1. Introduction

About the inquiry

1.1
On 12 July 2021, with regard to the Public Accounts and Audit Committee Act 1951, the Joint Committee of Public Accounts and Audit (JCPAA) resolved to inquire into the use of alternative financing mechanisms in government expenditure. The inquiry focused on issues raised in Parliamentary Budget Office (PBO) Report 1/2020, Alternative Financing of Government Policies: Understanding the Fiscal Costs and Risks of Loans, Equity Injections and Guarantees, including:
the reasons for and effects of governments funding programs through alternative approaches
the costs associated with different policies
the reporting in Budget papers on programs funded through alternative approaches
1.2
The PBO was established in 2012 to ‘inform the Parliament by providing independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of proposals’.1 The PBO does this in three main ways:
by responding to requests made by Senators and Members for costings of policy proposals or for analysis of matters relating to the budget
by publishing a report after every election that provides transparency around the fiscal impact of the election commitments of major parties
by conducting and publishing research that enhances the public understanding of the budget and fiscal policy settings
1.3
Under its act, the JCPAA has broad inquiry powers relevant to Commonwealth reporting on financial matters. The Committee has a statutory duty to report to the Parliament on any alteration that it thinks desirable in the form of the public accounts or method of keeping them, and the mode of receipt, control, issue or payment of public moneys. The Committee also has a statutory duty to examine the accounts of Commonwealth receipts and expenditure, including the financial statements given to the Auditor-General, and all Auditor-General reports (including performance audits); and to report to the Parliament on any matters in those accounts, statements and reports. Under the Public Governance, Performance and Accountability Act 2013 (PGPA Act), the Committee must also approve any changes to Annual Reports (PGPA Rule 2014)—Commonwealth entity Annual Reports must comply with any requirements prescribed by PGPA Rules.

Alternative financing mechanisms

1.4
A common way for governments to pay for policies is through direct funding, where money is transferred from the government to entities/individuals through grants or other payments (such as pensions). With direct funding, the government does not expect to be repaid. Under alternative financing mechanisms, the government often provides financial resources to entities/individuals in return for a financial asset. Alternative financing mechanisms in government expenditure include equity injections, loans and guarantees.
1.5
Government equity injections occur where the government becomes an owner or part owner of a business, usually through the purchase of shares in public corporations or private sector entities. When the government makes equity injections, it maintains a degree of control over its investment as a shareholder, to facilitate the achievement of policy objectives and protect the investment itself. Equity injections are most commonly used to address a market gap where the risk profile makes private sector investment unlikely. The government may receive a flow of dividends from ownership and sell its share of the business at a later date. Examples of government equity injections include investment in NBN Co to implement the National Broadband Network; investment in the Australian Rail Track Corporation to implement the inland rail project; and investment in WSA Co for the building of Western Sydney airport.2
1.6
Government loans occur when a loan is issued by the government to support policy objectives, where private financing is not available. A loan is concessional where the government provides more favourable loan terms than the borrower could obtain commercially—the government may then receive repayments and interest from the loan. Examples of government loans include the Higher Education Loan Program; loans for infrastructure projects such as Westconnex; and loans through the Northern Australia Infrastructure Facility and the Clean Energy Finance Corporation.3
1.7
Government guarantees occur where the government agrees to assume the debt or performance obligations of another party in the instance of a default. Policy reasons for providing a guarantee include strengthening a recipient’s credit profile to enable private financing instead of a requirement for direct government financing. Examples of government guarantees include the First Home Loan Deposit Scheme and the Accommodation Payment Guarantee Scheme.4

Accounting standards, Commonwealth reporting framework and relevant guidelines

1.8
The PBO and the Department of Finance (Finance) provided the Committee with information on accounting standards, and the Commonwealth budget and financial reporting framework.5

Charter of Budget Honesty and PGPA Act

1.9
The financial management of the Commonwealth is established under two pieces of legislation. The Charter of Budget Honesty Act 1998 establishes the Charter of Budget Honesty, which is a set of rules establishing Commonwealth management and reporting on fiscal performance. The Public Governance, Performance and Accountability Act 2013 (PGPA Act), and the accompanying PGPA Rule 2014, PGPA Financial Reporting Rule 2015 and PGPA Resource Management Guidance (issued by Finance), provide for the financial management of the Commonwealth. All government expenditure is subject to the requirements of the PGPA Act.

