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Appropriation Bill (No. 2) 2011-2012



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ISSN 1328-8091

Parliament of Australia Departmentof Parliamentary Services

Contents

Purpose .................................................................................................................................................... 3

Constitutional aspects .............................................................................................................................. 3

Annual appropriations ........................................................................................................................ 3

Annual appropriation Bills: ordinary and other annual services ........................................................ 3

Payments for other services ............................................................................................................... 4

States and territories ..................................................................................................................... 4

Local government .......................................................................................................................... 4

New administered outcomes ........................................................................................................ 4

Non-operating costs ...................................................................................................................... 5

Budget terms and processes .................................................................................................................... 5

Departmental and administered expenses ........................................................................................ 5

Outcomes and programs .................................................................................................................... 5

Portfolio Budget Statements .............................................................................................................. 6

Reduction processes ........................................................................................................................... 6

Advance to the Finance Minister ........................................................................................................ 6

CAC Act bodies .................................................................................................................................... 6

Drawing rights ..................................................................................................................................... 7

General drawing rights limits .............................................................................................................. 7

Financial implications ............................................................................................................................... 7

BILLS DIGEST NO. 130, 2010-11 14 June 2011

Appropriation Bill (No. 2) 2011-2012

Garth Day Economics Section

Main provisions ........................................................................................................................................ 7

Part 2—Appropriation items .............................................................................................................. 7

Part 3—Adjusting appropriation items ............................................................................................... 8

Part 4—General drawing rights limits ................................................................................................ 9

Part 5—Amendment of the Commonwealth Inscribed Stock Act 1911 ............................................ 10

Part 6—Miscellaneous ...................................................................................................................... 12

Schedule 1—Payments to or for the states, ACT, NT and local government ................................... 12

Schedule 2—Services for which money is appropriated .................................................................. 12

Schedule 3—Alternative items for the Department of Human Services .......................................... 13

Appropriation Bill (No. 2) 2011-2012 3

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Appropriation Bill (No. 2) 2011-2012

Date introduced: 10 May 2011

House: House of Representatives

Portfolio: Finance and Deregulation

Commencement: On Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

To appropriate approximately $7.396 billion for the non-ordinary (‘other’) annual services of the Government.

Constitutional aspects

Annual appropriations

Section 83 of the Australian Constitution provides that no money shall be withdrawn from the Consolidated Revenue Fund except ‘under appropriation made by law’. Laws authorising spending are either:

• special appropriations, or

• six (usually) annual appropriation Acts.

Appropriation Bill (No. 2) 2011-2012 (the Bill) is an annual appropriation.

Annual appropriation Bills: ordinary and other annual services

Section 54 of the Australian Constitution requires that there be a separate law appropriating funds for the ordinary annual services of the Government. That is why there are separate annual appropriation Bills for ordinary annual services and for ‘other’ annual services. The distinction between ordinary and ‘other’ annual services was set out in a ‘compact’ between the Senate and the Government in 1965.1

1. The compact was updated to take account of the adoption of accrual budgeting in 1999-2000. Further information relating to the Compact of 1965 may be accessed at: http://www.aph.gov.au/senate/pubs/odgers/pdf/odgers.pdf, viewed 20 May 2011, pp. 274, 285-287.

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Appropriation Bill (No. 1) is introduced with the Budget and appropriates funds for the ‘ordinary annual services of the Government’. Appropriation Bill (No. 2), which is also introduced with the Budget, appropriates funds for ‘other’ annual services. A third Appropriation Bill, Appropriation (Parliamentary Departments) Bill No. 1, funds the parliamentary departments.2

Payments for other services

Payments for other services funded under Appropriation Bill (No. 2) fall into three broad categories:

• some payments to the states, territories and local government

• new administered outcomes, and

• non-operating expenses.

States and territories

Most payments to the states and territories are funded under a special appropriation, namely, the Federal Financial Relations Act 20093 (FFR Act). Details of payments under the FFR Act can be found in the Portfolio Budget Statements for the Department of the Treasury.

Payments for non-government schools fall into two categories. On-going payments under the Schools Assistance Act 2008 are payments ‘through’ the states, that is, the Commonwealth pays the states which pass the money on to schools. Other payments for non-government schools are made under Appropriation Bill (No. 2).

