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Budget Review 2012-13



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ISSN 1834-9854

Parliament of Australia Department of Parliamentary Services

The 2012-13 Budget was framed in the context of the Australian Government’s commitment to returning the budget to surplus in 2012-13, the challenges posed by a two-speed economy, the uncertain global environment and the political realities of Australia’s hung Parliament.

Given Australia’s relatively strong economic fundamentals some degree of fiscal tightening at this point appears warranted. Fiscal consolidation has the potential to take pressure off interest and exchange rates, and therefore help manage the challenges posed by the marked divergence in the performance of the resources and non-resource sectors. However, continuing uncertainty from the European sovereign debt crisis, softer macroeconomic conditions in China and the appreciation of the Australian dollar, pose significant downside risks for the Australian economy.

As well as the short-term effects of the Budget on Australia’s economic performance, another important consideration is how well the Budget positions Australia to meet longer-term challenges. The initiatives in this Budget to reform the tax and transfer system are modest, and there are few measures specifically aimed at improving productivity, such as big-ticket infrastructure items. There are, however, some measures to increase workforce participation. And there are some signals of new spending priorities on the social policy front including the National Disability Insurance scheme, aged care and health services which will help to meet the needs of an ageing population.

The Parliamentary Library has produced its annual Budget Review to assist parliamentarians consider the key issues posed by the 2012-13 Budget. The first article, Budget 2012-13: Key Features, as well as examining the international and domestic context of the Budget, contains a macroeconomic analysis and commentary on the Budget including the assumptions that underpin the Government’s fiscal policy and the estimates of revenue

and expenditure that underlie that policy. The other articles examine key measures that cover a wide range of areas across all portfolios.

As with previous Budget Reviews, this year’s has been prepared under time pressures with a view to making it available to parliamentarians as soon as possible. While care has been taken to ensure that the articles are accurate and balanced, they are based on information that was publicly available at the time of preparation. The articles do not intend to make value judgements about the relative importance of different measures or provide a comprehensive assessment of the Budget.

Parliamentarians are invited to raise points requiring amplification or clarification directly with the research specialist concerned and general comments on papers are also welcome. Any other feedback should be forwarded to me.

Dr Dianne Heriot Parliamentary Librarian May 2012

RESEARCH PAPER NO. 9, 2011-12 May 2012

Budget Review 2012-13

Contents

Budget overview

Context and commentary .............................................................................................................. 1

Government debt ........................................................................................................................ 20

Savings and revenue .................................................................................................................... 22

Arts and media

Arts ............................................................................................................................................. 24

Broadcasting ............................................................................................................................... 26

Climate change, energy and the environment

Climate change: out on a limb ..................................................................................................... 29

Environment and natural resources ............................................................................................. 32

Ensuring Australia’s biosecurity ................................................................................................... 34

Commonwealth-State relations

The GST pool ............................................................................................................................... 36

Transport .................................................................................................................................... 39

Corporate governance

Corporate governance—enhancing capacity of regulators ........................................................... 41

Defence

Defence budget overview ............................................................................................................ 44

Defence Capability Plan review .................................................................................................... 47

Defence personnel ...................................................................................................................... 50

Funding the Centenary of Anzac .................................................................................................. 52

Joint Strike Fighter ....................................................................................................................... 55

Education

Higher education ......................................................................................................................... 58

School education ......................................................................................................................... 60

Skills and training ........................................................................................................................ 63

Mathematics and science—increasing participation .................................................................... 65

Foreign affairs

Official Development Assistance: a commitment delayed ............................................................ 68

Health and ageing

Aged care .................................................................................................................................... 71

Dental reforms ............................................................................................................................ 75

E health ....................................................................................................................................... 78

New and changed health measures ............................................................................................. 82

Immigration

Migration program ...................................................................................................................... 85

Humanitarian program ................................................................................................................ 88

Responding to unauthorised arrivals............................................................................................ 91

Law, policing and national security

Court reforms .............................................................................................................................. 94

Indigenous law and justice programs—redirection of funding...................................................... 97

Legal aid ...................................................................................................................................... 99

National Children’s Commissioner ............................................................................................. 101

Policing, security and intelligence—key issues ........................................................................... 103

Public sector

Public service............................................................................................................................. 107

Science

Science and research overview .................................................................................................. 111

Social services and welfare

Abolition of ‘saved’ Parenting Payment arrangements............................................................... 113

Changes to residency and portability requirements for Australian Government payments ........ 116

