BILLS DIGEST NO. 118, 2014–15              12 June 2015

Appropriation Bill (No. 1) 2015-2016 [and] Appropriation Bill (No. 2) 2015-2016

Dinty Mather, Daniel Weight and Tarek Dale
Economics Section

Date introduced: 12 May 2015

House:  House of Representatives

Portfolio: Finance

Commencement:  On Royal Assent

Links: The links to Bills, their Explanatory Memoranda and second reading speeches can be found on the Bills’ home pages for the Appropriation Bill (No. 1) 2015-16 and Appropriation Bill (No. 2) 2015-16, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

The Bills Digest at a glance

The second reading of Appropriation Bill (No. 1) is the Treasurer’s budget speech and in this way it underpins the fiscal strategy of the Commonwealth Government.

Appropriation Bill (No. 1) 2015–2016 and Appropriation Bill (No. 2) 2015–2016 seek to appropriate money from the consolidated revenue fund (CRF) for the ordinary and other services of the Commonwealth Government respectively. They do not include standing appropriations, which regularly make up about 80 per cent of government expenditure. The parliamentary departments have a separate appropriation Bill.

This Bills Digest contains background material including the constitutional and other requirements for Appropriation Bills. 

Purpose of the Bill

The purpose of the Appropriation Bill (No. 1) 2015–2016 (the No. 1 Bill) is to seek an appropriation from the CRF of $80,966 million for the ordinary services of Government.[1] Of this appropriation:

•       $50,434 million is for the departmental activities of government entities[2] and

•       $30,532 million is for activities that government entities administer on behalf of the Commonwealth Government.[3]

The purpose of the Appropriation Bill (No. 2) 2015–2016 (the No. 2 Bill) is to seek an appropriation for the other services of Government. The No. 2 Bill seeks to appropriate $15,005 million from the CRF:[4]

•       $764 million for payments to states, ACT and NT and local governments and

•       $14,242 million for non-operating activities.[5]

There are no new administered outcomes.[6]

Structure of the Bill

Part 1 of each Bill deals with preliminary matters, including when the Acts commence, and how to interpret them.

Part 2 of each Bill outlines the quantum and types of appropriation from the CRF.

Part 3 of each Bill establishes the Advance to the Finance Minister (AFM) for 2015–16.[7]

Part 4 of the No. 2 Bill deals with the drawing right limits (an administrative restriction on spending, but not an appropriation).

Part 4 of the No. 1 Bill and Part 5 of the No. 2 Bill provide for several technical matters, including details relating to special accounts, formally appropriating the amounts required from the CRF, and the conditions applying to payments to state, territory and local governments.

Schedule 1 of the No. 1 Bill and Schedule 2 of the No. 2 Bill provide detailed estimates about the appropriations to both non-corporate entities and to corporate entities as defined by the Public Governance, Performance and Accountability Act 2013.[8]

Schedule 1 of the No. 2 Bill lists the Ministers responsible for determinations on payments to or for the states, ACT, NT and local government.

Background

There are certain unique constitutional requirements that a Bill proposing to appropriate moneys must satisfy. An appropriation Bill must also comply with certain presentational requirements. The No. 1 and No. 2 Bills do not deal with standing appropriations or with parliamentary departments.

Constitutional requirements

Appropriation from the CRF

Section 81 of the Constitution provides that:

All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund [CRF], to be appropriated for the purposes of the Commonwealth …[9]

Section 83 of the Constitution provides that no money may be withdrawn from the CRF ‘except under appropriation made by law’.[10]

The effect of these two sections is that all money received by the Commonwealth must be paid into the CRF, and must not be spent before there is an appropriation authorising specific expenditure.

Appropriation Acts do not create a source of power for the Commonwealth to spend money; they merely release that money from the CRF. The Commonwealth’s power to spend money must be found either in an authority in the Constitution (other than the appropriation provision) or under a valid law of the Commonwealth.[11]

Powers of the House of Representatives to appropriate

Section 53 of the Constitution provides that proposed laws appropriating money may not originate in the Senate.[12] Further, under section 56 of the Constitution, all proposed laws for the appropriation of money, may only be introduced following a recommendation by the Governor-General.[13] By convention the
Governor–General acts only upon the advice of the Executive, so section 56 prevents non–government members of the House of Representatives introducing Bills that would propose to appropriate money from the CRF.[14]

Powers of the Senate to amend

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.[15]

The Senate may amend proposed laws appropriating revenue for purposes other than for the ordinary annual services of the Government, as long as it does not ‘increase any proposed charge or burden on the people.’[16] Conceivably, the Senate could amend an appropriation Bill for the other services of Government so as to, for example, redirect the proposed appropriation to another purpose, or reduce the proposed appropriation to nil. The Senate may also request that, if new measures are included in a Bill for the ‘ordinary annual services of Government’, the Bill be returned to the House with a message requesting those new measures be omitted from the Bill.