Local government

The Commonwealth pays financial assistance grants to local government under the Local Government (Financial Assistance) Act 1995. Since November 2009, payments to local governments for the digital regions initiative have been centralised through state and territory treasuries.4 All other payments made directly to local government are paid under Appropriation Bill (No. 2).

New administered outcomes

As noted above, the distinction between ordinary and other annual services was set out in a ‘compact’ between the Senate and the Government in 1965. New administered outcomes are not ordinary annual services because Parliament has not approved them.

2. The Parliamentary Library has produced Bills Digests for these other Bills [G Day, Appropriation Bill (No. 1) 2011-2012, Bills Digest, no. 129, 2010-11, Parliamentary Library, Canberra, 2011; K Knowler, Appropriation (Parliamentary Departments) Bill (No. 1) 2011-2012, Bills Digest, no. 121, 2010-11, Parliamentary Library, Canberra, 2011] which may be viewed at : http://www.aph.gov.au/library/pubs/bd/index.htm.

3. Federal Financial Relations Act 2009, viewed 20 May 2011, http://www.comlaw.gov.au/Details/C2009C00218 4. Australian Government, ‘Agency resourcing 2011-12’, Budget measures: budget paper no. 4: 2010-11, Commonwealth of Australia, Canberra, 2011, pp. 9-10, viewed 20 May 2011, http://cache.treasury.gov.au/budget/2011-12/content/download/BP4.pdf

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Non-operating costs

‘Agency non-operating costs’ fall into three broad categories:

• equity injections and loans

 equity injections are provided to agencies to enable them to invest in assets in order to undertake departmental activities. Equity injections are for ‘major’ investments, that is, those valued at more than $10 million. Loans can be made when the investment is expected to yield a return such as increased efficiency

• appropriations for administered assets and liabilities, and

 that is, acquisitions of administered assets and reductions in administered liabilities

• non-operating costs payments to CAC Act bodies (see the discussion below under ‘budget terms and processes’)

 these payments are made to the responsible portfolio department—for example, the Department of Broadband, Communications and the Digital Economy—for payment to CAC Act bodies, for example, the Australian Broadcasting Corporation.

Budget terms and processes

Departmental and administered expenses

‘Departmental expenses’ are essentially the costs of running agencies, for example, salaries, depreciation and other day-to-day operating expenses. Administered expenses are the costs of programs that agencies administer. While most administered expenses are funded through special appropriations, some are funded through the Appropriation Bills.

Outcomes and programs

Departmental and administered expenses contribute to ‘outcomes’. Outcomes are the results or consequences for the community that the Government wishes to achieve. As an example, Outcome 1 in the Attorney-General’s portfolio, is:

A just and secure society through the maintenance and improvement of Australia’s law and justice framework and its national security and emergency management system. 5

Programs contribute to outcomes. For example, six programs contribute to the above outcome including ‘national security and criminal justice’ (program 1.6) and ‘justice services’ (program 1.3).

5. Attorney-General’s Department, Portfolio budget statements 2011-12, Commonwealth of Australia, Canberra, 2011, p. 22, viewed 20 May 2011, http://www.ag.gov.au/www/agd/rwpattach.nsf/VAP/(3A6790B96C927794AF1031D9395C5C20)~00+Attorney-General's+portfolio+2011-12+PBS+full+book.pdf/$file/00+Attorney-General's+portfolio+2011-12+PBS+full+book.pdf

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Portfolio Budget Statements

When the Budget is brought down, the Government releases portfolio budget statements. They contain, amongst other things, explanations of the funding sought through the three Appropriation Bills. The portfolio budget statements are ‘relevant documents’ for the purposes of section 15AB of the Acts Interpretation Act 1901. This means that the Portfolio Budget Statements can be used to help interpret an Act if certain threshold criteria are met.