Consolidation of dependency tax offsets ................................................................................... 119

Family Tax Benefit Part A—change to age of eligibility ............................................................... 120

Increasing workforce participation ............................................................................................ 122

Indigenous Affairs ...................................................................................................................... 126

National Disability Insurance Scheme ........................................................................................ 131

New and increased benefits for families and job-seekers ........................................................... 135

Superannuation

‘Stronger super’ implementation and related changes ............................................................... 138

Thirty per cent contributions tax for high-income earners, delayed changes to contribution cap ........................................................................................................................ 140

Taxation

Abandoning a reduction in the company tax rate and introduction of tax loss carry-back .......... 144

Better targeting of the employment termination payment tax offset ......................................... 148

FBT—further reform of living away from home allowance ......................................................... 150

GST compliance activities of the ATO and the Budget surplus .................................................... 152

Increase in managed investment final withholding tax ............................................................... 155

Minerals Resource Rent Tax: changes to revenue and expenditure estimates ............................ 157

Non-residents ............................................................................................................................ 165

Workplace relations

Workplace relations agencies overview ..................................................................................... 168

Budget Review 2012-13

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Context and commentary

Anne Holmes, Robert Dolamore and Indra Kuruppu

Introduction

The 2012-13 Budget was introduced into Parliament on 8 May 2012. The economic context is a domestic economy where the overall indicators appear favourable but where there are clear risks; and an international environment which is the most unstable since World War 11. The political context is of a minority government which, while it has been successful in passing major legislation, has only tenuous control of the Parliament.

The outlook for the economy in the coming years is favourable on the whole. The industrialisation of Asia is expected to support demand for Australian exports, especially commodities. However, the industrialisation of Asia and the continuing fragility of the advanced economies are driving restructuring in the Australian economy. While some sectors are prospering, others are struggling. It is harder to predict outcomes.

The Budget is framed around small surpluses. Apart from economic and fiscal strength, the budget documents stress the major social policy initiatives and the need to spread the benefits of the mining boom and to alleviate cost of living pressures on ‘families and pensioners on modest incomes’.1

Economic environment

International events

The outlook for the international economy is uncertain. Both Treasury in the Budget and the International Monetary Fund (IMF) forecast reasonably strong growth, but both are conscious that there are many threats to that growth. The IMF describes the world economic recovery as ‘very fragile’ and ‘vulnerable’, while Treasury believes that ‘there are still substantial downside risks to the global economic outlook.’2

The major risks come from Europe. At least eight European countries are in recession and it is generally believed that recovery will be slow and patchy, and that there are threats to that recovery. However, in effect, the forecasts are framed on the assumption that there will be no contagion from

1. W Swan (Treasurer) Budget Speech 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 17 May 2012. 2. International Monetary Fund (IMF), ‘Global prospects and policies’, in World Economic Outlook, April 2012, pp. 4-5, viewed 12 May 2012; References to the Budget and budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget Strategy and Outlook: Budget Paper No.1

2012-13, Commonwealth of Australia, Canberra, 2012, viewed 12 May 2012.

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the crisis in Greece.3 At time of writing, the political impediments to an orderly restructure in Greece appear great. If another economy such as Spain or Italy were also unable to manage its sovereign debt, a downward spiral could set in that would have catastrophic effects worldwide. At best, the European recovery will be slow as governments and citizens wind back debt and in doing so reduce consumption.

The US economy appears to be on a more certain path to recovery. Employment has grown and unemployment has fallen; the housing market appears to have bottomed, although it will be a long time before it fully recovers; and demand, consumer confidence and factory output are strengthening. Even so, there are concerns about its fiscal position.

Both Treasury and the IMF assume that future growth will be driven by demand from Asia. China’s government appears to have successfully reined in runaway growth and inflation, but there are still concerns about a housing bubble and the level of local government debt. Lending growth has slowed in China and India, but this may be partly offset by reconstruction after natural disasters in Japan and Thailand.

Treasury and IMF forecasts are reproduced in Table 1. They are not significantly different. If anything, the Treasury forecasts are marginally more cautious.

