CHAIR —This morning I welcome Senator Abetz, the Minister representing the Minister for Finance and Administration, and of course Dr Watt and officers of the Finance and Administration portfolio. Senator Abetz, do you wish to make an opening statement?

Senator Abetz —Just to say that the estimates hearings are always an exciting time of the parliamentary cycle! We look forward on this side of the table to very short, concise questions and I am sure you will get short, concise answers. We look forward to cooperating with the committee.

CHAIR —Thank you, Minister. Let us move to general questions of the Department of Finance and Administration.

Senator SHERRY —I wish to clarify a matter relating to superannuation. I have some questions which I think do fall within the parameters of Finance. I wanted to clarify an issue relating to the costings of superannuation and whether it would fall within the parameters of Finance or Treasury and Tax, which is where I suspect it falls, but I just want to clarify.

Dr Watt —Can you be a bit more specific?

Senator SHERRY —Yes, I am just about to be. There was a debate just over a week and a half ago about the costings of some proposals by the Labor Party on superannuation in respect of the contributions taxes that are paid on superannuation. You may recall the debate. There was a press release issued by Treasury in respect of costings for a variety of proposals. My understanding would be that the information and the detail would have come from Treasury and/or Tax and not from Finance.

Dr Watt —I think that is correct. I do not recall the press release specifically, but the department of finance's and the Finance portfolio's involvement in superannuation relates to the Commonwealth's own superannuation schemes. Any broader superannuation issue is a matter for the Treasury and the tax office.

Senator SHERRY —Excellent. I thought that would be the case, but I did not want to get involved in a jurisdictional issue and find, when I go to Treasury next week, they refer it back to Finance in some way. I have some general questions on public sector super, but I will be asking those later in the morning after my colleague Senator Conroy has finished his, I am sure, extensive questioning.

Senator Abetz —You will be back in 10 minutes!

Senator SHERRY —You are very optimistic. We are very excited and rearing to go, so I think it will be a long day.

Senator CONROY —At the last Senate estimates hearings in February 2002, I asked whether the department of finance had been asked to prepare any costings of opposition policies prior to the election being called and whether any costings had been prepared. Mr Bowen answered `No' to both questions. Mr Bowen has since submitted a correction to the committee dated 19 April, indicating:

It has since been drawn to my attention that proposals Finance costed at the request of the office of the Minister for Finance contained references to opposition policies.

Mr Bowen, when did you become aware that the department had prepared costings of opposition policies?

Mr Bowen —It was drawn to my attention that these references were included in the policy alternatives that we had costed a few days after the hearings in February.

Senator CONROY —How did you become aware of that?

Mr Bowen —It was drawn to my attention by my staff.

Senator CONROY —They rang you, phoned you, sent you a letter?

Mr Bowen —They came to see me—we are in the same building on the same floor.

Dr Watt —We are very friendly outfit, Senator.

Mr Bowen —I have provided this letter as a clarification to add to what I said.

Senator CONROY —Is this an extra letter on top of the one that was dated 19 April?

Mr Bowen —No, the same letter. The letter was purely to clarify the fact that, while we cost many policy alternatives—both at our own instigation and at the request of the government—prior to the election there were some policy alternatives that were costed for the government which made reference to opposition policies. We were not explicitly asked to cost an opposition policy, but we costed alternatives that had references in those documents to opposition policies.

Senator CONROY —Who received the request to do these costings?

Mr Bowen —I understand the request was directed to the Budget Group. Outside of the caretaker period, there is no reason why we should not undertake costings of any policy alternative that the government asks us to cost. As you know, within the caretaker period there are very clear guidelines under the Charter of Budget Honesty for how we go about the costing of clear election commitments. But outside of that period there are no restrictions on what agencies may be asked to cost.

Senator CONROY —Which officer received the request for these costings?

Mr Bowen —My understanding is that it came through the then general manager of the Budget Group. I do not have any more detail than that, I am sorry.

Senator CONROY —What was the officer's name?

Mr Bowen —I think you know. It was Stephen Bartos, who was previously in this chair.

Senator CONROY —Could you check that?

Mr Bowen —I know he was.

Senator CONROY —When were the costings prepared?

Mr Bowen —Those particular ones—and bear in mind that costing is part of our normal, everyday business—were prepared somewhere in the period between July and October, prior to the calling of the election.

Senator CONROY —I notice Mr Bartos is not with you anymore. When did Mr Bartos leave?

Mr Suur —Mr Bartos has not left; Mr Bartos is on study leave.

Senator CONROY —My mistake. When did Mr Bartos go on study leave?

Dr Watt —Mr Bartos went on study leave at the end of January this year. Also, he was in an off-line position for a number of months prior to that.

Senator CONROY —Who coordinated the preparation of the costings?

Mr Bowen —It was coordinated in the normal way within the Budget Group. It would not be normal for us to identify particular officers.

Senator CONROY —Who coordinated the preparation of the costings?

Mr Bowen —I just answered that.

Senator CONROY —No, you did not; you said you would not answer that. So now I am asking you again.

Mr Bowen —I have just not answered that. I am sorry, I do not think it is appropriate that we identify individuals.

Dr Watt —I agree with that. The costings were coordinated in the Budget Group, and it could have been any one of a number of officers at the time. The important thing is they were coordinated in the Budget Group; it is not who did them individually.

Senator CONROY —I will come back to that. Who from the office of the Minister for Finance and Administration made the request?

Mr Bowen —Again, that is really not a matter for us. It came with the authority of the office. If that is a matter the minister's office wishes to disclose then that is fine, but I do not think it is appropriate to disclose that.

Senator CONROY —I am not quite sure whether we have the convention the right way around. When you give advice to the minister's office, I understand you cannot talk about it. But when the minister's office gives you a direction then I am entitled to ask and be answered. It is not the same; it is the reverse. You are entitled to say, `We gave advice and we cannot tell you what's in it,' but normally information like who gave it and when is available through the Senate estimates process. It is not a question of saying no. There has been plenty of time—

Senator Abetz —We have been through before with this committee, Mr Chairman, the attempts to try to identify individual officers. I remember at one stage—

Senator CONROY —I am asking about the minister's office at the moment.

Senator Abetz —Yes. Similarly, with the minister's office, if a request was made from the minister's office, it can be assumed that it was done with the minister's authority—

Senator CONROY —I am not doubting that.

Senator Abetz —unless the minister indicates that somebody was on a frolic of their own. Whether the lowliest person in the office or the chief of staff passed on the request is immaterial.

Senator CONROY —When was the request made, or is that a state secret as well?

Mr Bowen —I cannot be any more specific, because over a period of time we get many requests to cost many different issues. But I have said that these particular ones were somewhere in the period from July to October. I do not have more specific information than that.

Senator CONROY —Was there more than one request?

Mr Bowen —There was.

Senator CONROY —How many requests were there?

Mr Bowen —I do not know exactly how many requests there were, because it is very normal for the minister or the minister's office to ask us to cost all sorts of things.

Senator CONROY —If the minister asks you to cost our policies, we are entitled to ask you about it. How many requests from the minister were there to cost Labor's policies?

Mr Bowen —The advice I gave at the previous hearing—

Senator CONROY —It was `no'.

Mr Bowen —Yes. We were not specifically asked to cost Labor policies; we were asked to cost policy alternatives that included references to opposition policy. As I have said, outside of the caretaker period, if we had been asked to cost Labor policies explicitly, it would not have been inappropriate for us to do that. But we costed policy alternatives that had references. I have made it very clear: my original answer is technically correct; however, in the interests of making sure that the Senate was not misled, I have added to that question. I do not have a lot more that I can add to it.

Senator CONROY —Is there someone from the budget section here that I can ask?

Mr Bowen —I have been general manager of the budget since December.

Senator CONROY —Great. I will keep asking you then. Given that you were not in charge of it then, it may be necessary for you to ask an officer who was there at the time to come to the table. Perhaps Mr Prior or Mr Flavel might like to come to the table to answer questions that you are unable to.

Dr Watt —I think we have the right people at the table.

Senator CONROY —I am entitled to call any officer I want to.

Dr Watt —But you are asking whether we need to have additional people at the table. I think we have the right people.

Senator CONROY —So you are denying me the right to ask questions of those individuals?

Dr Watt —I am just answering your question.

Senator CONROY —Am I entitled to have them at the table?

Senator Abetz —Senator Conroy, you have no right other than to technically ask me questions, and then it is up to me to determine whether I answer them or which official answers them on my behalf. You have no right to demand an answer from any official. You know that; I think you have been around long enough. I know I have been around long enough to know that.

CHAIR —I think technically the minister is right. Senator Conroy, please direct your questions to Mr Bowen. We will see how Mr Bowen goes.

Senator CONROY —Mr Bowen, when did you receive a request to cost Labor's policies? How many? They are perfectly straightforward questions, I am entitled to ask them, and I am entitled to an answer.

Mr Bowen —I am not wishing to be obstructive, but I have answered that question.

Senator CONROY —Well, you are succeeding.

Mr Bowen —I have answered that question.

Senator CONROY —I am asking you the date the request was received. It is a factual matter that I am entitled to ask a question about. The Senate is entitled to receive an answer.

Mr Bowen —I am happy to take on notice—

Senator CONROY —Thank you!

Mr Bowen —Let me get this on the record so it is clear: I am happy to take on notice the date on which we received a request to cost alternative policies—not Labor policies—that contained references to Labor policies. I am happy to take that on notice and look at the actual dates.

Senator CONROY —Are you indicating there were a number?

Mr Bowen —I will look at the dates that we were requested for those matters to be costed and will provide them.

Senator Abetz —There should not have been too many because there were not too many Labor policies floating around!

Senator CONROY —It should not take Mr Bowen long at all on that basis. You were not in charge of the section at the time, but do you know Ms Bessell, a ministerial adviser in Mr Fahey's office?

Mr Bowen —I have known her for some time, yes.

Senator CONROY —Did any of the requests about costings come from Ms Bessell?

Mr Bowen —The requests came from the office. I cannot answer beyond that.

Senator CONROY —You can, actually; you are just not.

Mr Bowen —I am not able to answer.

Senator CONROY —You are actually able to answer that question.

Senator Abetz —There is no benefit in finding out from whom the request was made. It was made with the authority of the minister, so who the conduit was is quite irrelevant.

CHAIR —Mr Bowen has answered the question as well as he can.

Senator CONROY —No, that is not correct. He has answered the question as well as he wants. There is a distinction.

CHAIR —Senator Conroy, please.

Senator CONROY —No. I am not going to let you misrepresent Mr Bowen. I am going to defend Mr Bowen and—

Mr Bowen —Thanks, Senator.

Senator Abetz —You are the expert on that, Senator Conroy!

Senator SHERRY —We are not into bagging public servants.

Senator CONROY —Absolutely. Were the requests made verbally or in writing?

Mr Bowen —The requests were in writing. Normally any significant costing that we would undertake would be undertaken on the basis of a written request.

Senator CONROY —What was the response when the request for costings was made?

Mr Bowen —As I understand it, costings were provided on the basis of the material provided to us.

Senator CONROY —Your position as you just stated is that there is nothing at all wrong with costing Labor policies for the government.

Mr Bowen —Outside of the caretaker period we have an obligation to cost whatever policy alternatives the government asks us to cost.

Senator CONROY —So if the minister's office sends you the Labor platform and says, `Give us a costing,' you think that is appropriate work for the Public Service?

Mr Bowen —I have just said that I think outside of the caretaker period there is no restriction on what the Public Service is able to cost.

Senator CONROY —Minister, do you think it is appropriate to have public servants do the political work for you?

Senator Abetz —You are making an assertion. I am not sure I agree with the assertion in the question. The costing of alternative policies is public policy work that is being undertaken.

Senator CONROY —If you downloaded off the Labor Party's web site its aged care policy, say, do you think it is appropriate then to send it over to Finance and ask them to cost it? I am interested in your opinion. Do you think that is political activity or departmental activity?

Senator Abetz —You are dealing with hypothetical situations. Let us see what Mr Bowen provides to you.

Senator CONROY —Let us just say any policy. Do you think it is a function of the Public Service to produce costings of Labor Party's policies, which is clearly political work—

Senator Abetz —If it is an alternative policy then I dare say there is some public interest in that.

Senator CONROY —So you think it is reasonable then for the government to use taxpayers' money to cost Labor's policies?

Senator Abetz —You seem to be so excited about Labor policies. I wish you were that excited about developing policies before the election. But it is not Labor policies that we are talking about; we are talking about alternative policies.

Senator LIGHTFOOT —I was not sure that the government was aware that Labor had any policies, Minister.

Senator CONROY —We have already had that joke, but I am happy to have it again, Senator Lightfoot. I am looking forward to Mr Bowen providing a list of many policies that the department was actively costing—

Senator SHERRY —They were costing them so they had to exist.

Senator CONROY —which should at least then respond to Senator Abetz and Senator Lightfoot.

Mr Bowen —Just to clarify, I have undertaken to provide the dates on which we were requested to cost various policy alternatives. I have not undertaken to provide a list.

Senator CONROY —No. I thought you said those that were in relation to Labor, because I am not actually interested in—and I do not think you were offering to cost or give to us—just anything that the minister's office asked you to do. It was the specific Labor aspects of it.

Mr Bowen —That was implicit in what I was just saying. Of course, the correspondence between ourselves and the minister and his office is not something I can disclose, nor the nature of our advice, so I will have to be careful about what I provide to you. But I will certainly provide you with the dates.

Senator CONROY —I am entitled to ask you for a copy of the minister's correspondence. There is a convention about your advice going back to them; I did not understand there was a convention—

Senator Abetz —You are entitled to ask as much as you like, but you have got to understand that you are not necessarily entitled to the sorts of answers that you might want.

Senator CONROY —I understand that. The point I was making is that I understand that there is a convention about information that passes from your department to the minister and you do not have to disclose that; that is a longstanding position. It is not my understanding that there is a convention with regard to the reverse; frequently, information passed and directions given by the government are tabled in the all forums of parliament on request. So if I were to say to you, `Mr Bowen, could I have a copy of Ms Bessell's email?' there is no convention that you are required not to.

Senator Abetz —What you are suggesting, Senator Conroy, is that therefore any request from any minister to the department should be made available.

Senator CONROY —I am saying that there is no convention that there is a blanket ban. That sort of information is frequently tabled in parliament.

CHAIR —I think it is right to say that there is not a blanket ban, Senator Conroy, but it would depend exactly on the context of the letter because if it is a discussion of policy advice then that is not appropriately given in estimates, as Mr Bowen has rightly said.

Senator CONROY —I am making the point that there is no blanket ban, that is all.

CHAIR —I understand that.

Senator CONROY —And that the minister can authorise the release of it any time they like.

Mr Bowen —I undertake to provide whatever information I can, but it will include the dates of the request.

Senator CONROY —Would you be able to tell us how many Labor policies were asked be costed within that?

Mr Bowen —I will take it on notice.

Dr Watt —Again, Senator, we are dealing with requests for costings that had reference to Labor policies in them.

Senator CONROY —If possible, could that include which of Labor's policies you were costing?

Mr Bowen —I will take that on notice too.

Senator CONROY —Minister, do you have a problem with this information being made public?

Senator Abetz —I have no difficulty with it being taken on notice.

Senator CONROY —I asked if you had any difficulty with this information being made public.

Senator Abetz —There is a lot to be considered and that is why we are taking it on notice; we will let you know. You should have been around, Senator Conroy, when your colleagues were in government. You would have seen the sorts of responses that were obtained in those days and you would be very pleased with the openness of this government, I can assure you.

Senator CONROY —So if the email from Ms Bessell makes any reference to the Labor position—

Senator Abetz —You are assuming a certain person's name, and any response will be on the basis of the minister's office.

Senator CONROY —That is your assumption.

Senator Abetz —Unless you are asserting that emails were passed without the minister's authority then I can assure you it was from the minister's office—

Senator CONROY —But the minister does not press the button and type them himself.

Senator Abetz —To gratuitously name people in these sorts of hearings when it has no relevance other than some jolly that you might get for trawling their name through the Hansard does not reflect well on you, Senator.

Senator CONROY —Were any of the budget group present at the last Senate estimates hearing when you gave your answer, Mr Bowen? Were they sitting behind you?

Mr Bowen —There would have been people there, yes. As I said, my answer was technically correct.

Senator CONROY —Misleading the Senate is not actually something that—

Mr Bowen —I have not acknowledged that I misled the Senate: I have added to my answer to ensure that I do not, but my original answer was factual, correct and concise.

CHAIR —Senator Conroy, you should be slow to impute that motive to a witness.

Senator CONROY —I did not. I was making the point that it is not something that is highly regarded.

Senator Abetz —And we well recall the Baillieu family.

Senator CONROY —You might well recall them, but I certainly do not recall them well.

Dr Watt —To be fair to Mr Bowen, he has tried to be as open and transparent as possible in adding to his information. I would say that is quite the obverse of any misleading.

Senator Abetz —Exactly.

Senator CONROY —I appreciate that Mr Bowen was not in charge of the section at the time. I understand that he may not have been fully across what happened back then, and that is a reasonable answer. I am not sure that we are getting a reasonable answer.

Dr Watt —I think that is what you are getting.

Senator CONROY —I would like to think it was simply a fact that Mr Bowen was not in charge of the area at the time, rather than something else. When you, Mr Bowen, examine the emails—and I am not sure if you have—you may want to further correct the record, and that would be appreciated. If specific references are made to Labor's policies then you may, after you have reviewed the documentation, want to add to your answer—because I am not sure that saying that technically you're correct is correct.

Mr Bowen —I have reviewed the material, and that is one of the reasons—along with things like the budget—it took a little longer to get my letter to you.

Senator CONROY —I am sure you were working on something of slightly higher priority at the time!

Mr Bowen —I have reviewed the material, but I have undertaken to provide you with whatever additional information I can of a factual nature about the dates we received the requests. However, they were requests—and I reiterate—for us to cost policy alternatives.

Senator CONROY —I am not sure why you are so bashful about the ALP policies.

Mr Bowen —I am not bashful about that.

Senator CONROY —You have clearly made the point—and the minister apparently believes it is reasonable for you to spend your time costing our policies—so I am not sure why you are being bashful.

Mr Bowen —I am rarely bashful. I said that outside of the caretaker period—as this was—it is quite appropriate for us to cost whatever we are asked by the government to cost in the interests of good public policy. However, the facts of the matter—and I cannot change the facts—are that we were asked to cost policy alternatives; we were not requested to cost opposition policies. There were references to a few opposition policies in those policy alternatives, and that is also a fact.

Senator CONROY —Is there a problem with identifying which ones?

Mr Bowen —I have said we will take it on notice, quietly and calmly, and we will provide you—

Senator CONROY —That is what I am saying: you seem remarkably bashful all of a sudden. You should be proud of your work.

Mr Bowen —We are very proud of it.

Senator CONROY —Tell us all about it.

Mr Bowen —We are very proud of our work, and we will provide you with whatever we can.

Senator Abetz —Some people do not skite!

Senator CONROY —I am inviting Mr Bowen not to be bashful; he should take up the opportunity.

Mr Bowen —I will blush shortly!

Senator CONROY —I want to ask about the decision to delay Defence capital projects.

Dr Watt —Would you prefer to do that within outcome 1? We are getting into some quite specific issues.

Senator CONROY —These are still general questions.

Dr Watt —We do not necessarily have here every SES officer in the department.

Senator CONROY —I appreciate that. I am going to come to the question of the budget papers and the refinements that you have been working on in consultation with all the other departments, which we talked about at some length last time, but I thought those fell within output 1.1.1, Budget advice.

Dr Watt —That is correct, but I thought we were still on general questions, which is why we do not have that. We do, however, have someone who I think can help you.

Senator CONROY —Great.

CHAIR —Senator Conroy, are we on general questions still?

Senator CONROY —I am probably moving on to more specific ones. I cannot vouch for my colleagues.

CHAIR —We may come back to general questions. Is that right?

Senator CONROY —It is possible.

[9.40 a.m.]

CHAIR —So, in effect, we are looking at output 1.

Mr Bowen —As a `we', Mr Chairman, as always!

Senator CONROY —I would like to ask about the decision to delay Defence capital projects. Page 614 of Budget Paper No. 1 states:

Defence has rephased $150 million of its specialist military equipment acquisition programme from 2002-03 to 2003-04 ahead of the Defence strategic review in late 2002.

What is meant by `rephased'?

Mr Lewis —That $150 million has been rephased into the 2003-04 financial year and then out turned. So a slightly larger number—$153 million from memory—appears in the 2003-04 budget. Essentially it has been shifted from 2002-03 to 2003-04.

Senator CONROY —`Deferred' is another way of putting it. `Rephased' is a fancy term I have not seen often, but it is all over the budget.

Mr Lewis —In other words, it is a rephase of a small part of the capital budget to allow the strategic review to be conducted in an orderly fashion, to report to ministers in the September-October period and for capital decisions to be taken in the light of the outcome of that review.

Senator CONROY —So this means that the expenditure of $153 million or $150 million—I am happy to leave it at $150 million—on specialist military equipment has been shifted from 2003-04?

Mr Lewis —From 2002-03 to 2003-04. It is an out turn number which reappears in 2003-04.

Senator CONROY —So it is $150 million off the expenditure?

Mr Lewis —It is $150 million off 2002-03.

Senator CONROY —Yes, in this coming year.

Mr Lewis —Correct.

Senator CONROY —Do you know what the military equipment was?

Mr Lewis —The full budget?

Senator CONROY —It is just called `specialist military equipment'. I was wondering whether our troops in Afghanistan were missing out on anything in particular because it has been rephased.

Mr Lewis —Indeed not. In fact, the Defence PBS indicates some of the additional funding that has been provided to support the war against terrorism.

Senator CONROY —Why was it rephased?

Mr Lewis —Essentially a small part of the capital component of Defence's budget was rephased to allow the strategic review to occur in the second half of this calendar year and for that strategic review to be provided to ministers and for capital decisions to be taken in the light of the outcome of that strategic review. It is quite a modest rephase of a relatively small component of the capital budget to allow capital decisions to be taken in the light of the outcome of that review.

Senator CONROY —Don't you normally do a review before you cut? It seems you have done it the other way round—you have done the cut before you have done the review. Normally you do the review and then do the cut following the outcome of the review.

