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Finance and Public Administration Legislation Committee
Parliamentary Budget Office

Parliamentary Budget Office


CHAIR: I welcome the Parliamentary Budget Officer, Mr Phil Bowen, and officers. I thank the office for providing the committee with updated information on Parliamentary Budget Office activity and staffing. This information has been circulated to the committee. Mr Bowen, do you wish to make an opening statement?

Mr Bowen : Not formally. Given the time constraint, I am happy if we go straight to questions.

CHAIR: Thank you, Mr Bowen.

Senator LUDWIG: I think this came up last time. The PBO has a number of the car parks reserved in Parliament House for the senior executive service. Is that right?

Mr Bowen : We do.

Senator LUDWIG: How many are there?

Mr Bowen : Karen, I might ask you

Ms Williams : We have six car parks in the Senate main car park and one car park for the Parliamentary Budget Officer in the senators car park.

Senator LUDWIG: So there are seven altogether.

Ms Williams : Yes.

Senator LUDWIG: One on the Senate side and six on the House side.

Ms Williams : No, six in the main car park on the Senate side, the staff parking, and one in the senators-only car park.

Senator LUDWIG: Who is that for?

Ms Williams : That is for the Parliamentary Budget Officer.

Senator LUDWIG: So you are on the Senate side car park.

Mr Bowen : I certainly am, yes.

Senator LUDWIG: How many members of the senior executive service in the Parliamentary Budget Office are entitled to a reserved car park?

Ms Williams : All of the senior executive service.

Senator LUDWIG: To make it plain, is it that there are there seven senior executives and all get a car park or does not everybody have a car and therefore they do not need a car park?

Ms Williams : All of them have a car park.

Senator LUDWIG: There are seven senior executives—

Ms Williams : Yes, including the Parliamentary Budget Officer.

Senator LUDWIG: and they all have a car park.

Ms Williams : Yes.

Senator LUDWIG: They all use the car park.

Ms Williams : Yes.

Senator LUDWIG: They all have cars to use the car park.

Ms Williams : Yes.

Senator LUDWIG: Are they private cars or are they leased cars?

Ms Williams : They are private cars.

Senator LUDWIG: All of them?

Ms Williams : Yes.

Senator LUDWIG: There are no leased cars?

Ms Williams : No. They may salary-sacrifice a car, but it is not a Parliamentary Budget Office car. It is their own personal car.

Senator LUDWIG: I will come back to that. Is there an employment contract that has conditions for a car park?

Ms Williams : No.

Senator LUDWIG: How does that come about then? It would be worth something. There would be a value attached.

Senator WONG: That is not right. Your answer cannot be right. What do you mean? Does it mean people just get car parks gratis?

Ms Williams : I would have to check the parking policy that was recently released by the Presiding Officers. I would have to recheck that.

Senator WONG: I should not jump in. We will get there.

Senator LUDWIG: I just go round—

Mr Bowen : If I could just try to be helpful, the employment contracts for the senior executive, and I think for myself, are silent on that matter of car parks. When I was initially appointed and was charged with setting up the PBO, I did have discussions with the relevant department—I think it would have been the Senate at that time—about obtaining car parks, one for me and one for each of the SES in the PBO. That happened back in 2012. I seem to recall that the parking policy that the presiding officers signed off on last year endorsed that position, but for detail I would have to check.

Senator LUDWIG: I am happy for you to take it on notice, because car parks do have a value attached. I am surprised that it is not in the employment contract and that there are no separate arrangements in writing. I presume it is not in writing and it is just an agreement to provide the car parks.

Mr Bowen : As far as I recall, yes, that is right.

Senator LUDWIG: Perhaps we could examine that and check to see whether those arrangements have now been formalised in any way by writing to establish that the seven SES have car parks available to them.

Mr Bowen : We will be happy to give you the background to it and the current position.

Senator LUDWIG: All right. To come back to the issue I departed from for a moment to deal with the car parks: in the employment contract available to the senior executive service do they have the option to take a vehicle or sum in lieu of a vehicle through a fleet leasing arrangement or some other—

Ms Williams : No, they do not.

Senator LUDWIG: So they are silent on that.

Ms Williams : That is right.

Mr Bowen : Well, they are silent—

Senator LUDWIG: I do not think that is right either, but that is the evidence we have been given.

Mr Bowen : They are silent on that element in that the contract provides for a total figure of remuneration. Under our policies we do provide for staff to be able to salary sacrifice where that is permissible under the taxation legislation rules et cetera for such things as child care, I think I am right in saying—

Ms Williams : Yes.

Mr Bowen : and vehicles. Several of our staff have taken leases on vehicles. I do not think this is restricted to senior executives; it is completely open to any staff to do that where they feel that that is the best way for them to acquire a vehicle. It is not in the employment contracts but it is in our policy that we allow staff to do that. I think that is a fairly common practice in the public and private sectors.

Senator LUDWIG: Is the policy you speak of a formal policy that deals with child care, vehicles and any other matters? Is that available to the Senate?

Mr Bowen : We are happy to make it available. I cannot recall exactly what else is in that policy, but certainly we could make that available for you.

Senator LUDWIG: Let me explore the vehicles a little bit further absent the policy at this point. Does that provide that each staff—perhaps you could highlight whether it is all staff or just senior executive—

Mr Bowen : It is all staff.

Senator LUDWIG: Are they available to salary sacrifice through a novated lease or some such arrangement? Is that how it works? Perhaps the Budget Office could explain.

Ms Williams : The salary sacrifice is through a novated lease arrangement.

Senator LUDWIG: How are the vehicles determined? Does each person individually determine how that leasing arrangement will take place?