The ‘ordinary annual services of Government’ versus ‘other services of Government’

Section 54 of the Constitution requires that there be a separate law appropriating funds for the ‘ordinary annual services of Government’, and that other matters must not be dealt with in the same Bill.[17] However, what constitutes the ‘ordinary annual services of the Government’ and the ‘other’ services of the Government is not defined in the Constitution.

A working distinction between ordinary and other annual services was agreed in a ‘Compact’ between the Senate and the Government in 1965.[18] The Compact has subsequently undergone several amendments. During 2010 the Senate Standing Committee on Appropriations and Staffing recommended the Senate restate the Compact in a consolidated form.[19] On 22 June 2010, the Senate resolved as follows:

(1)              To reaffirm its constitutional right to amend proposed laws appropriating revenue or moneys for expenditure on all matters not involving the ordinary annual services of the Government.

(2)               That appropriations for expenditure on:

              (a)              the construction of public works and buildings;

              (b)               the acquisition of sites and buildings;

(c)               items of plant and equipment which are clearly definable as capital expenditure (but not including the acquisition of computers or the fitting out of buildings);

              (d)               grants to the states under section 96 of the Constitution;

              (e)               new policies not previously authorised by special legislation;

              (f)               items regarded as equity injections and loans; and

              (g)               existing asset replacement (which is to be regarded as depreciation),

are not appropriations for the ordinary annual services of the Government and that proposed laws for the appropriation of revenue or moneys for expenditure on the said matters shall be presented to the Senate in a separate appropriation bill subject to amendment by the Senate.

(3)              That, in respect of payments to international organisations:

(a)              the initial payment in effect represents a new policy decision and therefore should be in Appropriation Bill (No. 2); and

(b)               subsequent payments represent a continuing government activity of supporting the international organisation and therefore represent an ordinary annual service and should be in Appropriation Bill (No. 1).

(4)              That all appropriation items for continuing activities for which appropriations have been made in the past be regarded as part of ordinary annual services.[20]

Adherence to the Compact has not always been strict, and the High Court has held that any disagreements between the Houses are not justiciable.[21] Any disputes, therefore, are to be determined between the Houses themselves.

Presentational requirements

Departmental and administered expenses

Australian Accounting Standard 1050 Administered Items requires that government agencies distinguish between revenues and expenses that they administer for the Government, and those over which they have some control.[22] Generally, administered expenses are the costs of programs that entities run for the Government, while departmental expenses are the costs incurred in running these entities.

Appropriation Bills, therefore, distinguish between ‘administered’ expenses and ‘departmental’ expenses. An administered appropriation may be used only for the program or outcome that it is appropriated for, while a departmental appropriation may be moved between different departmental activities.[23]

Outcomes and programmes

While the level of detail necessary for an Appropriation Act to be valid is generally low, in the Pharmaceutical Benefits case the High Court held that:

… there cannot be appropriations in blank, appropriations for no designated purpose, merely authorising expenditure... [24]

The Appropriation Bills must, therefore, also describe—in general terms—what the money is to be utilised for. The Bills use four methods for describing the purposes of the proposed appropriations.

Appropriations for ‘outcomes’ of non-corporate Commonwealth entities

For non-corporate Commonwealth entities, the purposes of operating appropriations (both departmental and administered) are specified with reference to the ‘outcomes’ of those entities. Outcomes ‘are the intended results, impacts or consequences of actions by the Government on the Australian community.’[25]

Appropriations for corporate Commonwealth entities

As corporate Commonwealth entities are legally distinct from the Commonwealth itself,[26] money cannot be appropriated directly to those entities. Instead, amounts are appropriated to relevant Departments for on-payment to corporate Commonwealth entities within Departments’ portfolios.

Non-operating appropriations

Non-operating appropriations are amounts designated for the capital needs of entities. Typically, these amounts are equity injections into entities, or money for the purchase or development of the assets of entities. Under the Compact, they can be proposed only in a Bill dealing with the ‘other’ annual services of Government.

Appropriations for payments to the states

Under section 96 of the Constitution, the Commonwealth may make payments to the states with or without conditions, and amounts intended for payment to the states are identified separately. Again, because of the Compact, amounts to the states can be proposed only in a Bill dealing with the ‘other’ annual services of Government. Amounts to the Australian Capital Territory and the Northern Territory are included with the amounts for the states.