Reduction processes

The Bill contains processes for reducing amounts that have been appropriated but which are subsequently found to be more than was needed. Reductions can apply to:

• payments to the states, territories and local governments, and to administered items

• administered assets and liabilities, and other departmental items, and

• CAC Act body payments. 6

Beginning in 2008-09, the process for reducing appropriations for payments to the states, territories and local government changed. Under the new process, the amount reduced is based on agencies’ financial statements in their annual reports. In essence, the amount of the reduction is the difference between the total of amounts appropriated less the amount shown as having been spent in agencies’ financial statements.

Advance to the Finance Minister

The Advance to the Finance Minister (AFM) provides flexibility by authorising the Finance Minister to expend money when the Finance Minister is satisfied that there is an urgent need for expenditure during the financial year but for which there is not a sufficient appropriation. The Finance Minister can expend money from the AFM only if the proposed expenditure meets certain criteria.

CAC Act bodies

Agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) are financially part of the Commonwealth. Bodies subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act) are legally and financially separate from the Commonwealth. Examples of CAC Act bodies are the Australian War Memorial, Screen Australia, and the Australian Broadcasting Corporation. FMA Act agencies appropriate amounts for the purposes of making payments to CAC Act bodies. For example, the Department of Broadband, Communications and the Digital Economy passes on funding to the Australian Broadcasting Corporation and the Special Broadcasting Service Corporation. CAC Act bodies have to request payment from the relevant portfolio department.

6. A CAC Act body is a body/agency that is subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act) and is legally and financially separate from the Commonwealth.

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Drawing rights

Under the FMA Act, no money can be paid from the Consolidated Revenue Fund (CRF) without a valid drawing right. Drawing rights control payments from the CRF and the use of appropriations, and allow the Finance Minister (or the Finance Minister’s delegate) to set conditions and limits relating to those activities. The FMA Act provides that an official or Minister must not make a payment of money from the CRF, or debit an appropriation, unless authorised by a valid drawing right.

General drawing rights limits

General drawing rights limits are a mechanism for limiting spending under certain Acts. They do not appropriate money.

The Nation-building Funds Act 2008 established three so-called nation-building funds—the Building Australia Fund, the Education Investment Fund, and the Health and Hospitals Fund—as well as special accounts for each of those funds. The COAG Reform Fund Act 2008 established the COAG Reform Fund as a special account. Its purpose is to make financial assistance grants to the states and territories. An amount in the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund may be transferred to the COAG Reform Fund special account.

The Nation-building Funds Act 2008 and the Federal Financial Relations Act 2009 (under which most payments to the states and territories are made) contain mechanisms to limit the amounts that can be paid annually under each of these two Acts. The maximum amounts are called the ‘general drawing rights limits’. The Bill contains the general drawing rights limits for 2011-12.

Financial implications

The Bill appropriates about $7.396 billion. This compares with $9.538 billion last year.

Main provisions

The Bill’s provisions are mostly the same as those in Appropriation Act (No. 2) 2010-11. The following steps through the main clauses of the Bill highlighting changes and new provisions.

Part 2—Appropriation items

Clause 6 provides that the total of the items in Schedule 2 is $7 396 170 000.

Clause 7 deals with payments to the states, territories and local government. Subclause 7(2) provides that if the Portfolio Budget Statements indicate that certain activities were intended to be for a particular outcome, then expenditure on those activities is taken to be as contributing to achieving the outcome.

8 Appropriation Bill (No. 2) 2011-2012

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Clause 8 deals with ‘administered items’. Subclause 8(1) provides that the amount identified for an administered item in an outcome may be used to contribute to achieving that outcome. The wording of subclause 8(2) is identical to that in subclause 7(2).

As noted, administered assets and liabilities are one of the three categories of non-operating costs. Clause 9 deals with administered assets and liabilities items. Subclause 9(1) provides that the amount identified for an agency’s administered assets and liabilities may be applied to achieving any of the agency’s outcomes, which are specified in Schedule 2 to the Bill or in Schedule 1 to the proposed Appropriation Act (No. 1) 2011-2012. The wording of subclause 9(2) is identical to that in subclause 8(2) and subclause 7(2).

Clause 10 deals with ‘other departmental items’ and authorises appropriations for equity injections and loans. Clause 10 provides that the amount specified in an ‘other’ departmental item for an agency may be applied for the departmental expenditure of the agency.