Ms Williams : It is a private arrangement that the person enters into so they can choose the type of vehicle, the lease term and that sort of thing.

Senator LUDWIG: So your formal policy is not constrained to what exists for ministers—a list of vehicles, a preference for Australian made vehicles or anything like that? Does your policy include a way that is at least comparable to what SES would have?

Ms Williams : I would have to check the details of the policy but I do not believe there are any restrictions or requirements like that.

Senator LUDWIG: So people could choose whatever car they wanted and then—

Ms Williams : I believe so.

Senator LUDWIG: Do you look at the leases? How are you apprised of whether a person has a leased vehicle or taken that novated lease? Do they tell you what vehicle they have? Do they tell you the number plate so you can stick it into the car park? What arrangements are in place?

Ms Williams : If someone has a lease arrangement in place, that leasing arrangement is between the lease company, the Parliamentary Budget Office and the employee. The specifics of the leases are not held by the Parliamentary Budget Office, because it is the employee's personal lease.

Senator WONG: Why are you now telling us this when before you said people were not able under their contracts to get cars? What you have just given us is entirely the opposite of what you said earlier.

Ms Williams : The employment contracts do not provide for a vehicle. The employment contracts allow the employees to salary sacrifice. They could choose to salary sacrifice a vehicle if they want to.

Senator LUDWIG: So you are not apprised of whether it is a luxury car or what type of car people might salary sacrifice for.

Ms Williams : No.

Senator LUDWIG: Do they tell you the number plate so you can attach it to a car park?

Ms Williams : We do obtain the number plate details. More specifically, we keep a record of the PBO vehicles that are coming into the car park, but they are not allocated to any car space.

Senator LUDWIG: I see. So you have space reserved for PBO but not reserved for a specific vehicle. I have not been down to look, obviously; I do not have a car to go into the Senate car park.

Ms Williams : The six car spots that are in the main Senate car park have signs that say 'reserved—PBO'.

Senator LUDWIG: How do you allocate those?

Ms Williams : They are reserved for the senior executive service members.

Senator LUDWIG: Have any of them informed you that they do not have a car or they ride a bicycle to work?

Ms Williams : They all park there.

Senator LUDWIG: And you use the Senate one.

Mr Bowen : Yes.

Senator LUDWIG: How is that designated? Does that have your number plate or is it reserved for the chief of the PBO?

Mr Bowen : From memory—and I back in, so I do not necessarily see it—it says 'reserved—PBO'. I park next to the head of DPS on one side and the Deputy Clerk of the Senate on the other.

CHAIR: You always take the same car park, so everyone de facto knows it is yours.

Mr Bowen : It has reserved for PBO, yes.

CHAIR: But your team would not dare park in your park. Is that right?

Mr Bowen : That is true.

Senator LUDWIG: What sort of wheels do you drive?

CHAIR: I am not sure that is relevant.

Senator LUDWIG: I am asking on behalf of the automotive enthusiasts out there!

CHAIR: You do not have to answer that question.

Mr Bowen : I won't answer that question, but you're welcome to go and have a look! I would be very happy to talk with you about it. But that is my personal business, and I do not think it is a matter for me to have to answer in this forum.

Senator LUDWIG: That is okay; I was just curious. Do you let the security know which vehicle is there so that, if there is another car parked there that is not yours, they are aware of it?

Mr Bowen : To be honest, I do not know whether security have my number or not. There has never been in 3½ years another vehicle parked in my spot. It has not really been an issue for me.

Senator LUDWIG: All right. I did not have anything more.

Senator WONG: I have a couple of questions. You covered some of novated lease arrangements, but could you just track through how you administer those? Say Mr Bowen wants to salary sacrifice X amount for some vehicle. What happens?

Ms Williams : I would have to check with our policy but, from memory, if an employee wishes to salary sacrifice, they inquire with the leasing company themselves. Once they have determined what leasing arrangements they want to enter into, there is a requirement for them to notify the Parliamentary Budget Office at that point, and then the appropriate processing would go through to the payroll area.

Mr Bowen : Senator, we can give you a live example if you like.

Senator WONG: I just want to understand the process. So you negotiate lease for some vehicle with Luxury Cars Pty Ltd or something—or whatever. Lease is agreed—value of lease. What happens then at the PBO end, and who becomes—

Mr Bowen : I will ask Colin Brown to answer it, because this is a live example and Colin is happy to go through it.

Senator WONG: Sure, and I want to discuss FBT arrangements after that.

Mr Bowen : Sure.

Mr Brown : The arrangement is one where the first step is that there is a panel—or in fact, in that case, I think just one preferred salary sacrifice leasing company that we go through.

Senator WONG: So you have an arrangement with a particular company?

Mr Brown : Yes.

Senator WONG: Does that go to tender or is that just—

Ms Williams : I would have to check, but, from memory, it is a panel arrangement—

Senator WONG: So direct tender?

Mr Brown : Yes. You make contact with the leasing company. You find your vehicle. They in fact take part in negotiating a sale price and things like that, because they have access to fleet discounts et cetera, but you are going through the lease company in order to purchase your vehicle. The salary-sacrifice-administrating company—they usually have a lease company attached to that and other services that you would package in with the vehicle. You negotiate with them to get a vehicle and a price. Once you have that then you come back with the paperwork, the lease et cetera and you sign a deed of novation with the Parliamentary Budget Office. So effectively I have leased the vehicle privately but I novate that lease back to the Parliamentary Budget Office.

Senator WONG: Who then effectively becomes a party to the leasing arrangement?

Mr Brown : That is correct.

