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BUDGET 2004-2005 : Budget Paper No. 1: STATEMENT 6: EXPENSES AND NET CAPITAL INVESTMENT



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STATEMENT 6: EXPENSES AND NET CAPITAL INVESTMENT

Statement 6 presents estimates of general government expenses and net capital investment on a Government Finance Statistics (GFS) accrual accounting basis. The statement includes information on the allocation of Australian Government funds to the various functions of government. These functions are based on an international standard classification of functions of government that is incorporated into the GFS framework.

The first part of this Statement provides information on trends in expense estimates whilst the second part presents trends in net capital investment estimates. Estimates are on an Australian Government general government sector basis.

Statement 6 focuses on short to medium-term expense trends and their underlying determinants. Consistent with this emphasis, much of Statement 6 explains year-on-year changes across the forward estimates.

Further information on portfolio and agency expenses, capital movements, major outputs and administered items may be found in the respective Portfolio Budget Statements.

The key points are:

• general government expenses are forecast to fall from 22.4 per cent of gross

domestic product (GDP) in 2004-05 to 21.9 per cent of GDP in 2007-08;

• in 2004-05, the Social Security and Welfare, Health and Education functions make

up just over two-thirds of total expenses — some major trend determinants of long-term growth, for example, population ageing and demand for new technology in the area of health care, were highlighted in the Budget Paper No. 5, Intergenerational Report, 2002-03;

• in real terms, the strongest growth across the Budget and forward estimates

years is occurring in the Defence, Education, Social Security and Welfare and Health functions, with other functions in general either being stable or declining; and

• net capital investment is moderately positive in 2004-05 but tends to decline over

the forward years as various projects and asset acquisitions come to a conclusion.

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CONTENTS

Overview .....................................................................................................................6-3

General government expenses.................................................................................6-3

Reconciliation of expenses since the 2003-04 Budget ................................................6-3

Expense estimates by function ....................................................................................6-5

General public services................................................................................................6-6

Defence ........................................................................................................................6-7

Public order and safety ................................................................................................6-8

Education .....................................................................................................................6-9

Health .........................................................................................................................6-10

Social security and welfare ........................................................................................6-12

Housing and community amenities ............................................................................6-14

Recreation and culture ...............................................................................................6-15

Fuel and energy .........................................................................................................6-16

Agriculture, forestry and fishing..................................................................................6-17

Manufacturing and mining..........................................................................................6-18

Transport and communication....................................................................................6-19

Other economic affairs ...............................................................................................6-21

Other purposes...........................................................................................................6-22

General government net capital investment .........................................................6-24

Reconciliation of net capital investment since the 2003-04 Budget...........................6-24 Net capital investment estimates by function.............................................................6-25

Appendix A: Expense estimates by function and sub-function .................................6-28 Appendix B: The Contingency Reserve ....................................................................6-31

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STATEMENT 6: EXPENSES AND NET CAPITAL INVESTMENT

OVERVIEW

Australian Government general government expenses are expected to grow moderately in real terms in 2004-05 (Table 1). Expenses are forecast to fall slightly from 22.6 per cent of gross domestic product (GDP) in 2003-04 to 22.4 per cent of GDP in 2004-05, and are projected to fall as a proportion of GDP over the forward estimates period to 2007-08.

Table 1: Estimates of expenses 2004-05 2005-06 2006-07 2007-08

MYEFO(a) Revised Estimate Projections

Total expenses ($b) 178.9 183.1 192.3 200.6 210.0 220.9

Real growth on previous year(%)(b) 3.0 4.0 2.4 2.4 2.7 3.2

Per cent of GDP 22.4 22.6 22.4 22.1 22.0 21.9

2003-04

(a) As published in the Mid-Year Economic and Fiscal Outlook 2003-04. (b) Real growth is calculated using the non-farm GDP deflator.

GENERAL GOVERNMENT EXPENSES

Reconciliation of expenses since the 2003-04 Budget

Table 2 provides a reconciliation of expense estimates between the 2003-04 Budget, Mid-Year Economic and Fiscal Outlook 2003-04 (MYEFO) and the 2004-05 Budget, showing the effect of policy decisions and economic parameter and other variations.

Part 3: Revenue, Expenses and Budget Funding

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Table 2: Reconciliation of expense estimates 2003-04 2004-05 2005-06 2006-07 $m $m $m $m

2003-04 Budget expenses 178,031 186,521 194,176 202,351

Changes between 2003-04 Budget and MYEFO Effect of policy decisions(a) 1,005 1,461 1,224 1,285

Effect of economic parameter variations Unemployment benefits 4 4 6 4

Prices and wages -493 -489 -628 -276

Interest and exchange rates -342 -384 -404 -456

Total economic parameter variations -831 -868 -1,026 -727

Public debt interest -122 -71 23 125

Programme specific parameter variations 4 -150 7 248

Slippage in 2003-04 Budget decisions 25 78 96 -41

Other variations 745 601 1,539 1,395

Total variations 827 1,050 1,862 2,284

2003-04 MYEFO expenses 178,858 187,571 196,039 204,635

Changes between MYEFO and 2004-05 Budget Effect of policy decisions(a) 5,969 6,209 6,835 7,766

Effect of economic parameter variations Unemployment benefits -71 -132 -92 -37

Prices and wages 295 393 720 708

Interest and exchange rates -30 14 90 87

Total economic parameter variations 194 276 718 757

Public debt interest 10 94 171 183

Programme specific parameter variations -600 -777 -879 -861

Slippage in 2003-04 Budget decisions -9 17 97 121

Other variations -1,287 -1,085 -2,356 -2,568

Total variations 4,278 4,734 4,587 5,398

2004-05 Budget expenses 183,136 192,306 200,626 210,033

(a) Excluding the public debt net interest effect of policy measures.

Discussion of the changes between 2003-04 MYEFO and the 2004-05 Budget, shown in the above table can be found in Statement 2 (in the section titled ‘Variations in expense estimates’). Further information on expense measures can be found in Budget Paper No. 2, Budget Measures 2004-05.

Statement 6: Expenses and Net Capital Investment

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Expense estimates by function

Table 3 sets out the estimates of Australian Government general government expenses by function for the period 2003-04 to 2007-08.

