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Monday, 29 November 2004
Page: 74


Senator MURRAY (5:11 PM) —by leave—I move:

That the Senate take note of the document.

I rise to record the Democrats' views on the tabling of the Auditor-General's Audit report No. 15 2004-05: Performance audit--financial management of special appropriations. Special appropriations are crucially important to the financial integrity of the Commonwealth government. A special appropriation means that parliament has decreed that payments may be made from the consolidated revenue fund, on the basis of certain conditions, without the need for the payment to be approved through the standard appropriations process. Special appropriations, in effect, deprive parliament of the right to approve government expenditure annually. An obvious example is the payment of pensions—these payments are made on an ongoing basis.

In 2002-03 more than $223 billion was spent from the consolidated revenue fund under the authority of special appropriations. They have constantly grown as a percentage of total government expenditure, from only 10 per cent in 1910, past the 50 per cent mark in the 1960s to over 80 per cent now. This makes me wonder whether one day annual appropriations will eventually disappear altogether. Since parliaments have as their greatest role historically the oversight of expenditure and taxation, that would seem a dangerous event to forecast.

With such a substantial amount of money being spent by special appropriation, it is important that controls are in place. The Department of Finance and Administration is responsible for developing and maintaining the financial framework of the Commonwealth public sector and the appropriate and constitutional use of special appropriations. Since 1 July 1999, important amendments were made to the Financial Management and Accountability Act 1997. Up until 30 June 1999, Finance operated a central bank account on behalf of all Commonwealth agencies. Since 1 July 1999, two key appropriation management responsibilities were devolved from Finance to the agencies; namely, legislative control over who may lawfully draw upon appropriations and maintenance of accounts and records concerning the use of individual appropriations. While this change may be appropriate, the Auditor-General's report highlights that better controls over the process are required.

It is extremely concerning that the Auditor-General has found so many errors in a process that has now been established for over five years. I sense a tone of frustration in the normally measured words of the Auditor-General in the conclusion to the performance audit report. It states:

The sound governance, management and reporting of appropriations requires certainty, clarity and consistency in the application of the Commonwealth's financial management framework. The audit findings indicate that the manner in which the financial framework has been interpreted and implemented has not been consistent with those characteristics. While many of the issues are quite technical, in a legal sense there are important considerations of appropriate accountability, including transparency, in relation to the Parliament. Overall, ANAO considers that there have been significant shortcomings in the financial management of various Special Appropriations. Given the fundamental importance of appropriations to Parliamentary control over expenditure, changes need to be made to secure proper appropriation management in the Commonwealth. In particular, there has been inadequate attention by a number of entities to their responsibility to ensure that a correct, valid appropriation to support a particular payment has been identified before spending funds from the CRF, and to accurately disclose their use of Special Appropriations.

The Democrats fully support those comments. We believe that the financial integrity of the Commonwealth is a crucial part of good governance and political accountability. This coalition government came to power promising to clean up the books and improve financial standards. It has done a great deal, and the Charter of Budget Honesty, back in 1996, was one significant innovation. However, good political governance must start at the top and as I have pointed out many times in this place the government, against the advice of the Auditor-General and all other political parties, refuses to include the GST, which is a Commonwealth tax, in its Commonwealth financial statements. This year the GST will generate $33 billion of revenue that the Treasurer and these budget statements ignore. This is in clear contravention of Australian Accounting Standard 31 and consequently in contravention of the Charter of Budget Honesty.

Although the Auditor-General, the Labor Party and the Democrats believe that accrual accounting produces truer financial statements, the government constantly switches in its commentary between cash and accrual reporting depending on which one politically suits it, and that creates confusion for political advantage but is not in the interests of good public understanding of the accounts.

Returning to the concerns raised by this report, it seems that the whole process of special appropriations may need a rethink. Special appropriations which are unlimited in duration and amount are effectively bottomless buckets of money, and perhaps encourage the sort of carelessness exposed by the audit report. Stringent controls and processes need to be monitored and enforced to mitigate the inherent deficiency of this system. The loose practice with special appropriations is also encouraged by the vagueness of appropriations under the outcomes system of budgeting. The descriptions of the purposes of appropriations are now so vague that any money could seem to be spent on virtually anything. This undermines the sort of rectitude required by the Audit Office and the Senate.

One option to overcome some of these difficulties would be to make all appropriations subject to annual renewal. The Democrats proposed this option way back in 1986 but the idea has been ignored. Alternatively, these appropriations could at least be sunsetted and limited in amount. Perhaps the ceilings could be raised by resolution of both houses of parliament, which would at least alert the parliament to unusually large or unexpected increases in payments and liabilities. I give the government notice that if there are no signs of a good change in behaviour here we will be seeking to lobby the opposition to introduce sunset clauses to these appropriations.

The problem is that everybody simply accepts special appropriations and does not question the need for them. I cannot remember anyone, in the last 20 years that we have had people looking at this matter, asking whether a special appropriation in a bill is really necessary and why a particular purpose could not be funded by annual appropriations. That sort of approach just beggars belief when $223 billion is being spent from the consolidated revenue fund under the authority of special appropriations. It is timely that these issues are raised. The Commonwealth is currently in an extremely strong financial position but, as Reserve Bank Governor Ian Macfarlane commented last week, it is in the good times that important concerns should be addressed. I wish to congratulate the Auditor-General on the seriousness with which this issue has been approached and on the quality of the report prepared. I urge the government to take very careful note of the Auditor-General's findings.