Senator WONG: I understood that, which is why it would have been good if we could have started there, but anyway. Do you have in your policies any guidelines around type of vehicle and what services can be bundled up with the lease or is it just whatever you want?

Mr Brown : I think there is no restriction on the type of vehicle. In terms of the services, in fact most of the salary sacrifice companies that are there have a fixed set of vehicle options anyway. Essentially usually you have the vehicle lease itself, insurance, fuel, registration.

Senator WONG: But it is possible to get a bespoke arrangement. As I understood Ms Williams's evidence in answer to a question from Senator Ludwig, your staff are not bound to any particular set of vehicles in the way that, for example, with some companies, parliamentarians et cetera there are a set of vehicles that—

CHAIR: It could be a wet lease or dry lease or anything like that—all-inclusive—

Mr Brown : The leasing arrangements themselves are limited usually by the actual company itself and what it will offer you, so it is not entirely open-ended. You take the lease terms that they have. They do offer a range of services that you can choose.

Senator WONG: And a range of vehicles.

Mr Brown : And a range of vehicles.

Senator WONG: And there is no restriction—I think that was the evidence—on the type of vehicle?

Mr Brown : That is correct.

Senator WONG: So it could be anything from a very expensive sports car to a Holden Commodore or something.

Mr Brown : Yes, that is correct.

Senator WONG: Okay. And FBT?

Mr Brown : That is part of the arrangement, so FBT is payable by the individual. So the arrangement is at no net cost to the Parliamentary Budget Office. Basically, the full cost of the arrangement comes from the salary deduction.

Senator WONG: Presumably the lease on a Porsche would be very different to a lease on a Toyota. So there is no limit on the quantum of that? You do not have any guidelines associated with that, because that is a matter for the individual concerned?

Mr Brown : That is correct. As I say, it is no net cost to the Parliamentary Budget Office. Essentially, the individual can adjust to whatever they are prepared to salary-sacrifice.

Senator WONG: And you do not impose any Australian-made requirements or anything like that?

Mr Brown : No, we do not.

Senator WONG: Can I just go to the document you have just provided. I was going to move on. Is that all right, Mr Chair?

CHAIR: There is nothing further, Senator McAllister? No? Okay, we will go on.

Senator WONG: I think we had a discussion about this previously. I am just trying to compare it against some previous analyses, but it looks—

Mr Bowen : Are you looking at page 5, the table?

Senator WONG: Actually, I was starting with 4, but I can go to 5 if you like. The completion time for costings has remained around—

Mr Bowen : Sixteen days.

Senator WONG: It is consistent over the 2014-15 and 2015-16 years, although I would note that there has been a—no, it is about the same, isn't it? For the 2014-15 year it is 869, and then 802 for 2015-16.

Mr Bowen : Senator, do you mind if I just make a quick comment?

Senator WONG: Generally your comments are not quick, Mr Bowen. They are very lengthy.

Mr Bowen : 2014-15 is a full year. I am sure you picked this up, but—

Senator WONG: Yes, I do know how to read a calendar, thank you.

Mr Bowen : In 2015-16, the demand, of course, has been very high. To the end of December we had completed 802 responses this financial year, compared with 869 for the full year last year.

Senator WONG: If you had waited, Mr Bowen, I was actually going to acknowledge that, despite an increasing number for this calendar year, your current average to completion in business days has remained the same.

Mr Bowen : Yes.

Senator WONG: So that is a good thing.

Mr Bowen : Thank you.

Senator WONG: I am just trying to get a sense, because not all the information is in the graph, of how many are in the 36-plus category compared to previously. Do you have a tail that is blowing out? Do you know what I am saying—the complicated ones that go beyond 36 business days, to 36-plus, which is your lengthiest category?

Mr Bowen : There would be some beyond that. I do not have that particular figure with me, but some of them do take more time than others, of course, because of the complexity and the need to build models at times to work on them. The other factor is that we are continuously in dialogue with our clients about their priorities, and quite often newer requests have higher priority than older ones—not always but quite often. So some costings do, for that reason, get pushed back in the queue. But we can give you the figure.

Senator WONG: Yes. What I am trying to get a sense of—you understand—is the extent to which the tail—shall we call it that?—remains static or whether it is increasing. That would just be useful.

Mr Bowen : Yes. I might say that we are very mindful of that tail. We are not just looking at averages and medians.

Senator WONG: Sure—if you could, on notice, perhaps get a bit more information on that.

Mr Bowen : Sure; we will do that.

Senator WONG: The percentage late has improved—this is in table 2, page 5—

Mr Bowen : Yes.

Senator WONG: So, that is useful. What has been driving that? Is there a particular portfolio that has improved?

Mr Bowen : We are pretty pleased with it.

Senator WONG: It is much better.

Mr Bowen : I think we have to give a lot of credit to agencies for working—and we have worked with them, but they clearly have taken up the challenge, and they have been very responsive. I think it is not one particular agency; I think it is across the board. Secondly, we have put in place—and I think we have talked about this before—with a number of agencies some standing arrangements for standing requests. So, after each budget update we get a bulk lot—

Senator WONG: Right—a dataset that you know you are going to need.

Mr Bowen : Yes, and within an agreed time frame—and agencies have been pretty good. And we are seeking to get more of those standing arrangements in place. But it is interesting: originally when we did this table we had average punctuality, business days late. Well, I think for the last couple of times that we have presented it here we have actually had a negative business days late, which means a positive—early; they have been prepared early, on average. So, that is good to see.

Senator McALLISTER: Further to this document, I just wanted to follow up on where you are up to with the workflow management system. Could you just outline what functions you will be able to switch on when that project is completed—what you will be able to do that you cannot do now?