Mr Lewis —We in Finance would regard it as a cut if we took the money back—

Senator CONROY —Now we know what you are up to!

Mr Lewis —whereas rephasing is a deferral of some expenditure to allow decisions to be taken in the light of the improved information that will be available to ministers arising from the strategic review.

Dr Watt —I think it is important to focus a bit on the context in which the decision is to be taken. The context was a budget that gave very substantial increases in funding to Defence and which also saw Defence shift its own priority expenditure. So it was not like overall Defence spending was cut; in fact, overall Defence spending increased substantially in both 2001-02 and 2002-03 for the war on terror and for domestic security reasons.

Senator CONROY —But in this particular case, expenditure was deferred. `Deferred' is the word I prefer; it is easier to say than `rephased'.

Dr Watt —There was additional expenditure in other operational areas.

Senator CONROY —What is the impact on the budget in 2002-03 of this rephasing?

Mr Lewis —If you look at that transaction alone, it is a minus $150 million item and a plus of $153 million.

Senator CONROY —So that would be a reduction in expenditure by $150 million?

Mr Lewis —Yes.

Senator CONROY —Therefore, on that one item, the deficit surplus would be affected by $150 million?

Mr Lewis —And in that one year.

Senator CONROY —Yes.

Dr Watt —That is technically correct because there are a number of other things going the other way.

Senator CONROY —I am talking about this one particular line item. I acknowledge that there is a whole big budget out there that is moving around.

Dr Watt —And growing.

Senator CONROY —I would like to ask about the rescheduling of the roads budget.

Mr Lewis —I will stick with that one, too.

Senator CONROY —Did we reschedule rather than rephase the road budget?

Mr Lewis —Rephase in the same context: it is a deferral of expenditure—

Senator CONROY —I was wondering why we had so many words for `defer'. You must have had the thesaurus working overtime. Budget Paper No. 1, on page 651, states:

Expenses fluctuate ... mainly due to rescheduling of projects in the National Highway and Roads of National Importance Programme and the Roads to Recovery Programme.

We have agreed that rescheduling means rephasing which means deferring. What is the effect of this rescheduling measure on the budget in 2002-03?

Mr Bowen —It is $200 million in 2002-03, in the paragraph on page 651, and it is $100 million in 2003-04, with increases of $300 million in 2004-05.

Senator CONROY —So the impact on the bottom line is to, again, move the bottom line up or down by $200 million. We have $150 million deferred/rephased and $200 million rescheduled/deferred. So that is $350 million that we originally were going to be spending next year that has been moved to the following year, so far.

Mr Lewis —That is correct.

Senator CONROY —I would also like to ask about the deferral of the Working Credit proposal in the welfare reform package.

Mr Lewis —We may not be able to help with that.

Mr Bowen —Which page are you on there?

Senator CONROY —Budget Paper No. 2, page 98 states that almost $40 million worth of measures in the Australians Working Together package has been rescheduled, including a delay in the implementation of the Working Credit measure from 20 September 2002 to 28 April 2003. The Working Credit measure was the largest component of the welfare reform package; is that right? It may be a bit too specific.

Ms Campbell —I cannot comment on that.

Senator CONROY —It is $521 million over four years, if you were to ask the other departmental areas. It accounted for over two-thirds of the total package that was proposed under this measure. What is the effect, again, of the rescheduling of the $40 million? What does that do to the bottom line for 2002-03?

Mr Bowen —The clear mechanics of it is a reduction in the budget balance by that amount.

Senator CONROY —So we have $150 million, $200 million and $40 million, which on my shopping maths comes to $390 million; does that sound right?

Mr Bowen —It may be right.

Senator CONROY —Senator Sherry is not in, but Senator Brandis has the calculator going.

Senator BRANDIS —Ms Morton's calculator.

Mr Bowen —It might be right, Senator.

Senator BRANDIS —That is the calculator, Senator Abetz, on which I just calculated a $3.2 million rip-off this year by the Labor Party from the taxpayer.

CHAIR —Thanks, Senator Brandis.

Senator CONROY —It takes you that long to interject!

Senator Abetz —You are vouching for its accuracy.

Senator CONROY —I have Senator Brandis agreeing with me that the budget bottom line is improved by $390 million.

CHAIR —Order! Senator Conroy, please carry on.

Senator CONROY —The total of $390 million is put back on the budget bottom line: there is $390 million worth of improvements in the bottom line because of deferred expenditure next year.

Dr Watt —Senator, I should just make the point again, because I think it is an important one, that the rephasing of Defence capital expenditure was done in the context of a large additional operational expenditure which much more than offset that rephasing, and included a large amount of additional resources given by the government.

Senator CONROY —This was money set aside previously to spend in this year that was presumably going to buy some special extra military equipment.

Dr Watt —That is correct. But in the face of the changed threat environment that Defence faced you would expect a substantial reconfiguring of their overall expenditure, and that is what has happened.

Senator CONROY —It could be bullets for people in East Timor. They have been complaining they can only shoot two bullets at a time.

Dr Watt —No.

Senator Abetz —At the same time?

Senator CONROY —Before they run out.

Dr Watt —We are not able to comment on concrete particular Defence measures, but that does not sound quite right to me.

Senator CONROY —What is the projected fiscal balance for 2002-03?

Mr Bowen —That is $180 million for 2002-03.

Senator CONROY —And if the $390 million worth of expenditure deferrals had not taken place, what would the fiscal balance be?

Mr Bowen —You cannot answer that question in isolation, Senator.

Senator CONROY —You can actually do maths. You have done a bit for me already today.

Mr Bowen —If you want to use the economist's ceteris paribus, you can do anything. But, if you take it in context, policy decisions worsened the bottom line, if I can put it that way, in 2002-03 on a fiscal balance basis by over $700 million.

Senator CONROY —I agree.

Mr Bowen —If we are going to look at parts of it, we need to look at the totality, really, or it is quite misleading.

Senator CONROY —I am not disagreeing with your assessment. I am simply making the point that without the $390 million of deferrals of moneys that have already been pledged by previous government policy commitments, in actual fact next year's surplus or fiscal balance if positive would be in the negative.

Mr Bowen —You can take many of the measures—

Senator CONROY —Many of the previous policy commitments are not actually an issue for you in the sense that the government changes its mind and you just crunch the numbers.

Mr Bowen —Sure.

Senator CONROY —What I am saying is that the government took three decisions to defer commitments it had made previously, and the net impact of that on the bottom line was that the government, while claiming that it is projecting a fiscal positive balance next year, in actual fact, if it had kept its previous commitments, would have delivered a fiscal negative or deficit, to use not interchangeable phrases but for simplicity. Was that a policy decision made by the government?

Mr Bowen —I am not going to comment on the government's policy decisions. Budgeting is all about priorities and that is a matter for government. But the simple arithmetic worries me because it is so partial.

Senator CONROY —Simple arithmetic is—

Senator Abetz —Simplistic, might be a better term, not simple.

Senator CONROY —Simple arithmetic is a beautiful thing.

Mr Bowen —But it is a partial analysis, and if you look at the underlying cash position in 2002-03 there is a very healthy surplus.

Senator CONROY —Surely an official of the department of finance is not going to try and champion, after all you have been through to try and introduce the accrual concept into the Public Service, the cash balance?

Mr Bowen —I am happy to have that debate with you any time.

Senator CONROY —It is Ken Henry you want have the debate with—he is the one opposed to it.

Mr Bowen —I can have it with Ken, too, but the issue is not cash or accruals; it is both. We have talked about this before—

Senator CONROY —Do you want me to get all the quotes from Dr Boxall and the Treasurer and Mr Fahey.

Mr Bowen —It is both. I am happy to have the discussion; they are both important.

Dr Watt —That is the important point: they both provide insights and information. That is why you need to look at them both.

Senator CONROY —I just remember Dr Boxall, your predecessor, suggesting that, after a phase-in period, it really was the most important measure. I am sure I have got quotes that say that—and from Mr Costello and Mr Fahey. It was a revolution in government accounting!

Dr Watt —The addition of the accrual measure is an important and very useful addition in government accounting—

Senator Abetz —It is not the only one.

Dr Watt —but it is not the only one.

Senator CONROY —I am not arguing that it is the only one; I am just trying to point out the government's previous position—

Senator Abetz —You were trying to do that.

Senator CONROY —which was to define it as slightly more relevant than they see it today, Dr Watt.

Dr Watt —I would not assign relative merit to one or the other; I would say that they are both important and they both tell you something.

Senator CONROY —Read the speeches when it was introduced, where lots of relative merit was assigned.

Senator Abetz —But you should have learnt something from them—that is the point.

Senator CONROY —I am an advocate of the fiscal balance and accrual accounting, Senator Abetz—

Senator Abetz —Today.

Senator CONROY —I just wish you were today.

Mr Bowen —I wanted to add one point that might help. Fiscal balance is acknowledged as a measure of sustainability, whereas cash is more an issue of impact on the economy and liquidity—and they vary over time. If you look across the lines—you do not have my summary chart here, but it is in the budget papers—

Senator CONROY —You could table it unless it has come from the minister's office, and then you might want think about it and take it on notice.

Mr Bowen —Not with my scribbles on it, probably.

Senator Abetz —He has some comments about you on it!

Mr Bowen —They are very complimentary! If you go out to 2004-05, in fact fiscal balance increases quite markedly to over $5 billion and the cash balance is slightly below that. You really do have to look at these aggregates over time I think.

Senator SHERRY —That is about when the government will stop using cash—2004-05!

Senator CONROY —A cynic might say that.

Senator SHERRY —I am happy to go with cash at the moment.

Senator CONROY —I wanted to have a chat about DOFA's costings of the coalition's defence policy during the election.

Mr Bowen —Given the change in personnel, we are looking for somebody who was involved with that.

Dr Watt —Why don't you press on and we will see what we can do, Senator.

Senator CONROY —The deployment, as I am sure you remember, included 150 SAS troops to Afghanistan, four FA18 fighters—apparently some bay at Diego Garcia according to some reports and some reports say they are flying military cover; Defence will be able to sort that out for us—two 707 air-to-air refuelling aircraft, three ships in the Persian Gulf to enforce the blockade on Iraq and two to three P3 Orion aircraft. Does that all ring a bell? I think it was announced on 17 October. I remember the day myself: I was attempting to give a press conference in Perth and 45 minutes were spent asking questions about deployment of troops and I got one question out of sympathy from the gallery on the policy I was trying to announce, so I remember it well. On 17-18 October, the Treasurer and the PM were asked about what it would cost and they maintained that all costs would be absorbed—that it was a zero cost. Was DOFA aware of the Prime Minister's announcement about deployments to the Middle East before it was made on 17 October 2001?

Dr Watt —We are not able to comment on that—we can take it on notice, but we are not able to comment at this stage. We just do not know.

Senator CONROY —Was it involved in any process to cost this announcement before it was made?

Dr Watt —Again, we could take it on notice.

Senator CONROY —You would expect it to be, wouldn't you? I appreciate, Dr Watt, that you were not in the chair. Mr Bowen, I think you were with the department?

Mr Bowen —I was not actually in the country, I am sorry.

Senator CONROY —Somebody, somewhere in the department of finance must know.

Mr Bowen —Hypothetically—my answer is hypothetical—you would not necessarily have to cost something of that nature, if the defence department was able to reorganise its priorities to achieve it. I do not know what the actual situation was at that time, but hypothetically—I do not normally answer hypothetical questions, Senator—

Senator CONROY —You asked it. I was asking a non-hypothetical question; you have asked and answered one.

Mr Bowen —but conceivably it may well have been able to reprioritise at that time. I do not know.

Senator CONROY —In his press conference on the MYEFO the Treasurer specifically states in response to a question on the cost of the deployment:

But in terms of funding the fighter force, the surveillance force, the ships and the troops, that is all factored into the Budget. Right. Now if there are additional requests we would look at those at the time. But in terms of factoring all of the military hardware and the hours and wages and all of that, that is factored into this Budget.

That was 17 October 2001. Somebody in Finance must be able to help me as to whether or not DOFA was involved in the costing. It is either yes or no. I am asking about prior—I will come to subsequent. There must be some corporate memory?

Dr Watt —That was the caretaker period, if I recall correctly, and we operate under very special rules and requirements as you know under the Charter of Budget Honesty in the caretaker period. We are happy to look at the issue of whether Finance was involved in finding costings or not.

Senator CONROY —Okay, then if you could find out whether or not DOFA was involved prior to the announcement and, if it was not, then, subsequent to the Prime Minister's announcement, did you do some costings? When the Prime Minister makes an announcement like that—I do not know your process—but I am presuming—

Dr Watt —You have to make a distinction for the caretaker period in the Charter of Budget Honesty. Any costings we do under the charter, if memory serves me correct, during the caretaker period are only ones formally referred to us by the coalition and the Labor Party and they are costed and released under the Charter of Budget Honesty by the secretaries of Treasury and Finance. So we would not be doing other things.

Senator CONROY —Okay. Did you cost that request—the coalition's defence policy released on 9 November?

Dr Watt —We can check that.

Mr McMahon —I arrived about the time of the costings under the Charter of Budget Honesty and I can advise that certainly the government's election commitments were costed by the department. The government indicated that, in the short term, the money for the war on terrorism would be absorbed by Defence but in the longer term there could be some additional expenditure. I think that is on record. This information was provided to us via the secretaries of the Treasury and Finance and Administration under the Charter of Budget Honesty. That is essentially what I can add to this.

Senator CONROY —Thank you, Mr McMahon. When the announcement was made on 17 October, you may have noticed at the time that there was a fair bit of controversy and scepticism about the costing?

Dr Watt —I did not. I was worrying about communications policy at that stage.

Senator CONROY —You would not have been following the news at all, Mr Bowen—I appreciate that you were not even in the country. There was a great deal scepticism about the Prime Minister and the Treasurer's claim. While I appreciate that you may not have been involved in a costing before the announcement, certainly, as Mr McMahon has indicated, you did cost the coalition's defence policy on request as part of the Charter of Budget Honesty. It was released on 9 November and had the net cost for these deployments in 2001-02 at zero dollars. Is that an accurate statement?

Mr McMahon —That is correct, as I understand it.

Senator CONROY —What action did DOFA take to ensure its costing of the deployments was accurate? Does the minister just give you a document and say, `This is the cost'? What is the process when that happens?

Dr Watt —When a costing request is made under the Charter of Budget Honesty, material is provided by the Leader of the Opposition or the Prime Minister of the day—depending on which party is being costed—and sometimes there are subsequent iterations, with the body requesting the costings to clarify matters. But in this case I think the issue was fairly clear: the government said initially that the cost would be absorbed and that they would look at subsequent things down the track. That is correct, isn't it?

Mr McMahon —That is correct.

Senator CONROY —When they announced that they were going to deploy 150 SAS troops to Afghanistan, four FA18 fighters to Diego Garcia as well as refuelling craft, three ships and couple of other Orion aircraft, they wrote to you and said, `This is what we are doing; there is zero cost,' you accepted that. You were in caretaker provision at that stage; it was not like it was `the government'. The Charter of Budget Honesty requires you to do something, I presume, other than just accept the word of the political party that supplies you with the document.

Dr Watt —There are two important points. You have an advantage over us, as I am not sure exactly what had been announced at that stage by way of commitment to the war on terror and whether all those assets had been committed or not. Firstly, the government made it quite clear that, in the initial event, the cost would be absorbed. It is a very big budget, and the Department of Defence has great ability to reconfigure, to move money away from training programs to operational programs—which is what it has done—and a large slice of the costs of the war on terror have been met that way. Secondly, the government made it clear that at that stage it was not clear how long these assets would be required to remain in place. It was obvious that the longer the assets remained in place the greater the cost and if they were in place for a short period of time, for example, the cost would be likely to be relatively small and if they were left in place for a long period of time, the costs would go up.

Senator CONROY —Can I go back to what the Treasurer said when some of these figures were being debated publicly. On 17 October 2001, he said:

... in terms of funding the fighter force, the surveillance force, the ships and the troops, that is all factored into the Budget. Right. Now if there are additional requests—

he makes the point about additional requests but that is not what we are asking about, so those sorts of issues are not relevant—

we would look at those at the time. But in terms of factoring all of the military hardware and the hours and wages and all of that, that is factored into this Budget.

Then he submitted a policy to you to cost something and, in the additional estimates for Defence, the additional funding for the deployments totalled $339 million. That is for the exact same thing. I am trying to understand how Finance seem to have just accepted a statement. I know what we go through when we submit our documents to you—and you are pretty rigorous, and that is what the Charter of Budget Honesty requires. I am trying to understand how the other political party submitted to you a document that said, `There's no net cost to that,' and three months later factored in a $339 million additional estimate. What happened in those three months? What did you become aware of within those three months that you were not aware of on 9 November?

Dr Watt —I think my points remain. The Treasurer said at the time that the cost of the deployment would be absorbed within the Defence budget. Defence budgets have great capacity to absorb.

Senator CONROY —I appreciate that. But for future reference, so we know that, when we submit our policy documents and say, `There's no net cost to sending a man to the moon,' and, `It's going to be absorbed within the existing budget parameters,' you are going to say, `No worries.'

Dr Watt —If, hypothetically, the government had a budget for sending a man to the moon, we would look at whether or not it was absorbable in that budget. There are two further points to make: the additional estimates was several months after the Charter of Budget Honesty costings were addressed—

Senator CONROY —I am asking: what happened in three months? You copped zero with no questions because the Treasurer told you it was zero, and three months later you bowled up $339 million to parliament.

Dr Watt —The answer may well be that we have had longer deployments, different deployments, I am not sure the minister was saying—

Senator CONROY —No, this is the same. The Treasurer made it clear.

Dr Watt —You have an advantage on me there, Senator.

Senator CONROY —I have read it to you twice and I am happy to read it to you again. The Treasurer makes it quite clear. You costed the coalition's defence policy for this initiative at zero dollars and three months later you have bowled up an appropriation to parliament for $339 million.

Dr Watt —As you said, in the Charter of Budget Honesty period we provided a costing. My advice is that the duration of the commitments may well have been different and, obviously, the longer the duration the greater the costs. I would also point out that in relation to the overall cost of the war against terror, which the government has put in its budget papers, the increases you are talking about are not large. When you think about the scale—

Senator CONROY —They might not be large to you but, in a heated election context, if the Department of Finance says, `There is no extra cost,' that is a credible thing. That is important.

Dr Watt —At the time that was the department's best judgment based on the parameters available to us.

Senator CONROY —That is what I am trying to get to: what action did DOFA take to verify the costings of the deployments? Did DOFA independently verify the government's claim that all costs would be absorbed? Did you approach the Department of Defence for information on the costs associated with the deployments?

Dr Watt —It might be useful for us to get the costing report up here, which we will do. It is a public document.

Senator CONROY —This isn't a document sent to you by the minister's office?

Dr Watt —No.

Senator CONROY —We wouldn't want to break any conventions or Senator Abetz would be very upset.

Dr Watt —This is a document sent to us under the Charter of Budget Honesty. It is my understanding that there would have been consultations in the bureaucracy. We can check that.

Senator CONROY —So you would have spoken to Defence at least?

Dr Watt —We will see whether we can confirm that shortly.

Senator CONROY —These were live political issues at that the time: how long are you going to be in Afghanistan? I mean we were not sending them for the weekend.

Dr Watt —My understanding is that the standard thing at the start of wars is to bring them home for Christmas. Sorry, that is an aside, Senator. The costing assumptions are always made clear and, if the assumption is—

Senator CONROY —Yes, but your job is to challenge the assumptions. They give you assumptions and your job is to look at them and say, `That's fair,' or, `That's not fair.'

Senator BRANDIS —To assess them.

Dr Watt —We do a costing. Given the uncertainties about period of time involved and given the size of the defence budget—

Senator CONROY —No-one was promising that this would be a quick knock-em-over in Afghanistan, though.

Dr Watt —Again, I was not involved in the strategic stuff on that side.

Senator CONROY —But we were talking about a 12-month period. No-one was suggesting that the troops would be back—

Dr Watt —Even in my remote communications area, I do not remember that.

Senator CONROY —No. That is my point: this was an ongoing commitment.

Dr Watt —I think the point was that the government had said that the defence budget, which is a large budget of $14 billion or thereabouts, would be reconfigured to absorb these costs and that was perfectly feasible. That is what I think the department's assumptions would show.

Senator CONROY —What information, if you can, was provided by Defence on the costs of these deployments? Did Defence clearly indicate that they would be able to absorb the full costs of the deployments? That is the information that we are trying to get to. If they scammed you, that's okay.

Dr Watt —We will see what we can do to get some answers for you.

Senator CONROY —Thank you.

Senator SHERRY —Dr Watt, you are arguing that the expenditure, whatever it may be, can be reconfigured within an existing budget?

Dr Watt —Yes.

Senator SHERRY —And that is based on the government's argument that it could be reconfigured within the existing Defence budget?

Dr Watt —I think the department would make a judgment as to whether the assumption was a reasonable one. If you were to say to me, `There is a $100 million program over there. I'm going to keep that program completely in existence while spending $100 million in a different way,' the department would quite reasonably challenge that assumption. That would be the department's role and function. But, if you were to say to me, `There is a $14 billion budget over there, and we're going to spend a slice of that budget on the war against terror,' and you know that when Defence moves from a peacetime to an operational capability—

Senator CONROY —You spend more money.

Dr Watt —No, not necessarily.

Senator SHERRY —I always thought that, when you are at war you spend a bit more money.

Senator CONROY —From peace to war, with no extra money involved!

Dr Watt —Isn't the issue the extent and the length of the commitment?

Senator CONROY —You are doing a 12-month budget. This is the key point, Dr Watts. You are being asked to assess something over 12 months, unless you are telling me that Defence told you that this is a three-month commitment or a six-month commitment. My recollection of the comments was that this is a long-term commitment, and it will take a lot of time to root out the Taliban and the Al-Qaeda forces. Nobody at any stage suggested it would be anything other than lengthy; therefore, 12 months is probably inside `lengthy'. So your job is to cost the impact in that first 12 months.

Dr Watt —I am not aware that anyone specified there was a 12-month commitment. I think people agreed that it would not be a couple of days or a couple of weeks, but the length of the commitment—

Senator CONROY —A bit of skiing in Afghanistan was in order, was it?