Clause 11 deals with ‘CAC Act body payments items’. Subclause 11(1) provides that an amount appropriated for a CAC Act body payment item may only be applied for the purpose of the CAC Act body named. Subclause 11(2) provides that if an Act provides that a CAC Act body must be paid amounts that are appropriated by the Parliament for the purposes of the body, and Schedule 2 contains a CAC Act body payment item for that body, then the body must be paid the full amount specified in the item.

Part 3—Adjusting appropriation items

Clause 12 deals with reductions to payments to the states, territories and local government, and to administered items. Subclause 12(1) provides that the amount by which payments to the states, territories and local government and for administered items can be reduced is the difference between what has been appropriated and what has been spent, the latter being the amount shown in agencies’ financial statements.

Subclause 13(1) enables the Minister responsible for an agency, or the Chief Executive of the agency—where the Finance Minister is responsible for the agency—to seek a reduction in administered assets and liabilities and other departmental items. Paragraph 13(1)(a) provides a third category of person who can request a reduction, the Prime Minister or a Minister acting on behalf of the Prime Minister.

Subclause 13(5) provides that despite subsection 33(3) of the Acts Interpretation Act 1901,7 a determination made under subclause 13(2) must not be rescinded, revoked, amended or varied. Subsection 33(3) of the Acts Interpretation Act 1901 provides:

Where an Act confers a power to make, grant or issue any instrument (including rules, regulations or by-laws) the power shall, unless the contrary intention appears, be construed as

7. Acts Interpretation Act 1901, viewed 20 May 2011, http://www.comlaw.gov.au/Details/C2009C00554

Appropriation Bill (No. 2) 2011-2012 9

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including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.

Subclause 13(5) thus overrides the power in subsection 33(3) thereby ensuring that a determination that the Finance Minister has made cannot be rescinded, revoked, amended or varied. A determination under subclause 13(2) is a disallowable instrument as specified by subclause 13(7).

Clause 14 deals with reductions to CAC Act body payment items. The wording in clause 14 is almost the same as in clause 13. However, whereas a request can come from the Chief Executive of an agency for which the Finance Minister is responsible in the case of clause 13, a similar request must come from the Secretary of the Department in the case of CAC Act bodies as specified by paragraph 14(1)(c). Paragraph 14(1)(a) is identical to paragraph 13(1)(a), providing a third category of person who can request a reduction in a CAC Act body payment, namely, the Prime Minister or a Minister acting on behalf of the Prime Minister. Likewise, subclause 14(5) is identical to subclause 13(5), that is, a determination cannot be rescinded, revoked, amended or varied.

Subclause 14(6) confirms that a reduction can be made for a CAC Act body payment item even though the body has been allocated funds under subsection 11(2).

As noted above, the Advance to the Finance Minister authorises the Finance Minister to expend money when the Finance Minister is satisfied that there is not an adequate appropriation. Clause 15 deals with the advance. Subclause 15(1) sets out the criteria the Finance Minister must be satisfied have been met before issuing an amount to an agency. The criteria are that there is an urgent need for expenditure that is not provided for, or is insufficiently provided for in Schedule 2 because of an omission or understatement, or because of unforeseen circumstances. Subclause 15(3) states that the amount authorised by the Finance Minister, under the Advance to the Finance Minister, must not exceed $380 million.

Part 4—General drawing rights limits

As discussed, the Bill limits the amounts that can be paid annually from the special accounts for three of the funds established under the Nation-building Funds Act 2008. Further, the Bill limits the amounts that can be paid for general purpose financial assistance and national partnership payments under the Federal Financial Relations Act 2009. Clause 16 contains these provisions. The limits are:

• Building Australia Fund (BAF): $1 956 200 000, as specified in subclause 16(1)

• Education Investment Fund (EIF): $1 061 000, as specified in subclause 16(2)

• Health and Hospitals Fund (HHF): $1 287 120 000, as specified in subclause 16(3)

• general purpose financial assistance: $1 500 000 000, as specified in subclause 16(4)

• national partnership payments:

 general drawing rights limit under the Federal Financial Relations Act 2009: $18 000 000 000, as specified in subclause 16(5)