Mr Bowen : I might ask Colin Brown to talk in detail, but just very briefly, I think you would have seen that, after a competitive tender, Optus has the job of working with us. It is building on our record management system that we already have. We feel that that reduces the risks associated with going down this path. We have done it for two broad reasons. One is to improve the efficiency of our operation, and Colin Brown will be able to explain that, because it has a big impact on how we track and manage the workflow in the costing area. So, efficiency is one issue. The second one is risk mitigation. Colin can also explain that, but our current systems are spreadsheet based, and they have risks associated with them. They work, and they have done a very good job for us, but they are not without risk. So, Colin, you might like to just talk about the two issues—efficiency and risk mitigation.

Mr Brown : The efficiency side first: the current system of monitoring our workflows through a spreadsheet based system has some efficiency pitfalls, in particular because it is a spreadsheet and you have only one spreadsheet, only one person can use it at a time. So, you cannot have multiple people updating our information bases as they are completing costings. That creates a significant bottleneck in updating our numbers and completions of costings and tracking the progress. It means that often that work has to be put off by people, and they do tomorrow what they probably should have done yesterday. That means that you are continually having to chase people up to make sure that everything is updated on an ongoing basis.

Senator McALLISTER: Do you create a separate record for each request?

Mr Brown : Yes.

Senator McALLISTER: So, it is generally correlated—if you have 271 requests so far in 2015-16, you would have 271 records on the spreadsheet. Is that how it works?

Mr Brown : That is right. And those records need to keep track of where each costing is up to at a particular time. So, they go through a number of status points.

Senator McALLISTER: How many variables, generally, are there for each line item, roughly?—like 100? Or 20?

Mr Brown : Probably 20 or 30, across the line. And that is information that would be far more easily updated in a workflow system which actually comes up as a menu on somebody's screen. They use it to log on in the first place, to access the information, and as they progress it all of the information is captured automatically. So, it becomes just part of how you work.

Senator McALLISTER: And that is an off-the-shelf product that Optus is installing for you?

Mr Brown : It is a customised off-the-shelf product. So, they already have a product, but it does need to be customised to fit to what we want to do with it.

Senator McALLISTER: It is an Optus product, is it?

Mr Brown : Yes. Well, Optus are the ones who are installing the solution, one that is actually made to work with our filing system, which is HP Records Manager—TRIM, to people in the old parlance.

Senator McALLISTER: It requires significant modification to nest in with that filing system?

Mr Brown : No, it is designed to actually work with it in the first place. It is actually a bolt-on to TRIM.

Senator McALLISTER: The off-the-shelf product is a complementary product to the HP product you are using for the filing system?

Mr Brown : Correct.

Senator McALLISTER: Is it produced by the same software company, or just designed to be complementary?

Mr Brown : It is designed to be complementary.

Senator McALLISTER: By whom?

Mr Brown : By Optus. Optus are the ones who are marketing this particular tool. They have designed it and built it. But it is designed to integrate with TRIM—or, I should say, Records Management; RM 8 is what we are using now. They renamed it.

Senator McALLISTER: Did they? I did not know that.

Senator LUDWIG: Who pays the cost of the modification for it to fit with your new RM 8 system?

Mr Brown : That is part of the contract. The modifications that needed to be made are more customisations for us, to fit our needs.

Senator LUDWIG: How much is the contract overall?

Ms Williams : The contract is $455,000 over three years, including GST.

Senator LUDWIG: For the customisation, is that inside the contract, or a part of it? Or is it an additional cost, or included in it?

Ms Williams : No, that is part of the contract. I would call it configuration, really—it is configuring the system to how we need to use it.

Senator LUDWIG: All right. That is a better explanation; thank you.

Senator McALLISTER: And that is still on track to be switched on in April?

Mr Brown : Yes.

Senator McALLISTER: In terms of staff readiness for the system, what are you doing to prepare staff for switching on this system?

Mr Brown : Our staff are involved in the configuration process. We have a panel of staff who are reviewing the work that is being done, and training is also part of the implementation of the package.

Senator McALLISTER: So, is it your expectation that all training will be completed prior to April?

Mr Brown : We expect that it will be completed in time to switch the system on as scheduled, yes.

Senator McALLISTER: Moving on to something quite different, your report also relates to a self-initiated research program relating to the costs and risks for the budget arising from the Higher Education Loan Program. I understand that that is a work in progress, but are you in a position to give us some preliminary indications about what costs and risks you are considering as part of that work?

Mr Bowen : As you acknowledge, this is still a work in progress. The Higher Education Loan Program, as you are probably aware, is a large and quite rapidly growing program, and this really is the reason we have decided to have a look at it. You may be aware—I think we mentioned it here—that we picked the MBS schedule as an earlier project that we did, to have a look at the likely impact of that program on the budget out over time, and we will do something similar for HELP. But at this time I cannot really be more specific than that. Our expectation is that we will complete this paper by around the end of March. We will make it publicly available as soon as we can, of course.

Senator LUDWIG: Just a last follow-up on the novated leases. Can you provide a list of the number of novated leases that you have with your staff—I do not want to know their names—and what information you keep in relation to the novated leases? Do you keep the type of the vehicle, the cost of the vehicle and other the details—what package they have chosen, whether it is a three-year term, a full fleet service with fuel or part thereof; the type of information you would then maintain as part of that novated lease? I am happy for to you to take that on notice. Separately, can you advise whether in your policy there is an upper limit to the cost or whether there are any limits around the vehicle themselves that people may choose.

Ms Williams : I am quite confident that there are no limits in terms of policy, but I will check, and I will provide you with the other information on notice.

