Bills Digest no. 135 2008–09
Appropriation Bill (No. 2) 2009-2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date
introduced: 12 May 2009
House: House of Representatives
Portfolio: Finance and Deregulation
Commencement:
On Royal
Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To appropriate approximately
$10.629 billion for the non-ordinary ( other ) annual services of
government.
Section 83 of the Constitution of Australia provides that no
monies may be withdrawn from the Consolidated Revenue Fund except
under an appropriation made by law . Laws authorising spending are
either:
- special appropriations, or
- six (usually) annual appropriation acts.
Appropriation Bill (No. 2) 2009-2010 (the Bill) is an annual
appropriation.
Section 54 of the Constitution requires that there be a separate
law appropriating funds for the ordinary annual services of the
government. That is why there are separate annual appropriation
bills for ordinary annual services and for other annual services.
The distinction between ordinary and other annual services was set
out in a Compact between the Senate and the Government in 1965 (the
Compact was updated to take account of the adoption of accrual
budgeting).
Appropriation Bill (No. 1) is introduced with the Budget and
appropriates funds for the ordinary annual services of the
Government . Appropriation Bill (No. 2) which is also introduced
with the Budget appropriates funds for other annual services. A
third Appropriation Bill Appropriation (Parliamentary Departments)
Bill No. 1 funds the parliamentary departments.
Budget terms and processes
Departmental and administered expenses
Departmental outputs (expenses) are the costs of running
agencies, for example, salaries, depreciation and other day-to-day
operating expenses. Administered expenses are the costs of programs
that agencies administer. While most administered expenses are
funded through special appropriations, some are funded through the
Appropriation Bills.
Departmental outputs and administered expenses contribute to
outcomes. They are the results or consequences for the community
that the government wishes to achieve. An example, in the
Attorney-General s portfolio, is:
An equitable and accessible system of federal
civil justice.[1]
Portfolio Budget
Statements
When the Budget is brought down, the government
releases Portfolio Budget Statements. They contain, amongst other
things, explanations of the funding sought through the three
Appropriation Bills. The Portfolio Budget Statements are relevant
documents for the purposes of section 15AB of the Acts
Interpretation Act 1901. This means that the Portfolio Budget
Statements can be used to help interpret an Act.
The Bill contains processes for reducing amounts that have been
appropriated but which are subsequently found to be more than was
needed. Reductions can apply to:
- payments to the states, territories and local governments and
administered items
- administered assets and liabilities, and other departmental
items, and
- CAC Act body payments.
Beginning in 2008-09, the process for reducing appropriations
for payments to the states, territories and local governments
changed from the process in previous years. Under the new process,
the amount reduced is based on agencies financial statements in
their annual reports. In essence, the amount of the reduction is
the difference between the total of amounts appropriated less the
amount shown as having been spent in agencies financial
statements.
The advance to the Finance Minister (AFM) provides flexibility
to the Budget process by authorising the Finance Minister to expend
money when the Finance Minister is satisfied that there is an
urgent need for expenditure during the financial year but for which
there is not a sufficient appropriation. The Finance Minister can
expend money from the AFM only if the proposed expenditure meets
certain criteria, namely, there is an urgent need for the
expenditure that is not provided for, or is insufficiently provided
for, because of an omission or understatement or because of
unforeseen circumstances.
In the past, payments for other services fell into four
categories:
- payments to the states, territories and local government (these
were paid under section 96 of the Constitution)
- new administered expenses
- non-operating (sometimes called capital ) costs:
- appropriations for administered assets and liabilities fund,
for example, the purchase of new administered assets and the
reduction of administered liabilities
- funding in the form of equity injections is, for example, for
substantial investment in new assets
- loans are provided when an investment is expected to result in
a return to the investment, for example, productivity gains
- previous years outputs appropriations replenish funds used to
provide departmental outputs in a previous year. This can occur,
for example, when the government has decided to introduce a new
program but the decision comes too late for the program to be
funded through the additional appropriation bills. In such cases,
the program is funded initially from existing appropriations. This
funding is later replenished in the form of a previous years
outputs appropriation, and
The fourth category is payments to CAC Act bodies. They are
authorities and companies established under the
Commonwealth Authorities and Companies Act 1997 (CAC
Act). Examples of CAC Act bodies are the Australian War Memorial,
the Australian Film Commission, and the Australian Broadcasting
Corporation.