Government Finance Statistics reporting framework and accounting standards

1.10
The Charter of Budget Honesty requires the application of the Government Finance Statistics (GFS) reporting framework and Australian Accounting Standards (AAS) for Budget reports. GFS are developed by the International Monetary Fund and issued for Australian Government use by the Australian Bureau of Statistics. The PGPA Act and the Corporations Act 2001 mandate the application of AAS for annual financial statements. AAS are issued by the Australian Accounting Standards Board (AASB) and include International Financial Reporting Standards.6 Australian Government financial statements are consistent with the Uniform Presentation Framework (UPF), which is a national agreement designed to provide consistent presentation of government financial information by Australian, state and territory governments on a basis broadly consistent with AASB 1049 Whole of Government and General Government Sector Financial Reporting.7

Budget Papers

1.11
The Commonwealth Budget consists of four Budget Papers—these documents present a picture of the Australian Government fiscal position, performance and outlook:
Budget Paper No. 1: Budget Strategy and Outlook provides a range of financial aggregates across the forward estimates period (the budget year plus three additional years)
Budget Paper No. 2: Budget Measures contains details of every new policy measure undertaken since the last Mid-Year Economic and Fiscal Outlook
Budget Paper No. 3: Federal Financial Relations contains information on payments made by the Commonwealth to the States
Budget Paper No. 4: Agency Resourcing contains information on the funding for each Commonwealth entity

Portfolio Budget Statements

1.12
Portfolio Budget Statements (PBS) are tabled by the relevant portfolio minister in support of the appropriation for that portfolio proposed in the Budget Papers, with an overview of the portfolio and separate sections for each Commonwealth entity within that portfolio. (The PBS is made available on departmental websites at the same time as the Budget Papers are released.) The PBS provides more detail on the proposed activities and expenditures of each portfolio entity for the Budget year and forward estimate years. Finance provides guidance and templates on the preparation of the PBS—see Guide to Preparing the 2021-22 Portfolio Budget Statements, March 2021.

MYEFO and Final Budget Outcome

1.13
Under the Charter of Budget Honesty, the Treasurer must release a Mid-Year Economic and Fiscal Outlook (MYEFO), updating any information that has changed since the Budget.8 Under the Charter of Budget Honesty, the Treasurer must also produce a Final Budget Outcome (containing the fiscal outcomes for the Commonwealth for the relevant year), within three months of the end of each financial year.

Annual Reports and financial statements

1.14
Under the PGPA Act and with reference to relevant PGPA Resource Management Guidance (RMG), Commonwealth entities are required to produce Annual Reports. The Annual Report also contains Commonwealth entity financial statements. All entities are required to prepare annual financial statements in accordance with the PGPA Act; the PGPA Financial Reporting Rule and relevant Finance RMG;9 AAS (including AASB 101 Presentation of Financial Statements); and/or other entity-specific legislation. The PGPA Financial Reporting Rule sets out the financial reporting requirements for Commonwealth entities.

Consolidated Financial Statements

1.15
The Consolidated Financial Statements (CFS), prepared by Finance and audited by the ANAO, provide the annual, end-of-year financial statements for the Commonwealth public sector and present the consolidated results for the Commonwealth, as well as disaggregated information on the various sectors of government. The CFS is prepared in accordance with the PGPA Act and AAS, including AASB 1049 Whole of Government and General Government Sector Financial Reporting.

Conduct of the inquiry

1.16
On 6 August 2021, the Committee issued a media release announcing the inquiry and inviting submissions. The inquiry received submissions as listed at Appendix A. Public hearings were held on 19 August 2021 and 15 September 2021. A list of witnesses and organisations is at Appendix B.
1.17
A copy of this report, transcripts of public hearings and submissions received are available from the Committee’s website at www.aph.gov.au/Parliamentary_Business/Committees/Joint/Public_Accounts_and_Audit.

  • 1
    See section 64B of the Parliamentary Service Act 1999.
  • 2
    For further information on government equity injections, see PBO Report 1/2020, Alternative Financing of Government Policies: Understanding the Fiscal Costs and Risks of Loans, Equity Injections and Guarantees, p. 3; and Finance, Submission 2, pp. 5-6.
  • 3
    For further information on government loans, see PBO Report 1/2020, p. 3; and Finance, Submission 2, pp. 6-7.
  • 4
    For further information on government guarantees, see PBO Report 1/2020, p. 3; and Finance, Submission 2, p. 7.
  • 5
    See PBO Report 1/2020 and Finance, Submission 2. See also PBO, Understanding the Budget in 5 Tables, May 2021; PBO, ‘Online budget glossary’, PBO website; Parliamentary Library, Budget Review 2021-22, May 2021; and Parliamentary Library, ‘The Commonwealth Budget: A Quick Guide’, Parliamentary Library website.
  • 6
    GFS and AAS standards are harmonised through the application of AASB 1049 Whole of Government and General Government Sector Financial Reporting. AASB 1055 Budgetary Reporting requires Australian Government and Commonwealth entity financial statements to explain major budget variances.
  • 7
    See Uniform Presentation Framework for the Presentation of Uniform Financial Information by Commonwealth, State and Territory Governments, February 2019.
  • 8
    MYEFO must be released within six months of the Budget, or by the end of January in a given year, whichever is later.
  • 9
    RMG 125, Commonwealth Entities Financial Statements.

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