Table 3: Estimates of expenses by function

2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

General public services 10,914 11,864 11,734 11,909 12,307

Defence 13,687 14,425 14,569 15,384 16,423

Public order and safety 2,381 2,727 2,560 2,528 2,485

Education 13,338 14,221 15,024 15,800 16,400

Health 32,355 34,986 36,194 37,763 39,657

Social security and welfare 79,949 82,678 86,995 90,824 94,706

Housing and community amenities 1,652 1,671 1,647 1,624 1,621

Recreation and culture 2,233 2,342 2,417 2,341 2,352

Fuel and energy 3,692 3,922 4,001 3,914 4,036

Agriculture, forestry and fishing 2,158 2,400 1,811 1,665 1,549

Mining, manufacturing and construction 1,717 1,830 1,791 1,705 1,705

Transport and communication 2,731 2,550 2,273 2,437 2,414

Other economic affairs 4,241 4,512 4,556 4,607 4,730

Other purposes 12,088 12,177 15,053 17,533 20,554

Total expenses 183,136 192,306 200,626 210,033 220,939

Projections Estimates

Major movements within the estimates of expenses by function between 2003-04 and 2004-05, and across the forward estimates, include increases in the following functions:

• Defence due to funding increases flowing from the Government’s White Paper

Defence 2000 — Our Future Defence Force and additional funding being provided in this and previous Budgets for logistics, Defence facilities, military personnel costs and personnel initiatives;

• Education due to the impact of indexation arrangements and the announcement of

a range of recent policy decisions including increases in funding for higher education, science and innovation and schools;

• Health due to a steady increase in the use of medical and pharmaceutical services

over the forward estimates period, increasing costs for the provision of medical services and a continuing trend towards newer and more expensive drugs under the Pharmaceutical Benefits Scheme; and

• Social Security and Welfare due to the new package of assistance for families —

More help for families, the on-going effect of indexation of payments, as well as demographic and social factors which affect demand-driven programmes.

Estimates presented in Table 3 above are more fully explained for each individual function in the following pages. Consistent with the short to medium-term focus of Statement 6, analytical commentary focuses on year-on-year changes across the forward estimates.

Part 3: Revenue, Expenses and Budget Funding

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General public services

Table 4: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Legislative and executive affairs 754 865 746 771 891

Financial and fiscal affairs(a) 3,304 3,445 3,493 3,583 3,519

Foreign affairs and economic aid 2,238 2,465 2,322 2,249 2,375

General research 2,066 2,202 2,394 2,478 2,621

General services 606 674 618 727 741

Government superannuation benefits 1,946 2,213 2,162 2,101 2,160

Total general public services 10,914 11,864 11,734 11,909 12,307

(a) Debt redemption assistance expenses, paid by the Australian Office of Financial Management to the states and territories under the Financial Agreement Act 1994, have been reclassified from the Financial and Fiscal Affairs Sub-function to the Debt Assistance Sub-function (Other Purposes Function).

Nature of expenses and major trends

General public services include expenses on activities concerned with the organisation and operation of government. The function covers legislative and executive affairs, financial and fiscal affairs, foreign economic aid, general research, general services and government superannuation benefits (excluding nominal interest expenses on the unfunded liabilities of Australian Government superannuation schemes which are included under the Nominal Superannuation Interest Sub-function in the Other Purposes Function).

Expenses for the function tend to fluctuate over the budget and forward estimates period partly due to one-off factors such as the preparations for federal elections in 2004-05 and 2007-08 (Legislative and Executive Affairs Sub-function) and the 2006 Census (Financial and Fiscal Affairs Sub-function). General Research Sub-function expenses also grow over the forward estimates period reflecting the on-going impact of the Backing Australia’s Ability - An Innovation Plan for the Future package, announced in January 2001 and the Backing Australia’s Ability - Building Our Future Through Science and Innovation package. Increases in the Foreign Affairs and Economic Aid Sub-Function in 2004-05 and 2007-08 are driven by increases in Australia’s contributions to multilateral development banks.

Statement 6: Expenses and Net Capital Investment

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Defence

Table 5: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Defence 13,687 14,425 14,569 15,384 16,423

Total defence 13,687 14,425 14,569 15,384 16,423

Nature of expenses and major trends

Expenses in this function are within the Defence portfolio and support operations and the delivery of navy, army, air and intelligence capabilities and strategic policy in the defence of Australia and its national interests.

Total annual expenses for the Defence Function rise by $2 billion over the period 2004-05 to 2007-08. In real terms, the growth in expenses for this function is 2.4 per cent a year on average.

The growth and pattern of expenses is due to a number of factors. Firstly, there is the influence of significant funding increases for investments in capability announced by the Government in Defence 2000 — Our Future Defence Force (the 2000 White Paper). Secondly, there are variations in funding levels for major Australian Defence Force deployments.

The remaining growth in expenses is largely due to additional funding being provided in this and previous budgets for logistics, military personnel costs and personnel initiatives along with Defence’s review and refinement of the accounting treatment of expenses and capital to reflect Defence’s long-term capital investment programmes. Defence’s expenses are partially offset by savings in 2004-05 from the reduction in the cost of equipment purchased overseas due to the appreciation of the Australian dollar.

Part 3: Revenue, Expenses and Budget Funding

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Public order and safety

Table 6: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Courts and legal services 586 635 629 657 672

Other public order and safety 1,795 2,091 1,931 1,871 1,813

Total public order and safety 2,381 2,727 2,560 2,528 2,485

Nature of expenses and major trends

Expenses for the Public Order and Safety Function support the administration of the Federal legal system and the provision of legal services, including legal aid, to the community. Public Order and Safety expenses also include law enforcement activities and the protection of Australian Government property.

Expenses for this function peak in 2004-05, reflecting various assistance initiatives in the Pacific. The growth in Other Public Order and Safety Sub-function expenses in 2004-05 reflects the impact of funding for the Regional Assistance Mission to Solomon Islands (RAMSI), and the introduction of the Australia-Papua New Guinea Enhanced Co-operation Programme to help Papua New Guinea address key challenges. Expenses decline from 2005-06 reflecting the fact that various domestic security initiatives and programmes, introduced after the 11 September 2001 and Bali attacks, will require less funding as they move beyond their establishment phase and the year-by-year consideration of RAMSI funding.

The growth in the Courts and Legal Services Sub-function includes measures to maintain equitable access to Commonwealth Legal Aid, establishment of a National Community Crime Prevention Programme, and a one-off increase in resourcing for workload increases in the Attorney-General’s Department.

Statement 6: Expenses and Net Capital Investment

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Education

Table 7: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Higher education 4,447 4,735 4,968 5,252 5,296

Vocational and other education 1,417 1,466 1,525 1,517 1,551

Non-government schools 4,450 4,876 5,260 5,639 6,037

Government schools 2,290 2,440 2,596 2,728 2,869

Schools 6,740 7,316 7,856 8,367 8,906

Student assistance 596 588 561 562 546

General administration 1 1 1 1 1

School education - specific funding 137 114 112 100 101

Total education 13,338 14,221 15,024 15,800 16,400

Nature of expenses and major trends

Education expenses support the delivery of education services through: higher education institutions; vocational education and training providers (including technical and further education institutions); and government (State and Territory) and non-government schools.