Before 2008-09, payments to CAC Act bodies were made directly to
the bodies through Appropriation Act No. 2. Beginning in 2008-09,
payments to CAC Act bodies are paid indirectly through portfolio
departments. The reason for the change is that CAC Act bodies are
legally and financially separate from the Commonwealth and so do
not debit appropriations or make payments from the Consolidated
Revenue Fund. Rather, funding for CAC Act bodies is now paid to the
relevant portfolio departments which, in turn, pass the funds on to
the CAC Act bodies.
Payments for other services will change substantially on the
commencement of this Bill. As noted, in the past, payments to the
states, territories and local governments have been made under
Appropriation Bill (No. 2). Beginning with the Bill, payments to
the states and territories will be funded predominately under a
special appropriation, namely, the
Federal Financial Relations Act 2009 (FFR Act).
Payments under the FFR Act appear in the
Department of the Treasury Portfolio Budget Statements.
The following will continue to be paid under Appropriation Bill
(No. 2):
- payments made directly to local government
- some payments through the states and territories for
non‑government schools that are not paid from the Schools
Assistance Act 2008 or the Council of Australian Governments
Reform Fund
- non-operating costs (as before), and
- CAC Act body payments (as before).
As to the reason for the change, according to Budget Paper No. 4
2009-10:
The FFR Act implements the centralised payments
arrangement agreed by COAG in the Intergovernmental Agreement on
Federal Financial Relations. The detail of the Commonwealth's
payments to the States and Territories is now contained in one
piece of Commonwealth legislation. This streamlining will also
greatly improve public transparency of these payments and the
ability of the Parliament to scrutinise the payment
arrangements.[2]
The Bill contains a completely new part dealing with general
drawing rights limits. As noted, section 83 of the Constitution of
Australia provides that no monies may be withdrawn from the
Consolidated Revenue Fund except under an appropriation made by law
. Drawing rights are, in essence, a control over the power to make
payments authorised under appropriations:
Drawing rights provide controls around the
expenditure of money and the use of appropriations. They are a
statutory control over who may draw upon appropriations and make
payments, and they allow for conditions and limits to be set by the
Finance Minister (or his delegate) in relation to those
activities.[3]
Sections 26 and 27 of the
Financial Management and Accountability Act 1997 (FMA
Act) govern drawing rights. Section 26 requires an official or
minister to be authorised by a valid drawing right to do any of the
following:
- make a payment of public money
- request that an amount be debited against an appropriation,
or
- debit an amount against an appropriation.
Section 27, among other things, provides the Finance Minister
with the power to issue, revoke or amend drawing rights. Those with
power to issue drawing rights (in addition to the Finance Minister)
are Chief Executives, Chief Financial Officers, officials who have
been delegated the power to issue drawing rights, and all officials
who have been issued with drawing rights.[4]
The
Nation‑building Funds Act 2008 established the
Building Australia Fund, the Education Investment Fund, and the
Health and Hospitals Fund as well as special accounts for each of
those funds. The amounts in these special accounts are appropriated
for the purposes for which the Funds were created. The
Nation-building Funds Act 2008 and the
Federal Financial Relations Act 2009 which is the
special appropriation under which most payments to the states and
territories are made both contain mechanisms to limit the amounts
that can be paid from each special account annually. The maximum
amount that can be paid from each special account is called its
general drawing rights limit .
According to the Explanatory Memorandum, the reason for the
general drawing rights limits is as follows:
The general drawing rights limits provide
Parliament with a mechanism by which it may review the maximum
amounts that can be paid under each of these Acts in a financial
year.[5]
The Bill contains the general drawing rights limits for each
special account for 2009‑10. The Bill does not appropriate
amounts from the funds.[6]
The Bill appropriates about $10.629 billion. This compares with
about $12.691 billion in Appropriation Act (No. 2) 2008-09.
With the exception of the provisions dealing with the general
drawing rights limits, the Bill s provisions are substantially the
provisions of Appropriation Act (No. 2) of previous years.
Clause 6 provides that the total of the items
in Schedule 2 is $10 628 628 000.
Clause 7 deals with payments to the states,
territories and local government, and recasts provisions in
previous Appropriation Acts. Subclause 7(2)
provides that if the Portfolio Statements indicate that certain
activities were intended to be for a particular outcome, then
expenditure on those activities is taken to be as contributing to
the outcome.
Clause 8 deals with administered items .
Subclause 8(1) provides that the amount identified
for an administered item in an outcome can be used to contribute to
that outcome. The wording of subclause 8(2) is
identical to that in subclause 7(2).
As noted, administered assets and liabilities are one of the
four categories of non-operating costs. Clause 9
deals with administered assets and liabilities items.