Senator SMITH: Mr Bowen, am I correct in thinking that your term comes to an end this year?

Mr Bowen : Yes, on 22 July.

Senator SMITH: Are you at liberty to share with us whether or not you have reapplied for the position?

Mr Bowen : I have not—to my knowledge, the position has not been advertised.

Senator SMITH: That will be a subject for another time. I want to turn briefly to a couple of pieces of work that you have done. To begin, can you please outline the tax costing process that the PBO uses?

Mr Bowen : I will turn to Colin Brown, who is the head of our costing area, to answer that for you.

Mr Brown : In terms of the process, the mechanics of our costing process generally are that we do all of our costings on the basis of a request from a member or senator. Initially the request will come in, and we cost what is specified by the requester. The costing relies on having clear specification of the policy that we will be looking to estimate the impact of. The costing base that we use against that is the most recent economic and fiscal update of the government. Currently we would be looking at whatever is included in the MYEFO, for instance, so the Mid-Year Economic and Fiscal Outlook statement will be our base. We look at the revenue estimates from MYEFO that have been provided—it is exactly the same for expenditure, by the way. We look at the revenue base to start with and what the parameters underlying that revenue base are. You have a model that estimates that base. Into that model you would then put the changes in the parameters that drive the new policy. That might be whatever the difference in the tax bases or the tax rate is to get at the magnitude of the new policy. You take account of whatever responses there may be to the change in policy. So if you have a change in policy which was increasing the tax rate on a particular activity, you would normally expect that there would be some adjustment in the level of activity. If it is an increase in the tax rate, the activity might decrease a little bit. If it is a decrease in the tax rate, the activity might increase. You take that into account as well in the final estimate of the policy cost.

In that process, probably the area which involves the greatest amount of judgement and bias is the estimation of behavioural changes. For that we use whatever information is to hand. That may be information from academic studies or previous experience of similar changes. Absent any of those, in some cases we will make a judgement about what the behavioural impacts may be based on similar but less directly related experience.

Once we have our estimate of the change in cost, we will project it. It is usually projected over the forward estimates period, but a requester can ask for a longer period. Generally speaking, the forward estimates period is the default, but sometimes costings go out to the medium term, which is generally a period of budget year plus 10 years.

That is then wrapped up into an advice. The advice that we prepare includes information on what the impact of the proposal costed was, what the assumptions underlying that costing are, what our methodology is and details of the breakdown of the policy. We will estimate the impact of the policy on various budget bases—underlying cash balance and fiscal balance are the main two. Sometimes there are policies that have headline cash balance impacts that we may highlight as well. We may also provide information about the context of the costing—the reliability of the estimate, for instance. From time to time we are also asked for additional information, for instance regarding the distributional impacts of the policy, or for specific information, which we endeavour to provide.

Senator SMITH: So the advice that you provide to someone who requests a costing from the PBO is very much a point in time, stuck in time, unless the requester asks for that costing to be updated because additional information has come to light?

Mr Brown : Attached to all of our costings is a currency date. We will advise that this costing is valid until the next economic update, for instance. The reason for that is that parameters, underlying data and things like that, can change. As a result we provide a currency estimate and after that somebody should come back and get an update.

Senator SMITH: And that is called the currency date.

Mr Brown : Yes. We may extend the currency of an existing policy costing if the most recent economic data or whatever does not actually change it. But the reason for having a date on there is to say that these things have a shelf life.

Senator SMITH: How do you decide what reliability to attach to a costing? What are the categories of reliability, and how do you determine which reliability category to attach to a policy?

Mr Brown : We put out a technical note in June last year, technical note No. 1 of 2015, which sets out the factors influencing the reliability of costings of policy proposals. In looking at reliability, we will take into account how good the data underlying the costing is. There is data and there is data. Some data comes from highly reliable, quality sources such as high-quality administrative records with a lot of detail in them. That is excellent for costing purposes. You have other high-quality sources such as ABS data. That can vary a bit because some of it is based on very high quality sources, other data is based on surveys. They have standard errors which they report. There may be other sources which you use from research, which are less reliable.

So data is one. We will look at the assumptions that we need to make in a costing and how well based they are. Again, assumptions may be based on research. For instance, academic studies can vary in quality, but we will look at how good the research underlying the assumptions is. If it is based on high quality research, that will make a more reliable estimate. We also look at the underlying data series and what we are estimating in terms of its inherent volatility.

If you look at a costing of something like capitals gains tax, for instance, capital gains tax is a very volatile series of data; it goes up and down a lot. So capital gains tax costings inherently are less reliable simply because capital gains tax revenue can jump around all over the place.

Senator SMITH: Do you ever decline to cost a policy because it might be unquantifiable or are there other reasons? What are the categories of reliability?

Mr Brown : We rate them from being basically high reliability, which essentially means you have got a very good chance that the estimate that appears in the costing minute will be the outcome, I suppose, to low reliability, which means that there is an estimate but a very large proportion of that estimate is likely to be in error so you are looking at something which might be the estimate plus or minus a large percentage of the estimate. I hesitate to put an exact figure on that as it is a qualitative system.

Senator SMITH: Just to be clear, a low reliability score would be because a very large proportion of the estimate is—

Mr Brown : A low reliability could be because it is based on poor data. It could be because there are multiple assumptions or in fact the assumptions could be judgement based rather than evidence based. And it could be low reliability because the thing we are estimating itself is extremely volatile so it makes it hard to actually pin an estimate on it.