Dr Watt —The length and the breadth of the commitment was never clearly specified. I think under those circumstances you would look at the overall Defence budget and ask, `Is it reasonable to think this can be reconfigured?' We are not sending all our Defence forces overseas, or even most of them. Defence does have great scope to cut back on training.

Senator CONROY —But we were already fully stretched. One of the issues that had been debated at length was how stretched we were. We had a massive genuine commitment in East Timor. The Prime Minister made the point at the time we were first called upon—it was sometime before we actually deployed, when we committed to activate ANZUS in the war on terror—that we would do what we could within our means. That implies a certain degree of tautness within Defence. I am not trying to put words in your mouth, but that is a reasonable interpretation. I think everyone at the time said, `No, we are not going to give them 10,000 troops because we are actually committed in a number of other fields; we've got the ships patrolling in the Gulf and we've got East Timor, which is a handful,' and Defence said, `We're not used to that level of military activity outside our borders.' So, when they then say there will be no extra cost, it comes down to deploying the sort of equipment we have talked about, whether that can be absorbed and whether that is a reasonable assumption.

Senator Abetz —I really do not understand all these questions, Senator Conroy. If I recall correctly, page 8 of your leader's budget response speech says that the extra commitment is only $400 million. He uses the word `only', to indicate how small an amount of extra money was required

Senator CONROY —This is about the Charter of Budget Honesty and the processes engaged by the departments.

Senator Abetz —You really need to get in line with your leader's office.

Senator CONROY —I appreciate your political intervention, but what we are trying to do is to get to the heart of it. Presumably Dr Watt, Mr Bowen and Mr McMahon will all be in charge of the next one when parties submit their policies, so I am trying to gain an understanding of the process. If I as shadow minister for finance send you a document that says, `I am going to send a man to the moon out of the Defence budget because it is an important strategic place to have somebody and I think that can be absorbed within the Defence budget, thanks very much,' I expect him to take my word for it. I am just trying to gain an understanding of the process. I am sure you would not in that case, Dr Watt—I would hope you would not!

Dr Watt —We will note that, Senator, just in case!

Senator CONROY —Okay. Another policy issue that has gone.

Senator SHERRY —Dr Watt, I just want to be clear on this. You are putting to us a proposition that you will accept the argument if there is a policy announcement that costs X amount extra—whatever that may be: $10 million, $20 million or $200 million—that it can be reconfigured within existing department expenditure without the party that has put forward that policy option indicating where it can be reconfigured.

Dr Watt —I think what I was saying was—

Senator CONROY —There is no need to attempt to do that. I said did Defence often, and you said—

CHAIR —Let him finish his answer. What did you say?

Dr Watt —I think I was saying that you would look at the nature of the expenditure you are talking about, you would look at the freedom to reconfigure within the program—some programs have much more freedom than others—and then you would make a judgment.

Senator SHERRY —But in the reconfiguration you as the department of Finance, representing the department, do not necessarily demand to know how it can be reconfigured—

Senator CONROY —What is the offset?

Senator SHERRY —from the person who is proposing the offset.

Dr Watt —It would depend on the program entirely. As I said, Defence is a program which has great flexibility in it, and traditionally has, particularly when you are stopping peacetime activities and moving on to operational activities. Really, operational activities are often a substitute, and a very close substitute, for the sort of day-to-day training that Defence actually does on major exercises.

Senator CONROY —But before September 11—

Dr Watt —Could I finish this? I am not sure I can comment on Defence policy issues or what the Prime Minister may or may not have said. That is I think beyond my remit as secretary of Finance let alone as then secretary of Communications. I would make the point that I am sure that the government would have looked at this issue quite extensively as part of the commitment to the war against terror and the ability to reconfigure, but I think that is something you have to take up with the Department of Defence otherwise.

Senator CONROY —I appreciate that the government would have looked at it, but the point is that you, your department, costed this as zero. What parameters did Defence give you? Did Defence come to you and say, `Look, we are going to be spending $300-odd million, so here is $300-odd million in offsets as a reprioritising within our budget'? Is that what they did?

Dr Watt —As I indicated, Senator, we will see if we can get you an answer to that.

Senator CONROY —I am just talking about the process.

Dr Watt —There would have been processes with the Department of Defence. I am just exactly not sure what the processes would have been.

Senator CONROY —Are they confidential? Do they fall into the category of advice to the minister, which I know you cannot give me? But this iteration process—as it is a new bill I do not know what the—

Dr Watt —We publish the assumptions under the Charter of Budget Honesty, and that is quite honest, but I think the iterations between departments—

Senator CONROY —That might be a little too close to the bone, I appreciate that. If you were to say the Defence assumption was just to send you a letter saying, `Yes, we can do this,' then I would have to say to you that I think that is probably not going to help in trying to get to the bottom of it.

Dr Watt —We will see if we can get you an answer.

Senator CONROY —In your iterations—and I need to know this because I will be submitting you a document in a year or two and I want to know what process I will have to go through, so it is actually really important—would you expect, if I sent you my party's defence policy and said, `We can shift $300 million, $400 million, $500 million or $1 billion around within the existing; so we can make these announcements over here to send a man to the moon and that will fall within the existing parameters with the first year's cost being $1 billion to build that space station up in'—where is it we keep threatening to build a rocket launcher?

Dr Watt —Christmas Island.

Senator CONROY —If we said, `We are now going ahead with the rocket launcher in the Christmas Island project and put aside $1 billion,' we would not have to give you any offsets?

Dr Watt —Again, Senator, I think we would look at it when you batted it up.

Senator CONROY —I am asking you what is the process. Would you expect us to then submit to you $1 billion worth of offsets? That is a yes or no. I want to understand the rigour with which you would approach that party political statement.

Dr Watt —I think the answer to that is it would depend upon the nature of the proposal, the extent to which it was or was not a substitute for existing activities, and the extent of the commitments to maintain other ongoing activities. For example, it was always implicit in the government's thoughts about the war on terror, I am sure, that some activities such as training and ongoing exercises would come to an end, which they largely have. There are many less of them. So there is a ready substitute there.

Senator CONROY —I understand that, but I am trying to get an understanding of whether or not you require that. This is an in-principle position: does the department when costing the budget cost the election policies of both parties? What is the process? I want to find out what the process is. It will be my name on the letter that comes to you, Dr Watt. I would rather sort it out now than in 2[half ] or three years time.

Senator Abetz —It is reassuring that you will have a policy by then to cost.

Senator CONROY —Apparently Mr Bowen will have been costing lots of them in the interim.

Dr Watt —The information that was made public says:

The cost of the measures is dependent on the length of time the government considers it is necessary to maintain Australia's commitment to the fight against terrorism. Information provided indicates that in the short term that money will be absorbed; in the longer term there could be some additional expenditure. The assumption is made that the Department of Defence will absorb the cost in 01-02 on that basis. Costs in 02-03 will depend upon the capacity of Defence to absorb additional pressures but could range up to an additional $500 million.

Senator CONROY —I understand that; that is why it is so unusual to come in and ask for $320 million at 2001-02 additional estimates, three months later.

Dr Watt —I think the answer is that things had changed.

Senator CONROY —My question is, when you received that—and I appreciate that neither you nor Mr Bowen were there—what length of time was the parameter? To give you an example so you understand the importance of this debate, when the US decided to go to war they immediately appropriated something in the vicinity of $US10 billion through their parliament, but Australia appropriated zero.

Dr Watt —The answer is that in the short term—

Senator CONROY —I want to know what is fair. When I send you a document saying, `In the short term, the first 12 months, all of these costs are going to be able to be absorbed,' are you going to be able to accept that? The impression that I am getting is that the government can write to you and tell you that in the short term it can be absorbed, and I want to know that I can do it too.

Dr Watt —I think it would depend upon the nature and circumstances of the request—the amount, the programs and so on.

Senator CONROY —That is quite an unfair answer, Dr Watt. You are prepared to take the word of the Treasurer but you are not prepared to take the word of the opposition.

ACTING CHAIR (Senator Brandis) —Order! Senator Conroy, ask questions. You are not at liberty to comment on the answers. Ask as many questions as you like, but the witness's answers are his answers.

Senator CONROY —I will ask you the following: if the Treasurer writes to you and says, `In the short term we can absorb everything,' you will accept that, but will you accept it if I write you in my capacity, in 2[half ] years time, and tell you that there will be zero costs because I will be able to absorb the costs in the first year?

Dr Watt —That is a hypothetical question and they are usually not answered. I think the point is this: there are circumstances when it is quite reasonable to assess the level of expenditure as being absorbable in a program; there are circumstances where it is not. We would make that judgment on a case by case basis.

Senator Abetz —As to the implication in your question, I can assure you that the officials of the department are highly professional and provide independent advice. Their advice does not change and neither do the methodologies et cetera used change because the request happens to be from a Liberal Treasurer as opposed to a Labor opposition spokesman.

Senator CONROY —I apologise if there was an imputation. It was more frustration than an attempt to impute. I accept your admonishment, Senator, and I apologise if the officials at the table took any offence. I also appreciate the comments you have just made about the methodology not changing. The problem is that I cannot find out what the methodology is, because Dr Watt is saying, `It's all got to be treated on a case by case basis,' and that is not a methodology, I am afraid. I am looking to understand what the methodology is.

Dr Watt —The sort of costing you are talking about, as a generic costing, is not unusual and it really involves elements on a case by case basis. Let us take another example: if you were to tell me that you were going to absorb a new social welfare measure from the funding for the old age pension without changing anyone's entitlements, that would clearly be very hard. I do not think the department would be at all comfortable with that sort of argument. But you were talking about a program which had great flexibility within it.

Senator CONROY —But it was already stretched.

Dr Watt —That is something I was not aware of.

Senator CONROY —I know you were not aware of that because you were not there. I put to you quite seriously that there was a lot of commentary and the government itself conceded that we were stretched. It conceded after September 11 that we would give forces within our capacity.

Dr Watt —Again, I am not able to comment on that.

Senator CONROY —Senator Abetz is nodding. I am concerned about the fact that the defence budget was considered to be tight. We were genuinely committed in a lot of other areas and we were upgrading from peace to war. I am trying to understand how, within a tight defence budgetary framework, on 9 November your department accepted a zero costing, yet within three months you have come to the parliament with an additional $339 million net additional funding for the same time period on the same project. Your argument was that on 9 November you accepted Defence's assumption that short-term it was covered, yet within three months short-term has become $339 million.

Dr Watt —I think the issue about short-term is a statement of government policy.

Senator CONROY —But your job is to test the assumptions.

Dr Watt —That said, there was a statement of government policy that short-term it would be absorbed. It was a large budget. As you pointed out earlier, it was a budget which had substantial flexibility in it to rephase, for example, key items of expenditure and it was also a budget in which there was substantial scope to substitute war time for peacetime operations.

Senator CONROY —Seriously, to argue that going from peace to war means no extra money is—

Dr Watt —No, I—

Senator CONROY —The US congress went from peace to war and put in roughly $US10 billion. Yes, they had a much greater commitment; there is no question about that. But they did not try to pretend it was going to be costless to the US public whereas this government made an assertion, which it passionately defended throughout the course of an election period in which you were testing the costings, that there would be no extra cost to the Australian public.

Dr Watt —I am not able to do comparisons with the US defence budget beyond noting that it is a great deal larger than ours and the US commitment, at least in absolute terms, has been much larger than anyone else's.

Senator CONROY —The point I am making is that they did not try to pretend that there was going to be no cost.

Dr Watt —That is a question I cannot answer.

Senator CONROY —I am not sure whether that is a defence department policy or a defence minister—

Dr Watt —I think it is government policy.

Senator CONROY —I am presuming the defence department did not actually submit that document to you—that would be a bit odd. I am presuming it came from the Minister for Defence.

Dr Watt —No, this is the costing request that came from the government. It would have come as part of the Prime Minister's costing letter, as I understand it.

Senator CONROY —They submit the government policy to you, which I presume is not done for them by the Department of Defence.

Dr Watt —No. That is a question you would have to ask the Department of Defence.

Senator CONROY —Minister, you might understand the process and be able to help us. When you supplied your government policies as part of the Charter of Budget Honesty package to the department of finance for costing, they were not prepared for you by your department, were they? They were the Liberal Party's policies?

Senator Abetz —Ultimately they are the government's policies, but I assume there would be some `interactivity', if I can use that term, to get some information from the department.

Senator CONROY —I am not trying to trip you up; I am trying to understand what the process is. It seems a bit circular. Again, I am genuinely not trying to trip you, but if a department prepares the costings and it is then given to Finance as part of the government defence policy package, it would seem a bit nonsensical to then ask the same people to validate their own costings. Are you with me? If your department gave them to you, you gave them to Finance and then Finance went back to the department and said, `Are these the correct costings?' that would seem a bit circular. It is not ever going to get an answer other than a `yes', tick. So I am just trying to understand the process. Do you understand the question I am asking, Dr Watt?

Dr Watt —I am sorry, I missed it.

Senator CONROY —If the department—in this case Senator Abetz's department—prepares election costings for the minister and the minister then gives them to you as the government's policy costings for his policy initiatives, and then you go back to the department where they effectively originated from, they are not really going to be able to tell you anything different to what they have told the minister, are they?

Dr Watt —I don't know. You would have to ask the department concerned.

Senator CONROY —I am being serious for a moment.

Dr Watt —I cannot speculate on that one.

Senator CONROY —Come on, this is a serious matter of public policy. A flippant response is actually unhelpful.

ACTING CHAIR —Order! It is a serious question, it is being taken seriously and the witness has said he is not able to speculate. That is his answer.

Dr Watt —What I can say is the department of finance will, as part of the costing exercise, make an honest assessment of the policy and the programs proposed by both the coalition and the Labor Party and will iterate it to the proposing body, as necessary. It does take advice from other departments on specific costings. We have to, because we do not know everything about costing every policy—far from it. At the end of the day it puts out its best assessments based on the information available to it and on the assumptions which are clearly specified. In this case the assumption that was specified was that it was government policy that in the short term the money would be absorbed.

Senator CONROY —What I am trying to get to is: whose actual policy assumption that is. Was that the policy assumption that the Department of Defence were operating under or was that the government's assumption?

Dr Watt —It was given to us as the government's policy assumption; that was effectively as it came in the Prime Minister's letter.

Senator CONROY —Did the defence department, when you iterated it to them, agree with the zero costing in the short term?

Mr McMahon —I cannot answer that directly because I was not involved.

Senator CONROY —I appreciate that.

Mr McMahon —But it would be my understanding that there would have been discussions with Defence and these things would have been gone through as to what was reasonable and what was not.

Dr Watt —As we have indicated, we will get you an answer to that question.

Senator CONROY —You can understand that it is a little circular if the government's policy documents that come to you are based essentially on the government's departmental advice, and then you go to the department and say, `Are these assumptions fair and reasonable?' What other answer could they give you but `of course'? This is legislation through parliament. It just seems to be a little weighted in one direction.

Dr Watt —I think there is a presumption that there was advice to begin with, but we will see what information we can get you.

Senator CONROY —As I said, I was not trying to catch you. I was actually just trying to understand what the process was on the government's side. Senator Abetz indicated that he thought it would be reasonable and I am not disagreeing that it would be reasonable. That means that the test that you apply if that is the case, of simply asking them whether they agree with the government policy, has got to be a little hairy.

Dr Watt —Again, I think the answer to that is that I expect we did consult the department and we took their advice into account.

Senator CONROY —By definition that must have happened. The question I am asking you though is: if the costings and assumptions are supplied to the government by the department and then the government supplies them to you, and then to test them you go to the department that prepared them and ask, `Are these reasonable assumptions?'—because it is not your area of expertise—and they say, `Of course they are,' do you think that is rigorous enough? I am not trying to be pejorative, I am just saying that there is a question of independence there with any government procedure that asks you to cost your own work. The whole auditor debate is about costing your own work. Maybe I am missing points and Senator Abetz will come back and say, `No, in actual fact we go off and get Access Economics'—like we did—or the government might have hired Mr Murphy, the government's preferred economic modeller, and it is his assumptions that are then fed into you.

Dr Watt —When you think about costings, you need to think about the need to get the best advice on them. We go through an iterative process with departments on costings—

Senator CONROY —But if the best advice is from the people who prepared them in the first place, there is a governance issue.

ACTING CHAIR —Senator Conroy, please stop interrupting the witness. Wait until he finishes answering the question before you ask your next question.

Dr Watt —The point is that you go and look for the most informed advice in the bureaucracy, and the most informed advice is the advice you take. It is professional advice and if the professional judgments are fine—and they are tested as part of the costing process usually between us and the relevant agency—and if the testing process suggests they are robust then you take that advice.

Senator CONROY —I accept your point that you have to go to where the best professional advice is. Can I put to you then that it does seem a bizarre process whereby the government's policy documents that are submitted to you are potentially based on departmental iterations, presumably between the minister's office and the department. You are in effect going to the source of the original document and saying to the source, `Are these parameters and assumptions that you are supplying us fair?' I appreciate the point you make that that is obviously the best source, but do you think that gives you an independent assessment? Is it possible, do you think, to get an independent assessment from them that would differ—that is not the right way to ask the question.

Senator Abetz —Surely you are not suggesting they go to the Evatt Foundation?

Senator CONROY —No, but there is a valid issue that I am trying to get to the nub of. This is the first time the Charter of Budget Honesty has been in place, so if some of these are unique problems it is because they are there for the first time. It only came in in 1998.

Dr Watt —The charter was in place for the 1998 election.

Senator CONROY —So we have done it twice. I understand what we had to go through; I am aware of the rigour of the discussions we had with Access Economics, who are credible professionals, and they wanted to credibly test our assumptions. I am aware of the process that we went through—and they were bloody rigorous and very frustrating at times—but they did not go back to the department and ask the department. I am trying to see if my point makes sense to you: if you are going to test assumptions that have been given to you by the department by asking the department, there is an independence issue about how you make the Charter of Budget Honesty work in a practical sense.

Dr Watt —We make the charter work in the same way we make work day-to-day costing discussions with departments.

Senator CONROY —This is an election context—

ACTING CHAIR —Let him finish.

Dr Watt —Ministers, as part of the cabinet process, have to submit all costings and have them agreed to by the Department of Finance and Administration. Before departments come to us, they have obviously worked on the costings and come to certain conclusions—or at least have some idea—about what they think is a reasonable cost. We challenge those assumptions as part of the normal testing process. Some are easy to challenge and some are much harder. With some, if you say you are going to spend $20 million then you are going to spend $20 million and it is a different issue. We go through a challenge process—which can be long, involved and quite complicated—and, at the end of it, we satisfy ourselves that the costings are reasonable. That applies in the normal cabinet process, and it is part of Finance's expertise to do that. I do not believe it would be any different under Charter of Budget Honesty costings. If anything, it may well be even more rigorous because the Secretary to the Department of Finance and Administration and the Secretary to the Department of the Treasury are required to put their names to the costings.

Senator CONROY —I would hope that that is the case. That brings me back to how, three months after the department of finance signed off on a zero dollar commitment, there is $339 million being asked for the same period for the same deployment.

Dr Watt —Length of deployment, sense of deployment and ability to reconfigure were all—

Senator CONROY —As you have just described, you must have rigorously tested that parameter yet, three months later, you are bowling up to parliament asking us to give you $339 million more.

Dr Watt —I think the answer is that at the time we thought on balance the assumptions were reasonable, and circumstances changed.

Senator Abetz —What is your definition of `short term'?

Senator CONROY —That is my question: what was the definition of `short term' for the period between 9 November and the end of that financial year? We are talking about a seven-month period. It is only a seven-month period that this costing applies to.

Dr Watt —Again, that is a presumption that it is a seven-month period.

Senator CONROY —No, this is an appropriation for this seven-month period. On 9 November, you signed off that from 9 November to 30 June there would be no extra net cost to the budget.

Dr Watt —I don't think that is what we said; we said that in the short term the costs would be absorbed. That is the assumption on which the costing was made and as we said at the time it appeared to be reasonable.

Senator CONROY —I am saying to you that seven months is a short-term period. This is the question that the minister asked quite prophetically. I am now putting it back to you: on 9 November when you accepted `short term', what was your period?

Dr Watt —`Short term' is not necessarily a prescriptive term. It would be a question of whether the term was reasonable.

Senator CONROY —What is your reasonable definition? I am saying to you that from 9 November to 30 June is seven months and, to me, seven months is short term.

Dr Watt —That is something that we are happy to look into.

ACTING CHAIR (Senator Lightfoot) —We are resuming on finance and administration. I call Senator Conroy.

Senator CONROY —Dr Watt, I want to return to this issue of `short term' and your definition of it. The department signed off on an assumption relating to the costings for the rest of the financial year—and that is a seven[hyphen]month period?

Dr Watt —Yes.

Senator CONROY —The seven-month period is what the department signed off on?

Dr Watt —Yes.

Senator CONROY —When the department signed off in November that, for the remainder of that financial year—the seven months remaining—there would be no net cost, zero dollars to this commitment, based on the assumption that it was a short-term issue, I naturally assume that your definition of `short term' in that sense is seven months.

Dr Watt —I think, by definition, `short term' is a period during which the costs could be absorbed. It is a period of some months, certainly. But, whether it is seven or something less, I do not think I would put that fine a point on it. It is a period of some months when the costs could be absorbed.

Senator CONROY —My assertion then is: if you are indicating that you do not believe that the short term incorporated seven months, surely you should have qualified the zero dollar.

Dr Watt —The department did make the assumption clear by stating, quite clearly, that the assumption is that this can be absorbed in the short term. That is the assumption on which the costing was based.

Senator CONROY —But the costings that you were ticking off on were for the remainder of the financial year, a seven[hyphen]month period.

Dr Watt —No.

Senator CONROY —And you did not qualify—

Dr Watt —The costings were for the remainder of—

Senator CONROY —Of the financial year.

Dr Watt —No, for a period of deployment. The money was to be expended in the financial year, but the assumption was `for the period of deployment'.

Senator CONROY —But at the time the Prime Minister and others indicated publicly that this would not be `short term'—and I am not trying to marry the two terms into `short term'—and I think we agreed earlier that it was considered this was going to be some lengthy period.

