Parliamentary scrutiny of payments to the states and territories

Budget Review 2015–16 Index

Daniel Weight

In the 2015–16 Budget, the Commonwealth proposes to make grants of $101.7 billion to the states and territories under section 96 of the Constitution.[1] The legislative framework through which these payments are made is complex, and parliamentary oversight of these arrangements—at least once they are established or authorised—appears to be limited.

The vast majority of grants to the states and territories are provided for by special appropriations, but some money is proposed to be appropriated for the making of grants to the states and territories in the 2015–2016 annual Appropriation Bills. For many of the grants made via special appropriations—particularly where they involve special accounts—the Parliament is able to control the overall amount that may be provided in any one year but not the nature of those grants or the programs or activities they fund.

Grants under section 96 of the Constitution may be made with or without conditions about how monies may be utilised by the recipient state or territory. Grants provided without conditions are known as ‘general revenue assistance’ payments, while grants provided with conditions are known as ‘payments for specific purposes’.

Special appropriations

The largest single category of grants provided to the states and territories is the revenue from the GST. These grants—estimated to be $57.1 billion in 2015–16, or 56.1 per cent of the total—are appropriated via the special appropriation in section 22 of the Federal Financial Relations Act 2009, which appropriates money for ‘general revenue assistance’ determined under Part 2 of that Act.[2] While the relevant Minister has some discretion as to the timing of the payments, they occur largely automatically.

Annual appropriations

Under the 1965 Compact between the Senate and the House of Representatives dealing with what must be included in each annual Appropriation Bill,[3] appropriations for grants to the states and territories must be included in separate annual Appropriation Bills so that the Senate is able to subject such proposed grants to scrutiny. Appropriation Bill (No. 2) 2015–2016,[4] which provides for grants to the states and territories, however, only proposes that $763.7 million be appropriated from the Consolidated Revenue Fund for the purpose of making payments to the states and territories: less than 1 per cent of the total.

The Senate has sought to exercise its power to amend annual Appropriations Bills. Most recently, during the consideration of the Appropriation Bill (No. 4) 2014–2015, Senator Leyonhjelm sought to amend that Bill to remove $250,000 in appropriations for grants to the states and territories from the amount to be appropriated to the Department of Infrastructure and Regional Development.[5] Senator Leyonhjelm advised the Senate he considered the provision to be ‘pork barrelling.’[6] The Senate, however, did not agree to that amendment.[7]

Special accounts

A third way through which grants may be provided to the state and territories is through ‘special accounts.’ A special account is an amount of money in the consolidated revenue fund that is earmarked for a specific purpose and which may only be expended subject to the conditions imposed on that special account. Special accounts may be established by a disallowable instrument under section 78 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), or in another Act. When the conditions of the special account are met, special appropriations in sections 78 and 80 of the Public Governance, Performance and Accountability Act 2013 automatically provides for the release of monies from the Consolidated Revenue Fund, without further recourse to the Parliament.

Various special accounts have been established that may be used to provide grants to the states and territories, such as the Building Australia Special Account that may be used to provide grants for various types of infrastructure,[8] and the DisabilityCare Australia Fund Special Account that makes grants in connection with the National Disability Insurance Scheme.[9]

While parliamentary approval is required for the establishment of a special account,[10] once established, there is often little oversight of their use.

Example: the COAG Reform Fund Special Account

Much of the funding to the states and territories is through the COAG Reform Fund Special Account, established under the COAG Reform Fund Act 2008.[11] This special account operates as a conduit through which monies are made available to the states and territories, rather than as a store of money or value. The annual Appropriation Bills in a given year play a role in managing the COAG Reform Fund Special Account by setting the ‘debit limit’ for the total amount that may be drawn from that special account in that year. Amounts up to that debit limit will be automatically appropriated via section 80 of the PGPA Act if the Minister determines a grant should be made. As shown in the following illustrations, this mechanism is used to provide both general revenue assistance, and payments for specific purposes.

General revenue assistance

Section 9 of the Federal Financial Relations Act 2009 has the effect that, if the Minister determines that an amount of general revenue assistance (other than the GST revenue) is to be provided to a state or territory, the COAG Reform Fund Special Account is to be debited by that amount. Subsection 9(5) of that Act makes such a determination a legislative instrument, but prevents it being disallowed by the Parliament.

