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Loan Bill 1991



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House: House of Representatives

Portfolio: Treasury

Purpose

To provide for the financing of a prospective deficit in the Consolidated Revenue Fund (CRF).

Background

The Commonwealth Public Account, which is the main bank account of the Commonwealth, consists of the CRF, the Loan Fund and the Trust Fund. The CRF is the main working account of the Commonwealth and is financed by taxation, fees and other current revenue. The Loan Fund is financed through borrowings, while the Trust Fund contains moneys held on trust and interest on unused trust funds.

Funds in the CRF are appropriated by annual Appropriation Acts and special and standing appropriations under specific Acts. Standing appropriations generally refer to open-ended appropriations while special appropriations usually refer to a specified amount.

As payments from the CRF cannot exceed the balance of the Fund, it is normal for some expenditure to be charged to the Loan Fund. Legislation, in the form of a Loan Act, has been used as the vehicle to charge defence expenditure to the Loan Fund and to reimburse the CRF from the Loan Fund for certain non-defence expenditure. The Loan Act also authorises borrowings to finance expenditure from the Loan Fund.

Legislation such as this Bill has traditionally been normal procedure for financing prospective Budget deficits.(see for example the Loans Act 1987). In recent comments to the press the Treasurer has admitted that the budget surplus will be significantly smaller than originally forecast and that there is a likelihood of a deficit this financial year. 1 However, `...it should be noted that the fact that the CRF is either in surplus or deficit does not necessarily imply that the Budget as a whole is in surplus or deficit (although it would be unusual for a large Budget deficit not to be reflected in a CRF deficit and vice versa). Where a Budget is in a relatively small deficit or surplus position, however, this may not give any indication of the net position of the CRF. There are a number of reasons for this. Firstly, even though the CRF is by far the largest of the Commonwealth's Public Accounts, it is not the only Account. There is also the Loan Fund and a variety of Trust Funds from which Commonwealth outlays may occur. Secondly, the Budget surplus or deficit is the difference between Outlays and Receipts. Items which are regarded as financing items do not enter into this balance but are placed `below the line'. Interest payments on Commonwealth debt, for example, are regarded as part of Outlays and are placed `above the line' and hence affect the Budget result, but payments from the CRF into the National Debt Sinking Fund for the redemption of Commonwealth debt are regarded as financing items. These appear `below the line', are not treated as outlays and hence do not influence the Budget outcome. There are various other types of transactions which are similarly treated as financing items and thus place `below the line'. Nevertheless, such payments are made out of the CRF and could put the CRF into deficit even though the Budget outcome (the difference between Outlays and Receipts) may be in overall balance or even display a modest surplus.' 2

Main Provisions

`Current financial year' is defined to be the year ending 30 June 1991 (clause 3).

Clause 4 will authorise the Treasurer to borrow funds, by the issue of bonds or Treasury Bills, for defence services during the current financial year. The total amount borrowed is not to exceed the amount authorised in the Appropriation Acts for defence services and borrowing costs. Funds raised are only to be spent on defence services and borrowing costs (clause 5).

Clause 6 will authorise the Treasurer to borrow, during the financial year, funds to supplement the CRF. The amount borrowed is not to exceed the deficit in the CRF and borrowing costs and it is to be raised by the issue of bonds or Treasury Bills. Funds so borrowed are only to be used to make payments to the CRF and to meet borrowing costs (clause 7).

Total expenditure on defence services under this Bill and the Appropriation Acts is not to exceed the amount authorised under the Appropriation Acts. However, this will not limit the power of the Minister for Finance to make additional money available for defence purposes under the `Advance to the Minister for Finance' in the Appropriation Acts (clause 9).

References

1. Australian Financial Review, 4 March 1991, pp. 1 and 2.

2. D. James, Parliamentary Research Service, 8 March 1991.

Bills Digest Service

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1991.