Table 1: International GDP growth forecasts - Treasury and IMF (per cent)

Forecasts (a)

2011 2012 2013

United States Treasury 1.7 2.0 2.25

IMF 1.7 2.1 2.4

Euro area Treasury 1.5 -0.75 0.75

IMF 1.4 -0.3 0.9

Japan Treasury -0.7 2.25 1.75

IMF -0.7 2.0 1.7

China (b) Treasury 9.2 8.25 8.5

IMF 9.2 8.2 8.8

India (b) Treasury 7.3 6.25 7.75

IMF 7.2 6.9 7.3

World Treasury 3.9 3.5 4.0

IMF 3.9 3.5 4.1

(a) Growth rates are calculated using GDP weights based on purchasing power parity (b) Production based measure of GDP Sources: Statement 2: Economic Outlook, Budget paper no.1 2012-13, Table 2; IMF, World Economic Outlook April 2012 Table 1.1

3. IMF, op. cit., p. 5.

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The outlook for world growth is important because it will determine demand for Australia’s exports and in particular the prices for resources and the exchange rate. For example, Treasury estimates that a four per cent fall in the terms of trade would lead to a one per cent drop in nominal GDP.4 This in turn has ramifications for all the other forecasts in the Budget.

The domestic economy

At present the Australian economy is operating at around trend levels. The estimates are that in 2011-12, real GDP grew at 3 per cent, unemployment was 5.25 per cent on average, and inflation was at a low 1.25 per cent; however, employment growth was low at 0.5 per cent. 5

But recent data are mixed. March and April 2012 saw good jobs growth. Retail sales were also stronger than expected. On the other hand, the Australian Industry Group’s Performance of Manufacturing Index fell 5.6 points to 43.9, and its Performance of Services Index fell 7.4 points to 39.6. 6 (On both scales, a reading below 50 indicates a contraction.) Tax receipts are significantly lower in 2011-12 than expected. Meanwhile, the housing market remains flat. Both Treasury and the Reserve Bank of Australia (RBA) have revised their growth forecasts down.

The patchwork economy

The industrialisation of Asia and the after effects of the global financial crisis are together causing a restructuring of the Australian economy. The rise of Asia has increased demand for Australian commodities, which has driven up the dollar and made it harder for Australian exporters to compete in international markets. At the same time, the growth in low cost Asian manufacturing has put further competitive pressure on Australian producers. The financial crisis has also helped to drive up the Australian dollar as a safe haven, while reducing demand in some other countries and causing Australians to wind back their debt. So, while resource based industries have performed well, exposed sectors such as some manufacturing and tourism are suffering. However, some exposed sectors have found new markets in Asia.

The Australian dollar appreciated by 65 per cent against a trade-weighted index between September 2002 and June 2011; against the US dollar it appreciated by 118 per cent. 7 The movement in exchange rates over a longer term is illustrated in the following graph from a speech by the Deputy Governor of the Reserve Bank.

4. Budget paper no. 1, op.cit., p. 3-23. 5. Ibid., p. 1.8.

6. Australian Industry Group, ‘Manufacturing falls sharply in April’, Performance of Manufacturing Index, April 2012, viewed 4 May 2012; Australian Industry Group ‘Services sector slumps in April’, Performance of Services Index, April 2012, viewed 4 May 2012. 7. R G Gregory, Living Standards, Terms of Trade and Foreign Ownership: Reflections on the Australian Mining Boom,

Discussion Paper, Centre for Economic Policy Research, ANU, 2011, p. 10 footnote 15, viewed 12 May 2012.

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Figure 1 Real exchange rate since 19708

The figure shows that exchange rates have been high in the past. However, the current level is the highest since the dollar was floated in 1983. The dollar is being driven largely by the terms of trade, specifically the huge increase in minerals prices, and the amount of foreign investment.9 Even if minerals prices stabilise or even soften, the dollar will be supported as the new investments in mining come on stream and increase the volume of exports.

The foreign investment that is driving the dollar is not only for mining. It is also a stream of funds from overseas investors seeking a substantially higher return, given Australian interest rates, than they can get in Europe or the US. They may also be seeking a safe haven in Australia’s robust economy, or a proxy for investment in China.

This prolonged period of high exchange rates and other factors are driving a massive restructuring of the Australian economy. Figure 2, which shows shares of output in the economy, shows declines in agriculture, retail and wholesale trade, and especially manufacturing; and rises in other business services, financial and insurance services, construction and especially mining.

8. P Lowe, ‘The forces shaping the economy over 2012’, Address to the Committee for Economic Development of Australia, 16 February 2012, RBA Bulletin, March Quarter 2012, p. 88, viewed 12 May 2012. 9. The ‘terms of trade’ means the ratio of prices of exports to prices of imports.