Senator SMITH: Turning specifically then to Senator Leyonhelm's request of the PBO to cost the taxation of superannuation pensions and contributions, it is a public document because it is available on social media, which is consistent with Senator Leyonhelm's platform for open transport government I am assuming. Could you outline for me what the three policy elements were to that costing?

Mr Brown : I do not have Senator Leyonhelm's request with me.

Mr Bowen : You will have to understand we do a lot of costings in a week, let alone in a year. But if we can get the detail, we would be happy to comment if that has been made public.

Senator SMITH: It has been made public because it is on social media.

Mr Bowen : If somebody is watching back in the office, they may well bring that to us.

Senator SMITH: My first question is how similar is that costing request made by Senator Leyonhelm in regards to superannuation pensions and contributions to the announcement that was made by the Leader of the Opposition in a media statement on 22 April called 'Labor's plan for fair sustainable superannuation?'

Mr Bowen : You are getting into very touchy ground for us here because, as you would be aware, we are under strict confidentiality obligations. When we cost a policy from whoever it is that requests us to do so, we ensure that we cost the specifications that that individual gives to us and we are very explicit. In fact, every costing I sign off on has the warning that it should not be treated as the costing of anybody else's policy. So you will understand when I say that we are not prepared to answer that question even if we had looked at it, which I certainly have not.

Senator SMITH: But these two documents are in the public domain.

Mr Bowen : It is not my position to look and see how closely aligned they are. Our role is very clear: it is not to get into the issue of whether a policy is appropriate, or whether one is better than another or different from another; it is simply to deal with the individual requestors quite separately—effectively with a 'Chinese wall', if you like, down the middle. We will not be drawn into making comparisons between costings for one parliamentarian and another.

Senator SMITH: I am not asking for comparisons between the costings. My question was around similarity. How similar is the proposal that Senator Leyonhjelm has released with the detail of the policy released by the Leader of the Opposition on 22 April.

Senator Ludwig interjecting

CHAIR: Order!

Mr Bowen : I think I have been clear.

CHAIR: I think Mr Bowen can respond about whether there is a similarity between the question or not rather than take the advice of other senators.

Mr Bowen : I beg your pardon, Chair—

CHAIR: I am getting some advice from my right about the similarity of the question that you have already responded to from Senator Smith to the subsequent question.

Senator WONG: He is giving you the opportunity of, rather than ruling, saying, 'I refer to my previous answer,' I think.

CHAIR: I think you are perfectly capable of reaffirming your previous advice, if you believe that is appropriate.

Mr Bowen : Yes. I reaffirm my previous comment to Senator Smith.

Senator SMITH: Are you aware, Mr Bowen, that there has been some commentary around the similarity between Senator Leyonhjelm's PBO costing and that of the Leader of the Opposition which is contained in the 22 April 2015 media statement.

Senator LUDWIG: You are asking for speculative—

Mr Bowen : There may well have been, but, if I have read that, I certainly have not read it lately and I have not—

Senator SMITH: No. It was April.

Mr Bowen : It is long time ago.

Senator SMITH: Turning then to Senator Leyonhjelm's costing, which is available publicly on social media, I just want to go to page 4 of that. Of course, it talks to the issue of low reliability. It says on page 4 of the PBO costing: 'These costings are considered to be of low reliability and will be sensitive to rates of return on superannuation assets and any behavioural responses to the policy change.'

Mr Bowen : What is your question, Senator?

Senator SMITH: My question to Mr Brown is: based on what you have just shared in regard to the discussion around reliability categories, what does that statement mean? I know what it says, but what does it mean?

Mr Brown : Basically, it is saying that even though we may have good information regarding superannuation contributions and on what is in the system in terms of dollars, we have to make assumptions regarding how people will respond to a change, and that introduces uncertainty. In this case, there would be, potentially, multiple uncertainties because you have to make more than one assumption in this—there would be a series of assumptions involved. In particular, it is very uncertain just how individuals would respond, particularly where there is voluntary superannuation involved. You have quite a few moving parts in this which are subject to uncertainty, and the uncertainty compounds. So that will generally lead to a low degree of reliability in any such policy.

Senator SMITH: Or to go back to your original explanation, you said that the low reliability category would mean that a very large proportion of the estimate is based on poor data or multiple assumptions, or assumptions that are judgement-based—a very large proportion.

Mr Brown : What I would be saying is that you have present things that would be subject to assumptions. I imagine, in that case, that the assumptions, particularly, would be something that reduce the reliability of the costing.

Senator SMITH: How did the PBO arrive at its own estimate of the aggregate value of superannuation assets currently supporting retirement income streams?

Mr Brown : There are publicly available statistics on that. We also have access to ATO data on contributions and assets of funds.

Senator SMITH: I am assuming that the costings were based on the most recently available estimates of revenue from taxation and superannuation earnings.

Mr Brown : Correct—at the time the costing was done, of course.

Senator SMITH: At the time of costing, which is a point you made earlier. Further on, on page 4 of Senator Leyonhjelm's costing—which is publicly available—it states: 'These proposals would involve similar administrative complexity to the 2013 budget measure "Superannuation reforms—reforming the tax exemption for earnings on superannuation assets supporting retirement income streams", a proposal that did not proceed. There is considerable uncertainty, particularly in the absence of legislation, around how this proposal would have been administered and the extent of compliance costs for employees, retirees and superannuation providers.' Can you just explain what that means.