Expenses under the Student Assistance Sub-function include the ABSTUDY scheme, Assistance for Isolated Children and income support for students aged twenty-five years and over through AUSTUDY.

Total expenses for this function are estimated to increase by 8.9 per cent in real terms over the period from 2004-05 to 2007-08, or 2.9 per cent annually on average, with expenses on higher education and schools being the main drivers.

Growth in Higher Education expenses reflect the impact of higher education indexation arrangements and the announcement of policy decisions, including Our Universities — Backing Australia’s Future announced in the 2003-04 Budget.

Growth in expenses relating to schools is driven by a combination of indexation and the effect of announced policy decisions. Both government and non-government school funding increases according to agreed indexation parameters, incorporated in legislation, which are linked to movements in the Average Government School Recurrent Cost Index. The integration of Catholic systemic schools in the socio-economic status funding model will increase expenses by $356.2 million over four years and a range of measures in this Budget will increase expenses by $160.3 million over four years.

The Student Assistance Sub-function is expected to decline across the forward estimates because of the closure of the Student Financial Supplement Scheme to new borrowers.

Part 3: Revenue, Expenses and Budget Funding

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Health

Table 8: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Medical services and benefits(a)(b) 13,122 14,154 14,615 15,023 15,457

Hospital services 1,603 1,697 1,837 1,991 2,160

Health care agreements(b) 7,535 7,937 8,331 8,746 9,189

Hospital services and health care agreements 9,138 9,634 10,168 10,737 11,350 Pharmaceutical services and benefits(b) 6,931 7,593 7,767 8,276 9,036

Aboriginal and Torres Strait Islander health(b) 283 293 301 312 325

Health services(b) 962 1,084 1,028 1,029 1,032

Other health services(b) 1,256 1,473 1,542 1,590 1,635

Other health services 2,218 2,557 2,570 2,618 2,667

General administration(b) 524 598 611 625 638

Health assistance to the aged(c) 138 156 163 172 183

Total health 32,355 34,986 36,194 37,763 39,657

(a) The financial impact of premium growth on the forward estimates for the 30 per cent Private Health Insurance Rebate has been allocated to the Contingency Reserve. (b) The Department of Health and Ageing and the Health Insurance Commission have revised the split of their departmental resourcing across sub-functions and this significantly reduces their impact on the

General Administration Sub-function and increases their impact on other health sub-functions. (c) The bulk of Department of Health and Ageing and Department of Veterans’ Affairs expenses for assistance to the aged are now classified to the Assistance to the Aged Sub-function (Social Security and Welfare Function).

Nature of expenses and major trends

The Health Function includes expenses relating to: medical services funded through Medicare and the Private Health Insurance Rebate (Medical Services and Benefits Sub-function); provision of in-hospital services to eligible veterans and their dependants (Hospital Services Sub-function); funding under Australian Health Care Agreements between the Australian Government and the States and Territories (Health Care Agreements Sub-function); and the Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes (Pharmaceutical Services and Benefits Sub-function).

Expenses related to health are likely to be a major, if not the major, contributor to increased Australian Government spending in the future. Total Government health spending is currently around 4 per cent of GDP.

Health Function expenses are expected to grow on average by around 2.3 per cent per annum in real terms over the budget and forward years. This growth is most pronounced in the areas of medical services and benefits, hospital services and pharmaceutical services and benefits.

Growth in the Medical Services and Benefits Sub-function is largely explained by the increasing costs of medical services, increasing per capita utilisation of medical services, general population growth and the impact of the Government’s MedicarePlus package.

Statement 6: Expenses and Net Capital Investment

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The trend in the estimates for the Health Care Agreements Sub-function is driven by 3.0 per cent average annual growth, in real terms, in funding for the Australian Health Care Agreements over the life of the new agreements which cover the period 1 July 2003 to 30 June 2008.

Growth in Hospital Services Sub-function expenses is due to an ageing and increasingly frail veteran community requiring more hospital services.

Expenses for the Pharmaceutical Services and Benefits Sub-function are forecast to grow at an average of around 4.0 per cent per annum in real terms, driven by a combination of an ageing population and demand for newer and more expensive drugs (see Box 6.1 below).

Box 6.1: Pharmaceutical Services and Benefits

Table 8.1: Trends in major components of the Pharmaceutical Services and Benefits Sub-function 2003-04 2004-05 2005-06 2006-07 2007-08

$m $m $m $m $m

Pharmaceutical Benefits (Concessional)(a) 4,195 4,510 4,660 4,943 5,420

Pharmaceutical Benefits (General)(a) 1,004 1,092 1,131 1,233 1,384

Repatriation Pharmaceutical Benefits Scheme(b) 472 533 579 647 720

Highly Specialised Drugs(a) 399 429 457 489 520

Other(c) 437 589 504 522 546

Sub-total Administered Items 6,507 7,153 7,330 7,834 8,590

Departmental Expenses(d) 424 440 437 441 446

Total 6,931 7,593 7,767 8,276 9,036

(a) For a detailed discussion of the Pharmaceutical Benefits Scheme, refer to Outcome 2 of Health and Ageing 2004-05 Portfolio Budget Statements. (b) Veterans’ Pharmaceutical Services are covered under Outcome 2 of the Department of Veterans’ Affairs (Defence Portfolio) 2004-05 Portfolio Budget Statements. (c) Subsumed within Outcomes 1 and 2 of Health and Ageing 2004-05 Portfolio Budget Statements. The

decrease in ‘Other’ from 2004-05 to 2005-06 is attributable to the fulfilment of prevalence cohort immunisations for the Meningococcal C Vaccination Programme. (d) A significant proportion of Health and Ageing Outcome 2 Departmental expenses and approximately half of Health Insurance Commission Departmental expenses are now attributed to this sub-function.

Part 3: Revenue, Expenses and Budget Funding

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Social security and welfare

Table 9: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Assistance to the aged(a) 27,173 28,460 30,170 31,847 33,720

Assistance to veterans and dependents 5,745 5,993 6,086 6,151 6,226

Assistance to people with disabilities 10,669 11,096 11,810 12,239 12,826

Assistance to families with children 24,489 24,463 25,493 26,584 27,513

Assistance to the unemployed 5,428 5,701 5,733 6,078 6,293

Assistance to the sick 84 86 93 112 128

Assistance to the unemployed and sick 5,512 5,787 5,826 6,190 6,421

Common youth allowance 2,247 2,318 2,391 2,442 2,513

Other welfare programmes 339 578 1,207 1,351 1,408

Aboriginal advancement nec 1,391 1,502 1,545 1,565 1,582

General administration 2,384 2,480 2,468 2,455 2,496

Total social security and welfare 79,949 82,678 86,995 90,824 94,706

(a) The bulk of Department of Health and Ageing and Department of Veterans’ Affairs expenses for assistance to the aged are classified to this sub-function.