Advance to the Finance Minister

The AFM is the appropriation of monies to the Finance Minister without any particular outcome or purpose specified.[27] The AFM is established in the first two Appropriation Acts each year, and is subsequently replenished whenever supplementary Appropriation Acts are passed. The Finance Minister may allocate the money appropriated as AFM to outcomes already provided for in that same Appropriation Act where the Finance Minister is satisfied that there is an urgent need for expenditure, in the current year that is not provided for, or is insufficiently provided for, in the existing Appropriation Act:

•       because of an erroneous omission or understatement or

•       because the additional expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Appropriation Bills before those Bills were introduced into the House of Representatives.

The amount of appropriation allocated to the AFM each year has typically been limited to $295 million for the ordinary annual services of Government, and $380 million for the other annual services of Government. The Finance Minister tables an annual report in Parliament on the use of the AFM.[28]

Special or ‘standing’ appropriations, and appropriations for parliamentary departments, not included

In addition to the annual appropriation Bills, a number of other pieces of legislation have appropriations (special or ‘standing’ appropriations) that enable payments to be made for a variety of programs and purposes. The annual Appropriation Bills do not affect these appropriations. Some examples include:

•       welfare payments and pensions are enabled by a special appropriation in the Social Security Act 1999

•       Medicare payments are enabled by a special appropriation in the Health Insurance Act 1973

•       payments of the interest and principal on Australia’s debt are provided for by standing appropriations in sections 13AA, 13A, and 13B of the Commonwealth Inscribed Stock Act 1911 and

•       payments to the states and territories are provided for by a special appropriation in the Federal Financial Relations Act 2009.

Appropriations for the parliamentary departments (the Department of the House of Representations, the Department of the Senate, the Department of Parliamentary Services and the Parliamentary Budget Office) are provided through a separate Bill – in this financial year, the Appropriation (Parliamentary Departments) Bill (No. 1) 2015–2016.

Financial implications

The No. 1 Bill seeks to appropriate $80,966 million from the CRF.[29] The No. 2 Bill seeks to appropriate $15,005 million from the CRF.[30] The total amount of money sought to be appropriated by the two Bills is $95,972 million.

Statement of Compatibility with Human Rights

The Statement of Compatibility with Human Rights can be found at page three of the Explanatory Memorandum to the No. 1 Bill and page four of the No. 2 Bill. As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.

Key issues and provisions

First covered are changes in the Bills from last year, followed by the key provisions. The Parliamentary Library’s Budget Review provides commentary on budget measures.[31]

Changes in Bill No.1

Schedule 1, page ten, of the No. 1 Bill shows that appropriations are expected to increase from an estimated actual[32] $79,836 million during the 2014–15 financial year to an expected $80,996 million in 2015–16, an increase of 1.4 per cent:[33]

•       departmental appropriations increase by $1,528 million (3.0 per cent)[34]

•       administered appropriations decrease by $397 million (-1.3 per cent).[35]

Changes in Bill No. 2

Schedule 2, page 15, of the Bill No. 2 shows that total expected appropriations in Bill No. 2 increase by 83.1 per cent from $8,197 million to $15,005 million:[36]

•       payments to the states, ACT, NT and local government increase by 31.6 per cent from $580 million to $764 million, largely due to increases to the Infrastructure and Regional Development, Education and Training and Attorney-General’s portfolios[37]

•       there are no New Administered Outcomes[38]

•       non-operating (capital) increased by 87.0 per cent from 2014–15 to 2015–16, from $7,617 million to $14,241 million.[39]

Key provisions

Part 1 of each of the No. 1 and No. 2 Bills deal with preliminary matters, including when the Acts commence and how to interpret the Acts. Clause 4 of each of the No. 1 and No. 2 Bills provides that the accompanying Portfolio Budget Statements may be used as extrinsic materials to interpret the Acts.[40]

Part 2 of each of the No. 1 and No. 2 Bills outlines the quantum and types of appropriation from the consolidated revenue fund.

In the No. 1 Bill, the money is appropriated to incorporated and non-incorporated government entities as either a departmental or administered appropriation—according to proposed Schedule 1 of that Bill.[41]

In the No. 2 Bill, the money is appropriated to incorporated and non-incorporated Government entities according to proposed Schedule 2 of that Bill as either:

•       grants to the states, territories and local governments (see also clause 16 below)

•       new administered programs or

•       non-operating (or ‘capital’) appropriations.[42]

These three types of appropriations cannot be included in the No. 1 Bill as they do not relate to the ‘ordinary annual services of Government’.

Part 3 of both the No. 1 and No. 2 Bills establish the Finance Minister’s advances (AFM) for 2015–16.

Part 4 of the No. 2 Bill deals with the debt limit (formally known as drawing right limits). Clause 13 sets appropriation limits for provisions of specific Acts. Clause 14 provides that the debt limits, set under clause 13, are adjusted to take into account any GST liability that may arise in relation to particular payments.