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Figure 2 Industry shares of output10

To some extent this is an acceleration of a normal process for developed economies: they are characterised by a move towards services and away from manufacturing.11 There are several reasons for this. There is generally a differential in labour productivity growth between the manufacturing and services sector. Since manufacturing generally experiences more rapid labour productivity growth, its share in employment will fall over time. In addition, industries with rapid labour productivity growth will experience a decline in relative prices, which will contribute to a fall in value added shares. In contrast, many services industries such as personal services, legal services and hospitality have little scope for labour productivity growth.

The share of manufacturing in the Australian economy has been steadily falling since 2003. The high exchange rate has created additional problems, because it means that exports are dearer and therefore less competitive in foreign markets, while imports are cheaper and therefore more competitive in the domestic market. But, in part, the challenge to manufacturing comes from

10. Reserve Bank of Australia, The Australian economy and financial markets, Chart Pack, May 2012, p. 13, viewed 14 May 2012. 11. OECD, The changing nature of manufacturing in OECD economies, STI Working Paper, 2006/9, viewed 14 May 2012.

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competition from low cost producers in Asia and is the same threat faced by manufacturers in other OECD countries. The fall in Australian manufacturing employment is perhaps less apparent than in other developed countries. Absolute employment in manufacturing has been relatively stable, as

illustrated by Figure 3, although it has fallen as a share of the total work force. Further, other developed countries’ economies have experienced recession and low growth - they are a reduced share of a shrinking total - whereas Australia’s manufacturing has a reduced share of a growing whole.

Figure 3 Manufacturing employment in the G7 and selected countries 12

Other industries which are vulnerable to the exchange rate have also suffered. Tourism has been hard hit by the high dollar. Coastal resorts have experienced a decline in business as they become relatively expensive for their overseas market, particularly Britain, New Zealand and Japan, while overseas destinations are cheaper for Australians. But there has been a partially offsetting rise in the number of foreign visitors. This is a result of the expansion of the Chinese and Indian middle classes. Not only are they coming in larger numbers, but they spend more than some other nationalities. They do, however, tend to stay in the cities. 13

Similarly, retailing has faced difficulties on several fronts. Australians have become more cautious consumers. This appears to be largely a response to the global financial crisis. The slowing in consumption expenditure means a slowing of domestic demand, which has made conditions more difficult for some industries, especially retailing. Meanwhile, demand has shifted from goods to

12 . M Parkinson, Policy challenges in a changing world, Address to the American Chamber of Commerce in Australia 9 November 2011, viewed 14 May 2012. 13. C Yeates, ‘Tourism industry weathers a sea change’, Sydney Morning Herald, 2 January 2012, p. 19.

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services and, to a small but growing extent, online retailing has taken customers away from established businesses.14

Meanwhile, the resources sector is continuing to expand. Investment in this sector is expected to continue to be strong, and exports will increase as production comes on stream from past investment.

The outlook for rural industries is also positive, despite the high dollar. The recent wet years have led to increased production and the value of farm production next year is expected to remain near this year’s high levels.15

The uneven performance of different sectors makes budget forecasts more difficult. It also makes communication about the state of the economy harder. The faces of 100 workers laid off from a factory tell a more vivid story than an Australian Bureau of Statistics report that 10 000 jobs have been created elsewhere in the economy.

The domestic outlook

The budget forecasts for the Australian economy are for growth around trend levels, continued low unemployment, and well contained inflation.

Table 2: Major economic parameters (a)

Forecasts Projections

2011-12 2012-13 2013-14 2014-15 2015-16

Real GDP 3.0 3.25 3.0 3.0 3.0

Employment 0.5 1.25 1.5 1.5 1.5

Unemployment rate 5.25 5.5 5.5 5.0 5.0

Consumer price index 1.25 3.25 2.5 2.5 2.5

Nominal GDP 5.5 5.0 5.25 5.25 5.25

(a) Real and nominal GDP are year-average growth. Employment and CPI are through-the-year growth to the June quarter. The unemployment rate is the rate for the June quarter Source: Statement 1, Budget Overview, Budget paper no.1, Table 2 pp. 1-8.

As for international forecasts, Treasury forecasts for domestic GDP growth appear to be in line with, but slightly less optimistic than, other official forecasts.

14. Productivity Commission, Economic structure and performance of the Australian retail industry, Report No. 56, Canberra, 4 November 2011, viewed 14 May 2012. 15. Australian Bureau of Agricultural and Resource Economics and Sciences, Agricultural commodities, vol. 2, no.1, ABARES, March 2012, viewed 14 May 2012.