Nature of expenses and major trends

The Social Security and Welfare Function includes pensions and services to the aged, services to the unemployed, assistance to people with disabilities, a variety of assistance to families with children, income support and compensation for veterans and their dependants, and advancement programmes for reconciliation and more generally for Aboriginal and Torres Strait Islander people.

Social Security and Welfare Function expenses are estimated to total around $82.7 billion in 2004-05 and grow significantly over the forward years. There has been a substantial base increase in the Assistance to Families with Children Sub-function in 2003-04, 2004-05 and the forward years due to the new package of assistance to families - More help for families. This package includes large increases in Family Tax Benefit Part A assistance, relaxing the income tests for both Family Tax Benefit Part (A) and Family Tax Benefit Part (B), and a new lump sum Maternity Payment.

The sub-functions contributing to the growth in the forward years are the Assistance to the Aged, Assistance to Families with Children and Assistance to People with Disabilities Sub-functions. The main driver for growth in these sub-functions is the indexation of payments, including maintaining the single rate of age and disability pensions at a minimum of 25 per cent of Male Total Average Weekly

Earnings (MTAWE) . In addition, demographic and social factors, including the ageing of the population, contribute to growth in the forward year estimates.

Growth across the forward years in the Assistance to the Aged Sub-function is largely due to indexation of the Age Pension, the major component of expenses, by MTAWE. A secondary factor impacting on expenses relating to assistance for the aged is the additional funding for the Investing in Australia’s Aged Care: More Places, Better Care package.

Statement 6: Expenses and Net Capital Investment

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Growth in the Assistance to Families with Children Sub-function is due to the More help for families package and the indexation of the Family Tax Benefit (FTB) Parts A and B, Parenting Payments (partnered and single) and Child Care Benefit.

Similarly, growth in expenses in the Assistance to People with Disabilities Sub-function is driven largely by indexation of major payments including the Disability Support Pension, the Carer Payment, Carer Allowances, and the Commonwealth State Territory Disability Agreement.

Part 3: Revenue, Expenses and Budget Funding

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Housing and community amenities

Table 10: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Housing 1,227 1,240 1,246 1,263 1,286

Urban and regional development 142 174 142 107 102

Environment protection 284 257 259 254 233

Total housing and community amenities 1,652 1,671 1,647 1,624 1,621

Nature of expenses and major trends

The Housing and Community Amenities Function includes the Australian Government’s contribution to the Commonwealth State Housing Agreement, expenses of the Defence Housing Authority and various regional development and environment protection programmes.

Expenses under the Housing and Community Amenities Function increase in 2004-05 but decrease over the forward years reflecting reductions in expenses in the Urban and Regional Development Sub-function.

This, in turn, reflects the conclusion of funding currently provided for several regional development programmes including the Rural Transaction Centres Programme, the Small Business Interest Rate Relief programmes and the pilot Sustainable Regions Programme.

Expenses for the Environment Protection Sub-function remain relatively stable across 2004-05 to 2007-08 with the Natural Heritage Trust being a major driver.

Other significant expenses on conservation and sustainable use and repair of Australia’s natural environment are included in the National Estates and Parks Sub-function (Recreation and Culture Function) and the Natural Resources Development Sub-function (Agriculture, Forestry and Fishing Function).

Statement 6: Expenses and Net Capital Investment

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Recreation and culture

Table 11: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Broadcasting 1,108 1,152 1,164 1,151 1,166

Arts and cultural heritage 713 799 805 808 813

Sport and recreation 206 169 224 159 162

National estate and parks 206 222 224 223 211

Total recreation and culture 2,233 2,342 2,417 2,341 2,352

Nature of expenses and major trends

Recreation and Culture Function expenses support: public broadcasting; the regulatory framework for Australia’s broadcasting sector; cultural institutions; funding for the arts and film industry; assistance to sport and recreation activities; and the management and protection of national parks and other world heritage areas. This function also includes expenses relating to the protection and preservation of historic sites and buildings, including war graves.

Total expenses for the Recreation and Culture Function are steady across the forward estimates period although there are some fluctuations within some sub-functions. The large increases in the Sport and Recreation Sub-function in 2003-04 and 2005-06 reflect the contribution provided to the Victorian Government to assist with the costs associated with staging the 2006 Melbourne Commonwealth Games.

The increase in Arts and Cultural Heritage Sub-function expenses relates to the Refundable Film Tax Offset which is part of the integrated Film Industry Package and provides a 12.5 per cent financial incentive for producers of high-budget films, with qualifying levels of Australian expenditure of at least $15 million per annum, to locate and produce their films in Australia. It also includes a new initiative aimed at strengthening the film and television production sector.

Other significant expenses on conservation and sustainable use and repair of Australia’s natural environment are included in the Environment Protection Sub-function (Housing and Community Amenities Function) and the Natural Resources Development Sub-function (Agriculture, Forestry and Fishing Function).

Part 3: Revenue, Expenses and Budget Funding

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Fuel and energy

Table 12: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Fuel and energy 3,692 3,922 4,001 3,914 4,036

Total fuel and energy 3,692 3,922 4,001 3,914 4,036

Nature of expenses and major trends

This function includes expenses for the Energy Grants Credits Scheme (EGCS), Cleaner Fuels Grants Scheme and the Fuels Sales Grants Scheme, which are administered by the Australian Taxation Office. The EGCS was introduced on 1 July 2003 and replaced the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuels Grants Scheme. This function also includes expenses of the Australian Greenhouse Office for programmes funded under The New Tax System — Measures for a Better Environment

Package and the Climate Change Strategy measures. Also included within this function are expenses for programmes relating to the production of alternative fuels including ethanol and biodiesel, that are administered by the Department of Industry, Tourism and Resources and the Australian Taxation Office respectively.

Expenses within this function are expected to increase relatively slowly from 2004-05 to 2007-08. The slow growth in this function and the decline in total expenses in 2006-07 reflect the cessation of the Fuel Sales Grants Scheme. However, significant growth in the EGCS and the impact of the Cleaner Fuels Grants Scheme, decided in the 2003-04 Budget, result in real growth in expenses in 2007-08.

