenue measures, expense measures, and capital measures. Each part has a summary at the beginning, and they are a very useful way of finding information quickly. The summaries distinguish between measures introduced since the previous Budget—and so were included in the Mid-Year Economic and Fiscal Outlook that followed that Budget—and measures that have been introduced or proposed since the Mid-Year Economic and Fiscal Outlook, i