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Table 3 Real GDP growth forecasts, Budget and RBA, per cent

2011-12 2012-13 2013-14

Budget 2.0 3.0 3.25

RBA 2.75 3.0-3.5 3-4

As noted above, consumers are reluctant to take on debt, because of continuing global uncertainty and because their net worth remains at levels below those before the global financial crisis, with a slow recovery in share prices and lower housing prices. Household consumption is expected to be tied to income growth at three per cent for the next two years. Housing investment is likely to stay low, with the caution about debt limiting demand.

The main feature of the expected growth is surging investment in resource industries. Business investment is forecast to rise by 12.5 per cent in 2012-13, and eight per cent in 2013-14. Within this, resources investment is expected to be particularly strong, reaching nine per cent of GDP in 2013-14, while non-resources investment will be more subdued. Engineering construction investment, which is linked to the mining boom, will be particularly strong.

Public final demand (that is, expenditure by the government on goods and services, not including transfer payments) will be flat, in line with the fiscal tightening in the Budget, although Treasury expects this to be partly offset by spending by the state and territory governments. (This appears optimistic in the light of falling GST receipts—see the accompanying brief The GST pool).

The value of exports is expected to increase in 2012-13 and 2013-14. The composition of exports will reflect the growing importance of Asia as a market while the share of the advanced economies in Australia’s exports continues to fall. The investment in resources will translate into increased output and, notwithstanding a modest fall in the terms of trade, the value of non-rural commodity exports is expected to increase. Rural exports are expected to remain at historically high levels. Exports of elaborately transformed manufactures are also expected to increase modestly despite the continuing high exchange rate. Exports of services, including tourism and education-related travel services are expected to recover only slowly after falling in 2011-12.

Imports are expected to increase strongly, particularly capital goods for the liquefied natural gas industry. Meanwhile, consumer goods and travel imports are expected to grow as consumers take advantage of the high dollar.

Overall employment growth is expected to strengthen. The sources of the growth will reflect the restructuring that is occurring in the economy. The resources sector is capital intensive but is still expected to account for solid growth in employment; employment in services, especially those related to resources, is also expected to expand. Overall the employment growth will not be enough to prevent a slight rise in unemployment. Wages are expected to be contained by this slight rise in unemployment combined with a low inflation rate.

Treasury forecasts for the domestic economy are summarised in Table 4.

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Table 4: Domestic economy forecasts(a)

Outcomes(b) Forecasts

2010-11 2011-12 2012-13 2013-14

Panel A - Demand and output(c)

Household consumption 3.1 3.25 3 3

Private investment

Dwellings 3.0 -1 0 2.5

Total business investment(d) 5.6 18 12.5 8

Non-dwelling construction(d) 8.8 25 14 7.5

Machinery and equipment(d) 3.0 16.5 12.5 8.5

Private final demand(d) 3.3 6 5 4.25

Public final demand(d) 3.4 1.5 -0.5 0

Total final demand 3.3 5 3.75 3.25

Change in inventories(e) 0.5 0 0 0

Gross national expenditure 3.8 5 4 3.5

Exports of goods and services 0.2 4 4.5 4.5

Imports of goods and services 10.4 12.5 7.5 5.5

Net exports(e) -2.0 -2 0.75 -0.5

Real gross domestic product 2.0 3 3.25 3

Non-farm product 1.9 3.25 3.25 3

Farm product 7.1 -6 2 1

Nominal gross domestic product 8.3 5.5 5 5.25

Panel B - Other selected economic measures

External accounts Terms of trade 20.6 3.25 -5.75 -3.25

Current account balance (per cent of GDP) -2.4 -3 -4.75 -6

Labour market

Employment (labour force survey basis)(f) 2.2 0.5 1.25 1.5

Unemployment rate (per cent)(g) 4.9 5.25 5.5 5.5

Participation rate (per cent)(g) 65.5 65.25 65.25 65.25

Prices and wages

Consumer price index(h) 3.6 1.25 3.25 2.5

Gross non-farm product deflator 6.0 2.5 1.75 2.25

Wage price index(f) 3.8 3.5 3.75 3.75

(a) Percentage change on preceding year unless otherwise indicated. (b) Calculated using original data unless otherwise indicated. (c) Chain volume measures except for nominal gross domestic product which is in current prices. (d) Excluding second-hand asset sales from the public sector to the private sector. (e) Percentage point contribution to growth in GDP. (f) Seasonally adjusted, through-the-year growth rate to the June quarter. (g) Seasonally adjusted rate in the June quarter. (h) Through-the-year growth rate to the June quarter. Note: The forecasts for the domestic economy are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level - a trade-weighted index of around 77 and a US$ exchange rate of around 103 US cents. Interest rates are assumed to move broadly in line with market expectations at the time the forecasts were finalised. World oil prices (Malaysian Tapis) are assumed to remain around US$126 per barrel. The farm sector forecasts are based on a return to average seasonal conditions over 2012-13 and 2013-14.