Statement 6: Expenses and Net Capital Investment

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Agriculture, forestry and fishing

Table 13: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Wool industry 57 58 61 61 61

Grains industry 127 131 135 135 135

Dairy industry 267 271 273 275 277

Cattle, sheep and pig industry 113 113 112 112 112

Fishing, horticulture and other agriculture 172 177 180 180 182

General assistance not allocated to specific industries 338 335 270 257 244

Rural assistance 513 675 196 112 54

Natural resources development 388 447 435 387 344

General administration 184 192 150 145 141

Total agriculture, forestry and fishing 2,158 2,400 1,811 1,665 1,549

Nature of expenses and major trends

Agriculture, Forestry and Fishing Function expenses support assistance to primary producers, forestry, fishing, land and water resources management, quarantine services and contributions to research and development.

Expenses decline over the forward years primarily due to progressively lower expenses within the Rural Assistance and General Assistance Sub-functions. The decline in the Rural Assistance Sub-function after 2004-05 reflects the expected return to normal seasonal conditions in Australia. The decline in the General Assistance Sub-function after 2004-05 reflects the stabilisation of quarantine border controls following a period of higher funding.

Other significant expenses on conservation and sustainable use and repair of Australia’s natural environment are included in the Environment Protection Sub-function (Housing and Community Amenities Function) and the National Estate and Parks Sub-function (Recreation and Culture Function).

Part 3: Revenue, Expenses and Budget Funding

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Manufacturing and mining

Table 14: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Mining, manufacturing and construction 1,717 1,830 1,791 1,705 1,705

Total mining, manufacturing and construction 1,717 1,830 1,791 1,705 1,705

Nature of expenses and major trends

Expenses under this function relate to the manufacturing and export sectors, and are designed to improve the efficiency and competitiveness of Australian industries. Major expenses include programmes specific to the automotive, textile clothing and footwear (TCF) and pharmaceutical industries. Expenses also include Australian Government assistance to exporters through direct financial assistance for the development of export markets, information and promotional assistance, finance and insurance services, and the development of trade policy. There are also programmes providing research and development assistance grants and a programme of strategic investment incentives.

The increase in expenses in 2004-05 is mainly due to increases in research and development grants and specific strategic investment incentives. The decline in expenses from 2004-05 to 2005-06 is mainly due to a reduction in strategic investment incentives. The further decrease in 2006-07 is due to the renewal and redesign of the TCF programme to more strategically target beneficiaries.

Statement 6: Expenses and Net Capital Investment

6-19

Transport and communication

Table 15: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Communication 412 356 293 250 209

Rail transport(a) 451 3 28 6 0

Air transport 194 158 110 111 111

Road transport(a) 1,372 1,702 1,546 1,777 1,803

Sea transport 201 212 212 212 211

Other transport and communication 101 120 82 82 81

Total transport and communication 2,731 2,550 2,273 2,437 2,414

(a) Splits of additional AusLink funding between road and rail from 2005-06 onwards are yet to be determined.

Nature of expenses and major trends

Transport and Communication Function expenses support the infrastructure and regulatory framework for Australia’s transport and communications sectors.

Expenses fluctuate from 2003-04 to 2007-08 reflecting the irregular expenditure patterns associated with the commencement and/or completion of major programmes or one-off projects. The function includes expenses associated with the Government’s new land transport development plan, AusLink, which will involve expenditure on both road and rail for which detailed splits are yet to be determined.

The decline in the Communication Sub-function over the period to 2007-08 reflects the conclusion of programmes associated with several Australian Government initiatives that provided innovative telecommunications infrastructure and services in metropolitan, rural, regional and remote areas of Australia. These included initiatives associated with the sale of the 49.9 per cent of Telstra through two sales of shares in 1997 and 1999 (including the Networking the Nation Programme and the Untimed Local Calls Access Programme), the Telecommunications Service (Besley) Inquiry (including the National Communications Fund and the mobile phones programmes), and the Regional Telecommunications (Estens) Inquiry. The decline is, in part, offset by funding announced as part of the Backing Australia’s Ability — Building Our Future Through Science and Innovation package.

Rail Transport Sub-function expenses reflect the one-off payment made by the Government to the Australian Trail Track Corporation for new rail infrastructure projects on the interstate rail system in 2003-04. Rail Transport Sub-function expenses will increase from 2004-05 when rail projects to be funded under the new land transport development plan, AusLink are identified.

The Air Transport Sub-function in 2003-04 is higher than 2004-05 and forward years due to a one-off $35 million boost to regional airport security grants.

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The impact of AusLink involves an increase in Road Transport expenses from 2004-05 to 2007-08. However, the level of Road Transport expenses in 2004-05 also reflects a one-off $200 million movement of funds from 2002-03 and 2003-04 for the National Highways Programme. AusLink will encompass the National Highways and Roads of

National Importance programmes, a redirection of savings from the abolition of the Fuel Sales Grants Scheme to roads funding from 2006-07, increased Government funding of $630 million for the five years to 2008-09, and an extension of the Roads to Recovery Programme for a further four years from 2005-06 to 2008-09, which will provide assistance of $1.2 billion over that period to local councils for the construction, upgrade and maintenance of local roads.

The Government also provides untied funding to local government through Financial Assistance Grants that are identified for roads — see the General Purpose Inter-Government Transactions Sub-function (Other Purposes Function).

Major components of the Road Transport Sub-function are outlined in further detail in Box 6.2 below.

Box 6.2: Components of Road Transport Funding

Table 15.1: Trends in major components of the Road Transport Sub-function 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

AusLink(a) National Highway and Roads of National Importance 932 1,247 1,049 1,011 1,034

Roads to Recovery 302 253 300 300 300

Redirection of savings from the abolition of the Fuel Sales Grants Scheme to roads - - - 265 270

AusLink Increased Funding(b) - 80 100 150 150

Road Safety Black Spot Programme 45 45 45 - -

Other 93 77 52 51 49

Total(c) 1,372 1,702 1,546 1,777 1,803

(a) Largely Specific Purpose Payments to the States but with a small additional component for land transport research. (b) Increased funding for AusLink will be available for both road and rail. (c) See Outcome 1 of the Transport and Regional Services 2004-2005 Portfolio Budget Statements.

Statement 6: Expenses and Net Capital Investment

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Other economic affairs

Table 16: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Tourism and area promotion 142 175 174 163 165

Vocational and industry training 582 616 642 670 711

Labour market assistance to job seekers and industry 1,721 1,798 1,797 1,819 1,876

Industrial relations 271 291 305 307 309

Immigration 743 816 835 853 864

Total labour and employment affairs 3,317 3,521 3,578 3,649 3,760

Other economic affairs nec 782 816 803 795 804

Total other economic affairs 4,241 4,512 4,556 4,607 4,730

Nature of expenses and major trends

The Other Economic Affairs Function includes expenses on tourism and area promotion, labour market assistance, immigration, industrial relations and other economic affairs not elsewhere classified (nec).