Dr Watt —The government's commitment was—and we are saying what the Prime Minister was saying—

Senator CONROY —`As long as necessary'—I think was the commitment—`to root out terrorism.' That is the mantra.

Dr Watt —Again, in one sense, I am not able to comment on the government's commitments. But I think the point is that the government indicated that it was not a commitment of a matter of a few weeks or even a month or two. Whether that indicated a commitment for seven months is something I could not comment on.

Senator CONROY —But this is the key I am trying to get to: if you felt that short term did not incorporate the seven remaining months of that financial year, why didn't you qualify your opinion?

Dr Watt —I think the department did indicate that it was short term; it did indicate that the assumption was this would be for a period of short term.

Senator CONROY —But the document you signed up to was zero dollars over seven months.

Dr Watt —Yes.

Senator CONROY —The remaining seven months equals zero dollars.

Dr Watt —That is right, and that was the best assessment at the time.

Senator CONROY —So a few months later—and it was only a few months later—the extra appropriation of $339 million turned up.

Dr Watt —The government had assessed the extent of its commitment. The government had looked at the assets involved and the likely continuation of that, because the commitment also impacted on 2002[hyphen]03, as you would remember. The government also had had a look at its other budget priorities and other priorities in Defence and how much could be absorbed. It took the decision that, given the nature of all of those things, it could not do it within the existing intention and it had sought additional funds. That is not an unusual thing.

Senator CONROY —Consistently during this discussion you have tried to make the point that it was about the length of deployment. So when you did the costings, assuming short term of zero dollars, I am assuming that the length of the deployment was for the seven months.

Dr Watt —No. I think the answer is that the length of deployment was for a period within which it would be reasonable to assume that you could absorb the costs—and that is what it says.

Senator CONROY —Tell me how long you thought that deployment was.

Dr Watt —I do not have an answer to that, but I will see if I can get you one as to whether it was ever that finely specified.

Senator CONROY —But just for my future knowledge—because, as I have said, I am going to be writing to you in a while—what is your personal definition of `short term'? This is just so that I know so that, when I write to you and talk about `short term', you and I will have the same time frame.

Dr Watt —I think it is something that happens in the not too far distant future.

Senator CONROY —Come on; you can be more specific than that.

Dr Watt —No. I would think of `short term' as a matter of months.

Senator Abetz —But surely the term `short term' depends on the context. Within the short term, it might mean within the next few minutes, depending on the context; or it might mean within the next few months, depending on what you are talking about. Trying to ask somebody to define `short term' to the exact month, day, hour and second is, I think, a nonfruitful discussion.

ACTING CHAIR —In cosmic terms, it may be several million years.

Senator Abetz —Exactly; and we were talking about the moon earlier on, Senator Lightfoot, and so you are carrying the analogy very well.

Senator CONROY —A short-term step.

Senator SHERRY —Is this a cosmic budget that has just been launched?

Dr Watt —I would put one point that a colleague reminded me of during the break, and that was the ability to absorb things in the Defence budget—and I am happy to have this checked for you. As I understand it, it was Labor policy that a coastguard be set up and the costs be absorbed in the Defence budget—and, again, the department accepted that assumption. So, in a sense, I think we are evenhanded in saying that this is a program that has the ability to absorb some substantial shifts. In that respect and in the Commonwealth sense, it is an unusual program.

Senator CONROY —So, as long as it is big enough, you can basically get away with anything. Is that what you are telling me?

Dr Watt —I do not think I said that.

Senator Abetz —When you want to answer your own questions, there is no need to ask them.

Senator CONROY —Thank you, Minister. When did DOFA receive submissions from Defence on funding through the additional estimates? When did they suddenly work out that the short term was longer than the weekend? This is in terms of this extra $330-odd million that was additional appropriations for this financial year. When did the minister contact the department, or the Department of Defence contact the department?

Mr Lewis —We might be able to get you an exact date later, but we started discussions in relation to the defence budget quite early in the calendar year. They continued through the course of the ERC round and right through to quite late in the budget process.

Senator CONROY —I understand you started the budget process. Is it about December you start doing your first cut or having your first early discussions or is it a little bit later?

Mr Lewis —Early discussions.

Senator CONROY —It is in December, from my vague recollection of having lived in Canberra.

Mr Lewis —That preceded my arrival in the area.

Senator CONROY —I am talking specifically about the additional appropriation for 2001-02.

Mr Lewis —For 2001-02? January, I think it was.

Mr McMahon —About a couple of days before Christmas, we initiated discussions to see to what extent there were some real needs for Defence, and to explore further their scope to—

Senator CONROY —What triggered your interest in exploring that with Defence just before Christmas?

Mr McMahon —Essentially, the pressures that were being indicated by Defence at that stage, which needed to be assessed.

Senator CONROY —So Defence had contacted you to indicate those pressures. Was this in a private context or was this just the minister—as I understand it, in early December, less than a month after DOFA costed the policy at zero, the new Minister for Defence was briefing journalists on cost pressures in Defence and the need for supplementation. There are newspaper articles sourced to the minister in December—which is less than short term; perhaps 30 days—when the minister was certainly starting to bleat about it publicly. But when did they contact you?

Mr McMahon —The contact was through general government circles. These issues would have been raised with the bureaucracy more widely and it was a matter for the minister if the minister wanted to take it forward in the context of the additional estimates process. Those processes commenced, if you like—there were some discussions—very late in December, early January.

Senator CONROY —Could I just get from you the date when you were first contacted by either Defence or any of the other—I am trying to use your words—general government circles?

Mr McMahon —As I said, it was in the week before Christmas.

Senator CONROY —Could you tell me what form those contacts took? Did they give you a ring and say, `Short term is over'? Did they send you an email? Did they post you a submission?

Mr McMahon —My recollection is that there were some discussions between departments in an IDC context on this issue about Defence pressures.

Senator CONROY —Are you able to tell me what the date of that IDC meeting was?

Mr McMahon —I am fairly certain that it was around that period that I indicated.

Senator CONROY —So it was in the same few days?

Mr McMahon —Yes.

Senator CONROY —So there was an IDC meeting some time in the week before Christmas or around that time—

Mr McMahon —Thereabouts.

Senator CONROY —that triggered you guys contacting Defence to say, `We understand you have a new definition of “short term”. Do you want to share it with us?'

Mr McMahon —I would not say that the contact was in the context of `short-term'; it was in the context of pressures within the Defence budget that needed to be explored.

Dr Watt —In relation to `context'—your word, or someone's word—this was in the run up to a budget when we got contacted by lots of agencies saying, `We have some dreadful pressures over here and we'd like to come and talk to you about them.' That is not unusual.

Senator CONROY —I am sure it is not unusual in the hurly-burly of bidding. You would have been at the IDC meeting, I presume?

Dr Watt —No, I was still in the department of communications.

Senator CONROY —Sorry, I forgot.

Dr Watt —I think that was one that was capably attended by the defence area of the department of finance.

Mr Lewis —I suspect that that meeting was not a formal IDC, just a group of officials from different departments.

Mr McMahon —That is right. Essentially, the central agencies were concerned to make sure that all the issues leading up to the budget were being adequately covered and the government was informed.

Senator CONROY —Could you confirm that Defence was part of that discussion?

Mr McMahon —Yes.

Senator CONROY —Were they represented.

Mr McMahon —Yes.

Senator CONROY —Which officer was the representative?

Mr Lewis —It is not appropriate to discuss that.

Senator Abetz —The department was represented.

Senator CONROY —I am going to come back to this question; I am allowed to ask. These are matters of public record about Senate expenditures. The expenditure of taxpayer money involves the people who are expending it—the human beings.

Mr McMahon —I can answer that by saying that there were representatives from the CFO group in the Department of Defence attending those meetings.

Senator CONROY —Thank you, Mr McMahon. The election was on 11 November, from recollection—a fateful day. No, it was 10 November.

Senator Abetz —The majority would have been even bigger if it had been on 11 November.

Senator CONROY —Do you think you might have won any seats in Tasmania if it had been on 11 November?

Senator Abetz —Mate, when you win, you win. You can gloat about a few crumbs. You are sitting that side; we are sitting this side.

Senator CONROY —The minister made the point that there would be a bigger majority the next day. I was just hoping he might have won a Tasmanian seat.

ACTING CHAIR —The minister's point was not really relevant.

Senator CONROY —Thank you.

ACTING CHAIR —It was quite out of order.

Senator CONROY —The election was on 10 November and on or around 20 December—to pick a date that is in the week before Christmas—the nature of `short term' was revealed. So that was about 40 days. Is that short-term enough for you, Dr Watt?

Dr Watt —I think you had bureaucrats talking about pressures. When you are looking forward to a budget where everyone is talking to you about pressures I do not regard that as—

Senator CONROY —But this was a pressure that required an additional appropriation in this year, not the next financial year. This is the pressure: 40 days after you ticked off `no additional appropriation necessary'—and this is not directed at you—the department suddenly came to the conclusion and started putting a bid to you—so you are the adjudicator, not the instigator. Forty days after you ticked it off—and they had told you that short-term is longer than 40 days—the department came back to you and said, `We just got it very wrong.'

Dr Watt —These appear to be no more than bureaucratic soundings. I would not say that at that stage there was a necessary distinction made between the 2001-02 and the 2002-03 budget. Did Mr McMahon say that?

Senator CONROY —I was specifically asking about the 2001-02 financial year and Mr McMahon kept his comments to 2001-02, not part of the formal budgetary processes. That was the question I asked him.

Mr McMahon —During these processes leading up to the additional estimates process, we certainly look at what agencies are telling us about the pressures on their budgets. They need to be fully explored. We commenced a process as early as—

Senator CONROY —That is the only point I am trying to get: when Defence started telling you their additional need for that financial year, not your normal budgetary processes—

Mr McMahon —It did not necessarily indicate, at that stage—

Senator CONROY —I understand the informal nature of the contact.

Dr Watt —I think there is a clarification coming that might be relevant, Senator.

Mr McMahon —It does not indicate that there was a justifiable bid at that stage; it needed to be investigated.

Senator CONROY —I am not looking for when they actually slapped the dollars on the table. I want to know when the Department of Defence's definition of `short term' ran out and they started indicating to you informally, as part of a discussion, that there were additional financial pressures in the existing financial year—not your new processes—that commenced—

Dr Watt —In the very early stages of a long discussion.

Senator CONROY —I hope it was a long discussion, Dr Watt, even though you were not part of it. I would hope that somebody was saying, `But didn't you tell us on 9 November that you did not need any extra money?' Then within 40 days they were back arguing—intimating, suggesting or being coy; whatever you want to describe it as—that they needed another $339 million. That arose in a discussion 40 days after they told you—

Dr Watt —I have not heard my officers say anything about amounts.

Senator CONROY —What I am saying is that it culminated 40 days after they told you that there was no net increase. They began discussions that culminated in a $339 million extra appropriation. I am happy not to waste your and my time right now chatting about definitions of `short term' but I certainly think the Department of Defence are going to have an unusual definition of `short term' when I chat with them later in the week, or early next week.

Mr Bowen —I think there is an issue that needs to be on the table here; that is, around December or January—and I think you said it yourself—agencies are preparing their cases for the coming budget.

Senator CONROY —For the next financial year.

Mr Bowen —For the next budget. And it would be quite normal to have those discussions at that time, prior to the portfolio minister preparing his portfolio budget submission, which this year I think had to be lodged towards the end of January for the 2002-03 budget. It is a pretty normal situation to have discussions of that type.

Senator CONROY —I could not agree with you more. I am not saying that it was abnormal for you to start pre-Christmas to discuss the next budget. The key point here is that they started to indicate that the financial pressures were actually impacting in this financial year. They did not say they wanted $339 million but, as part of the general discussion, they were starting to indicate that their definition of `short term'—on which they had put their hand on the Bible and were prepared to swear to you on 9 November—was starting to get a little fuzzy. That is the only point I am trying to get to.

Mr McMahon —A large part of that is related to whether the war in Afghanistan and the Gulf was going to be short term or longer term. Very clearly, in a strategic sense, I think the questions that you need to ask about the duration of the involvement are better directed at Defence rather than to us.

Senator CONROY —Believe me, that is where the questions are going to go. That is the key point and you are absolutely right. What was different on 9 November, that the Department of Defence knew from its intelligence or a request from the US—or anything at all like that—that suddenly caused them to think they were going to need extra funds this financial year? Those are legitimate questions that you guys have no responsibility for, and I have tried to avoid asking you those questions. I do not expect you to have an intelligence briefing from the government that `the troops are going for more than a weekend'—it is just not your role. But they are certainly questions Defence are going to be asked because they are the ones who gave you the assumption. While I accept that in a large budget your argument is that you could absorb that, the questions are: what intelligence information did they base their initial assumption on and, more importantly, what was the government's position in terms of deploying the troops? Whether or not you should just have accepted that, tested that or sought extra information from them, we will come back to after Defence give us their answers. There will be additional estimates later in the year and we will have another chat, but thank you for that.

Dr Watt —Under those circumstances our role would be—having been advised of a link to deployment—to look at the cost of that link to deployment rather than to say that is the wrong link to deployment.

Senator CONROY —You are going away to get this information, hopefully, for me. You have asked them what length of deployment means—that is the key issue—and they have told you something. At this stage, you are not in a position to tell me, but I hope that, by the end of today or tomorrow, you might be. I hope you will be able to come back to the table and say, `They told us it was only for three months, and we believed that was a short-term commitment. All of a sudden, they came back to us and said that `short term' did not actually mean deployment for three months but for a full seven months.'

I will read you an excerpt from the Prime Minister's press conference on 17 October 2001. I watched it as I was about to do my own press conference. The journalist asked, `How long will the campaign last?' This is 17 October, long before 9 November. The Prime Minister said:

I don't know how long it will last. One of the things that the President and I agreed on last night—

that would be the President of the United States—

was that this is not something that is going to be over quickly. He stressed that, he used the expression “people must be patient” because it's not going to be fixed overnight and he said, I'm—meaning President Bush—is constantly exhorting the American people to be patient and to realise that it could be a very long, drawn out campaign. And it's also important to bear in mind that you're not just dealing with terrorist cells and networks in Afghanistan, this was a point he made to me that their operations are spread far more widely than Afghanistan.

So the Prime Minister clearly indicated that, firstly, there is not a short-term solution—

Dr Watt —I think the Prime Minister said it would not be over quickly.

Senator CONROY —This was a matter of some public debate during the election campaign. It was the Department of Defence that gave you that assumption, so it is up to the Department of Defence to explain what `short term' meant when they spoke to you on or before 9 November and what it was that had changed in the first week of Christmas, 40-odd days later. Thank you for your help on that.

I want to move on to the issue of the cash being held by the Department of Defence, which has got a bit of publicity recently. I understand it is projected to increase to $772 million by 2004-05. I want to go to some questions around that. Does DOFA approve the cash holdings of departments that roll over into the next year?

Mr Bowen —Not explicitly. Under the framework, agencies are appropriated for their full accrual costs in cash. As a result, they will build up reserves of cash to meet depreciation and employee entitlement reserves et cetera, and they have some cash for liquidity needs. In answer to your question, it is not a matter for Finance to approve that level of request.

Senator CONROY —Did DOFA approve Defence holding $500 million at the end of 2001-02?

Mr Bowen —The answer is no. Defence produce their estimates consistent with the moneys that have been appropriated to them. That is endorsed by government. It is not a specific responsibility of Finance to approve or disapprove of a cash holding.

Senator CONROY —Was it aware of the cash holding?

Mr Bowen —We are aware of the cash holding, and we do monitor cash holdings.

Senator CONROY —Are you in a position to cap the cash holding of Defence? Can you say to them, `No, look, we don't think you should hold more than $500 million'?

Mr Bowen —We are in a position to advise the government on issues of that nature, and the government can take those decisions.

Senator CONROY —Has the government taken a decision to cap the cash holding of Defence at $500 million?

Mr Bowen —The government has agreed Defence's estimates, so implicitly it has endorsed the estimates as laid out in the portfolio budget statements, and that is consistent with their appropriations and expected expenditures.

Senator CONROY —Again DOFA does not approve; it just makes advice to the government.

Mr Bowen —As you know, we advise generally on budgetary matters, yes.

Senator CONROY —So the government have approved Defence holding $772 million at the end of 2004-05?

Mr Bowen —The answer is yes. I have not seen that figure in the estimates, and where it is, but I take your word for it that it is part of the approved estimates for Defence, yes.

Mr Lewis —The amounts concerned are probably in the order of a fortnight's funding for the department. That is not unusual. We have compared that with, say, the top 10 publicly listed companies in Australia and formed some comparisons in relation to that. Their funding requirements can be quite variable. They might be making payments in one day of many hundreds of millions where, if it just happens to be the case, payment due dates on a range of different projects fall due on the same day or, conversely, are flatter for a period. So they certainly need to have an available pool of liquidity in order to deal with their business needs over a period of time. There was a period, I suppose a few years ago, where we were a bit concerned that they had inadequate liquidity to deal with the day-to-day calls on their business.

Senator CONROY —When was that? When were you concerned about that?

Mr Lewis —In 2001.

Senator CONROY —You said you had cause to note it. Did you recommend an increase to the Department of Defence?

Mr Lewis —I believe it was the substance of discussions some time ago.

Senator CONROY —Do Defence earn interest on the cash holdings?

Mr Bowen —Yes, they do.

Senator CONROY —You said that you were concerned. I think they were holding only $58 million in 2000-01.

Mr Lewis —That is a pretty small cash holding.

Senator CONROY —That is what I am saying; that is what led you to say, `We think for a department that size you should hold a bit more.' That makes sense.

Mr Bowen —I think their holding is currently around three per cent of their revenues. If you compare that to the top 10 non-financial trading enterprises on the ASX, the average there is around nine per cent of revenue, for similar liquidity reasons.

Senator CONROY —I am just looking at some figures here. Defence traditionally have held relatively small amounts, then, compared with the amount they are holding now.

Mr Bowen —I must admit I have not got the historical data.

Senator CONROY —Just going back over time, from $20 million to a peak of $138 million over a period. Where they were at with $58 million was probably a little low comparatively.

Mr Bowen —We believe it was, yes.

Senator CONROY —Comparatively, but that was not outside of a normal trend for them over a period of time. What was it that prompted you to look at it? Was it the war on terror? Was it the fact that they were going to have—

Mr McMahon —The issues related to cash holdings and us looking at this matter preceded the war on terrorism.

Senator CONROY —Given the historical position, what was it that `prompted' your concern—I think that was the word Mr Lewis used.

Mr McMahon —I think Defence virtually had almost a liquidity crisis last year where perhaps they did not have enough cash to meet their needs at the end of last year. I think it is a conclusion that Defence were coming to themselves anyway.

Senator CONROY —How did that impact? When you say there was a `crisis', how did that impact on their day-to-day operations? Did they run out of bullets? Did they not have enough petrol to fly the planes?

Mr McMahon —I cannot answer that question. You would need to ask Defence about that issue.

Senator CONROY —I will happily take that up.

Senator SHERRY —Do you know if Defence stretched out the payment times for any of its bills?

Senator CONROY —I am sure they did, from the sound of it!

Mr McMahon —I do not know personally what they did to manage their situation at the end of June 2000.

Senator SHERRY —Would it be a matter of concern to the department of finance if Defence had rescheduled the payment of its bills to business suppliers?

Mr Lewis —Not if it did so in the absence of supplier performance. Supplier performance deficiencies may well be the reason for Defence withholding payment, and certainly there are some instances that I can recall where Defence have withheld payments due under contract simply because of nonperformance of the relevant supplier.

Senator SHERRY —My question was not going to the issue of nonperformance; it was going to the normal payment of accounts in the normal course.

Mr Lewis —Clearly, the government has a policy that its agencies will pay on time.

Senator CONROY —I think it has signed up to a 30-day commitment—certainly for small business.

Mr Bowen —I think that is correct. That is from the time the invoices are actually received, rather than—

Senator CONROY —From the actual expenditure.

Senator SHERRY —Given you kindly mentioned the policy, Mr Bowen, it would be a matter of concern if Defence breached that policy where there was no valid reason about dispute of contract conditions being met.

Mr Bowen —I think it would be of concern if any agency was a serial offender against a government policy of that nature.

Dr Watt —Again, I think the answer is yes, we are saying we knew they were under pressure; we are certainly not aware that they breached the policy or that they even came close to breaching it.

Senator CONROY —Have you advised other departments to move to a higher level of cash reserves? Are you applying that sort of commercial test—rate is maybe not quite the right description—to other departments, like Health or Community Services?

Mr Bowen —I am unaware that we have suggested to any other agencies that they need to have a higher level of liquidity, but we can check that. We do not think we have. If we have then we will advise you, but we do not believe that it has been necessary. Can I add to that answer that one of the reasons that we have not had to do that is that many agencies have a much more defined draw down schedule. Agencies paying pensions, for instance, know that they have to have the money in the bank every fortnight on the dot.

Senator CONROY —You are not suggesting that the Department of Defence has poorly planned these things, are you?

Mr Bowen —I am not making any comment on that—

Senator CONROY —But you felt strongly enough to advise them to increase their liquidity.

Mr Bowen —except to say that they have a less defined schedule of payment that they have to make under administered appropriations.

Senator CONROY —You never know when they are going to fire that ammunition, do you?

Mr Bowen —You never know.

Mr Lewis —There is no doubt about it: compared to paying pensions every fortnight, the vagaries of the Defence budget are many, and there are things which will lead to expenditures either accelerating over periods of time or decelerating over time.

Senator CONROY —It can be lumpy.

Mr Lewis —It can be very lumpy, or a bit of a trough from one day to the next. We are learning more about it day by day.

Senator CONROY —So we can clarify: this was pre the war on terror? In the short term it was not lumpy, but it has turned into a lumpy expenditure.

Mr Lewis —I understand, Senator, but the fundamentals of the Defence budget—

Mr McMahon —It was nothing to with the war on terror.

Senator CONROY —So the processes were uneven prior to the war on terror. I actually wanted to have a chat to you about your cash held.

Senator Abetz —Are we still on general questions?

CHAIR —As I understand it, yes.

Senator CONROY —In Finance's portfolio budget statement 2001-02 on page 58—

Senator Abetz —This sounds very specific.