Source: ABS cat. no. 5206.0, 5302.0, 6202.0, 6345.0, 6401.0, unpublished ABS data and Treasury. Source: Statement 2, Budget Paper No. 1 2012-13, pp. 2-12.

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Fiscal strategy

According to Budget paper no.1, the Government’s fiscal strategy has remained unchanged since 2008-09. The medium term strategy is to:

• achieve budget surpluses, on average, over the medium term

• keep taxation as a share of GDP below the level for 2007-08 (23.7 per cent of GDP), on average,

and

• improve the Government’s net financial worth over the medium term. 16

This Budget returns to a slim surplus in 2012-13, with small surpluses in the out years. The government’s rationale for returning to surplus is, in effect:

• while the economy is growing is a good time for fiscal restraint

• restraining government demand will leave room for the Reserve Bank to cut interest rates and

allow private demand to keep the economy growing and

• fiscal restraint sends a signal about Australia’s strong public finances which is more important

than ever in the light of the European sovereign debt issues.17

The 2012-13 Budget features a surplus for the first time since 2007-08. The estimated surplus is very small. More important, it is projected to increase only slowly—the surplus actually declines as a proportion of GDP, from 0.5 per cent in 2012-2013 to 0.4 per cent in the forward years. Returning to surplus entailed the sharpest fiscal consolidation since the 1950s, with a contraction in the Budget of about three per cent of GDP, from a deficit of $44.4 billion to a surplus of $1.5 billion (see Table 5.)18

Table 5: Budget aggregates

Actual Estimates Projections

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Underlying cash balance ($b)(a) -47.7 -44.4 1.5 2.0 5.3 7.5

Per cent of GDP -3.4 -3.0 0.1 0.1 0.3 0.4

Fiscal balance ($b) -51.5 -42.0 2.5 2.6 7.0 9.5

Per cent of GDP -3.7 -2.8 0.2 0.2 0.4 0.5

(a) Excludes expected Future Fund earnings. Source: Statement 3 Fiscal Strategy and Outlook, Budget Paper No. 1 2012-13 Table 1 p.3-3

16. Budget paper no. 1, op. cit., p. 3-4. 17. Ibid.

18. C Richardson and S Smith, ‘Federal Budget Brief 2012-13: Surplus or bust? Surplus, but only just’, Federal Budget 2012-13, Deloitte Access website, viewed 16 May 2012.

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The 2011-12 Budget projected a surplus in 2012-13. The deficit for 2011-12 was revised upwards in the mid-year economic and fiscal outlook and again in the Budget. The revisions were due partly to reduced tax receipts owing to lower economic activity. Some expenditure was also brought forward from 2012-13. So part of the consolidation is a matter of timing. Even so, the real contraction is very

large.

Around half of the dramatic turnaround of $46 billion comes from ‘parameter variations’. These are increases in receipts and reductions in payments due to changes in the variables shown in Table 2 above. As can be seen in Table 6, parameter variations between the 2011-12 Budget and this year’s Budget total $22 billion.

Table 6: Reconciliation of underlying cash balance estimates

Estimates Projections

2011-12 2012-13 2013-14 2014-15

$m $m $m $m

2011-12 Budget underlying cash balance(a) -22,618 3,498 3,672 5,795

Per cent of GDP -1.5 0.2 0.2 0.3

Changes from 2011-12 Budget to 2011-12 MYEFO Effect of policy decisions(b) -4,860 2,857 3,701 4,676

Effect of parameter and other variations -9,634 -4,876 -5,509 -7,363

Total variations -14,495 -2,019 -1,808 -2,687

2011-12 MYEFO underlying cash balance(a) -37,113 1,479 1,864 3,108

Per cent of GDP -2.5 0.1 0.1 0.2

Changes from 2011-12 MYEFO to 2012-13 Budget Effect of policy decisions(b)(c) Receipts 76 2,021 3,680 4,915

Payments 2,777 -903 -253 2,424

Total policy decisions impact on underlying cash balance -2,701 2,924 3,934 2,491

Effect of parameter and other variations(c)