Expenses over the Budget and forward estimates are relatively stable.

Estimates for the Labour Market Assistance to Job Seekers and Industry Sub-function reflect increases in Job Network Programme funding.

Continuing growth in the Vocational and Industry Training Sub-function is due to an increase in apprenticeship/traineeship commencements.

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Other purposes

Table 17: Summary of expenses 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m

Interest on Australian Government's behalf 3,995 3,881 3,618 3,548 3,593

Interest on behalf of States and Territories 19 1 1 1 0 0

Interest received on Australian Government stock 0 0 0 0 0

Public debt interest 4,014 3,891 3,619 3,548 3,593

Nominal superannuation interest 5,155 4,702 5,322 5,446 5,673

General revenue assistance - States and Territories 697 1,122 793 0 0

General capital assistance - States and Territories 0 0 0 0 0

Debt assistance(a) 37 54 196 0 0

Local government assistance 1,511 1,539 1,613 1,675 1,721

Revenue assistance to the States and Territories 156 160 164 168 172

Assistance to other governments 376 393 364 361 369

General purpose inter-government transactions 2,775 3,269 3,129 2,204 2,262

Natural disaster relief 144 97 97 97 91

Contingency reserve(b) 0 218 2,887 6,238 8,935

Total other purposes 12,088 12,177 15,053 17,533 20,554

(a) Debt redemption assistance expenses, paid by the Australian Office of Financial Management to the States and Territories under the Financial Agreement Act 1994, have been reclassified from the Financial and Fiscal Affairs Sub-function (General Public Services Function) to the Debt Assistance Sub-function.

(b) Asset Sale related expenses are now treated as a component of the Contingency Reserve.

Nature of expenses and major trends

The Other Purposes Function includes expenses incurred in the servicing of public debt interest, and assistance to the State and Territory governments and local government. The function also includes items classified to natural disaster relief, the Contingency Reserve, and costs of asset sales.

Excluding the Contingency Reserve and Nominal Superannuation Interest Sub-functions, the general trend is for a real decline in expenses over the forward years, mainly associated with reductions in Australian Government debt servicing

costs — as a result of higher interest bearing debt being settled on maturity and replaced by lower interest bearing debt.

The fall in the General Purpose Inter-Government Transactions Sub-function from 2004-05 reflects trends in Budget Balancing Assistance (BBA) and other payments to the States. BBA payments are expected to cease from 2004-05 onwards as all States are expected to be better off as a result of tax reform in line with increases in GST revenue. However, the estimate for 2004-05 also reflects an Australian Government decision to compensate the States for a measure related to annual lodgement of the GST for some taxpayers.

Statement 6: Expenses and Net Capital Investment

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The decline between 2003-04 and 2004-05 in the nominal superannuation interest expense for civilian superannuation reflects the pay-out of liabilities to the Telstra Superannuation Scheme and the Australia Post Superannuation Scheme. The increase in the nominal interest expense between 2004-05 and 2005-06 reflects the impact of Consumer Price Index movements on the nominal interest rate.

The increase in the Contingency Reserve from 2004-05 over the forward years is largely due to the conservative bias allowance — an allowance that compensates for the trend in expenses on existing Australian Government programmes to be underestimated by agencies in the forward years. The nature of the Contingency Reserve is discussed in more detail at Appendix B.

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GENERAL GOVERNMENT NET CAPITAL INVESTMENT

In 2004-05, forecast net capital investment has increased by $463 million since the 2003-04 MYEFO. This increase is due to the combined effect of new policy decisions of $189 million and parameter and other variations of $274 million.

Net capital investment estimates for the period from 2003-04 to 2007-08 are provided in Table 18.

Table 18: Estimates of total net capital investment 2004-05 2005-06 2006-07 2007-08 MYEFO(a) Revised Estimate

Total net capital investment ($m) -205 18 148 45 -125 -429

Real growth on previous year(%)(b) 10.1 107.8 715.3 -70.0 -370.2 -237.8

Per cent of GDP 0.0 0.0 0.0 0.0 0.0 0.0

2003-04

Projections

(a) As published in the Mid-Year Economic and Fiscal Outlook 2003-04. (b) Real growth is calculated using the non-farm gross domestic product (GDP) deflator.

Net capital investment of $18 million is expected in 2003-04, largely reflecting investment in inventory to protect national public health against possible disease outbreaks such as Avian influenza, various construction projects, including activities associated with the construction of a nuclear reactor by the Australian Nuclear Science and Technology Organisation and asset acquisitions and parameter and other effects. Asset acquisitions include: investment by the Department of Finance and Administration in its property portfolio; investment in computer equipment and software by the Australian Customs Service, the Health Insurance Commission and Centrelink; investment in accommodation, transport and communications equipment by the Australian Federal Police; investment in new meteorological radars; and provision of infrastructure in Australia’s Indian Ocean territories. These investments are partly offset by ongoing property sales programmes by the Department of Defence and the Defence Housing Authority.

Reconciliation of net capital investment since the 2003-04 Budget

Table 19 provides a reconciliation of the 2003-04 Budget, 2003-04 MYEFO and 2004-05 Budget net capital investment estimates, showing the effect of policy decisions and economic parameter and other variations since the estimates were published in the 2003-04 Budget.

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Table 19: Reconciliation of net capital investment 2003-04 2004-05 2005-06 2006-07 $m $m $m $m

2003-04 Budget net capital investment -417 -381 -256 -448

Changes between 2003-04 Budget and MYEFO Effect of policy decisions 45 18 -3 -3

Effect of parameter and other variations 168 48 130 250

Total variations 212 66 127 247

2003-04 MYEFO net capital investment -205 -315 -129 -201

Changes between MYEFO and 2004-05 Budget Effect of policy decisions 169 189 151 45

Effect of parameter and other variations 53 274 24 31

Total variations 222 463 175 76

2004-05 Budget net capital investment 18 148 45 -125

Discussion of changes between the 2003-04 MYEFO and the 2004-05 Budget, shown in the table above, can be found in Statement 2 (in the section titled ‘Variations in net capital investment estimates’). For further information on capital measures since MYEFO can be found in Budget Paper No. 2, Budget Measures 2004-05.

Net capital investment estimates by function

Table 20 provides estimates for Australian Government general government net capital investment by function for the period 2003-04 to 2007-08.