CHAIR —We are traversing far and wide.

Senator SHERRY —This is output 1.1, isn't it?

Senator CONROY —Yes, something like that—cash held was projected to rise from $77 million in 2001-02 to $103 million in 2002-03 and to $209 million by 2004-05. In the portfolio budget statement of 2002-03 on page 55, cash is estimated at just $702,000 in 2001-02, $2.5 million in 2002-03 and $46 million in 2005-06. These are pretty wide variations: from $77 million down to $702,000; $103 million down to $2.5 million; and $209 million down to $46 million. Are you having a lumpy expenditure problem?

Mr Staun —No. It is very difficult to compare the two PBSs because the effect of administrative arrangement order changes. The estimates for 2002-03 exclude the overseas property portfolio. It was certainly the most substantial source of cash to the department's special account that encompass the domestic and overseas property operations in the portfolio itself—being worth $1.4 billion, which was transferred to DFAT.

Senator CONROY —So it was taken out?

Mr Staun —It was taken out.

Senator CONROY —Does that account for all of the variation? It seems fairly dramatic.

Mr Staun —I am certain that it does not, but that would be the substantive variation.

Senator CONROY —What else are you guys up to?

Mr Staun —Nothing.

Senator CONROY —I did not mean that in a pejorative sense.

Mr Staun —One issue that I would certainly accept is that we are continually refining our cash flow techniques. I certainly believe that our estimates this year are better than they were 12 months ago.

Dr Watt —Certainly our estimates in the next two or three years will equally improve as we evolve and refine them.

Senator CONROY —So they could bounce around a bit through that refining and improving process?

Dr Watt —That is possible.

Senator CONROY —Should Defence have a chat to you about how to help?

Dr Watt —I think we might pass on that question.

Senator CONROY —On the treatment of foreign exchange losses—

Senator Abetz —These seem to be very specific matters. Can we go through the outcomes now? Mr Chairman, we seem to be getting into very specific areas.

Senator CONROY —I don't know about you, but I am still on output 1.

CHAIR —I thought were on general questions.

Senator Abetz —If you have moved on to output 1, that is fine; we will know where we are. I had not heard from the chair that that was what we had done. I thought we were showing great leniency to you, Senator Conroy.

Senator CONROY —I know the minister is prompting you, but you have addressed this issue, Mr Chairman.

Senator SHERRY —As I understood it, we were on output 1.1, Sustainable government finances. All the questions we have heard so far—

Senator Abetz —All the officials at the table weren't aware of that. I don't want to cast any blame. The important thing is that we know where we are and what we are doing.

Senator CONROY —Some of the other senators may have general questions when I am finished.

Senator Abetz —We don't want to chop and change too much.

Senator CONROY —I can't speak for them as they are not here.

CHAIR —We are on output 1.1.

Senator CONROY —I certainly am.

Senator SHERRY —I thought every question so far—bar mine, which was the only general question—was relevant to 1.1.

Senator Abetz —I think you are right but nobody knew that we had moved on to the agenda item 1.1.

Senator CONROY —It was one of those seamless transitions.

Senator Abetz —You are a very smooth operator, Senator Conroy.

Senator CONROY —I understand that under the AAS31 framework—and I am talking about the impact of movements on foreign exchange rates on financial transactions of the budget—such gains and losses are treated as revenue or expenses; is that correct?

Mr Bowen —That is correct.

Dr Watt —We have moved from the department's budget to the general budget.

Senator CONROY —I understand that under the GFS framework they are treated as revaluations and are not reflected in the revenues and expenses budget but in balance sheet assets and liabilities—that is, they are below the line.

Mr Bowen —That is correct. They affect net worth through the GFS balance sheet. You are right, yes: they do not affect the operating statement.

Senator CONROY —I understand that, under accrual accounting, foreign exchange gains or losses are shown at the current exchange rate regardless of what gain or loss is realised—that is, on the market to market basis. Is that right?

Mr Bowen —Yes.

Senator CONROY —So when a gain or loss is realised and the cash is actually received or paid, where is this shown in the budget papers? Is it shown as a revenue or expense?

Mr Bowen —Yes, it is.

Senator CONROY —Where is that in the budget papers? If I wanted to look for that figure, what page or what table would I look at?

Mr Bowen —If you go to page 12-4 of Budget Paper No. 1, you will find the AAS statement of revenue and expenses, and you will find that for 2001-02 the estimate is for a net foreign exchange gain of $646 million. That will include realised and unrealised. I do not know that I have a break-up of that at this point. For next financial year, a net foreign exchange loss is estimated of $98 million. That has nothing to do with the Treasury's holdings of US debt. I think it has to do with our IMF obligations.

Senator CONROY —I am probably just going to seek your assistance in clarifying some other figures. I want to make sure I am not looking at the wrong places. Because of these accounting standards, I am genuinely confused. I do appreciate you taking the time to help me through this. Under GFS, on page 2-18 in `Table B3: Commonwealth general government sector cash flow statement' there is a figure under `Net cash flows from investments in financial assets for policy purposes' of minus $626 million. What does that represent?

Mr Bowen —We may have to come back to you on that.

Senator CONROY —That is all right. I have not been able to work it out myself.

Mr Bowen —We will come back to you.

Senator CONROY —I am happy for you to come back to me later on—after lunch perhaps.

Mr Bowen —It might be better if we have a considered huddle, and we will come back to you.

Senator CONROY —Under AAS31, is it shown or contained within page 11-7, Table 3 on cash flow statements? What is the amount shown for 2001-02? It indicates that the net cash flow from investments in financial assets for policy purposes is minus $626 million. So that figure has bobbed up twice. I am trying to understand what that is.

Mr Bowen —That is GFS again. At least we are being consistent. It is not AAS; it is the GFS presentation I think. We will check that as well.

Senator CONROY —I am also interested in what that loss is and whether or not it would impact on the budget. Could you give that some thought as well? We will unravel that, hopefully, after lunch.

Mr Bowen —Yes, we will do that.

Senator CONROY —I want to move on to the contingency reserve—the rainy day fund.

Senator Abetz —No, it is not.

Mr Bowen —It is a contingency reserve, Senator.

Senator Abetz —We will disabuse you of that before you get started.

Senator SHERRY —They are very sensitive to that.

Senator Abetz —We just want to assist and correct you.

Senator CONROY —Budget Paper No. 1 2002-03, Table 17, page 657, shows a contingency reserve of $18 million for 2002-03. Budget Paper No. 1 2001-02—the previous year's—table 17, page 654, shows a contingency reserve of $919 million. That is right?

Mr Bowen —Yes.

Senator CONROY —Can you explain what is contained in the contingency reserve as its nature seems to have changed over time? In 1999-2000 it was defined as the mechanism for which aggregate estimates are adjusted to take account of unanticipated events—hence the phrase `the rainy day fund'—as well as anticipated events.

Dr Watt —We might deal with that first, because that is easy to deal with. The definition in the 1999-2000 budget was wrong. It was the only year in which the contingency reserve has been defined along those lines. I am not aware of the reason why it was defined in that particular year, but it is the only time the unanticipated tag has been attached to contingency reserve. If you go back historically—and I go back a long way—on the contingency reserve, it has always been the funding of contingency against anticipated events.

Senator CONROY —So are there some moneys that are set aside for unanticipated events? Is there a rainy day fund stored somewhere else?

Dr Watt —No, there is no rainy day fund in the budget. If there are financial risks to the budget that we are not able to quantify or may not occur—

Senator CONROY —They would be contingent liabilities, wouldn't they?

Dr Watt —they are picked up in the statement of risks, which is separately published with the budget documents. So it is a transparent process. The contingency reserve has always been as it currently says. The year 1999-2000 was the anomaly in the definition, and we believe that was an error.

Senator CONROY —You think it was a typo, literally?

Dr Watt —The 1999-2000 budget was the first accrual budget. It was a very difficult budget for that reason. It may have been that, as part of that process, the quality control was less rigorous than usual.

Senator SHERRY —It was. I can recall a fairly scathing review of that first year.

Dr Watt —I could not comment on that, but it was not an easy budget.

Senator CONROY —A contingency reserve can contain both positive and negative elements. Is that right?

Dr Watt —Yes.

Senator CONROY —What are the categories of expense captured in the contingency reserve?

Mr Flavel —In the categories which are generally listed in the budget papers, there is an allowance for something known as the conservative bias. If you go back to the mid 1980s, this provision has always been included in the contingency reserve. Effectively there is a historical statistical tendency for estimates and forward years to be understated, and so an aggregate provision is put into the forward estimates to try to make them as robust as possible; otherwise, if that provision were not there, in effect the estimates would be biased.

Senator CONROY —Would they be biased up or down?

Mr Flavel —They would be biased down. In other words, they would be too conservative.

Senator CONROY —I thought that was what you said; I just wanted to confirm that.

Dr Watt —Expenses would be understated.

Senator CONROY —Yes, and we could not have that.

Mr Flavel —If you look at the pattern of the contingency reserve estimates, both in this and previous budgets, you will notice that the profile tends to go from a very low amount up to several billion dollars. That reflects the fact that, with successive years, bias gets greater. As you might expect, the further one goes out in forecasting, the little greater the bias becomes.

Senator CONROY —I take your point. It has dropped an awful long way—from a very big number to a very small number—in just one year.

Mr Flavel —In terms of the $18 million in there for the 2002-03 budget, versus I think—

Senator CONROY —You must be convinced that this year's figures are very robust.

Mr Flavel —They are. Last year was a little bit different. There were a number of late decisions flagged in the budget papers that were included in the contingency reserve, so if you were to look across years you would notice that last year was somewhat of an outlier.

Senator CONROY —So it had the pork barrel already factored in?

Mr Flavel —All funds in the contingency reserve have to be appropriated by the parliament, so there is no sense in which it is a reserve or that funds can be held back for any purpose. To the extent that those policy decisions are in there—and they were flagged in the budget papers—they have to be appropriated by an act of the parliament in order to be spent.

Dr Watt —The important thing is the contingency reserve protects the integrity of the bottom line, with all aspects and expected costs factored into it.

Senator CONROY —It is a smoothing mechanism. Is that what you are saying?

Dr Watt —No.

Senator CONROY —When you say it `protects the integrity of the bottom line' that implies smoothing to me.

Dr Watt —No, it is not a smoothing mechanism. It is more that if you have a late decision that, for example, you cannot put through to individual documents or line items, you can carry it, as we did in a previous year, into contingency reserve. So the decision is fully reflected in aggregate budget figuring even though a late decision does not allow you time to reflect it in the individual program and individual output and outcome decision making.

Senator CONROY —When you say `late decision', help me with that. Is it a late decision after the budget is finalised, is it a late decision in the process of the existing budget or is it a new policy decision taken after the budget is announced?

Dr Watt —No, it cannot be a new policy decision taken after the budget is announced. That is not the case. It is more a decision made late in the budget process, in the closing period of the budget process, which would be in there. We cut off the document production at various times; we just cannot guarantee the integrity. While you and I see this, it is important to remember that the budget documentation is much broader than this. It is a whole suite of documents, including the appropriation bills—which are the first documents printed—and, unless we cut off well before the budget, we cannot guarantee the integrity of those documents. The contingency reserve allows the government of the day to transparently reflect the cost of its decision making in the contingency reserve in the case of late decisions.

Senator CONROY —Can you give me a breakdown of the contingency reserve—and I presume they are decisions in previous years—so I am able to get a breakdown of what the money was used for in previous years. It was $900 million last year and there might have been $100 million left over, but there is $800 million that is therefore tagged to a decision or an expenditure. Would I be able to get a copy of the contingency reserves for the last few years?

Mr Flavel —Certainly for last year it would be reasonably easy to provide a list of those late decisions that were incorporated within that $900-odd million figure.

Senator CONROY —What happens with any left over funds? Are they rolled over to the following year's contingency reserve? What happens to them?

Mr Flavel —There is no rolling over; it is simply an estimate. Therefore, if the funds are unspent then they remain unspent. There is nothing in there that would get rolled over.

Senator CONROY —How do they impact on the bottom line of either the cash or the fiscal balance?

Mr Flavel —In both cases, it is treated like another expense—so whether it is Defence or Environment or whatever—

Senator CONROY —But it is an under the line item?

Mr Flavel —I would not call it an under the line item. It is part of the budget figure.

Dr Watt —It is fully above the line, and it is fully factored into the budget balance.

Senator CONROY —It is fully factored in?

Dr Watt —That is why it is not a rainy day fund.

Senator CONROY —There are lots of items that are below the line that are not rainy day funds, either, but they are still below the line.

Dr Watt —I was not by any means suggesting they were.

Senator CONROY —What are the total positives and the total negatives in the $18 million for this year?

Mr Flavel —It has been convention not to disclose that sort of level of detail.

Senator CONROY —What about categories?

Mr Flavel —We can continue to run through the broad categories.

Senator CONROY —Maybe you could take that on notice to save you reading them all out now. I do not know whether there are two you are talking about here or 200.

Mr Flavel —There are four.

Senator CONROY —Okay.

Mr Flavel —The first category is `Provision for underspends in the current year.' If you look at the figure for 2001-02, part of the reason you get a negative figure there is that at budget time there was further provision for likely underspends in 2001-02; it is a mechanism by which estimates for the current year are kept as robust as possible. The remaining categories are: `Commercial-in-confidence', `National security items'—it goes without saying that they are in there because obviously they cannot be disclosed—and `Late decisions', of which there were none this year, except that there was provision made for a late parameter variation in relation to the living wage case, which was disclosed in the budget papers.

Senator CONROY —Without going into too much trouble—I appreciate that you said last year's figures are relatively easy to get—if it is possible to get a breakdown from a couple of previous years without digging into the archives, that would be appreciated.

Dr Watt —We will have a look.

Senator CONROY —If it requires you to send 12 officers down to dig a hole, that is okay. But if you can get last year's figures or anything that is relatively easy to get, that would be great. I trust your judgment there on the distinction between short- and long-term costs. I wanted to talk about United Medical Protection and the guarantee given to UMP/AMIL. I understand that guarantees provided to UMP/AMIL are contained within statement 9: `Risks to the budget.'

Dr Watt —That is correct.

Senator CONROY —They have been classified as a fiscal risk. Is that right?

Dr Watt —Potential risk.

Senator CONROY —Could you explain why they have been classified as a fiscal risk and not a contingent liability? I am interested in the accounting side.

Mr Bowen —I think you have to have a look at the definition of a fiscal risk. If you look at statement 9, paragraph 3 of Budget Paper No. 1 states:

Fiscal risks are general developments or specific events that may have an effect on the fiscal outlook.

It goes on to say:

In some cases, the events simply raise the possibility of some fiscal impact. In other cases, some fiscal impact may be reasonably certain, but it will not be included in the forward estimates because the timing or magnitude is not known.

That is why that has been treated as a fiscal risk. Contingent liabilities, on the other hand, are defined as `costs the government will have to face if a particular event occurs'. It is a matter of judgment.

Senator CONROY —Yes, it is a lineball issue. I understand that even this week there have still been arguments, following the judge's statements, about last year's tail— all of those sorts of issues. Obviously insurance has become far trickier in the last couple of years than it was previously, given the industry's incapacity to manage risk. So I appreciate that you are being cautious here, rather than not. Have you been able to identify a rough cost? As I say, it is a moving feast and I appreciate the courts have made a few pretty funny calls in the last few days that have impacted on you.

Dr Watt —I think the answer to that is that at the time the budget papers were put to bed we certainly could not estimate any costs at all. Since then I am not aware that the situation has evolved enough to make it possible to make any specific statement on costs. We certainly have not been looking at the costing of the—

Senator CONROY —Have you got the government actually on the job?

Dr Watt —That would be a matter for the Treasury portfolio I am afraid, Senator.

Senator CONROY —You would not want to ask them? I presume they are. I am not trying to be silly, but I presume they are actually working on it.

Dr Watt —I can assure you that the matter is getting considerable attention in the bureaucracy, including in Finance, but not that issue.

Senator SHERRY —I think it has gone to the World Bank.

Senator CONROY —No, they must have a new government actuary set up.

Senator SHERRY —I hope so.

Senator CONROY —The old one has gone overseas.

Dr Watt —You have an advantage over me there.

Senator CONROY —I want to talk about the HIH assistance package.

Dr Watt —Please ask a question, Senator. I am not sure how much we are able to help you. This is not in our portfolio, so beyond what knowledge we do have generally.

Senator CONROY —I appreciate some of them may not fall directly inside your area, but I am just trying to get a sense of the figures that are in the budget.

Dr Watt —Sure.

Senator CONROY —The budget papers indicate that HIH policy holder hardship assistance program has been revised down by about $107 million since MYEFO. Do you have any idea why that was done?

Mr Bowen —This is not in our portfolio but we understand there has been an actuarial review, which has revised that figure downwards. The expectation is that the claims will now be over a longer period of time.

Senator CONROY —The payments are over a longer period of time?

Mr Bowen —The claims will occur over a longer period of time, I understand, but Treasury manage that program.

Senator CONROY —I am interested, and I am following it up because I know that I asked you some questions about this at the last round so I do understand that it is not totally within your purview, Mr Bowen. Last year the Auditor-General's report indicated the measurement of liability for the HIH claim support program was noted as an emphasis of matter in relation to the annual report of Treasury. That seems to be because there were so many inherent uncertainties surrounding the measurements.

Mr Bowen —My recollection on that is that the Auditor-General was actually supportive of the approach that we took in our consolidated financial accounts, but made that emphasis that there was that inherent uncertainty about the figure. At that time, I think the advice I gave just previously is that there has been a further review of the figure to refine it. I do not know that I can comment too much further. There is one additional point: we are working at an early stage of preparation of the consolidated financial statements for the year ended 30 June 2002. We are working with the ANAO on a number of aspects, but including that one. I am advised that our expectation is that there will not be that emphasis of matter in the coming accounts.

Senator CONROY —So you will have satisfied yourself—

Mr Bowen —And audit.

Senator CONROY —that the actual calculation you have now is pretty robust?

Mr Bowen —That is our expectation, yes.

Senator CONROY —Thank you for that on HIH. Most of my other questions are better directed to Treasury, so I will not bore you with them.

Mr Bowen —Yes, I do not think we can go much further.

Senator CONROY —Moving to other things, can you explain `Interest from other sources' defined in Budget Paper No. 1, page 521?

Mr Bowen —I think—and I am really just quoting from the document here—the majority of that would be the moneys that AOFM has invested on the government's behalf.

Senator CONROY —They are one of my favourite organisations!

Mr Bowen —As you know, we still have net debt, but we do have financial assets and investments, and that is where those interest earnings would mainly come from.

Senator CONROY —Can you explain why the `Other' component of `Interest from other sources' is expected to rise from $500 million in 2002-03 to over $2 billion in 2005-06?

Mr Bowen —Where are you?

Senator CONROY —Budget Paper No. 1, page 1210. There is a figure that goes up from $500 million to $2 billion by 2005-06. I am interested to understand what the `Other' in `Interest from other sources' is.

Dr Watt —We can give you an answer on that with a bit of checking.

Senator CONROY —I am happy to come back to it after lunch.

Mr Bowen —I suspect that it reflects the changing net debt position of the Commonwealth and the fact that there is still an assumption about financial assets which would be earning a greater interest, because there would be, in proportionate terms, a higher level of financial assets.

Senator CONROY —Do you know what funds and investments is the `Other' interest that is being earned? What is the asset?

Mr Bowen —I could not comment on that.

Senator CONROY —Could you take it on notice for after lunch?

Mr Bowen —No, you would really have to take that up with Treasury. They manage our financial assets and liabilities and they would have that detail.

Senator CONROY —I was just wondering if you could point me to what the asset is in the budget papers and who is receiving the interest?

Dr Watt —I think what we can do is to determine for you whether this is predominantly or an entirely—

Senator CONROY —I am trying to work out whether it is all the AOFM and friends or it is actually something else? Is it possible to get that broken down?

Mr Bowen —We can do that.

Senator CONROY —I am really asking: who is receiving this interest and what is the actual asset or assets? If they are all Treasury, I will take it up with Treasury.

Dr Watt —Thank you.

Mr Bowen —Okay.

Senator CONROY —In Budget Paper No. 1, page 10 to 14, can you explain what is contained in the `2001-02 minus $4.1 billion net write-down of assets, bad and doubtful debts'?

Mr Bowen —We can give you a break-up later, but I am advised that it is a write-down of our investment in the Snowy authority, plus I think it is a write-down of debts in the tax office, Family and Community Services and DETYA. We can give you a break-up.

Senator CONROY —If you can give me a breakdown on that that would be great. In last year's budget papers the projection for this year was a positive $1.7 billion, so that looks like there has been a $5.8 billion turnaround in the 12 months. If I am able to get a breakdown of that that would be very useful.

Mr Bowen —Yes, we can get that.

Senator CONROY —In the same table—and you can take this on notice for after lunch—could you also explain what is contained in `Other economic revaluations' and what accounts for the decline of $580 million in 2002-03? Could I just get a breakdown of what that figure represents?

Mr Bowen —Yes, we will come back on it.

Senator CONROY —I appreciate the R&D Start program is outside your portfolio specifically, but I want to have a chat about the actual decision that was taken.

Mr Bowen —As you say, it is not in our portfolio.

Senator CONROY —When did DOFA first become aware of funding issues in the R&D Start program, and how did you find out that there was a problem?

Dr Watt —Can you define `funding issues' for us any more closely?

Senator CONROY —It was being terminated; it was being stopped.

Mr Bowen —The program has not actually been stopped.

Senator CONROY —Put on pause. It has been paused.

Mr Bowen —For the balance of this financial year I understand that no new approvals will be given, but the actual funding in this financial year has not been put on hold and I think it is operating at record levels, from my understanding.

Senator CONROY —I will rephrase my question. When did DOFA first become aware that if all the applications were granted there would be a funding blow-out? I appreciate that the funding is still going for the ones that have received it, but I understand it is an issue if a lot more applications are to be approved. There would be a funding blow-out.

Mr Bowen —The issue was that the program was more successful than was expected.

Senator CONROY —That is one way of describing it.

Mr Bowen —As a result they did require additional funding to be provided this year, which was provided in the budget—$40 million—to enable all current commitments, as I understand it, to be met this financial year. As I recall it, but only broadly, the issue arose in the budget process and it was resolved in the budget process. I do not know that I can be more specific than that.

