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Appropriation Bill (No. 1) 2011-2012



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ISSN 1328-8091

Parliament of Australia Departmentof Parliamentary Services

Contents

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

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

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

Ordinary and other annual services .................................................................................................... 4

The Senate’s powers in relation to ordinary annual services ............................................................. 4

Some budget terms and processes .......................................................................................................... 4

Departmental expenses ...................................................................................................................... 4

Depreciation .................................................................................................................................. 5

Previous years outputs appropriations ......................................................................................... 5

Administered expenses ....................................................................................................................... 5

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

Outcomes and programs .................................................................................................................... 6

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

Advance to the Finance Minister ........................................................................................................ 7

Portfolio Budget Statements .............................................................................................................. 7

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

Main provisions ........................................................................................................................................ 8

Part 2—Appropriation items .............................................................................................................. 8

BILLS DIGEST NO. 129, 2010-11 20 June 2011

Appropriation Bill (No. 1) 2011-2012

Garth Day Economics Section

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

Part 4—Miscellaneous ...................................................................................................................... 11

Schedule 1—Services for which money is appropriated .................................................................. 11

Schedule 2—Alternative items for the Department of Human Services .......................................... 11

Appropriation Bill (No. 1) 2011-2012 3

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Appropriation Bill (No. 1) 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 about $72.85 billion for the ordinary annual services of the Government.1

Constitutional aspects

Annual appropriations

Section 83 of the Australian Constitution states 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

 one of (usually) six annual appropriation Acts.

Special appropriations—which account for more than 80 per cent of spending—are spending authorised by Acts for particular purposes. Examples are age pensions, carer payments, the seniors concession allowance paid under the Social Security (Administration) Act 1999, and Family Tax Benefits A and B paid under the A New Tax System (Family Assistance) (Administration) Act 1999. The balance of spending is funded by annual appropriations. Appropriation Bill (No. 1) 2011-2012 (the Bill) is an annual appropriation.

1. The total appropriations for the ordinary annual services as specified in Schedule 1 is $72 850 667 000.

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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 1965.2

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.3

The Senate’s powers in relation to ordinary annual services

Among other things, Section 53 of the Australian Constitution provides that the Senate may not amend proposed laws appropriating revenue or moneys for the ordinary annual services of the Government. The Senate may, however, return to the House of Representatives any such proposed laws requesting, by message, the omission or amendment of any items or provisions therein.

Some budget terms and processes

Departmental expenses

‘Departmental expenses’ are essentially the costs of running agencies, for example, salaries, depreciation and other day-to-day operating expenses. It is important to note that while departmental appropriations are designated for specific categories of expense (for example, employee benefits and supplier expenses) and to specific outcomes and programs, these designations are notional. Rather, it is the total appropriation for departmental expenses that is relevant. In other words, an agency is not bound to spend departmental appropriations on the designated purposes and can, for example, reassign funds to outcomes different from what was

2. 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.

3. The Parliamentary Library has published Bills Digests for these other Bills [see: G Day, Appropriation Bill (No. 2) 2011-2012, Bills Digest, no. 130, 2010-11, Parliamentary Library, Canberra, 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F846693% 22 ; K Knowler, Appropriation (Parliamentary Departments) Bill (No. 1) 2011-2012, Bills Digest, no. 121, 2010-11, Parliamentary Library, Canberra, 2011,

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designated. This provides agencies with flexibility as to how they spend departmental appropriations.

Depreciation

Since accrual budgeting was introduced in 1999-2000, agencies have received cash for depreciation even though they may not have needed the funds to replace assets until several years into the future. Agencies were supposed to hold the depreciation appropriations as reserves until such time as they replaced assets. However, under the 2009-10 Additional Estimates Acts agencies returned unspent depreciation reserves to consolidated revenue. From 1 July 2009, the Government ceased funding for depreciation for collecting institutions in relation to their heritage and cultural assets.