In 2015–16, the limit of such general revenue assistance will be set by the ‘debit limit’ by clause 13(4) of annual Appropriation Bill (No. 2) 2015–2016, and is proposed to be $5 billion.[12] Federal Financial Relations: Budget Paper No. 3: 2015–16 indicates, however, that only $698.9 million in general revenue assistance will be provided. It would appear, therefore, that if the Parliament passed Appropriation Bill (No. 2) 2015–2016 in its current form, an additional $4.3 billion in general revenue assistance grants to the states or territories could be made by the Minister without further consideration by the Parliament.

Payments for specific purposes

Similarly, section 16 of the Federal Financial Relations Act 2009 provides that the Minister may make National Partnership Payments—a form of payment for specific purposes—to a state or territory on terms agreed with the state or territory, up to the ‘debit limit’ for that section set by the Appropriation Bills for each year. All that is required for National Partnership Payment grants to be provided is a determination by the Minister under that section, and subsection 16(5) provides that such determinations are not disallowable. Once a determination is made, the COAG Reform Fund Special Account is immediately debited by that amount for payment to the state or territory via the special appropriation in section 80 of the PGPA Act.

In 2015–16, $10.6 billion in grants are proposed to be made as Specific Purpose Payments via this mechanism, and the proposed payments are detailed in Table 2.10 in the Department of the Treasury’s Portfolio Budget Statement.[13] Amongst these are initiatives that have attracted controversy such as:

  • the Mechanical Fuel Load Reduction Trial that was announced in the 2015–16 Budget[14]
  • the revised National School Chaplaincy Programme[15] which is now administered as a grant to the states and territories after the High Court twice ruled it unlawful for the Commonwealth to fund it directly[16] and
  • the Asset Recycling Fund which the Parliament has failed to agree to when it was proposed in separate legislation.[17]

Clause 13(5) of Appropriation Bill (No. 2) 2015–2016 proposes that the ‘debit limit’ for National Partnership Payments under section 16 of the Federal Financial Relations Act 2015–2016 be $25.0 billion, which is $14.4 billion higher than the $10.6 billion of proposed expenditure in 2015–16. Conceivably then, an additional $10.6 billion in new Specific Purpose Payment grants could be made in 2015–16, were the Minister to issue a determination.

Discussion

Under the Constitution, the Executive Government cannot spend monies without the approval—via an appropriation—of the Parliament.[18] Appropriations may take many forms, however, and the growing complexity of the financial arrangements of the Commonwealth means that it is increasingly difficult to identify what specific activities or initiatives are being approved by the Parliament, when it agrees to appropriations.

The arrangements around the COAG Reform Fund Special Account are particularly byzantine, and it is unclear how effective a scrutiny mechanism the use of ‘debit limits’ are in ensuring Parliamentary oversight of such expenditure. Moreover, the setting of ‘debit limits’ for special accounts in the annual Appropriation Bills far above what would be required to fund identified programs and activities—when coupled with the capacity for a Minister to authorise the funding of additional grants by determination—means that there is a potential for significant new expenditures to occur without specific scrutiny by the Parliament.



[1].          Section 96 provides that ‘the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit’.

[2].          Federal Financial Relations Act 2009, section 22.

[3].          The Senate, Odgers senate practice 13th edn., p. 369.

[4].          Appropriation Bill (No. 2) 2015–2016, bill homepage.

[5].          The Senate, Journals of the Senate No. 84, p. 2308.

[6].          The Senate, Hansard, 17 March 2015, p. 1706.

[7].          The Senate, Journals of the Senate No. 84, p. 2309.

[8].          National-building Funds Act 2008, s 53 to 56.

[9].          DisabilityCare Australia Fund Act 2013, s 10.

[10].       Public Governance, Performance and Accountability Act 2013, s 79 and 80.

[11].       COAG Reform Fund Act 2008.

[12].      Clause 13(4).

[13].      Australian Government, Department of the Treasury: portfolio budget statement: 2015–16, p. 43.

[14].      Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 56.

[15].      Australian Government, Department of the Treasury: portfolio budget statement: 2015–16, p. 44.

[16].      Williams v Commonwealth of Australia (2014) 252 CLR 416; Williams v Commonwealth (2012) 248 CLR 156.

[17].      Ibid., p. 51.

[18].       In particular, s 83 provides that: ‘No money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law.’

 

All online articles accessed May 2015. 

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