Senator CONROY —We said earlier that the budget process stretches through to April.

Mr Bowen —It stretches a number of months.

Senator CONROY —Was a note sent to the Minister for Finance drawing his attention to the—

Mr Bowen —My recollection is that there was correspondence between ministers, and certainly we were involved in advising.

Senator CONROY —Could I find out the date of those? I am happy for you to not try and answer that question right now.

Mr Bowen —We will take that on notice.

Senator CONROY —Yes. Send off a query and, if someone is able to do that over today or tomorrow, please let us know. That would be great.

Mr Bowen —I have now found my brief.

Senator CONROY —I knew I was stalling on somebody's behalf, but I am pleased it was yours.

Mr Bowen —But, as it happens, it is not going to help me much now.

Senator CONROY —Could you also take on notice: when did AusIndustry first realise that they had a program that was too successful?

Senator Abetz —Shouldn't you ask AusIndustry that question?

Senator CONROY —We will be, but I am just wondering whether you advised AusIndustry. Did they write to you, telling you that there was this issue? Could we find out whether you received correspondence from them, or did you let them know? I do not know who was responsible for saying, `Hello, we've got a problem.' That is what I am trying to ascertain.

Mr Bowen —They manage the program.

Senator CONROY —Hopefully they found it first, before you did. That is what I am trying to get at.

Mr Bowen —We would have no way of knowing, quite frankly.

Senator CONROY —Could you let us know when you received information from them? That is within your portfolio.

Mr Bowen —We will have a look at what we have got and come back, yes.

Senator CONROY —You have indicated that there would have been correspondence to a range of ministers. Would you have written to the minister for industry?

Mr Bowen —On any proposal to change funding of the order we are talking about, there is ministerial correspondence. It cannot happen without it.

Senator CONROY —I am sure. I am just looking at—

Mr Bowen —So the answer is `yes' but in the context that that would happen with any funding proposal.

Senator CONROY —I do not think there is any secret; I am just trying to get the chronological situation sorted out. Perhaps, when you wrote to the Minister for Finance, a letter was also fired off to the minister for industry, and I would like to know the dates of such correspondence. That is the only issue.

Dr Watt —In the normal course of events, with any major issue like this, we would have advised the Minister for Finance. We would not have provided advice to the industry minister, no.

Senator CONROY —Mr Bowen indicated that there would be a general sort of ministerial correspondence. From that, I got the impression that you guys would do it rather than—

Mr Bowen —No.

Senator CONROY —Who made the initial recommendation to suspend the program?

Mr Bowen —The management of the program, as we have said, is a matter for AusIndustry. We did not, but—

Dr Watt —I think it is a decision for the minister, in the first instance and/or the government as a whole. We could not really comment any further on that.

Senator CONROY —So a recommendation evolved: was that from you or Austrade?

Dr Watt —Again, I think this really is a matter for that portfolio rather than for us.

Senator CONROY —But, by definition, they have to consult you on these issues.

Dr Watt —They would have consulted us, and they did consult us.

Senator CONROY —I am asking whether it was you who made the recommendation.

Dr Watt —I think that is one of the things we cannot tell you.

Senator CONROY —I accept that. How was the decision to suspend your applications made? Did that involve a meeting of agencies with you and others?

Dr Watt —This is a decision for the minister or the government of the day.

Senator CONROY —Were alternatives considered to suspension?

Dr Watt —Again, that is something we probably cannot comment on.

Senator CONROY —The rest of my questions are probably more directed to AusIndustry. You will come back to me with when you were first contacted?

Mr Bowen —Yes.

Dr Watt —Yes.

Senator CONROY —And when you wrote to the minister?

Mr Bowen —Yes, we can do that.

CHAIR —Senator Conroy, have you now completed output 1.1?

Senator CONROY —I probably have. I will probably move on to output 2 next.

Senator SHERRY —I have some questions relating to superannuation.

Senator CONROY —Unfortunately, I have another commitment between 2.30 p.m. and 4.00 p.m. At that time, Senator Sherry will probably take over and do a different area.

CHAIR —That is fine. Which area will you want to cover?

Senator SHERRY —My questions will relate to 1.1. We should take Senator Murray into consideration.

Senator CONROY —There will be a period when I will not be present, and so I am offering it to you, Senator Murray, and Senator Sherry, and I do not want to release departmental officials whom you might want to question.

Senator MURRAY —I want to ask questions of the AEC. That is tomorrow.

Senator CONROY —Is 3.1 tomorrow?

Senator MURRAY —Yes.

CHAIR —Yes, that is tomorrow.

Dr Watt —Could I just clarify a matter? Do we have ComSuper scheduled for tomorrow? I am sorry, we have them scheduled for today. I am on the wrong day.

Senator SHERRY —I have questions on general super under 1.1. Then—as I understand it, Senator Conroy does not have any other questions—that would finish that area. Then we could go straight into ComSuper, and I suspect I will spend about 15 or 20 minutes in that area. That would enable the officers to leave shortly after the lunch—

Senator CONROY —Do you want to go on to them next, after lunch?

Senator SHERRY —Yes, that would be fine.

Senator CONROY —Is that still going to give us enough questions to cover off that hour?

Senator SHERRY —Yes.

CHAIR —I call the committee to order. The committee is still examining the Department of Finance and Administration.

Senator Abetz —I understand that some, but not all, questions have been able to be answered during the lunchbreak. It may be appropriate for those answers to be given.

Mr Bowen —Senator Conroy, you had some questions about Budget Paper No. 1. First of all was the item on page 2-18, in particular the figure of minus $626 million for net cash flows from investments in financial assets for policy purposes. It appeared later in the statements as well. There are two key components of that: one is estimated receipts from asset sales and the other is advances—in particular, HECS advances.

Dr Watt —It is advances and HECS repayments as well, I think.

Mr Bowen —It is a net figure. Clearly, in 2001-02, the advances are greater than the receipts.

Senator CONROY —How do HECS advances fit under that heading?

Mr Bowen —That is another good question.

Senator CONROY —I am just intrigued as that particular one does not seem to fit neatly. This is a classification issue.

Mr Bowen —It really is a classification issue under the GFS standard.

Dr Watt —HECS advances are akin to a loan, so it makes sense. A HECS advance is a loan which, from the Commonwealth's point of view, is ultimately repaid.

Mr Bowen —So in a sense it is an investment. The next one was on page 10-14. You asked for the break-up of the figure for the `net writedown of assets/bad and doubtful debts' of $4.1 billion. I was fairly close in my answer, but it is: Snowy Mountains Hydro-Electric Authority, $2.3 billion; tax office bad debts, $1 billion; defence specialised military equipment, $0.4 billion; family and community services—

Senator CONROY —Without taxing you too much, Mr Bowen, do you have any idea what those defence—

Mr Bowen —No, I do not.

Senator CONROY —I will harass Defence about that.

Mr Bowen —Yes. And the last was education debts, $0.2 billion. There is a small rounding error in that, but that gives you $4.2 billion, I think.

Senator CONROY —That is writing off HECS debts?

Mr Bowen —Yes, writing them off or making provision for the write off. You should have five elements.

Senator CONROY —I missed one. I have the Snowy Mountains, $2.3 billion; Tax, $1 billion; Defence $0.4 billion—

Mr Bowen —Yes, and Family and Community Services, $0.3 billion. Also on that page, two lines below, I think you queried why there was such a difference between the figure of $579 million in 2001-02 and $122 million in 2002-03 for other economic revaluations.

Senator CONROY —Yes, a decline from $580 million, I think.

Mr Bowen —It was a decline from $580 million down to $122 million: a difference of $457 million. The two components are: an amount of $123 million for premiums on the repurchase of debt—which would be by AOFM—and accounting adjustments in the department of health's grants to the states. Instead of recognising all of the expense in the first year they are now being `expensed' over multiple years.

Senator CONROY —That $123 million repurchase on premium—

Mr Bowen —That is $123 million and $334 million on the accounting adjustment for—

Senator CONROY —Could you give me a description of that $123 million repurchase?

Mr Bowen —It is the premiums on the repurchase of debt.

Senator CONROY —That would be on foreign currency?

Mr Bowen —No, not necessarily. It would be on normal bond lines that AOFM may repurchase early—which they do in the management of the debt portfolio.

Senator CONROY —I was hoping to classify it as some of their existing debt but you are suggesting it might be some extra little debt for them?

Mr Bowen —It is just in the normal course of their activity, I believe.

Senator CONROY —You have given me a breakdown of the $4.1 billion. Last year's budget projection was for $1.7 billion.

Mr Bowen —We do not have last year's with us but we certainly would not have had a write down on the Snowy Mountains Hydro-Electric Authority. If you have add 1.7 to 2.3 you get a round four. So that is my guess.

Senator CONROY —If you double-check that, I would appreciate it.

Mr Bowen —We can check last year's for you, but we did not have that with us. On page 12-10 you had a question as to interest from other sources and whose it was. It is AOFM. The rest we will provide as soon as we can.

Senator CONROY —The $500 million to over $2 billion is the AOFM component?

Mr Bowen —Yes. I think that entire line is AOFM.

Senator CONROY —Thank you.

CHAIR —Thank you, Mr Bowen, for the alacrity with which you attended to those penetrating questions of Senator Conroy.

Senator LIGHTFOOT —Mr Suur, before I go to Dr Watt, would you reassure the committee that you handle the FOI requests in Finance? Is that part of your portfolio?

Mr Suur —That is correct.

Senator LIGHTFOOT —Has anyone in the FOI section of your group had contact since the start of this year with officials from the High Court? In particular, I am thinking of a telephone conversation that may have been held on 14 March this year. Are you aware of that?

Mr Suur —Yes, I am.

Dr Watt —It might be better if I answer the questions in the first instance.

Senator LIGHTFOOT —I am happy for you to take these questions.

Dr Watt —I think I should. There is a level of concern in my mind to see that we do not get down to the subject of naming individual officers on this issue so, if I talk in terms of an FOI officer or an officer here or an officer there, you would appreciate that. Yes, there was a discussion between an officer of the department's FOI area and a member of the High Court. I think it was on 14 March.

Senator LIGHTFOOT —When you say a member of the High Court, do you mean an official of the High Court?

Dr Watt —That is correct.

Senator LIGHTFOOT —Could you clarify this: was that response from the official of the High Court rather than from an officer of your department to the High Court?

Dr Watt —The official of the High Court rang the department's FOI area that morning seeking communication with an officer that the High Court official dealt with during some FOI matters about 12 months ago that have been made public knowledge since.

Senator LIGHTFOOT —Do you recall the purpose of that telephone call?

Dr Watt —As I understand it, the purpose was for the official to get some background surrounding requests for two separate FOI matters relating to Mr Justice Kirby.

Senator LIGHTFOOT —Was that information given to that official or was it researched and given later?

Dr Watt —The officer of the department rang back the High Court official—because the officer was not in when the call was originally made—and, during the conversation, which the departmental officer believed was confidential and was not going to be noted in any sense, the departmental official provided some information surrounding the nature of the previous FOI request in relation to Mr Justice Kirby.

Senator LIGHTFOOT —I am not sure whether you are aware of certain questions that were asked in the Senate Legal and Constitutional estimates committee hearing yesterday with respect to officials of the High Court. They made a number of statements. Have you been made aware of those statements?

Dr Watt —I have been made aware in the very broad sense, but nothing more than that.

Senator LIGHTFOOT —Could I bring to your attention a number of these statements. Have you seen or had an opportunity to peruse a document that has the unusual title of `onology'? I understand there is no word like `onology' and that it is probably `chronology' with part of the word truncated. Are you aware of a document of that nature?

Dr Watt —I have seen the `onology' document, yes.

Senator LIGHTFOOT —The document purports to be a chronology—rather than an `onology'—of events surrounding the FOI request for Justice Kirby's Comcar documents. Is that correct?

Dr Watt —That is what the document purports to be, yes.

Senator LIGHTFOOT —Was that document then produced by a Department of Finance and Administration official?

Dr Watt —To the best of our knowledge—and we have checked this pretty extensively—the answer is no, it was not.

Senator LIGHTFOOT —Yesterday, when Senator Nigel Scullion in the Senate Legal and Constitutional estimates asked Mr Doogan if he had seen the document referred to as `onology' before, he replied, `No, Senator, I am not familiar with the chronology.' Did Finance ever supply a copy of this document to Mr Doogan?

Dr Watt —We did. Mr Doogan wrote twice to me about events surrounding the FOI request in relation to matters pertaining to Mr Justice Kirby.

Senator LIGHTFOOT —Do you have those dates or those letters?

Dr Watt —Mr Doogan wrote to me on 15 March and 19 March in relation to that. He also spoke to an officer who was the head of the Ministerial and Parliamentary Services group of the department, Ms Jan Mason, prior to the first letter.

Senator LIGHTFOOT —So he had not only one contact with officers there, he had two or more.

Dr Watt —He had two telephone contacts—

Senator LIGHTFOOT —With different officers?

Dr Watt —with Ms Mason. I spoke to Mr Doogan on—I think it was—the morning of 21 March, in response to his letters. I spoke to him to explain that I was sending a note to him relating to the FOI requests pertaining to Mr Justice Kirby, a note that would respond to both his letters, and I wanted to do him the courtesy of talking to him before I sent the note. As part of that, I sent a copy of the `onology' letter to him. I said to him and confirmed in my letter that this material was circulating, as I understood it, and that it had not been prepared in the department of finance and that it was inaccurate in a number of respects.

Senator LIGHTFOOT —You sent two copies, or you made available two copies—

Dr Watt —I made available my letter and a copy of the `onology' letter to Mr Doogan. I am happy to table my letter if it will save some time and trouble.

Senator LIGHTFOOT —Yes. Thank you.

Senator FORSHAW —We can have a look at it, but I assume that this is the document that you have been referring to anyway.

Dr Watt —The `onology' document is. My letter explains the context of `onology' document.

Senator LIGHTFOOT —How did Mr Doogan receive those? Did they go through the general mail? Did you fax them? Did you hard-copy both to him?

Dr Watt —The letter was hand delivered to the High Court on the same day.

Senator LIGHTFOOT —And you had a response to say that Mr Doogan had received those?

Dr Watt —No, I have had no response, but I would not have expected one either. I informed him the letter was coming. He indicated he was looking forward to getting it. He had a meeting in the next period that it would be useful to have the letter for. I think he may have been meeting with a number of the members of the court itself in the next 24 hours and it would be useful to have the letter in advance of that—if my memory serves me correctly—so he was looking forward to receiving it.

Senator LIGHTFOOT —So had he not received it, one could fairly safely assume that he would have been in touch with you?

Dr Watt —I would have assumed so.

Senator LIGHTFOOT —There was no receipt upon delivery? It was just a normal delivery?

Dr Watt —I believe there was, but I will get that confirmed.

Senator LIGHTFOOT —Can you get a copy of the receipt and let the committee have it?

Dr Watt —I will confirm first of all that it was receipted.

Senator LIGHTFOOT —Whilst that evidence of the delivery of the letter is coming, could you explain Mr Doogan's statement that he is unfamiliar with the correspondence that we are referring to?

Dr Watt —I think that that is something you would have to take up with Mr Doogan. As I said, I am aware of the phone call I had with him. I am also aware of the letter I sent him. That is something you would have to take up with him.

Senator LIGHTFOOT —But you are aware that Mr Doogan has said that he is unfamiliar with the correspondence?

Dr Watt —You have made me aware now.

Senator LIGHTFOOT —Yes, indeed. Mr Doogan also stated that he had no idea about who prepared the document and that he could not recall any conversation with Finance officials about the accuracy of the document. Did you have any subsequent conversations with Mr Doogan?

Dr Watt —No subsequent conversations beyond my phone call to him on the morning of the 21st, when I explained that the document was inaccurate, and a number of ways in which it was inaccurate, and really explained what was in my letter to him.

Senator LIGHTFOOT —So he was fully briefed verbally by you and then he received one piece of correspondence from you relating to the conversation that you had had. I imagine the letter was a precis of your telephone conversation.

Dr Watt —The letter broadly summarised our telephone conversation, yes.

Senator LIGHTFOOT —So there is no way that he could say, really, that he was unfamiliar with it.

Dr Watt —That is something you will have to take up with him.

Senator LIGHTFOOT —You are very kind, Dr Watt. If another departmental secretary called you up and said that a document produced in Finance was grossly inaccurate, do you think that you would remember that conversation?

Dr Watt —If I had had discussions, which I did about the accuracy of a Finance document, I think I would have remembered the discussion, yes. It is not something I would take very lightly, generally.

Senator LIGHTFOOT —No. It is a fairly monumental statement to make under those circumstances, is it not?

Dr Watt —I am not sure monumental—

Senator LIGHTFOOT —It would be a large departure from—

Dr Watt —Put it this way: Finance takes its reputation very seriously. I would not want to hear that a document was inaccurate, so I would take that seriously.

Senator LIGHTFOOT —Let me get on to Mr Lex Howard—no relation to the senior gentleman in the House— another High Court official. He also stated yesterday that he had not seen the document before. Is that the same Mr Lex Howard who had had a conversation with the Finance official on 14 March, the same day that we are talking about?

Dr Watt —I believe so, Senator.

Senator LIGHTFOOT —Did the Finance official make a file note of his telephone conversation, that you are aware of, with Mr Lex Howard?

Dr Watt —Yes, he did.

Senator LIGHTFOOT —I understand that the same Finance official made a number of errors in his conversation with Mr Lex Howard. Is that correct?

Dr Watt —That is correct. The officer spoke about a matter that was up to 12 to 15 months old. He spoke without the benefit of access to the file, without the benefit of access to his notes. He spoke in a conversation which he thought was confidential, a conversation which was not to be acted upon. As far as he was aware, he was providing background information. He was inaccurate in a number of respects, and that was disappointing because we would prefer our officers were always accurate. They were the circumstances under which those inaccuracies were made.

Senator LIGHTFOOT —In your opinion, those errors were quite peculiar and specific. I do not want to lead you here. Isn't that a fact?

Dr Watt —He made a number of errors which were noticeable, yes, to someone who knew the facts.

Senator LIGHTFOOT —To the best of your memory, did that same Finance official say to Mr Lex Howard that it was Mr Whittaker who had additional documentation? Are you aware of that?

Dr Watt —That is correct. That is one error he made; Whittaker supplied no documents.

Senator LIGHTFOOT —And did the same Finance official say to Mr Lex Howard that Mr Whittaker submitted that information following agreement from Dr Boxall to `look into the matter'.

Dr Watt —Again, I think that is correct. He said that.

Senator LIGHTFOOT —Did the same official say to Mr Lex Howard that Mr Whittaker submitted additional material, that you are aware of?

Mr Suur —The official said that Mr Whittaker, after speaking to Dr Boxall, would forward additional information to be checked relating to the use of Comcar.

Senator LIGHTFOOT —Was that information sent?

Dr Watt —No. Mr Whittaker never provided any documents at any stage.

Senator LIGHTFOOT —He did not provide any documents?

Dr Watt —Not in documentary evidence, apart from his FOI request, no.

Mr Suur —And the alleged conversation between Dr Boxall and Mr Whittaker never took place. The official in question was confusing that conversation and another conversation that Dr Boxall had had with Senator Heffernan.

Senator LIGHTFOOT —He was confusing that conversation?

Mr Suur —Yes.

Dr Watt —That is right.

Senator LIGHTFOOT —Did that same Finance official say to Mr Lex Howard that the additional material was examined by Comcar staff?

Dr Watt —Yes he did. And again it was incorrect.

Senator LIGHTFOOT —I missed that last part.

Dr Watt —Sorry. He did say that, yes.

Senator LIGHTFOOT —Is it reaffirming what you have just said?

Dr Watt —Yes.

Senator LIGHTFOOT —Did the Finance official say to Mr Lex Howard that the Comcar staff were satisfied that the document was not an authentic document?

Dr Watt —He did say that. Again, that was not correct. While the material supplied by Senator Heffernan—very limited material as it was—was examined, we were never able to reach a judgment as to whether or not it was authentic as we did not have enough to go on.

Senator LIGHTFOOT —Would you be kind enough to turn to paragraphs 9 and 10 of the purported chronology. Does the document say that it was Mr Whittaker who had additional documentation?

Dr Watt —Yes, it does.

Senator LIGHTFOOT —Would you care to tell the committee where it says that in paragraphs 9 and 10?

Dr Watt —In paragraph 10 it says that Mr Whittaker duly provided copies of documents.

Senator LIGHTFOOT —Yes. Does the document then read that Mr Whittaker submitted that information following agreement from Dr Boxall to `look into the matter'? Does it say that in effect?

Dr Watt —Yes, it does.

Senator LIGHTFOOT —There is little ambiguity about that?

Dr Watt —Very little.

Senator LIGHTFOOT —There is no ambiguity about that, is there?

Dr Watt —Very little.

Senator LIGHTFOOT —Does the document say, in paragraphs 9 and 10, that Mr Whittaker submitted additional material?

Dr Watt —It indicates that Mr Whittaker duly provided copies of documents.

Senator LIGHTFOOT —You are quoting from the document?

Dr Watt —From paragraph 10, yes.

Senator LIGHTFOOT —Does the document say that the additional material will be examined by Comcar staff?

Dr Watt —Yes, it does.

Senator LIGHTFOOT —Does the document say that the Comcar staff were satisfied that the document was `bogus'?

Dr Watt —Yes, it does say that.

Senator LIGHTFOOT —So, in effect, what we have here is a document that makes the same specific mistakes in the same order as those made in the telephone conversation between the Finance official and Mr Lex Howard of the High Court. Is that correct?

Dr Watt —There is a strong similarity.

Senator LIGHTFOOT —When you say there is a strong similarity, is there any other conclusion that you could come to other than what I have said is correct?

Dr Watt —As I have said, there is a very strong similarity.

Senator LIGHTFOOT —Thank you. Was this chronology of events produced in the department of finance?

Dr Watt —To the best of our knowledge, and we have extensively checked, it was not.

Mr Suur —In fact, we have our own official record of that conversation and it bears no resemblance to the chronology document that you are referring to.

Dr Watt —Apart from some of the information in it, there is no resemblance in structure.