Since the 2010-11 Budget, the Government appropriates funds for asset replacement only when agencies are expected to replace assets. This policy applies to all other (that is, non-heritage and cultural) agencies in the general government sector. In short, asset replacement ceased to be on an accrual basis and reverted to the former cash basis. Funding for asset acquisitions will be paid as equity injections, loans or be included in departmental appropriations in the case of minor assets (assets valued at $10 million or less).4

Previous years outputs appropriations

Since the 2010-11 Budget, recognition of a class of appropriations known as ‘previous years outputs appropriations’ ceased. This category of appropriations was paid to agencies to reimburse them for departmental expenses they incurred in the year before the Budget year when agencies were required to undertake additional activities but for which the Government had not provided funds in the additional estimates Bills. In other words, agencies received no additional funding during the period between the additional estimates Bills and the following year’s Budget. Previous years’ outputs appropriations were paid through Appropriation Bill (No. 2). From 2010-11, agencies are expected to meet the cost of additional activities from their existing departmental appropriations.5

Administered expenses

Administered expenses are essentially the costs of the programs that agencies administer on the Government’s behalf. An example is the age pension. Most administered expenses are funded

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F790791% 22 ] 4. Further information is contained in the Bills Digest for the Appropriation Bill (No. 1) 2010-2011: R Webb, Appropriation Bill (No. 1) 2010-2011, Bills Digest, no. 147, 2009-10, Parliamentary Library, Canberra, 21 May 2010,

which is available at: http://www.aph.gov.au/library/pubs/bd/2009-10/10bd147.pdf 5. Ibid.

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through special appropriations but some are funded through the appropriation Bills.6 A key feature of administered expenses is that unlike departmental expenses, agencies generally cannot control the amounts expended. Thus spending on, say, age pensions is determined by the number of qualifying applicants, the pension rates and so on, none of which the relevant agency controls. Unlike departmental appropriations, administered appropriations must be spent on the outcomes to which they are assigned.

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 agencies.

Outcomes and programs

Departmental expenses 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. 7

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).

Reduction processes

Appropriations for departmental and administered expenses can be reduced. It is sometimes the case that an appropriation for a departmental expense exceeds what is needed. However, departmental appropriations do not automatically lapse if they are not spent. In these circumstances, a ‘reduction process’ to extinguish the unspent amount is available. Under this

6. The Bass Strait Passenger Vehicle Equalisation Scheme is an example of the latter. 7. 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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process, on request in writing from a minister, the Finance Minister may issue a determination to reduce the agency’s departmental expenses appropriation.

Appropriations for administered expenses may also be subject to an annual process to extinguish amounts if they are not required. The amount identified as spending on administered expenses in agencies’ financial statements—as published in their annual reports—is the basis for this process. In short, the amount of the reduction is the difference between the amount appropriated and the amount spent as shown in the agency’s financial statements. In effect, the unused amounts are returned to consolidated revenue.

As with departmental and administered appropriations, CAC Act body payments may be subject to a reduction process.

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 spending meets certain criteria, namely, that there is an urgent need for the expenditure that is not provided for, or is insufficiently provided for, because of an omission or understatement or because of unforeseen circumstances. The Finance Minister provides the additional money by way of a determination; and while the determination is a legislative instrument it is not subject to parliamentary disallowance.

Portfolio Budget Statements

When the Budget is brought down, the Government releases Portfolio Budget Statements. They contain, amongst other things, information on the amounts that agencies will receive through the Appropriation Bills as well as from special appropriations and special accounts. 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.

Financial implications

The Bill appropriates about $72.85 billion for the ordinary annual services of the Government compared with about $71.95 billion last year. Schedule 1 contains the amounts appropriated and the purposes for which the funds are appropriated as defined by outcomes. As usual, the single largest portfolio appropriation is for the Defence portfolio with some $24.00 billion.

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Main provisions

The provisions in the Bill are mostly identical to those in Appropriation Act (No. 1) 2010-2011. The material below steps through the main provisions in the Bill and provides additional information about changes and new provisions which are specifically related to Clause 14.

Part 2—Appropriation items

Clause 6 states that the total of the items specified in Schedule 1 is $72 850 667 000.