Receipts(d) -6,117 -7,825 -7,797 -7,288

Payments -1,529 -4,958 -4,043 -7,007

Total parameter and other variations impact on underlying cash balance -4.588 -2,867 -3,754 -281

2012-13 Budget underlying cash balance(a) -44,402 1,536 2,044 5,318

Per cent of GDP -3.0 0.1 0.1 0.3

(a) Excludes expected Future Fund earnings. (b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the contingency reserve for decisions taken. (c) A positive number for receipts indicates an increase in the underlying cash balance, while a positive number for payments indicates a decrease in the underlying cash balance. (d) Receipts will differ from the cash receipts reconciliation published in Budget Statement 5 because they exclude Future Fund earnings. Source: Statement 3: Fiscal Strategy and Outlook, Budget Paper No. 1 2012-13, Table 5, pp. 3-10.

Measures were already built in to the forward estimates to produce a surplus this year. Further savings come from policy measures in this Budget. Some of these are discussed in more detail later in this Budget Review.

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Revenue measures

The main revenue measures are listed in Statement 3 of Budget Paper No. 1. They are estimated to contribute $2.0 billion in 2012-13. They inclu de:

• not proceeding with lowering the company tax rate, which was due to commence from the 2013-

14 income year, nor the early start to lowering the company tax rate for small businesses, which was due to commence from 2012-13

• not proceeding with the standard deduction for work-related expenses and the cost of managing

tax affairs, which was scheduled to commence on 1 July 2013, although this is partly offset by an increase in the tax-free threshold

• deferring the higher concessional contribution caps for individuals over 50 with superannuation

balances below $500 000, which was due to start on 1 July 2012, to 1 July 2014

• increasing funding to the Australian Taxation Office (ATO) to increase the ATO’s collections of

outstanding taxation debts and superannuation guarantee charges and to extend GST compliance activities

• further reform to the fringe benefits tax concessions for living-away-from-home allowances and

benefits by limiting access to the concessions

• reducing the tax concession for superannuation contributions of very high income earners and

• not proceeding with the 50 per cent tax discount for interest income which was due to

commence on 1 July 2013.

The impact of these policy decisions on receipts has been partially offset by a number of decisions that have reduced receipts, most importantly, allowing companies to carry back tax losses so they receive a refund against tax previously paid.

Expense measures

The main expense measures are listed in Statement 3 of Budget Paper No. 1. They include:

• increasing the maximum rate of the means tested Family Tax Benefit Part A (FTB-A)

• continuing Australia’s military contribution to international stabilisation in East Timor,

Afghanistan and the wider Middle East Area of Operations, and the Solomon Islands

• replacing the Education Tax Refund with a new Schoolkids Bonus provided through the transfer

system—this measure increases payments by $1.3 billion in 2011-12 and reduces costs by $105 million in 2012-13 because of differences in the timing of payments under the new arrangements, but still involves an increase in spending of over $400 million in 2012-13

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• the first stage of a National Disability Insurance Scheme

• funding for the Government’s Aged Care Reform package

• a range of dental health measures, partly offset by not proceeding with the Commonwealth

Dental Health Program and

• funding to construct a new Commonwealth-operated post-entry quarantine facility.

The impact of these policy decisions on payments has been partially offset by a number of decisions that have reduced cash payments, including:

• from 1 January 2013 requiring those who have been on ‘saved’ Parenting Payment arrangements

to meet the same eligibility requirements as those who have come onto the payment since 1 July 2006

• limiting eligibility for FTB-A to young people under 18 years of age, or where a young person

remains in secondary school, the end of the calendar year in which they turn 19, while Youth Allowance becomes the primary form of assistance to eligible young adults

• restructuring apprenticeship incentive payments for existing workers

• improving the targeting of the Extended Medicare Safety Net

• deferring the commitment to spend 0.5 per cent of Gross National Income on Official

Development Assistance by one year to 2016-17

• deferring some Defence acquisitions, adjusting the Defence capital equipment program and

delivering further operating efficiencies and

• accelerating funding for Local Government Financial Assistance Grants to assist in the response to

natural disasters in 2010-11 and 2011-12—this measure is expected to reduce payments by $1.1 billion in 2012-13 and increase cash payments by the same amount in 2011-12.

The net impact of the expense measures is to reduce payments by nearly $1 billion.

