Public service and other purposes

Budget Review 2019–20 Index

Adrian Makeham-Kirchner and Philip Hamilton

Key Figures

Other purposes expenditures account for a significant proportion of total Government expenditure, totalling $98 billion in 2019-20. This primarily consists of General revenue assistance to the States and Territories, interest on Commonwealth debt and nominal superannuation interest.

Table 1: total other purposes expenditure (millions)

Other purposes
($ million)
2018–19
 (est.)
2019–20
(est.)
2020–21
(est.)
2021–22
(proj.)
2022–23
(proj.)
Interest on Commonwealth Government's behalf 17 154 17 037 16 625 16 063 15 747
Nominal superannuation interest 9 447 11 127 11 466 11 797 12 122
General revenue assistance - States and Territories 67 134 69 053 71 256 75 067 78 608
Local government assistance   2 564   1 275   2 656   2 764   2 883
Natural disaster relief 775 11 2 -   -  
Contingency reserve -1 993 -216 2 117 4 293 8 982
Total  95 081  98 287  104 122  109 984  118 342

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2019–20, 2019, p. 5–51.

Note: Figures may not add due to rounding.

Interest—Commonwealth and Superannuation

Compared to 2018-19, interest payments on Commonwealth debt is reported to decline in nominal and real terms over the forward estimates. The annual amount in 2022-23 is lower than 2018-19 by 16.4 per cent in real terms. Consistent with the Treasurer’s announcement of eliminating Commonwealth net debt by 2030, net debt is forecast to decrease from $373.5 billion in 2018-19 to $326.1 billion by 2022-23. Despite this, the face value of Australian Government Securities—gross debt—is projected to increase from $560 billion to $569 billion from 2019-20 to 2022-23.[1] The interest expense relates to interest payments on the Australian Government Securities on issue, suggesting that lending terms and product mix is contributing to the lowering of the gross interest charge.[2]

Related to gross debt, the Australian Government holds an unfunded superannuation liability expected to be $224 billion by 30 June 2019. This relates to defined benefits pensions accrued under historical superannuation schemes.[3] Future Fund assets will offset part of this unfunded liability. However, nominal superannuation interest reflects the imputed value of interest on the unfunded liability. The expense is increasing over time, by 16.9 per cent in real terms between 2018-19 and 2022-23, reflecting the increasing trajectory of the unfunded superannuation liability.

General Revenue Assistance to the States and Territories and local governments

Untied payments to and through the states and territories is one of the largest components of expenditure in the Budget, accounting for 14.1 per cent of total Government expenditure in 2019-20, growing in real terms by 6.5 per cent between 2018-19 and 2022-23. There are three main components—the transfer of Goods and Services Tax (GST) to the states, other ‘general revenue assistance’ and payments to local government.

The transfer of GST, which is collected by the Commonwealth but paid to the states and territories, accounts for $67.2 billion. This is often referred to as the GST pool. By 2022-23, reforms introduced under the Treasury Law Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Act 2018 will add $9.9 billion including $8.5 billion in ‘transitional GST top-up’ payments to Western Australia (WA) and the Northern Territory (NT), and $1.4 billion in GST pool top up.

The remaining general revenue assistance consists of compensation payments—to the Australian Capital Territory for revenue it cannot raise due to the presence of the Commonwealth, to WA for reduced royalties due to Commonwealth policy, to WA and the NT for compensation on specific royalty sharing arrangements and to New South Wales and Victoria for income taxes paid by Snowy Hydro. These payments are declining from $787 million to $857 million between 2019-20 and 2022-23.

Direct assistance to local Governments accounts for a relatively small proportion of Commonwealth Government expenditure. It comprises an untied general purpose assistance component—accounting for 69 per cent of the annual value—and a tied local road funding component. The large fall in total local government assistance—approximately 50 per cent from 2018-19 to 2019-20—reflects a consistent practice reported in budget papers since 2016-17 that funding is bought forward from 2019-20 into 2018-19. This assistance measures only payments made directly to local Governments, and does not represent the full amount of money paid by the Commonwealth into local communities.