Senator LIGHTFOOT —There is no evidence—no documentation or facsimiles of this, other than copies—that this was prepared or produced in your department?

Dr Watt —No, there is not. In fact, when you look at the structure of the document and the way it is set out, it does not look like a Finance document. I appreciate that that does not sound very conclusive, but it does not look like a Finance document.

Senator LIGHTFOOT —For the record, if it were not produced by Finance, where could one logically conclude that the document was produced?

Dr Watt —I think you are getting into levels of speculation from which I should stop.

Senator LIGHTFOOT —We are only talking about the High Court and your department, aren't we?

Dr Watt —I can say with confidence that it was not produced in my department, but I would stop there.

Senator LIGHTFOOT —Yes. Given that we are only talking about one other federal office, there is little doubt where that document was produced.

Dr Watt —Again, I would stop at saying that it was not produced in my department.

Senator LIGHTFOOT —All right. Let me finish by asking: if the document were produced in the High Court, how is it possible that this document ended up in the hands of the federal opposition and at least one member of the parliamentary press gallery?

Dr Watt —Again, it is beyond my ability to speculate on that.

CHAIR —It is speculative, isn't it?

Senator LIGHTFOOT —It was rhetorical. I got the answer that I was expecting and the answer I deserved; nonetheless, I thought it was a good question. Those are all the questions that I have. Thank you.

Dr Watt —I wish to make one point. You asked whether we had a receipted document from the letter.

Senator LIGHTFOOT —From the delivery of the letter?

Dr Watt —Yes. The document is marked `received at 2.46 p.m. on 21 March', and it is signed off by the personal assistant to Mr Doogan.

Senator LIGHTFOOT —I request that that be tabled.

Dr Watt —I am happy to do that.

CHAIR —Sure.

Senator CONROY —I would like to discuss the timing of the recent monthly statements, about which we had a chat last time.

Dr Watt —We would be delighted.

Senator CONROY —This is one of the budget outcomes—

Senator Abetz —You are not misleading a Senate committee! I am checking that Dr Watt was not misleading the Senate committee by saying he would be delighted to answer, but he assures me he is genuinely delighted.

Senator CONROY —Misleading is a serious issue! Could you tell me what date the monthly financial report was released for January?

Dr Watt —It was released on 22 March.

Senator CONROY —I understand that, according to the monthly financial reporting timetable published on the DOFA web site, the report and press release must be delivered to the minister for clearance by 28 days of month end. Could you tell me when the report for February was delivered to the minister?

Dr Watt —We try to meet that broad objective generally, and we are around that time. It is an objective. We endeavour to get as close to it as we can.

Senator CONROY —I am afraid you have confused me. You delivered it to the minister on 22 March, or you delivered it within the 28 days?

Dr Watt —The answer to that is that we delivered it with reasonable speed. We came close to our objectives on each occasion.

Senator CONROY —In the short term you met your objectives. Are we talking about a seven-month meeting of the short-term objectives?

Dr Watt —No, we did much better than that.

Senator CONROY —Are we talking about within a few days?

Dr Watt —We were there within a few days.

Senator CONROY —The minister's office received it probably by the end of February. So, for the January statement, you made it within a few days.

Dr Watt —It is 28 working days, from memory. So 28 days would be 5[half ] weeks, I think.

Senator CONROY —I am looking at your timetable and it says the timetable is `28th each month'. It sets down the 28th of the month, rather than working days or non-working days.

Mr Bowen —Our timetable is to get our report to the minister by the end of the following month.

Senator CONROY —By the 28th?

Mr Bowen —Whether it is the 28th—

Senator CONROY —I am not going to quibble about a day or two; I just wanted to clear up with Dr Watt that it is not 28 working days.

Dr Watt —I apologise. I got the wrong—

Mr Bowen —It is the end of the following month.

Senator CONROY —So it is not 5[half ] weeks, it is not the middle of—

Mr Bowen —No, it is the end of the following month.

Senator CONROY —We could take a rough estimate that the minister's office received the monthly financial statement for January around the end of February or early March. That is reasonable, from the evidence you have given us so far?

Mr Bowen —Sorry, I was distracted.

Senator CONROY —That is okay. We were talking about the January monthly report, and you were saying that within a few days you met that target. It was received in the minister's office maybe in the first couple of days in March, based on your evidence so far.

Mr Bowen —Generally, we come close to our timetable.

Senator CONROY —I am not asking you to give an exact date, but it is not three weeks or five weeks later, is it?

Mr Bowen —No.

Senator CONROY —So it was in the minister's office from about the beginning of March to the 22nd when he released it. It is all right, you do not have to confirm that: if the minister was here, he could answer for himself, but Senator Abetz is more than adequately sitting in for him. What date were the monthly financial reports released for February?

Dr Watt —26 April.

Senator CONROY —When did the February reports get delivered? Did you meet the end of March deadline?

Dr Watt —No, we did not—we did not do very well on that one. We were well into April by the time that came out.

Senator CONROY —It was the long term?

Dr Watt —Medium term, Senator.

Senator CONROY —Medium term?

Dr Watt —I can see that this tag is going to stick with me.

Senator CONROY —I have a memory like an elephant, I am afraid. When was that, roughly?

Dr Watt —Call it mid-April.

Senator CONROY —So, the 15th—the midpoint—or was it earlier than the midpoint?

Dr Watt —Thereabouts, yes. A bit earlier, but that will do.

Senator CONROY —Was 26 April the Friday between Anzac Day and the weekend?

Mr Bowen —It was a Friday.

Senator CONROY —Was it the Friday after Anzac Day?

Dr Watt —I think it was. The 25th is definitely Anzac Day.

Senator CONROY —What can I say?

Senator Abetz —We are in heated agreement.

Senator CONROY —Collingwood beat Essendon on Anzac Day. He must have known that I would not be following things too closely.

Dr Watt —Absolutely.

Senator CONROY —What caused the delay in this particular month, Dr Watt?

Dr Watt —In terms us providing it to our minister, we were just simply swamped with other things, I would imagine. It is the busiest period of the budget.

Senator CONROY —I appreciate that. That particular time is the peak budget time. That is a perfectly reasonable answer.

Dr Watt —Certainly in terms of the demands on that area—the same area that does the monthlies does a large amount of the budget numbering work—that is a very busy time.

Senator CONROY —Does anybody have a calendar? What day is 22 March? Is that a Thursday, Friday or Saturday?

Mr Bowen —It is a Friday.

Senator CONROY —It is a Friday. Minister, would you be able to inquire with the minister's office if late on Fridays is a normal time to release this information so that ordinary Australians are adequately informed? There seems to be a pattern that is recurring now over some considerable months that Fridays—and I am going back to estimates that you were not at—or late on Friday appears to be—

Senator Abetz —I am happy to find out whether there is a penchant for Fridays.

Senator CONROY —I think we managed to avoid the Easter bunny delivering the one before that, but that was only because we mentioned that we would expect Easter eggs on that Thursday night!

Dr Watt —There is one point that you might like to think about. I think there is something to be said for having these things released at quiet periods in financial markets, simply because they are something markets watch and take an interest in.

Senator CONROY —I try to draw it to their attention. I do my best.

Dr Watt —You do, and I think you are in fact accessing it on our web site, if memory serves me correct. But I think there is a thing about putting them out at fairly quiet times.

Senator CONROY —`Quiet times'! That is after newspaper deadlines, is it? Is that the definition of a `quiet time'?

Dr Watt —After the adrenalin rush of the screen jockeys, might be a good way to put it—the worst midmorning adrenalin rush.

Senator SHERRY —You have more time for the adrenalin to build up for the next day.

Dr Watt —More time to assess it properly, I think, rather than make knee-jerk reactions. The ABS does that.

Senator CONROY —I am sure you noted the debate I was having with Senator Minchin about the likelihood of the budget being in deficit. I was continually being assured—or Australians were continually being reassured—that I was an alarmist and did not have a clue what I was talking about.

Senator SHERRY —And you were right.

Senator FORSHAW —And that has been proved to be absolutely incorrect.

Senator CONROY —It was. In this instance, it was. Thank you, Senator Forshaw. I would like to discuss reporting of advances by the minister. I understand that, according to Senate orders, there are procedures for the presentation of documents when the Senate is not sitting. Is that right?

Dr Watt —Yes.

Senator CONROY —I understand that, when the Senate is not sitting, new advances should be notified to the President and a copy of the document should be forwarded by the department to each Senator's office. Is that right? Let Hansard record Mr Kerwin's nod.

Mr Kerwin —Yes, that is right.

Senator CONROY —What is the total amount of advances that have been made since estimates hearings in February?

Mr Bowen —A total of $150.4 million has been approved since the documents were last tabled in parliament, which was 20 March.

Senator CONROY —We have not had many sitting days this year so far, as you have probably observed.

Mr Bowen —We can give you a breakdown of that figure if you would like.

Senator CONROY —Yes, if it is possible I would like to get a breakdown of that.

Mr Bowen —We can table that with you later, if you like. The major items were for the Commonwealth Heads of Government Meeting which, as you know, was a disrupted meeting because of September 11; the First Home Owners Scheme; grants to companies under the industry innovation program; and payments to employees under the General Employee Entitlements and Redundancy Scheme. There were others as well; we can give you a complete list.

Senator CONROY —I am happy for you to give them to us on notice. Do you know whether these were circulated to each senator's office, as per the standing orders? I appreciate that you may not actually know.

Mr Kerwin —As far as I know they were. I would be very surprised if they were not.

Senator CONROY —Do you think it would be possible, given technology, for there to be a distribution of these things by email? I do not know that you would actually be able to not physically deliver the paper, because that is a requirement, but it may be that if you use people's email addresses as well—

Mr Bowen —I am happy to look at it.

Mr Kerwin —The next sitting of the House will receive the details of these particular ones, which you have not seen yet. From memory, we have a history of tabling in the House and not tabling out of session.

Senator CONROY —We said what was meant to happen according to Senate standing orders, but you are saying that you do not do that?

Mr Kerwin —We do not do that because we have a practice of tabling while the House is sitting. We do not table out of session.

Senator Abetz —If this is a problem of not complying with standing orders, clearly we would want to. We will look at it, especially the email aspect. Where the standing orders require us to do something particular, we will have a look at that and, if there is an oversight somewhere, I am sure it will be remedied.

Senator CONROY —Dr Watt, you may recall our discussion in February on the management advisory committee.

Dr Watt —Yes.

Senator CONROY —I think you had newly taken up that role, or you had previously been on it, hadn't you?

Dr Watt —The management advisory committee comprises all the secretaries and the heads—

Senator CONROY —So you had already been on that one?

Dr Watt —Yes.

Senator CONROY —You indicated that the report from the budget and resources subcommittee, which you chair, was a high priority for you and that you expected the report to be released over the next few months. Has the report now been completed?

Dr Watt —No, it has not. We have put the report temporarily on hold. It was put on hold for a couple of reasons. One reason was the pressure of other budget related work and the resources in the department of finance; the other was that we wanted to take the opportunity to have a good look at the broad budget framework. We thought it might be better to have a clean look at a few things rather than to push a report out that had been kicked off six or eight months ago.

Senator CONROY —Do you know roughly when it will be released?

Dr Watt —I would think there would be something towards the end of the year. I am sorry to sound as indefinite as that.

Senator CONROY —The end of the year?

Dr Watt —Yes.

Senator CONROY —So there is no point in my asking you what the report concludes then, because you have not concluded it.

Senator Abetz —Well picked up.

Dr Watt —I think we will be back a little bit to taws on a few things.

Senator CONROY —This is the report that was looking at—`quality' is the wrong word—the transparency of the documents.

Dr Watt —We are interested in ways of improving the whole budget framework and estimates process.

Senator CONROY —Without being pejorative, do you have a few ideas about the areas that can be improved? From talking to people who I know have looked at the documents, there is a general perception that they are less transparent than they were before we went to accrual. I think that is because of a combination of factors.

Dr Watt —I think you are right about there being a combination of factors. All of us who were familiar with the government documents before the move to accrual had a great deal invested in the original document structure, and we had to make the change. I am one of those. I used to know where I could find everything in the budget papers and now I do not whereas, if you were coming to them fresh, you would not have my problem.

Senator CONROY —That is a fair comment. You knew where things were and now you do not, and it is very hard to pin it down. That is just a general frustration for people who have been used to one system. Do you think that the issues that you are considering would be able to be incorporated in preparation for the next budget? I am concerned that you said `at the end of the year', and the budget process starts at the end of the year.

Dr Watt —Certainly we would look to have some things that might come out of this exercise in place for the next budget.

Senator CONROY —Senator Sherry is with it. He is famous for creating something known as the Burnie pub test. Senator Sherry likes to be able to test whether documents are digestible by the average punter by going into his local pub down in Burnie, putting them on the bar and asking, `Can you understand that?'

Senator SHERRY —When they're sober!

Senator Abetz —Is that Steve Cons's pub?

Senator SHERRY —No, it is not.

Senator Abetz —A different faction; I thought so.

Senator CONROY —Do you do any road testing of the newer updated version to see whether it is an improvement that people can understand? You do not have to go down to the pub with Senator Sherry, but you are welcome to!

Dr Watt —I am not aware that any road testing has been done recently. If you go back a long period of time—I go back to the 1985-86 budget papers—the then department of finance circulated a survey to its readers on whether the budget papers were comprehensive, readable and all that sort of stuff. They got some interesting answers.

Senator Abetz —They could not understand the survey.

Dr Watt —They got 50 responses, one of which was mine. That is why I remember it. I am not sure whether we have done anything else since. Do you know, Bill?

Mr Bowen —Not to my knowledge.

Senator CONROY —Do you think it would be worth while to do some consulting outside? I know part of this process started from a consultation with your colleagues, but the people who use the documents outside the service may have suggestions about how you could improve them.

Dr Watt —I think that is a reasonable suggestion and something we would need to look at. There are many things that drive the documents. You have to be fair—some statements in Budget Paper No. 1 are very readable and very easy to grab onto. For example, statements 1, 2 and 3 are normally pretty clear but, as we get into some of the more detailed statements, which we produce more for aficionados or people in the APS or people up here, they are necessarily more complex and less user friendly.

Senator Abetz —Shadow ministers.

Dr Watt —Exactly. But the budget papers tell a story.

Senator CONROY —Balancing that demand as more people are demanding more information and maintaining accessibility is a challenge in any organisation.

Dr Watt —The budget papers tell a story, and I believe you always tell a story as simply as you can.

Senator CONROY —I look forward to seeing your report eventually. It sounds to me like it is in the long term.

Dr Watt —I do not think it is long term, Senator.

Senator CONROY —It is only six months away; after all, it is well past short term for you.

Dr Watt —I think we can do a bit better than that.

Senator CONROY —I want to have a chat with you about the Auditor-General's report on internal budgeting, released last Friday.

Mr Bowen —We can talk about that. This was a report that looked at a number of agencies. Finance was not one of them. We were not consulted, as far as I am aware, on this report; however, we are very interested to read some of the conclusions.

Senator CONROY —Obviously the report indicated three years after the introduction of Finance's baby, accrual accounting, it had not been widely adopted by line managers. Why in your view is that the case? Or do you disagree?

Mr Bowen —I am happy to accept the report. I have got no basis for having a different view. I think there are a couple of reasons for that. One, these things do take quite some time to bed down. You yourself have talked about the—I do not want to use this word—`complexity' of the current budget documentation, and introducing accruals has introduced another layer of thinking into the process. Understandably, it takes a little time to bed down. Two, many of our line managers are managing very large administered programs. To be frank, the relevance of accrual data in those circumstances is pretty minimal. They may be managing a $50 billion welfare program, which effectively is cash in the door and cash out the door, so it does not make any difference. They probably have leased computer equipment, a few staff and some operating costs. In those circumstances, there is not much relevance of accruals. It is more likely—and I think the report says this, on my quick reading—that the accruals will be used at the departmental executive or CFO level, where the departmental CFO and the chief executive or secretary has responsibility for managing a broader range of issues, including whatever assets there might be and their associated depreciation.

Senator CONROY —It is seeping downwards from the top.

Mr Bowen —It is important to recognise that it ought to seep down where necessary, but obviously not where it is not necessary.

Senator CONROY —The key point that the Auditor-General makes is that a continued reliance on cash measures has resulted in the development of separate report process—cash and accrual based financial information—and hence the duplication in costs.

Mr Bowen —I cannot comment in particular, but I will make a couple of comments. I cannot comment specifically on that issue. If that is the case then that is not desirable, obviously. However, one thing does come through quite clearly, and it actually comes through in the work that Dr Watt has been talking about in the MAC context. It is one of the things that Finance has agreed to do in the short term, or to start.

Senator CONROY —That is definitely going to haunt all of us.

Mr Bowen —I will never use it again. Before the report is actually completed they have agreed to try and come to grips with what training is required around the APS. We have been charged to take that on board with the Public Service and Merit Protection Commission. To be fair, it is little more than a glimmer, but we have been fairly tied up. It will now become more significant on our work program to get better training programs in place.

Senator CONROY —Senator Lightfoot, I think you must be chairing the meeting. No, it is Senator Murray. I am sorry, Senator Murray, I have defamed you something shockingly there! I hope you can forgive me! I have to go to another engagement and I was going to pass over to either you or Senator Lightfoot.

ACTING CHAIR (Senator Murray) —The minister says he is distraught!

Senator CONROY —I am coming back, Senator.

Senator Abetz —That is a relief!

Senator CONROY —I will be back to continue—not on that issue but on some more issues.

ACTING CHAIR —Senator Sherry, you have the call.

Senator SHERRY —I have just noticed—

Senator Abetz —Is that going to be on the budget area? Some officials might be able to be relieved, that is all.

[2.30 p.m.]

ACTING CHAIR —We will now move on to output 2.

Senator SHERRY —The issues I wanted to go to about public sector superannuation advice cross over and relate to specific budget matters, but I notice that public sector advice is in program 2.2. They cross over, so can I deal with the public sector superannuation advice now, and then ComSuper, and that will clear the superannuation area?

Dr Watt —Yes, sure. I think we have the right people.

Senator SHERRY —Yes, their faces are familiar. There does not seem to have been a whole new set of officials.

ACTING CHAIR —They do not transfer them as often as they do in the Department of the Prime Minister and Cabinet.

Dr Watt —We aim to slow them down a bit.

Senator SHERRY —My understanding is that the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill 2002 that is currently before the parliament contains a number of measures that were previously included in other proposed changes to Commonwealth superannuation. The government has listed an additional package of legislation, including the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill No. 2, for introduction this session. Is that correct?

Ms S. Wilson —There are more superannuation bills on the legislative program. They are possibly being introduced, yes.

Senator SHERRY —They are listed, aren't they?

Ms S. Wilson —Yes.

Senator SHERRY —Do we have a date for the introduction of those bills?

Ms S. Wilson —No.

Senator SHERRY —Can you provide me with the description of the purposes of the legislation?

Ms S. Wilson —I have not got it with me at the moment but I could explain to you generally what they are.

Senator SHERRY —That would be fine.

Ms S. Wilson —Essentially, they are the package of four bills that were defeated in the Senate at the end of the last sittings, that provided for the closure of the PSS, and choice, establishment of a new Commonwealth superannuation board, and a number of other changes. Apart from the provisions that are in the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill No. 1, which is currently before the parliament—we took out some of the provisions—

Senator SHERRY —I am aware of that. So they are essentially the same bills?

Ms S. Wilson —Yes.

Senator SHERRY —Are you familiar with—it would have gone to the department for costing—the Howard government's A Better Superannuation System policy?

Ms S. Wilson —Generally, yes.

Senator SHERRY —Can you indicate to me where in that policy it refers to the closure of the existing public sector funds, which is the purpose of the legislation we have just been talking about?

Ms S. Wilson —I do not have it with me, unfortunately. I am not sure that it specifically refers to the closure of the PSS. I believe, from memory, that it refers to choice of superannuation fund continuing to be coalition policy.

Senator SHERRY —Yes, you are right. In part I, headed `Choice of Superannuation and Portability', in the second paragraph it says:

The Coalition remains committed to choice and portability in superannuation, which will benefit Australian workers by creating greater competition in the superannuation industry, resulting in reduced fees and charges and more responsive investment strategies by trustees.

But there is no specific reference—you are right. I will come back to that a little later. Is it correct that the legislation to be introduced will not include the closing of the military superannuation benefit scheme to Defence Force personnel?

Ms S. Wilson —The legislation relates only to superannuation for Commonwealth civilian employees.

Senator SHERRY —I have just read the second paragraph, and we now know about the introduction of measures to close the general Public Service funds. Given the government's choice of superannuation and portability policy and the claim is made—and I read out the particular paragraph—that this will result in reduced fees and charges and more responsive investment strategies by trustees, perhaps the minister could explain to my why the government does not intend to offer the same claimed attractions in respect of the military superannuation funds.

Senator Abetz —I will take that on notice. I am unable to assist you on that at the moment.

Senator SHERRY —You have confirmed that the legislation which is to be introduced is essentially the same as the previous legislation, with some minor variations. I have here a copy of the previous explanatory memorandum for the amendment bill of 1998, which was defeated in the Senate. On the financial implications—this is in respect of the previous package of legislation—it says that, if the legislation were passed, there would be a negative impact on the underlying cash balance: $220 million in the financial year 2003-04, and $260 million in the financial year 2004-05. That is with an operative date of 1 July 2003, which is the proposed operative date of the legislation that is to be reintroduced, as I understand. Can you confirm that those figures that were in the previous explanatory memorandum are similar to the figures that relate to the proposed legislation?

Ms S. Wilson —Can you clarify which explanatory memorandum you are reading from?

Senator SHERRY —I have here a copy of the explanatory memorandum for the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill 1998, which is the closure of the public sector funds. Those figures I have just given you are on page 3, in the paragraph on financial implications.

Ms S. Wilson —I do not have the document. The figures sound about right to me.

Senator SHERRY —Do you have details of the cash financial implications of the proposed bills to be reintroduced into the parliament?

Ms S. Wilson —Yes.

Senator SHERRY —Can you give me those figures?

Ms S. Wilson —I am just reading some figures provided to me. It says there will be an underlying cash impact in 2003-04 of $220 million and in 2004-05 of $260 million.

Senator SHERRY —Is there any other for the next year?