Subclause 9(1) provides that the amount identified
for an agency s administered assets and liabilities may be applied
to achieving any of the agency s outcomes, which are specified in
Schedule 2 of the Bill or in Schedule 1 of
Appropriation Bill (No. 1) 2009-2010. The wording of
subclause 9(2) is identical to that in
subclause 8(2) and subclause
7(2).
Clause 10 deals with other departmental items .
Clause 10 authorises funding for three
departmental non-operating categories of funding equity injections,
loans and previous years outputs. Clause 10
provides that the amount specified in an other departmental item
for an Agency may be applied for the departmental expenditure of
the Agency.
Clause 11 deals with CAC Act body payments
items . Subclause 11(1) provides that an amount
appropriated for a CAC Act body payment item may only be applied
for payment to the CAC Act body named. Subclause
11(2) provides that if an Act provides that a CAC Act body
must be paid amounts that are appropriated by the Parliament for
the purposes of the body, and Schedule 2 contains
a CAC Act body payment item for that body, then the body must be
paid the full amount specified in the item.
Clause 12 deals with adjustments to payments to
the states, territories and local government, and to administered
items. Subclause 12(1) provides that the amount by
which payments to the states, territories and local government and
for administered items can be reduced is the difference between
what has been appropriated and what has been spent, the latter
being the amount shown in agencies financial statements. However,
paragraph 12(2)(a) gives the
Finance Minister power to determine that subclause
12(1) does not apply or that subclause
12(1) applies as if the amount in the annual report were
the amount that the Finance Minister determines
[paragraph 12(2)(b)].
Subclause 13(1) enables the minister
responsible for an agency, or the chief executive of the agency
where the Finance Minister is responsible for the agency to seek a
reduction in administered assets and liabilities and other
departmental items, while subclause 13(2) empowers
the Finance Minister to make a determination that accords with the
request. However, the determination cannot reduce the appropriation
below zero [subclause 13(3)]. Requests are not
legislative instruments [subclause 13(5)].
However, while the Finance Minister s determinations are
legislative instruments and are disallowable, the determinations
are not subject to the sunsetting provisions of the Legislative
Instruments Act 2003 [subclause 13(6)].
Clause 14 which deals with reductions to CAC
Act bodies payment items. The wording in clause 14
is almost the same as in clause 13. However,
whereas a request can come from the Chief Executive of an agency
for which the Finance Minister is responsible in the case of
clause 13, a similar request must come from the
Secretary of the Department in the case of CAC Act bodies
[paragraph 14(1)(b)]. Subclause 14(5) confirms
that a reduction can be made for a CAC Act body even though it has
been allocated funds under subsection 11(2).
As noted, the advance to the Finance Minister authorises the
Finance Minister to expend money when the Finance Minister is
satisfied that there is an urgent need for expenditure during the
financial year but for which there is not a sufficient
appropriation. Clause 15 deals with the
advance. Subclause 15(3) allocates a maximum of
$380 million to the advance.
As discussed, the Bill seeks to limit the amounts that can be
paid annually from the special accounts for three of the funds
established under the Nation‑building Funds Act
2008. Further, the Bill seeks to limit the amounts that can be
paid for general purpose financial assistance and national
partnership payments under the Federal Financial Relations Act
2009. Clause 16 General drawing rights limits
contains these provisions.
Subclause 16(1) limits the amount for the
Building Australia Fund to $1 025 000 000, subclause
16(2) limits the amount for the Education Investment Fund
to $1 390 094 000, while subclause 16(3) limits
the amount for the Health and Hospitals Fund to $ 465 700 000.
Subclauses 16(4) and 16(5) relate
to the Federal Financial Relations Act 2009.The former
limits the amount for general purpose financial assistance to $1
000 000 000 while the latter limits the amount for national
partnership payments to $23 000 000 000.
Clause 18 Conditions etc. applying to State, ACT, NT and
local government items
Section 96 of the Australian Constitution allows Parliament to
provide financial assistance to the states on such terms and
conditions as the Parliament thinks fit.
Clause 18 seeks to ensure that payments made
by the states, territories and local governments from financial
assistance provided by the Commonwealth must accord with the
conditions that the ministers specified in Schedule
1 establish.
Clause 19 Appropriations of the Consolidated Revenue
Fund provides that the Consolidated Revenue Fund is
appropriated as necessary for the purposes of the Bill including
the operation of the Bill as affected by the Financial
Management and Accountability Act 1997.
Schedule 1 confers on the ministers named,
power to determine conditions under which any payments to and
through the states and territories and local government authorities
may be made, and the amounts and timing of those payments.
Appropriations are set out in Schedule 2.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2464.
Richard Webb
21 May 2009
Bills Digest Service
Parliamentary Library
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