The relative contribution to the total transfers between layers of government are summarised in Figure 1.[4]

Figure 1: components of general revenue assistance

Components of general revenue assistance

Natural Disaster Relief

Assistance for natural disasters is relatively small, and declining. The funding is, by its nature, contingent on unpredictable events. The forward estimates reflect this unpredictability as the balance trends to zero. The expenses are incurred, in part, under the Disaster Recovery Funding Arrangements National Partnership payments.[5] The payments may change over the longer term, as the Budget announced the establishment of the Emergency Response Fund (ERF) which will provide a sustainable source of additional funding for recovery from natural disasters, which will be capped at $150 million.[6]

Contingency Reserve

The Contingency Reserve is a mechanism used to deal with uncertainty, and contains transactions which are not appropriated and that cannot be allocated to agency or functional areas. Common examples include provisions for underspend, a conservative bias allowance, commercial or security in-confidence and decisions taken but not announced.

In 2019-20 the Reserve value is negative, which means expenses have been reduced and it contributes to an improved net operating balance. In the 2018-19 Budget, the Reserve value for 2019-20 was estimated at $3.3 billion, suggesting a $3.5 billion turnaround over the financial year.[7] Over the years 2019-20 to 2022-23 the Reserve is valued at $15.2 billion [$14 billion in real terms].[8] The conservative bias allowance totals $16.3 billion, meaning other components are reducing the Reserve by $1.1 billion. For decisions taken but not announced, the Budget outlines $124.1 million in revenue decisions, $3.2 billion in expenditure decisions and $16.3 million in capital decisions.[9]

Public service resourcing

The size of the public service determines the total expenditure on wages, salaries and related employee expenses across multiple functions of Government expenditure. In 2019-20 these expenses accounts for 16.2 per cent of general government sector (GGS) operating expenses and 5.4 per cent of total expenses.[10]

The projected GGS average staffing level (ASL), excluding military and reserves, for 2019–20 is 166,762, 1,271 more than in 2018-19, but 15,743 less than the peak of 182,505 in 2011–12.[11] The 2019-20 level is 834 ASL lower than recorded for 2006-07, which was introduced as a reference year in the 2014-15 Budget as a ‘... more efficient and effective level ...’.[12] Military and reserve personnel total 80,540 ASL, or 32.6 per cent of the total GGS workforce, the highest proportion since 2006-07. The profile of ASL between 2006-07 and 2019-20 is illustrated in Figure 2.

Figure 2: ASL over time

ASL over time  

Source: Australian Government, Agency Resourcing: budget paper no.4: 2019-20, p. 17.

Efficiency Dividend

Since 1987–88 the Australian Government has applied an efficiency dividend (ED) to ‘departmental’ expenses of Australian government agencies. Conceptually, the ED builds in reduced funding to account for increased public sector productivity over time. The ED affects the base departmental funding of agencies, reducing the amount available by the ED rate prior to the addition of any new measures.  Agencies apply the notional saving internally, as part of the normal operations of government, and the value of notional savings is not identified even though it contributes to the funding of new measures.

The ED has historically been applied at a rate of either 1 or 1.25 per cent. In some years governments have increased the rate, with the highest ED rate being 4 per cent in 2012–13. The 2019–20 Budget does not identify the rate at which the ED has been applied for the 2019–20 year. However, the 2016–17 Budget stated that the ED would be maintained at 2.5 per cent through 2016–17 and 2017–18, before being reduced to 2 per cent in 2018–19 and 1.5 per cent in 2019–20.[13]


[1] AGS at market value is higher at $619 billion in 2019-20 and $621 billion in 2022-23.  Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 6, p. 6-8.

[2] The value of the ‘interest expense on AGS’ measure in Statement 6 is higher in each year than the functional expense ‘Interest on Commonwealth Government’s behalf’ in Statement 5. There is no further explanation of how an increasing AGS can result in a lower interest payment.

[3] Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 6, p. 6-21.

[4] Australian Government, Federal Financial Relations: budget paper no.3: 2019-20, p. 68, 74 and 77.

[5] Australian Government, Federal Financial Relations: budget paper no.3: 2019-20, p. 65.

[6] Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 8, p. 8-31.

[7] Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 5, p. 5-42, compared to Australian Government, Budget strategy and outlook: budget paper no. 1: 2018-19, Statement 6, p. 6-43.

[8] Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 5, p. 5-44.

[9] Australian Government, Budget Measures: budget paper no. 2: 2019-20, p. 4, 45 and 182.

[10] Parliamentary Library calculation based on Australian Government, Budget strategy and outlook: budget paper no. 1: 2019-20, Statement 9, p. 9-5.

[11] Australian Government, Agency Resourcing: budget paper no.4: 2019-20, p. 17.

[12] Australian Government, Agency Resourcing: budget paper no.4: 2014-15, p. 120.

[13] Australian Government, Agency resourcing: budget paper no. 4: 2016–17, p. 2.

 

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