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.’
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