Clause 7 provides that the amount specified in a departmental item for an agency may be applied for its departmental expenditure. The note to the clause observes that the Finance Minister manages the expenditure of public money under the Financial Management and Accountability Act 1997.

Clause 8 deals with ‘administered items’. Subclause 8(1) confirms that if an amount is specified as an administered item for an outcome, then money can be expended to achieve that outcome. Subclause 8(2) provides that where the Portfolio Statements indicate that an activity is for a particular outcome, the amount in the administered item is taken to contribute towards the achievement of that outcome.

Clause 9 deals with ‘CAC Act body payment items’. As noted above, CAC Act bodies have to request payment from the relevant agencies. Subclause 9(1) empowers agencies to make payments to CAC Act bodies for the purposes of those bodies. Subclause 9(2) provides that a CAC Act body must be paid amounts appropriated by Parliament for the purposes of the body, Schedule 1 contains a CAC Act body payment item for that body, and the body must be paid the full amount specified in the item.

Part 3—Adjusting appropriation items

As noted above, there are processes for reducing departmental appropriations, administered appropriations and payments to CAC Act bodies.

Clause 10 deals with reducing departmental appropriations. Subclause 10(1) specifies who can ask the Finance Minister to reduce departmental expenses. In the past, this power was limited to two categories of person and they will continue to have this power [paragraphs 10(1)(b) and 10(1)(c)]. Paragraph 10(1)(b) empowers the Minister for an agency to ask the Finance Minister to reduce a departmental item for that agency, while paragraph 10(1)(c) enables the Chief Executive of an agency, for which the Finance Minister is responsible, to ask the Finance Minister to reduce a departmental item for that agency. Paragraph 10(1)(a) creates a third category of person, namely, the Prime Minister or a Minister acting on behalf of the Prime Minister.

Appropriation Bill (No. 1) 2011-2012 9

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Subclause 10(2) allows the Finance Minister to make a determination reducing a departmental item by the amount specified in the request. Subclause 10(3) provides that the determination will have no effect to the extent that it would reduce the item below nil.

Subclause 10(5) provides that despite subsection 33(3) of the Acts Interpretation Act 19018, a determination made under subclause 10(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 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 10(5) thus overrides the power in subsection 33(3) thereby ensuring that any determination made by the Finance Minister cannot be rescinded, revoked, amended or varied.9 A determination by the Finance Minister is a disallowable instrument [subclause 10(7)].10

Clause 11 contains the process for extinguishing appropriations for administered items that are not needed. As noted above, in essence, the amount of a reduction is the difference between the amount appropriated and the amount spent as shown in an agency’s financial statements. Subclause 11(1) provides that if an agency’s annual report shows that the expensed amount for an administered item is less than the amount appropriated for that item, then the amount of the reduction is the difference between the appropriated amount and the amount in the annual report. Subclause 11(2) enables the Finance Minister to override subclause 11(1) in three ways:

 when the Finance Minister issues a determination that subclause 11(1) does not apply [subparagraph 11(2)(a)(i)];

 when the Finance Minister decides that the amount in the determination should be the same as the amount in the annual report [subparagraph 11(2)(a)(ii)]; or

 when the annual report does not specify an amount, the Finance Minister can determine the required amount [paragraph 11(2)(b)].

The Explanatory Memorandum contains the following explanation of the circumstances under which it may be necessary to invoke subparagraph 11(2)(a)(ii) and paragraph 11(2)(b):

The power in subparagraph 11(2)(a)(ii) is to ensure that the amount published for the administered item in an agency annual report can be corrected through the determination

8. Acts Interpretation Act 1901, viewed on 20 May 2011, http://www.comlaw.gov.au/Details/C2009C00554 9. The Explanatory Memorandum explains that the purpose of subclause 10(5) is to ensure that a reduced appropriation cannot be later restored. Explanatory Memorandum, Appropriation Bill (No. 1) 2011-2012, p. 11. 10. The Finance Minister’s determination made under subclause 10(7) is a legislative instrument under the Legislative

Instruments Act 2003, (LIA), section 42 (relating to disallowance) of the LIA applies to the determination, but Part 6 of that Act (relating to sunsetting provisions) does not apply to the determination. In short, this means that the Finance Minister’s determinations are disallowable by Parliament, but once made, will not expire.