10 Appropriation Bill (No. 2) 2011-2012

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Clause 17 increases a general drawing rights limit by the amount of any GST qualifying amount in respect of an amount paid from a fund named in clause 16. Some payments from the BAF, EIF, HHF and the COAG Reform Fund may include a GST qualifying amount and the relevant general drawing rights limit is adjusted accordingly. The appropriation itself is not affected by clause 17 because that is increased by the operation of section 30A of the FMA Act. Section 30A of the FMA Act states that if a payment in respect of an acquisition (or payment of GST on an importation) is made under a limited appropriation and a GST qualifying amount has arisen (or does arise) for that acquisition (or importation) then the appropriation is increased by the amount of the GST qualifying amount. Essentially, clause 17 clarifies that the amounts specified for the general drawing rights limits for 2011-12 are exclusive of any GST qualifying amounts that may arise in respect of acquisitions made in reliance on that limit.8

Part 5—Amendment of the Commonwealth Inscribed Stock Act 1911

Clause 18 is new. It provides for the Commonwealth Inscribed Stock Act 1911 (CIS Act) to be amended in relation to the legislative limit on Commonwealth Government Securities (CGS) issuance and special appropriations for borrowing and debt management activities.

The Government can borrow money by issuing stock and securities such as Treasury Bonds. The CIS Act provides a standing authority to the Treasurer to borrow in Australian currency to a maximum face value of $75 billion, and an additional $125 billion on declaration of special circumstances. This declaration is currently in force which gives the effect of increasing the limit to $200 billion.

The Government amended the CIS Act in 2008 to implement a legislated $75 billion limit on the face value of CGS and amended it again in 2009 to effectively increase the limit to $200 billion, so as to allow the Government to issue CGS to cover the Budget shortfall associated with the Global Financial Crisis. The market value of Commonwealth Government Securities (CGS) on issue, which makes up the bulk of what is commonly termed ‘gross debt’, is set to exceed $200 billion by the end of June 2011, while the face value is expected to be $192 billion by 30 June 2011. The expected net issuance of CGS in 2011-12 is around $33 billion—that is the face value of newly issued CGS over and above the issuance of CGS to rollover CGS that are due to mature during that period. As noted above, the CIS Act currently specifies that the stock of CGS on issue, in face value terms, must not exceed $200 billion.

Subclause 18(1) amends the standing borrowing authority in section 5 of the CIS Act to enable the Treasurer to issue stock and securities up to a total face value of $250 billion.

Changes to banking regulation, as part of the ‘Basel III’ reforms, may see further changes to the CGS market.9 The implementation of Basel III in Australia will require Authorised Deposit-taking Institutions (ADIs) to hold larger stocks of CGS and other highly rated securities on their balance sheets. The Government has expressed concerns regarding liquidity in the CGS market, as the

8. Explanatory Memorandum, Appropriation Bill (No. 2) 2011-2012, pp. 20-21. 9. Details of the Basel III reform may be accessed at: http://www.bis.org/list/basel3/index.htm, viewed 20 May 2011.

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holdings of CGS by ADIs are largely ‘passive’, that is not actively traded. Therefore, a review panel has recommended that the CGS market should be maintained at around its current size of around 12 to 14 per cent of GDP.10 The Government has indicated that it is considering the panel’s recommendations although subclause 18(1) together with projected issuance gives effect to this key recommendation. This then raises the associated question: how will the offsetting accumulation of assets, associated with projected future surpluses, be managed?

Subclause 18(2) repeals the ‘special circumstances provision’ in section 5A that authorises the Treasurer to issue up to an additional $125 billion of stock and securities by making a declaration that a special circumstance exists, justifying the increase. Although this declaration is not disallowable, subclause 18(1) taken together with subclause 18(2), may be perceived as withdrawing some opportunity for parliamentary scrutiny which currently requires the Treasurer to make a declaration describing the ‘special circumstances’ which exist. However, the Treasurer will still be required to issue a direction under the CIS Act specifying the total amount of stock and securities that can be on issue within the legislative limit. Under section 51JA of the CIS Act, the Treasurer may delegate his authority to borrow money on behalf of the Commonwealth by issuing stock denominated in Australian currency (under section 3A of the CIS Act) to certain persons in the Treasury or the Reserve Bank of Australia. The Treasurer must give a direction (by signed instrument) to those persons, as to the maximum total face value of stock and securities that may be on issue under the CIS Act and specified in other Acts. The persons to whom the Treasurer has delegated his authority to borrow money must comply with the direction. The direction must be tabled in Parliament but is not disallowable.