Table 20: Estimates of net capital investment by function

2003-04 2004-05 2005-06 2006-07 2007-08

$m $m $m $m $m

General public services 94 228 204 34 -13

Defence -189 -284 -237 -233 -280

Public order and safety 76 103 45 -13 -15

Education 5 2 2 1 0

Health 153 47 10 6 -5

Social security and welfare 31 76 -29 3 -34

Housing and community amenities -59 9 -80 9 -18

Recreation and culture -192 2 88 1 -8

Fuel and energy 1 0 0 -1 0

Agriculture, forestry and fishing 2 -1 -2 -11 -3

Mining, manufacturing and construction 5 -1 1 -4 -2

Transport and communications 27 9 5 52 -13

Other economic affairs 38 45 1 9 -22

Other purposes 26 -87 38 22 -16

Total net capital investment 18 148 45 -125 -429

Estimates Projections

Net capital investment is expected to rise between 2003-04 and 2004-05 reflecting: various construction projects, including those in the Department of Finance and Administration’s property portfolio, investment by the Australian Nuclear Science and Technology Organisation in a new nuclear reactor; investment in information

Part 3: Revenue, Expenses and Budget Funding

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technology by the Australian Customs Service, Centrelink, the Department of Family and Community Services and the Health Insurance Commission; and investment in meteorological radars by the Bureau of Meteorology and equipment by the Australian Federal Police. This is partially offset by receipts received from property sales by the Department of Defence.

While the bulk of Defence’s current property sales programme is expected to conclude by 2004-05, rephasing of the Department of Defence’s capital investment programme beyond the current forward estimates results in negative net capital investment in the Defence function across the Budget and forward estimates years.

Net capital investment decreases across the forward years as a result of: the rephasing of Defence’s capital investment; and the conclusion of various construction projects and information technology-based projects or other asset acquisitions.

Significant investments by function include:

• General Public Services for the investment by the Department of Finance and

Administration for its property portfolio including construction of the Adelaide Law Courts building, Christmas Island Immigration Reception and Processing Centre, Villawood Detention Centre and ANZAC Park East and West, investment by the Australian Nuclear Science and Technology Organisation in a new nuclear reactor at Lucas Heights and construction, refurbishment and relocation of some

overseas posts by the Department of Foreign Affairs and Trade;

• Public Order and Safety for investment in computer equipment and software by

the Australian Customs Service, including for the Cargo Management Re-engineering Programme, and investment in accommodation, transport and communications equipment associated with overseas deployments by the Australian Federal Police;

• Health for investment in inventory to protect national public health against

possible disease outbreaks such as Avian influenza, and for investment in information technology infrastructure by the Health Insurance Commission;

• Social Security and Welfare for investment in information technology

infrastructure for Centrelink;

• Recreation and Culture due to the sale of three FM radio broadcasting licenses in

2003-04, delays in the divestment of Australian Broadcasting Corporation properties at Adelaide Terrace in Perth and at Gore Hill in Sydney, capital works at the Australian Institute of Sport and the National Gallery of Australia and the redevelopment of the Australian War Memorial’s post-1945 galleries;

Statement 6: Expenses and Net Capital Investment

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• Housing and Community Amenities due mainly to changes within the Defence

Housing Authority’s property portfolio including increased acquisitions and construction and variations to the forecast sale and leaseback programme;

• Transport and Communications for the provision of infrastructure on the Indian

Ocean Territories and for investment in information technology infrastructure in the Department of Transport and Regional Services, the Civil Aviation and Safety Authority, and the Australian Communications Authority; and

• Other Economic Affairs for investment by the Bureau of Meteorology in replacing

older equipment with new meteorological radars and by the Department of Immigration and Multicultural and Indigenous Affairs for upgrade, development and redevelopment work associated with immigration detention facilities.

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APPENDIX A: EXPENSE ESTIMATES BY FUNCTION AND SUB-FUNCTION

Table A1: Estimates of expenses by function and sub-function Actuals 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m $m

General public services Legislative and executive affairs 732 754 865 746 771 891

Financial and fiscal affairs(a) 3,476 3,304 3,445 3,493 3,583 3,519

Foreign affairs and economic aid 2,334 2,238 2,465 2,322 2,249 2,375

General research 1,790 2,066 2,202 2,394 2,478 2,621

General services 566 606 674 618 727 741

Government superannuation benefits 2,090 1,946 2,213 2,162 2,101 2,160

Total general public services 10,988 10,914 11,864 11,734 11,909 12,307

Defence 13,307 13,687 14,425 14,569 15,384 16,423

Public order and safety Courts and legal services 589 586 635 629 657 672

Other public order and safety 1,378 1,795 2,091 1,931 1,871 1,813

Total public order and safety 1,968 2,381 2,727 2,560 2,528 2,485

Education Higher education 4,017 4,447 4,735 4,968 5,252 5,296

Vocational and other education 1,323 1,417 1,466 1,525 1,517 1,551

Non-government schools 3,869 4,450 4,876 5,260 5,639 6,037

Government schools 2,143 2,290 2,440 2,596 2,728 2,869

Schools 6,013 6,740 7,316 7,856 8,367 8,906

Student assistance 641 596 588 561 562 546

General administration 0 1 1 1 1 1

School education - specific funding 115 137 114 112 100 101

Total education 12,109 13,338 14,221 15,024 15,800 16,400

Health Medical services and benefits 11,726 13,122 14,154 14,615 15,023 15,457

Hospital services 1,537 1,603 1,697 1,837 1,991 2,160

Health care agreements 7,240 7,535 7,937 8,331 8,746 9,189

Hospital services and health care agreements 8,776 9,138 9,634 10,168 10,737 11,350

Pharmaceutical services and benefits 5,732 6,931 7,593 7,767 8,276 9,036

Aboriginal and Torres Strait Islander health 209 283 293 301 312 325

Health services 667 962 1,084 1,028 1,029 1,032

Other health services 892 1,256 1,473 1,542 1,590 1,635

Other health services 1,559 2,218 2,557 2,570 2,618 2,667

General administration 1,333 524 598 611 625 638

Health assistance to the aged(b) 64 138 156 163 172 183

Total health 29,400 32,355 34,986 36,194 37,763 39,657

Social security and welfare Assistance to the aged(b) 24,834 27,173 28,460 30,170 31,847 33,720

Assistance to veterans and dependents 5,579 5,745 5,993 6,086 6,151 6,226

Assistance to people with disabilities 9,551 10,669 11,096 11,810 12,239 12,826

Assistance to families with children 19,595 24,489 24,463 25,493 26,584 27,513

Estimates Projections

Statement 6: Expenses and Net Capital Investment

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Table A1: Estimates of expenses by function and sub-function (continued) Actuals 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m $m