Part 4 of the No. 1 Bill and Part 5 of the No. 2 Bill provide for several technical matters:

•       they ensure that if an appropriation is made for purposes that are covered by a Special Account, then the Special Account is replenished by the same amount as the appropriation: clause 11 in the No. 1 Bill and clause 15 in the No. 2 Bill

•       they contain the provisions formally appropriating moneys from the CRF: clause 12 in the No. 1 Bill and clause 17 in the No. 2 Bill and

•       clause 16 of the No. 2 Bill seeks to ensure that payments made by the states, territories and local governments from financial assistance provided by the Commonwealth accord with the conditions established by the Minister listed in Schedule 1.

Schedule 1 in the No. 1 Bill and Schedule 2 in the No. 2 Bill provide more detailed information about the appropriations to be made to both the incorporated and non-incorporated government entities.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.

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[1].              Parliament of Australia, ‘Appropriation Bill (No. 1) 2015-2016 homepage’, Australian Parliament website, clause 6, accessed 11 June 2015.

[2].              Ibid., p. 10.

[3].              Ibid.

[4].              Parliament of Australia, ‘Appropriation Bill (No. 2) 2015-2016 homepage’, Australian Parliament website, clause 6, accessed 11 June 2015.

[5].              Ibid., p. 15.

[6].              Ibid.

[7].              The AFM is, broadly speaking, the appropriation of moneys to the Finance Minister without any particular outcome or purpose specified, to enable the Finance Minister to allocate moneys where there is an urgent need for expenditure, in the current year, that is not provided for, or is insufficiently provided for, in the existing Appropriation Act, subject to certain conditions. The framework for the AFM is discussed in more detail below.

[8].              Public Governance, Performance and Accountability Act 2013, accessed 11 June 2015.

[9].              Constitution, section 81, accessed 3 June 2015.

[10].              Constitution, section 83.

[11].              Pape v Commissioner of Taxation (2009) 238 CLR 1, [2009] HCA 23, accessed 3 June 2015.

[12].              Constitution, section 53.

[13].              Constitution, section 56.

[14].              IC Harris, ed., House of Representatives practice, fifth edn, Department of the House of Representative, Canberra, 2005, p. 410, accessed 11 June 2015.

[15].              Constitution, section 53.

[16].              Ibid.

[17].              Constitution, section 54.

[18].              H Evans and R Laing, eds, Odgers’ Australian Senate practice, thirteenth edn, The Senate, Canberra, 2012, chapter 13, accessed 26 May 2015. 

[19].              Senate Standing Committee on Appropriations and Staffing, 50th report: ordinary annual services of the government, The Senate, Canberra, June 2010, accessed 3 June 2015.

[20].              Australia, Senate, Journals, 127, 2008–10, pp. 3642–3, accessed 26 May 2015.

[21].              Osborne v Commonwealth (1911) 12 CLR 321, per Griffith CJ at 336, accessed 3 June 2015.

[22].              Australian Accounting Standards Board (AASB), ‘AASB 1050 administered items’, AASB website, December 2013, accessed 3 June 2015.

[23].              Combet v Commonwealth (2005) 224 CLR 494, [2005] HCA 61, per Gummow, Hayne, Callinan and Heydon JJ at paragraph 123, accessed 3 June 2015.

[24].              Attorney-General (Vic); Ex rel Dale v Commonwealth (1945) 71 CLR 237 , per Latham CJ at 253, accessed 3 June 2015.

[25].              Australian Government, Guidance for the preparation of the 2015-16 portfolio budget statements, Department of Finance, March 2014, p. 66, accessed 4 June 2015.

[26].              Public Governance, Performance and Accountability Act 2013, section 11.

[27].              Department of Finance, ‘Advance to the Finance Minister’, Department of Finance website, accessed 4 June 2015.

[28].              Ibid.

[29].              Appropriation Bill (No. 1) 2015-2016, clause 6.

[30].              Appropriation Bill (No. 2) 2015-2016, clause 6.

[31].              Australia, Parliamentary Library, Budget review 2015–16, Research paper series, 2015–16, Parliamentary Library, Canberra, May 2015, accessed 11 June 2015.

[32].              Estimated actual numbers are appropriations ‘estimated’ to have been actually spent in the portfolio in the previous financial year.

[33].              Appropriation Bill (No. 1) 2015-2016, Schedule 1, p. 10.

[34].              Ibid., p. 10.

[35].              Ibid.

[36].              Appropriation Bill (No. 2) 2015-2016, Schedule 2, p. 15.

[37].              Ibid.

[38].              Ibid.

[39].              Ibid.

[40].              The portfolio budget statements are relevant documents for the purposes of section 15AB of the Acts Interpretation Act 1901.

[41].              Appropriation Bill (No. 1) 2015-2016, Schedule 1.

[42].              Appropriation Bill (No. 2) 2015-2016, Schedule 2.