Mr Brown : One of the things that we do when we do a costing is we do an estimate of the administrative costs—so the departmental cost of administering a policy as well as the actual administered revenue impact, the difference being that the administered revenue impact is the impact that arises from the policy itself in terms of tax revenue and the departmental is what it costs, in this instance, the ATO to administer the system that is put in place. We do those estimates. They are all part of the overall cost. In this case, the administrative systems that you would need to administer a complex proposal would be quite difficult to estimate, because you need to know exactly what is involved. In that case, what we are describing is that we have compared it with another change of similar administrative complexity in order to arrive at an estimate of the cost. Even though that did not proceed, it was subject to analysis by the ATO as to what it would cost them to do. In the comments about the cost to individuals and taxpayers et cetera, what we are basically saying is that there would be compliance costs for the general industry. Those are not included in our estimates of the fiscal impact, because they are not borne by the government; they are borne by individuals, superannuation fund administrators, employers and so on. But we are flagging that there would be such costs associated with the proposal.

Senator SMITH: Mr Bowen, you were not prepared to shed any light on whether or not Senator Leyonhjelm's proposal was similar to a PBO request that had been received from the opposition. Are you prepared to say that they are markedly different?

Mr Bowen : I am not prepared to comment.

Senator WONG: Could we put up specifically—

CHAIR: Order! Senator Wong, you had something to say?

Senator WONG: This is the same question again. We have not intervened, but the senator knows what the rules—

Senator SMITH: I do, thank you.

Senator WONG: Can I finish. He knows what the rules in relation to the PBO's work are. He is trying to make, in a somewhat ham-fisted way, a political point by reading things to Mr Bowen. Can we use estimates for something a little more productive.

CHAIR: I take your point. Senator Smith, I am going to draw your attention to the tedious repetition that we—

Senator SMITH: I disagree with that characterisation, Chair.

CHAIR: I am just drawing your attention to that provision, but also we are scheduled to go to a break very shortly, so I would ask you to draw your line of questions to a conclusion so we can move on.

Senator SMITH: I am going to move on to a second line of inquiry in regard to some costings that the PBO has done in regard to tobacco revenue, which have received some public commentary. They go specifically to the issues that Mr Brown has raised in regard to judgements and access to reliable data, and specifically around the ABS and MYEFO. You are familiar with some media commentary that has been made in regard to estimates around tobacco revenue over the forward estimates and over the longer term?

Mr Brown : Yes, I am.

Senator SMITH: You are familiar with some of the media commentary which points to subsequent costings that were in the MYEFO and ABS data which points to the changing behavioural patterns of tobacco consumption?

Mr Brown : I am aware of, certainly, information regarding the trends in tobacco consumption, and responses to recent changes in tobacco taxation.

Senator SMITH: What are your observations?

Mr Brown : There are a number of excise increases, which are government policy, which are being implemented. There is a series of 12½ per cent increases. Those increases in tobacco excise have resulted in reductions in consumption, and there is a long-term decline in the volume of tobacco consumed. That is matched by a lower growth rate in tobacco excise revenue. Tobacco excise revenue is continuing to grow, but that is because of indexation of tobacco excise, which is greater than the decline in the volume of tobacco consumption still.

Senator SMITH: When trying to look at future budget outcomes using tobacco excise, is it a high-risk proposition or a low-risk proposition, and if so, why?

Mr Brown : I am not quite sure what you mean by 'high-risk' or 'low-risk'. The actual estimates of tobacco excise revenue that you can produce are in fact relatively high in reliability because there is good data underlying them, and relatively few assumptions. We probably rate that as something which is medium to high reliability.

Senator SMITH: But the MYEFO recently downgraded tobacco excise revenue by 2.3 per cent in 2015-16?

Mr Brown : Yes. There was an overall 3.8 per cent downgrade in excise revenue over the forward estimates.

Senator SMITH: Over the forward estimates, that is right, and in 2016-17—

Senator LUDWIG: On a point of order, you are now asking about MYEFO and asking the PBO. Are those questions best directed at Treasury?

CHAIR: They may indeed be best directed at Treasury, Senator Ludwig, but I think the officers are perfectly capable of referring them to Treasury if they believe they are not in a position to answer them, or if they are not appropriate.

Senator SMITH: The point I would like to get to—and I am happy to get there more quickly, Chair—is that the costings that were undertaken by the PBO in regard to Labor's proposal to increase the tobacco excise and fund education and other social investment initiatives does not include the latest MYEFO information.

Mr Bowen : This is a matter of fact, so we may comment on this. It is true our costing was done prior to MYEFO. In MYEFO, there was the 3.8 per cent reduction in the estimates but, as Mr Brown has commented, tobacco excise revenue is still growing. We cannot really make any further comment about what impact that might have on the estimates that we have produced to date, but we do acknowledge there has been this change at MYEFO.

Senator SMITH: Mr Brown, you also mentioned that another high quality source of data would be ABS statistics. Is that correct?

Mr Brown : That is correct.

Senator SMITH: Did the costing that the PBO did in regard to Labor's plan for an increase in the tobacco excise include the ABS's latest volume measure of tobacco consumption, which was released in December?

Mr Brown : The costing itself actually relies on ATO data for tobacco clearances, and customs data, which is actually also the source of the ABS data. It is the same source.

Senator SMITH: So you did use the ABS consumption in the PBO costing?

Mr Brown : We used the tobacco clearance data from the Australian Taxation Office, and that is the same source of information that the ABS use.

Senator SMITH: What date was that—what was the source date of that data?

Mr Brown : I do not—

CHAIR: Whilst there is a pause, I will point out that we are scheduled to have the lunchbreak. Senator Smith, I am happy to go for another couple of minutes.

Senator SMITH: I think we often indulge people beyond the lunchbreak, so I seek your indulgence.

CHAIR: I am just trying to establish how long you will be.

Senator SMITH: A few more minutes.