Social security and welfare (continued) Assistance to the unemployed 5,565 5,428 5,701 5,733 6,078 6,293

Assistance to the sick 86 84 86 93 112 128

Assistance to the unemployed and the sick 5,651 5,512 5,787 5,826 6,190 6,421

Common youth allowance 2,235 2,247 2,318 2,391 2,442 2,513

Other welfare programmes 309 339 578 1,207 1,351 1,408

Aboriginal advancement nec 1,275 1,391 1,502 1,545 1,565 1,582

General administration 2,233 2,384 2,480 2,468 2,455 2,496

Total social security and welfare 71,263 79,949 82,678 86,995 90,824 94,706

Housing and community amenities Housing 1,381 1,227 1,240 1,246 1,263 1,286

Urban and regional development 113 142 174 142 107 102

Environment protection 268 284 257 259 254 233

Total housing and community amenities 1,763 1,652 1,671 1,647 1,624 1,621

Recreation and culture Broadcasting 1,030 1,108 1,152 1,164 1,151 1,166

Arts and cultural heritage 671 713 799 805 808 813

Sport and recreation 151 206 169 224 159 162

National estate and parks 210 206 222 224 223 211

Total recreation and culture 2,062 2,233 2,342 2,417 2,341 2,352

Fuel and energy 3,395 3,692 3,922 4,001 3,914 4,036

Agriculture, forestry and fishing Wool industry 76 57 58 61 61 61

Grains industry 115 127 131 135 135 135

Dairy industry 276 267 271 273 275 277

Cattle, sheep and pig industry 121 113 113 112 112 112

Fishing, horticulture and other agriculture 178 172 177 180 180 182

General assistance not allocated to specific industries 299 338 335 270 257 244

Rural assistance 224 513 675 196 112 54

Natural resources development 318 388 447 435 387 344

General administration 164 184 192 150 145 141

Total agriculture, forestry and fishing 1,772 2,158 2,400 1,811 1,665 1,549

Mining, manufacturing & construction 1,502 1,717 1,830 1,791 1,705 1,705

Transport and communication Communication 429 412 356 293 250 209

Rail transport(c) 17 451 3 28 6 0

Estimates Projections

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Table A1: Estimates of expenses by function and sub-function (continued) Actuals 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m $m

Transport and communication (continued) Air transport 153 194 158 110 111 111

Road transport(c) 1,271 1,372 1,702 1,546 1,777 1,803

Sea transport 203 201 212 212 212 211

Other transport and communication 100 101 120 82 82 81

Total Transport and Communication 2,174 2,731 2,550 2,273 2,437 2,414

Other economic affairs Tourism and area promotion 156 142 175 174 163 165

Vocational and industry training 491 582 616 642 670 711

Labour market assistance to job seekers and industry 1,539 1,721 1,798 1,797 1,819 1,876

Industrial relations 270 271 291 305 307 309

Immigration 705 743 816 835 853 864

Total labour and employment affairs 3,005 3,317 3,521 3,578 3,649 3,760

Other economic affairs nec 642 782 816 803 795 804

Total other economic affairs 3,803 4,241 4,512 4,556 4,607 4,730

Other purposes Interest on Australian Government's behalf 4,602 3,995 3,881 3,618 3,548 3,593

Interest on behalf of States and Territories 27 19 11 1 0 0

Interest received on Australian Government stock 0 0 0 0 0 0

Public debt interest 4,629 4,014 3,891 3,619 3,548 3,593

Nominal superannuation interest 5,409 5,155 4,702 5,322 5,446 5,673

General revenue assistance - States and Territories 1,537 697 1,122 793 0 0

General capital assistance - States and Territories 0 0 0 0 0 0

Debt assistance(a) 0 37 54 196 0 0

Local government assistance 1,457 1,511 1,539 1,613 1,675 1,721

Revenue assistance to the States and Territories 166 156 160 164 168 172

Assistance to other governments 438 376 393 364 361 369

General purpose inter-government transactions 3,598 2,775 3,269 3,129 2,204 2,262

Natural disaster relief 95 144 97 97 97 91

Contingency reserve(d) 11 0 218 2,887 6,238 8,935

Total other purposes 13,743 12,088 12,177 15,053 17,533 20,554

Total expenses 169,247 183,136 192,306 200,626 210,033 220,939

Estimates Projections

(a) Debt redemption assistance expenses, paid by the Australian Office of Financial Management to the States and Territories under the Financial Agreement Act 1994, have been reclassified from the Financial and Fiscal Affairs Sub-function (General Public Services Function) to the Debt Assistance Sub-function (Other Purposes Function). (b) The bulk of Department of Health and Ageing and Department of Veterans’ Affairs expenses for

assistance to the aged are now classified to the Assistance to the Aged sub-function (Social Security and Welfare Function). (c) Splits of additional AusLink funding between road and rail from 2005-06 onwards are yet to be determined. (d) Asset Sale related expenses are now treated as a component of the Contingency Reserve.

Statement 6: Expenses and Net Capital Investment

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APPENDIX B: THE CONTINGENCY RESERVE

The Contingency Reserve (Other Purposes Function) is an allowance, included in aggregate expenses figuring, to reflect anticipated events that cannot be assigned to individual programmes in the preparation of the Australian Government budget estimates. The reserve is an estimating device used to ensure that the budget estimates are based on the best information available at the time of the Budget. It is not a general policy reserve.

While the reserve ensures that aggregate estimates are as close as possible to expected outcomes, it is not appropriated. Allowances that are included in the reserve can only be drawn upon once they have been appropriated by Parliament. These allowances are removed from the reserve and allocated to specific agencies for appropriation and for outcome reporting closer to the time when they eventuate.

The Contingency Reserve makes allowance in 2004-05 and the forward years for anticipated events including the following:

• an allowance for the tendency for estimates of expenses for existing government

policy to be revised upwards in the forward years;

• an allowance for the tendency for the estimates of administered expenses for some

specific agencies or functions to be overstated in the budget year;

• commercial-in-confidence and national security-in-confidence items that cannot be

disclosed separately;

• decisions made too late for inclusion against individual agency estimates;

• the effect on the budget and forward estimates of economic parameter revisions

received late in the process and hence not able to be allocated to individual agencies or functions;

- An example of a late parameter revision is the estimated impact of the Australian Industrial Relations Commission’s Living Wage Case Decision released on 5 May 2004; and

• provision for events and pressures that are reasonably expected to affect the budget

estimates.

The Contingency Reserve also includes expenses associated with the Government’s major asset sales and associated administration costs.