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if, for example, the amount published is erroneous or rendered out-of date by later events. Additionally, the power in paragraph 11(2)(b) is to provide the Finance Minister with the capacity to make a written determination in those cases where an agency has failed to specify a required amount in its’ *sic+ annual report. In those cases the amount specified in the determination as the required amount will be taken to be the required amount for the purposes of subclause 11(1).11

A determination by the Finance Minister is a disallowable instrument [subclause 11(3)].12

Subclause 11(3) provides that the Finance Minister’s determination, made under subclause 11(2), is a legislative instrument, that section 42 (relating to disallowance) of the Legislative Instruments Act 200313 applies to the determination, but that Part 6 of that Act (relating to sunsetting provisions) does not apply to the determination. In short, this means that the Finance Minister’s determinations are disallowable by Parliament, but once made, will not expire.

Clause 12 outlines the process for reducing CAC Act body payment items. This is almost identical to that for departmental items in clause 10. As with paragraph 10(1)(a), paragraph 12(1)(a) is a new provision which extends the power to request a reduction—in this case to a CAC Act body payment—to include the Prime Minister or a Minister acting on behalf of the Prime Minister. Subclause 12(5) is identical to subclause 10(5), that is, it provides that despite subsection 33(3) of the LI Act, a determination made under subclause 12(5) must not be rescinded, revoked, amended or varied.

Clause 13 deals with the Advance to the Finance Minister (AFM). Subclause 13(1) contains the criteria the Finance Minister must apply before she or he can make payments from the AFM. The criteria are that the Finance Minister must be satisfied that there is an urgent need for expenditure that is not provided for, or is insufficiently provided for, in Schedule 1 because of an omission or understatement or because of unforeseen circumstances. Subclause 13(3) limits expenditure from the AFM to $295 million. Subclause 13(4) provides that where the Finance Minister has made a determination to expend money from the AFM, the determination is a legislative instrument. The determination must be tabled in Parliament but is not subject to disallowance or sunsetting.14

Clause 14 is new and provides a contingency for the appropriation provided to the Department of Human Services in Schedule 1 to the Bill. It is anticipated that Centrelink and Medicare Australia will be merged into the Department of Human Services on 1 July 2011 as provided by Schedules 1 to 3 to the Human Services Legislation Amendment Act 2011, and that therefore Centrelink and Medicare Australia will cease to exist as separate agencies. If Centrelink and Medicare Australia are not merged into the Department of Human Services on 1 July 2011, then the appropriation items for the Department of Human Services in Schedule 1 to the Bill are replaced by the items set out in Schedule

11. Explanatory Memorandum, Appropriation Bill (No. 1) 2011-2012, p. 12. 12. This has the same effect as Clause10(7) 13. Legislative Instruments Act 2003, viewed on 20 May 2011, http://www.comlaw.gov.au/Series/C2004A01224 14. Legislative Instruments Act 2003 section 42 relates to disallowance and Part 6 of that Act relates to sunsetting

provisions.

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2 to the Bill. Schedule 2 treats the Department of Human Services, Centrelink and Medicare Australia as three separate agencies.

Part 4—Miscellaneous

Clause 15 provides that if the purpose of an item in Schedule 1 is also the purpose of a Special Account (regardless of whether the item expressly refers to the Special Account), then amounts may be debited against the appropriation for that item and credited to the Special Account.

Clause 16 provides that the Consolidated Revenue Fund is appropriated 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—Services for which money is appropriated

Schedule 1 lists the portfolios and the amounts the Bill appropriates to each. The table below is the Summary from the Bill.

Schedule 2—Alternative items for the Department of Human Services

As noted above, Schedule 2 specifies the appropriations proposed for the ordinary annual services of the Government for the Human Services portfolio in the event that Schedule 1 to 3 to the Human Services Legislation Amendment Act 2011 have not commenced on or before 1 July 2011.

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Source: Schedule 1 to the Bill

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© Commonwealth of Australia 2011

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