Subclause 18(3) establishes a special appropriation in the CIS Act for the costs and expenses incurred in relation to the issue or sale of stock and to managing stock that has been issued. Subclause 18(3) also establishes a special appropriation in the CIS Act for the costs and expenses incurred in repurchasing or redeeming stock prior to maturity.

Clause 19 is also new. Subclause 19(1) provides that the amendment made by subsection 18(1) will apply to stock and securities on issue from the date of commencement of that amendment, regardless of whether the stock and securities were issued before or after the commencement of subsection 18(1). Subclause 19(2) and subclause 19(3) provide that the amendments made by subsection 18(3) will apply to costs and expenses incurred by the Commonwealth after the commencement of that provision, regardless of whether the stock was issued or sold before or after the commencement of proposed subsection 18(3).

These amendments relate to the Government’s announcement in the 2011-12 Budget on the future of the CGS market.11

10. Australian Government, Budget strategy and outlook: budget paper no. 1: 2011-12, Commonwealth of Australia, Canberra, 2011, pp. 7-17, viewed 20 May 2011, http://cache.treasury.gov.au/budget/2011-12/content/download/bp1.pdf?v=2

11 Australian Government, op. cit., pp. 7-16 — 7-18.

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Part 6—Miscellaneous

Clause 20: Contingency—Department of Human Services

Clause 20 is new. It provides a contingency for the appropriation provided to the Department of Human Services in the items in the tables in Schedule 2 to be replaced by the items in the tables in Schedule 3. It is anticipated that Centrelink and Medicare Australia will be merged into the Department of Human Services on 1 July 2011 by the Human Services Legislation Amendment Act 2011, and that as a result, Centrelink and Medicare Australia will cease to exist as separate agencies. Therefore the Department of Human Services’ table in Schedule 2 includes no separate appropriations for Centrelink and Medicare Australia. If Schedules 1 to 3 to the Human Services Legislation Amendment Act 2011 do not commence on or before 1 July 2011 as anticipated, then Schedule 3 to the current Bill will apportion the appropriation between the three agencies so that they can continue operating.

Clause 22: Conditions, et cetera applying to state, ACT, NT and local government items

Section 96 of the Australian Constitution allows the Parliament to provide financial assistance to any state on such terms and conditions as the Parliament thinks fit. Clause 22 seeks to ensure that payments made by the states, territories and local governments from financial assistance provided by the Commonwealth must accord with the conditions that the relevant minister, specified in Schedule 1, determines.

Clause 23 provides that the Consolidated Revenue Fund is appropriated as necessary for the purposes of the proposed Act, including the operation of the proposed Act as affected by the Financial Management and Accountability Act 1997.

Schedule 1—Payments to or for the states, ACT, NT and local government

Schedule 1 lists the ministers who have power to determine the conditions under which any payments to and through the states and territories and local government authorities may be made, and the amounts and timing of those payments.12

Schedule 2—Services for which money is appropriated

Appropriations made by the Bill are set out in Schedule 2 by reference to individual portfolios. The table below is the summary from Schedule 2.

12. Clause 22 delegates the Parliament’s power to provide financial assistance to the states under section 96 of the Australian Constitution. It gives the ministers listed in Schedule 1 the power to determine the conditions under which payments may be made, and the amounts and timing of those payments.

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Schedule 3—Alternative items for the Department of Human Services

Schedule 3 to the Bill sets out a contingency apportionment for appropriations provided to the Department of Human Services, should the Schedules 1 to 3 to the Human Services Legislation Amendment Act 2011 (which proposes the merger of Centrelink and Medicare Australia into the Department of Human Services) not commence on or before 1 July 2011.

14 Appropriation Bill (No. 2) 2011-2012

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Source: Schedule 2 to the Bill

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© Commonwealth of Australia 2011

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