Mr Brown : The data that we used was ATO data and it was current at the time the costing was done. It was actually the same data that underpinned the budget estimates.

Senator SMITH: Which was in May?

Mr Brown : Which was in May, but the data itself would have been up to somewhere earlier than May; probably about March.

Senator SMITH: That is right. The PBO's costings that underpin Labor's tobacco excise hike do not include two high-quality sources of data—that is, the MYEFO that was released at the end of 2015 and the ABS statistics that were released in September.

CHAIR: Order! Senator Smith, I have a point of order.

Senator LUDWIG: The only point of order I make is that we are now asking about—in the way Senator Smith frames his questions—a document that is not released by PBO as a public document. It may be in the public domain.

Senator SMITH: It is in the public domain.

CHAIR: Order! Order! Order!

Senator LUDWIG: As I said, that is a separate issue from the PBO. They have been commenting about the mechanics of a document that they did not release in the public domain. They should then not be adding to it, if someone else has released it, unless that is the fair game that we are now going to adopt.

Senator SMITH: To clarify these issues, Senator Ludwig could ask Labor to release its PBO costing on this specific—

CHAIR: I am just considering Senator Ludwig's point of order that Senator Smith is asking questions about a document that is in the public domain which may have some similarity to another document that is not in the public domain. He can ask questions of the PBO about what is publicly available; however, he is precluded from asking questions about opinions on matters of policy. I think the—

Senator LUDWIG: And commenting on documents that they have not released.

CHAIR: And this is what I suggest: Mr Bowen is perfectly within his rights to say, 'I don’t think we should be commenting on documents that have not been released by us or are not available in the public domain.' But if it is requirements about specifically what is available in the public domain, I think it is entirely appropriate.

Mr Bowen : Chair, if I can help to clarify: while Labor has made some announcements about tobacco—and that is in the public domain, obviously—they have not released our costing document that we provided to them. The questions that we are prepared to answer or are able to answer go to issues of fact such as: was the document prepared before MYEFO or not, or later? We have answered that but, when it comes to the detail of what we provided, we would be very uncomfortable going very far. On that, in terms of data sources, I think that is a matter of fact. It does not go to the detail of the assumptions et cetera that we may have used, but we have to be fairly careful here that we do not stray outside our confidentiality.

CHAIR: Mr Bowen, I take that; I accept that. I think it is entirely appropriate and I think that you are in a position to make appropriate judgement calls about that. Senator Smith can ask questions, but you can decide whether they are appropriate for you to answer or not. In the event that you are indecisive, I will have to make a decision.

Senator LUDWIG: The issue that concerns me a little bit, Chair, is that the government generally does not provide parameter updates for any of its announcements, and what the PBO is now doing is exactly that—and that is concerned with the direction you are now heading. Whether or not all your measures end up in the public domain, I can come back to you and ask you for all the parameter updates, as the case may be, and how they might change or impact that particular decision. I think you are now opening yourself up to getting into a really complex area because, if you continue to answer in this way, what it means is people can start putting questions on notice to you about the parameter updates and any other announcements that are in the public domain, that people have released.

CHAIR: That would absolutely result in a new request, if you will, of the PBO. I take your point, Senator Ludwig.

Senator LUDWIG: I will just keep asking my question.

CHAIR: What I would suggest is that, if it is a matter of fact about, 'When did you prepare this? Was it before MYEFO or post-MYEFO?' I think that is entirely appropriate—

Senator LUDWIG: I think that is fine.

CHAIR: but I think asking about the substance of consequences of changes may be too much detail. It goes to making a new request of the PBO, if you will, for new modelling, and that should be confidential.

Mr Bowen : We have not commented and we do not intend to comment on any changes that might occur if we were to cost it again. That is another matter entirely.

CHAIR: Okay. Let's proceed along those lines. If we could wrap it up, Senator Smith.

Senator SMITH: Mr Bowen, of course your job is absolutely to protect the integrity and independence of the PBO. I respect that and whatever decision you make.

Mr Bowen : And to be totally nonpartisan.

Senator SMITH: And my job is to get as close as I possibly can to some accurate information about what might be happening. But the theme that I want to explore briefly now, given the limited time, is the one about using diminishing sources of revenue to fund long-term programs. Of course, we have the recent experience in regard to the minerals resource rent tax. What I am trying to explore is: is this a well advised way in which to raise money and allocate money over the longer term if, by their nature, these changes have a diminishing source of revenue? Mr Bowen himself admitted that costing policies over a longer time frame does add to some complexities.

Senator LUDWIG: That is asking for an opinion of the PBO. He can do his own request of the PBO for that.

Senator SMITH: That is Mr Bowen's statement, Senator Ludwig. What I am keen to explore is: what are the risks around that?

Mr Bowen : Senator, we obviously will not comment on the appropriateness of a policy that any party implements. That is not our role.

Senator SMITH: Agreed.

Mr Bowen : We have done a costing, at a certain point in time that we have established, that we stand by. And that costing is over a decade.

Senator SMITH: Please correct me if I have heard you incorrectly, but you recognise that the costing that was done by the PBO did not include the latest Treasury estimates from the end of 2015 and does not include the ABS data that was released in early December? That is a statement of fact as well.

Mr Bowen : Well, I hardly need to answer, because our costing was done prior to MYEFO.

Senator SMITH: Yes, that is a matter of fact.

CHAIR: We have established that.

Senator SMITH: Thank you.

CHAIR: There being nothing further, Mr Bowen, officers, may I thank you for your attendance today. The committee will now suspend and resume at 1.40, with the Department of Parliamentary Services.

Proceedings suspended from 12 : 38 to 13:39