Ms S. Wilson —We have not published figures beyond that. Those are the normal figures published in budget estimates.

Senator SHERRY —But you do have the figures?

Ms S. Wilson —Apparently we have a figure here of $300 million for 2005-06.

Senator SHERRY —Are you able to tell me the proportion of the costs that relate to the closure of the PSS to new members? What proportion relates to so-called choice for existing PSS and CSS members?

Ms S. Wilson —I do not think we have that on hand at the moment.

Senator SHERRY —Okay. Take it on notice. There are a couple of other specific questions I suspect you will also have to take on notice. Of the cost relating to so-called choice, what proportion relates to CSS and PSS members?

Ms S. Wilson —Again, we will take that on notice.

Senator SHERRY —What assumption has the department made regarding the number of CSS and PSS members expected to exercise so-called choice?

Ms S. Wilson —I will take that on notice.

Senator SHERRY —Is it true that if the legislation is defeated again in the Senate—and it has been defeated on a previous occasion—the underlying cash balance of the budget will improve as a result?

Ms S. Wilson —Yes, that is correct.

Senator SHERRY —And you have just given us the figures. The explanatory memorandum for the government's legislation in the last parliament stated:

employer contributions for new employees and employees who choose to leave the PSS/CSS will be ... able to be negotiated with the employer subject to a safety net ... of the Superannuation Guarantee (SG) rate.

Does this remain the government's intention in the legislation to be introduced in this session?

Ms S. Wilson —There has been no change to the policy that was set before the election that I am aware of.

Senator SHERRY —So it essentially the same. The Towers Perron long-term cost report published in 2000 states:

The notional employer contribution rate for the CSS was 21.9 per cent and for the PSS, 14.2 per cent. Individual employer contribution rates could be higher, depending on employee contribution rates.

Can you confirm that those future or current employees who leave or are excluded from the existing funds are unable to negotiate an employer contribution greater than what will be the nine per cent SG from 1 July?

Ms S. Wilson —Sorry, Senator; I do not quite understand that question.

Senator SHERRY —The superannuation guarantee is eight per cent, going to nine per cent on 1 July. The legislation is proposed to take effect from 1 July this year, so we know the base floor is nine per cent SG. With the proposed closure of the public sector superannuation funds, after the date of the passing of the act—should it be passed—will future employees or those existing employees who leave be able to negotiate an employer contribution greater than nine per cent SG?

Mr Hutson —I think that is the implication from the explanatory memorandum that you read earlier, Senator.

Senator SHERRY —Is it possible for an employee to receive a lower level of employer contribution than the two average contribution or notional employer contribution rates that I referred to earlier?

Mr Hutson —The implication from the explanatory memorandum that you read earlier is that it would be the subject of negotiations between the employee and the employer.

Senator SHERRY —But clearly, if there is a cost saving to government, there must be at least some employees who would be receiving lower notional contributions?

Mr Hutson —I recall this issue was discussed at Senate estimates about a year ago. The answer at that time was that there was no expectation that any employee would receive a lower level of employer superannuation contribution than was currently being made.

Senator SHERRY —I recall the previous conversation, but we are now dealing with a new set of legislation, albeit on the same principle.

Mr Hutson —Could you clarify what you mean by savings.

Senator SHERRY —Is there any cash saving as a consequence of the proposed changes? Should an employee only be paid nine per cent SG?

Mr Hutson —Briefly, I think the answer is that there is no assumption about any change in the total cost of superannuation with respect to employees. There is an additional cost in cash terms, because, to the extent that somebody is not within the PSS scheme and they are in an external scheme, the nine per cent or whatever percentage is negotiated is paid outside the Commonwealth sector.

Ms S. Wilson —It has been stated by the government that there is no intention to change agency funding towards superannuation. There is no proposal to claw back to the budget any difference in rates.

Senator SHERRY —So you can guarantee to me that the level of contribution to all future employees will be no less than the notional employer contribution—21.9 per cent for the CSS and 14.2 per cent for the PSS?

Mr Hutson —No, what I said was that the implication from the explanatory memorandum was that, subject to the superannuation guarantee, that matter was open to negotiation.

Senator SHERRY —So in terms of negotiation some employees may, in fact, end up with less in effective contribution?

Mr Hutson —Some employees may choose that, yes.

Senator SHERRY —Yes, they may choose that.

Mr Hutson —Or more—considerably more.

Senator SHERRY —Is there anyone else who is currently receiving effective contributions higher than 21.9 per cent and 14.2 per cent?

Mr Hutson —I am not sure across the Commonwealth, but I know that within my group I have one employee who chooses to salary sacrifice quite a significant proportion of their salary into a private sector superannuation fund, which obviously means that the total contribution is higher than those percentages.

Senator SHERRY —I read out earlier the claim made in the government's election promise A Better Superannuation System that this change would result in reduced fees and charges and more responsive investment strategies by trustees. Bearing in mind we are dealing with public sector superannuation here, could you indicate to me where the change will result in reduced fees and charges in respect of Commonwealth public servants?

Ms S. Wilson —I am not really sure that that is the same proposal. I understood that the reduced fees and charges were in relation to what superannuation schemes generally charge. It is not in relation to Commonwealth superannuation schemes. This is Treasury policy really, not our policy.

Senator SHERRY —I asked you earlier about your familiarity with this document. I read out the paragraph and, in fact, you drew my attention to the general notion of choice of superannuation and portability as being the only reference that could be linked in to the closure of public sector superannuation funds. This policy claims that there will reduced fees and charges. I am asking specifically about public sector superannuation, not the wider economy—I can debate that with Treasury; you are right, it is not an issue for Finance. In respect of the Public Service superannuation funds, what will be the reduced fees and charges as a result of the legislation for public servants?

Mr Hutson —We are not aware of any estimated reductions in the cost of provision per employee for the PSS and CSS schemes. The per employee cost remains the per employee cost.

Senator SHERRY —In respect of at least the Public Service, there is no evidence that there will be reduced fees and charges. Finance, in respect of Public Service funds, is not making that claim?

Mr Hutson —No.

Senator SHERRY —Does the department expect that, in lieu of employer contributions currently paid to Commonwealth employees above the SG minimum, employees unable to join the PSS will receive compensating increases in base salaries?

Mr Hutson —That would be a matter for negotiation between the employee and the employer, as is suggested in the explanatory memorandum.

Senator SHERRY —So you are not able to give me a guarantee that people will not be worse off as a result of the change?

Mr Hutson —It is choice.

Senator Abetz —It is a matter of choice for people to determine.

Senator SHERRY —I am asking whether anyone will be worse off as a result of the change.

Mr Hutson —I think the answer to that question at a previous Senate estimates was that no current individual would be worse off.

Senator SHERRY —Thank you for giving me that assurance. Will new Commonwealth employees be given the opportunity currently available under the PSS to receive higher employer contributions in return for higher employee contributions without a corresponding reduction in salary?

Mr Hutson —I come back to the same answer. The implication in the explanatory memorandum is that that is a matter for negotiation between the employee and the employer.

Senator SHERRY —With respect to the details of the model of the so-called choice of fund that will apply to current CSS and PSS members who choose to exercise it and to all Commonwealth employees, will the choice of fund be administered centrally as per options 1 and 2 in the 1998 EM or will it be administered by agencies as per options 3 and 4 in that EM?

Ms S. Wilson —The government's announced policy is that it will be administered by individual agencies.

Senator SHERRY —Which will be the central agency responsible for coordination? Will it be Finance?

Ms S. Wilson —Finance is responsible for oversighting public sector superannuation policies. I am not entirely certain about what a coordination role would mean in the circumstances of devolving responsibility to agencies.

Senator SHERRY —What will be the default fund for new employees?

Ms S. Wilson —Under the model that is currently in place, the default fund is a matter for each agency to choose.

Senator SHERRY —So it could be any registered fund?

Ms S. Wilson —Yes, any regular superannuation fund.

Senator SHERRY —Will there be an offer of so-called unlimited choice or will it be an offer of a limited number of funds?

Ms S. Wilson —I am trying to cast my mind back to the Treasurer's general choice of fund policy, which is the basis for the Commonwealth one, and I understood there are various choices within that. There is either an unlimited number or a selected number of funds, and it is up to the agency to decide which one they are going to use.

Senator SHERRY —Obviously, agencies would have some directions as to how to implement the policy should the legislation pass. We have discussed this at previous Senate estimates for a significant number of years, and the legislation is coming in again. Surely Finance know what will be allowed to be offered by each individual department, what the parameters will be?

Ms S. Wilson —The extent of it has slipped my mind, but my understanding was that the options were: unlimited choice of funds with the agency selecting one default fund; a range of funds being offered by the agency with, again, one of those being a default fund; or a fund being negotiated through a certified agreement. But if that is incorrect, I will—

Senator SHERRY —I will not hold you to that. Would you double-check that and perhaps give us some advice on notice?

Mr Hutson —Sure.

Senator SHERRY —In developing this strategy, has Finance done any comparative study about the current costs, fees and charges with respect to the current PSS and CSS and other superannuation funds in the market more generally?

Ms S. Wilson —We have looked at it in general terms, but we have not done a complete analysis of it because the schemes are quite different, basically. We can compare AGEST's fees, for example, with those of PSS and CSS.

Senator SHERRY —But in respect of ComSuper, which administers a number of schemes, you said you had done a general analysis.

Ms S. Wilson —We are generally aware. I have not got the figures with me at the moment.

Senator SHERRY —In this general awareness, can you give me the name of one superannuation fund in Australia that would have fees and charges less than the current Commonwealth Public Service funds?

Mr Hutson —I do not think we have that information in respect of a particular fund.

Senator SHERRY —But if the claim is being made that this policy results in a reduction of fees and charges—and that is the claim that is made—then where is the analysis that indicates that alternative products to the existing PSS/CSS will be cheaper in terms of fees and charges? Where is the analysis that indicates it? Is there any?

Mr Hutson —If I might give you a broader answer rather than a specific one to the question you have just asked: the document you are referring to was produced during the election campaign. Implicitly, if you think about the PSS and CSS schemes and the costs of running those schemes, you would have to expect—and, as I said, we have not got any firm analysis with us to back this up—that they would be more expensive to run than many other superannuation schemes around the country. The main reason for that is that the CSS and PSS schemes are actually quite complicated, primarily because they are defined benefit schemes.

Senator SHERRY —I am talking about management fees and charges.

Mr Hutson —The total cost of running the scheme would be higher. For example, if you think about the CSS scheme, the employer benefit in the CSS scheme is paid by way of pension for anybody who retires out of that scheme, and therefore they have an administration expense for their entire life and going on to the life of any spouse or other dependant they might have who is eligible for continuing benefits.

Senator SHERRY —Before you go on, I will deal with that issue, because it is an important issue that you raised. Can we just deal with the issue of the pre-retirement stage, or the accumulation stage, if you like. Obviously, post-retirement is the pension, generally, although I know some people take a lump sum or a mixture. Are you aware of any fund in Australia that has lower management fee costs in the accumulation phase than the PSS/CSS?

Mr Hutson —That comes to the difference between cash and accruals. Even while someone is in the accumulation phase, you are still accruing a long-term viability, in respect of both the amounts which will be paid to the employee and the cost of managing that employee's flow of benefits.

Senator SHERRY —Do you have any specific study comparison that you can point to, that Finance has carried out, on comparative costs between CSS/PSS and other funds that operate in the country?

Mr Hutson —No.

Senator SHERRY —None at all.

Dr Watt —But that is not to say that those studies do not exist; we just have not done one.

Senator SHERRY —Is it surprising—given that this is a policy change which, if implemented, does have major implications in superannuation delivery for the Public Service—that that study has not been done, Dr Watt?

Dr Watt —I do not know if it is surprising. The department of finance has not done one. But is that surprising? That is something I could not comment on.

Senator SHERRY —Do you think it necessary to do such a study?

Dr Watt —As you indicated, you can get a sense of the sort of costs that might apply to a scheme by its very nature, without doing a detailed study. I think that is a fair comment.

Senator SHERRY —But your department would be concerned about the welfare of its employees, particularly in respect of retirement income. That is a very important issue. The fees and charges have a significant impact on final balances—a significant impact. Are you telling me that your department is not interested in what will occur in this area, should the legislation pass the Senate?

Dr Watt —No, I do not think I said that.

Senator SHERRY —Are you concerned about that issue?

Dr Watt —I think the department takes a broad interest in the issue of the costs of running different schemes. But have we done a specific study: no.

Senator SHERRY —I put it to you that, if you were interested, you—not you, personally, but the department—would have done such a study.

Dr Watt —I am not sure that is a reasonable inference.

Senator SHERRY —You have stated your concern in this area; don't you think it would be reasonable that such a study should be undertaken?

Dr Watt —I think such a study might inform the debate, yes.

Senator SHERRY —Are any of the officials at the table aware—and, Dr Watt, you may not be—of the particular problems that occurred in the United Kingdom with public service funds and fees and charges when their choice model was introduced?

Dr Watt —I am not.

Senator SHERRY —I did not think you would be. Is anyone else at the table aware of those problems?

Ms S. Wilson —In general terms, yes.

Senator SHERRY —What are you aware of in general terms?

Ms S. Wilson —Again this is recollection: there was a lot of, I suppose, selling of products to employees and employees swapping backwards and forwards between different products, which could have impacted on their final benefits. That is my general memory of it.

Senator SHERRY —To their disadvantage. They were not advantageous outcomes, were they?

Ms S. Wilson —I cannot comment on whether everybody was disadvantaged or not, but I understand that was the general—

Senator SHERRY —No, I am not suggesting everyone; but certainly very significant numbers of, in this case, public servants were disadvantaged. Are you aware that there was a major investigation into the outcomes and that compensation was awarded?

Mr Hutson —I do not think we have that level of detail about what happened in the United Kingdom.

Senator SHERRY —No; I am asking you whether you are aware of this.

Mr Hutson —And my answer is: no, we are not.

Senator SHERRY —As a department responsible for superannuation in the public sector, could you perhaps familiarise yourself with the outcomes in the United Kingdom? We can then pursue this issue in greater detail at next estimates.

ACTING CHAIR —Senator Sherry, with the way you have expressed it, I am not sure that question will work. Generalised, it might be a very broad request. Perhaps you might rephrase your question a little.

Senator SHERRY —Could the department familiarise itself with the outcomes of the changes to public sector superannuation, which is a not dissimilar to the model that is being proposed here?

Mr Hutson —I am not sure exactly where that would take us. What we have is a government policy regarding choice. That is a very clear policy. It has been around for quite a long time. The model in the United Kingdom may or may not be similar. I have said that those of us at the table are not familiar enough with whether it is similar. The United Kingdom have a whole different legislative and legal base in terms of the way in which they do things there in a whole heap of ways—and, from my experience, in other areas. You often find issues that really are quite different. So, if we spent time learning about and studying the UK system, I am not sure where it would actually take us.

Senator SHERRY —If you do not want to do it, fine. Just tell me.

Mr Hutson —Sure; okay.

Senator SHERRY —I am just drawing your attention to a model of government with broad similarities to our own, where a similar type policy was introduced. You have some responsibilities for public sector superannuation policy advice. As a department, you are concerned about the interests of your employees and, obviously, their retirement arrangements. That is part of any sort of reasonable attitude that a good employer would have—and I am not disputing that. The experiences of other jurisdictions where similar models have been introduced are permanent to the debate.

Dr Watt —I think it is reasonable for us to say that we will know more about the UK system for next time.

Senator SHERRY —Thank you. In the model that is being proposed, will there be any restriction on the choice of an employee through an AWA, a workplace agreement?

Mr Hutson —AWAs are individually negotiated. In respect of superannuation, I am not aware of any overarching constraint that would be imposed on government departments in negotiating those AWAs—except, of course, the superannuation guarantee.

Senator SHERRY —Yes, that is a legislative minimum floor; no[hyphen]one can opt out of that. Can the department confirm that, without the government's proposed changes—let us assume that again they do not pass through the parliament—Commonwealth spending on civilian and defence superannuation is expected to decline by almost half over the next 40 years, as outlined in table 12 on page 50 of the Intergenerational Report? There are other publications that I am aware of.

Ms S. Wilson —This is a Treasury document, and I believe these figures were done by the Australian Government Actuary for them.

Senator SHERRY —So Finance did not provide those figures?

Ms S. Wilson —No.

Senator SHERRY —You cannot confirm their accuracy or otherwise?

Ms S. Wilson —That would be in line with what other actuarial reports have said about Commonwealth superannuation costs as a percentage of GDP. Certainly that is usually an issue that is addressed by actuaries every three years, and it is sort of in line with that.

Senator SHERRY —So the department of finance does not have a specific report of its own that it has commissioned to determine the long[hyphen]term costs of CSS/PSS?

Ms S. Wilson —Every three years there is a long-term cost report done by actuaries—

Senator SHERRY —For this department?

Ms S. Wilson —Yes, this department commissions it—for the CSS and the PSS. There is one due in respect of the period ending 30 June 2002, which we would hope to have out by the end of this calendar year. It is very likely—in fact, I think I do recall—that these figures are based on the last long[hyphen]term cost report.

Senator SHERRY —Was Finance involved in the preparation of any of the material for the Intergenerational Report?

Dr Watt —Finance participated in the preparation of some of the material; that is correct. We were not the only department, by any means, that was involved in that; A number of others were also involved, as I understand it. It was, however, a Treasury document, and they are much better equipped than us to deal with the issues in there.

Senator SHERRY —I understand that Treasury were the coordinating overseeing department.

Dr Watt —They were the coordinating agency, as I understand it; they were both the coordinating agency and author.

Senator SHERRY —What areas did Finance make a contribution in?

Dr Watt —I would have to take that question on notice as to the exact areas. I think it is safe to say that we would have provided some expertise on the issue of budget expenses. But, as to exactly what was in that, as other agencies were involved, where we stopped and they started I am not sure.

Senator SHERRY —Let us just take a couple of examples. The projections with respect to age and service pension: would you have had an input into that, or would that be Treasury?

Dr Watt —Again, I would have to take that question on notice.

Senator SHERRY —What about disability support pension?

Dr Watt —The same.

Senator SHERRY —Would that be a relevant department that administers it?

Dr Watt —Again, I do not know where the main work was done.

Senator SHERRY —What about the Pharmaceutical Benefits Scheme?

Dr Watt —Again, I do not know whether the main work was done with Health, Treasury or us.

Senator SHERRY —I anticipated that that would be the case, so they will get a few hours on that. There was a controversy following the budget reply speech by the Leader of the Opposition just over a week and a half ago—I referred to it earlier when we started—about costings relating to the Labor Party's options. Has the Treasury contacted the Department of Finance and Administration since the budget reply speech to seek details of the cash savings—we talked about them earlier on—that will result from the defeat of the proposed changes to the Public Service superannuation fund legislation?

Mr Bowen —Not to my knowledge.

Dr Watt —Not that we are aware of, Senator.

Senator SHERRY —No-one else?

Mr Painton —I had a phone conversation with the Treasury office in general terms. I cannot recall whether the figures were mentioned.

Senator SHERRY —So this is with respect to the outcomes if the Public Service superannuation legislation is not passed?

Mr Painton —I think it might have been to identify the nature of the figures factored in or the nature of the measure or the proposal.

Senator SHERRY —You confirmed those figures earlier anyway. They are in the public domain.

Mr Painton —The two earlier figures have been in the public domain pretty much for years.

Senator SHERRY —I think the figure you gave us for the third year had not been in the public domain that I can recall.

Mr Painton —I do not think so.

Senator SHERRY —Thanks for that. I would not expect you to be aware of all those communications. Can you recall what day that conversation took place?

Mr Painton —No.

Senator SHERRY —Could you check the record and take it on notice for me please?

Mr Painton —I would have to go back; I cannot recall. I may not have kept a record.

Senator SHERRY —Do you have a rough recollection? I am not going to hold you to specific days, but was it last week or the Friday after the opposition leader's response?

Mr Painton —I am sorry, I really cannot remember. I think it was a brief conversation. It was not a substantive discussion.

Senator SHERRY —I appreciate it might have been a brief conversation. You might have recalled the day.

Mr Painton —It was sometime in the last few weeks, but I really cannot remember the date or the details.

Senator SHERRY —You might just check that out and take it on notice for me. I have one last question. Let us assume that the so-called `choice' legislation is passed. Has a policy decision been made yet as to whether any details of the employees of the Department of Finance and Administration will be given to any private sector superannuation fund or organisation for recruitment purposes?

Mr Hutson —The answer to that would have to be governed by, if nothing else, the privacy legislation. It is not departmental policy to hand out names of its employees to anybody.

Senator SHERRY —Let us assume the legislation passes. At the moment at least it is not permitted for names to be accessed for the purposes of superannuation sales distribution. That would not happen at the moment?

Mr Hutson —It certainly would not happen at the moment. I am pretty sure of that. My colleague Mr Suur, from Corporate, might be able to confirm, because he looks after those issues. But I would have no doubt that information would not be distributed.

Dr Watt —That is a whole of government decision as much as anything else.

Senator SHERRY —Has the department had any discussion, in respect of the so-called superannuation choice legislation, with any private sector organisation that offers superannuation products?

Ms S. Wilson —Are you asking us that as a department providing superannuation rather than from a policy point of view?

Senator SHERRY —Yes. Has the department had any discussions with the private sector providers of superannuation products?

Mr Suur —No, we have not.

ACTING CHAIR —Before we move on , let us determine how we will work this. How long do you think you will be with ComSuper?

Senator SHERRY —I cannot give a guarantee, but I certainly do not have as many questions.

ACTING CHAIR —We could run it on a bit, or we could break. Let us get a feeling for it.

Senator SHERRY —I am relaxed.

ACTING CHAIR —Are you in for an hour, or much less?

Senator SHERRY —Maybe 20 minutes.

Senator BRANDIS —Let me indicate that I have some questions, not under this output but in relation to asset management, but I suspect—I may be wrong—that Mr Hutson is the person to whom those questions should be directed.

Dr Watt —We will keep him here, Senator.

Senator BRANDIS —I do not want to keep him here unnecessarily. Perhaps I will informally approach you and find out who I should direct these questions to.

Dr Watt —Mr Hutson has quite a bit ahead of him.

[3:18 p.m.]