The budget outcome depends on the parameters discussed above. Those parameters are realistic but vulnerable to domestic and international events. Predicting the budget outcome is also difficult in times of structural and behavioural change. As economists Chris Richardson and Stephen Smith have pointed out, corporations do not pay tax on their spending, whereas consumers do. 19 When growth has shifted to become dependent on business investment rather than household consumption, initial tax collections fall. So the projected sound growth in GDP may not generate the

19. Ibid.

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taxes that would usually come with it. Revenue has fallen short of projections in each of the last five years.20

The budget outcome also depends on the success of several measures presented in the Budget. Most notably, the increases in revenue projected for the tax compliance measures appear large. The plausibility of these estimates is discussed in the accompanying brief GST compliance activities of the ATO and the Budget surplus, which concludes that they are reasonable.

In the light of the mixed signals about the domestic economy discussed above, it is not obvious that returning to surplus with such a sharp fiscal consolidation is the best strategy. There is a potential for fiscal tightening to put even more pressure on struggling companies, especially in the retail sector. But the environment is extremely uncertain.

Some themes of the Budget

Spreading the benefits of the mining boom

In his Budget Speech the Treasurer indicated that a key theme of this year’s Budget is to share the benefits of the mining boom with more Australians. 21 The increase in revenue from the Minerals Resource Rent Tax (MRRT) will fund a range of initiatives targeting families and businesses (see the accompanying brief Minerals Resource Rent Tax: changes to revenue and expenditure estimates). However, it is important to recognise that Australians and the wider economy are already significantly benefiting from the mining boom. Professor Bob Gregory’s analysis of the implications for Australia’s living standards of the large and sustained increase in the terms of trade associated with the mining boom highlights that unlike previous mining booms the current episode has been overwhelmingly driven by changes in the price of Australia’s exports rather than export volume growth generated by new discoveries.22 Another key difference is that in previous mining booms Australia had a fixed or tightly managed exchange rate, which meant that the real exchange rate could only adjust to the terms of trade shock through higher inflation. In contrast, a floating exchange rate in the current episode has allowed the Australian dollar to appreciate, thereby keeping downward pressure on import prices and moderating inflationary pressures.

Professor Gregory estimates that the direct and indirect income effects from the trading gains have lifted Australian living standards relative to the United States from an average in the long run of around 92 per cent over the 1959-2003 period to a current level of 115 per cent. In other words, in just eight years, Australian living standards have increased by 25 per cent relative to the United States, which as Professor Gregory notes is an extraordinary change by historical standards.

20 . S Kompo-Harms, ‘Budget 2011-12 — key features’, in Parliamentary Library Budget Review 2011-12, Parliamentary Library, Canberra, 2011, viewed 17 May 2012. 21. W Swan (Treasurer), Budget speech 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 17 May 2012. 22. R G Gregory, op. cit.

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The appreciation in the exchange rate has been an important mechanism for helping spread the benefits of the mining boom more widely in the Australian community. A stronger Australian dollar reallocates some of the direct income gains from the mining industry to those who buy imports or products with a large import component. This is because a stronger Australian dollar reduces the domestic price of both mining exports and imported products. For wage earners the gains in real living standards since 2003 have been substantially delivered through the increased purchasing power generated by lower import prices.

The Reserve Bank of Australia (RBA) has also highlighted the ways in which the benefits of the mining boom flow through to the wider economy. For example, the RBA estimates that while the mining sector currently accounts for around 10 per cent of Australia’s GDP and 2¾ per cent of total employment, when account is taken of the inputs into the mining sector produced by other domestic industries and those employed in activities related to the mining sector, these figures are around 16-17 per cent and eight per cent respectively.23 Although the mechanisms by which the benefits of the mining boom flow through to the wider economy can be hard to see they are real nonetheless. In this regard, Deputy Governor Philip Lowe has noted that:

In effect, there is a chain that links the investment boom in the Pilbara and in Queensland to the increase in spending at cafes and restaurants in Melbourne and Sydney. This chain starts with the high terms of trade that has pushed up the Australian dollar. In turn, the high dollar has meant that the prices that Australians pay for many manufactured goods are, on average, no higher than they were a decade ago, despite average household incomes having increased by more than 60 per cent over this period. The stable prices for many goods, combined with strong disposable income growth, mean there is more disposable income to be spent on services in cities and towns far from where the resources boom is taking place.

24

This is not to suggest that everyone has benefited as a result of the mining boom or to the same extent. Nevertheless, in framing policies that are intended to redistribute the gains from the mining boom, it is important to recognise the ways in which and the extent to which the wider economy and community are already benefiting.

Redistribution

The Australian newspaper on 9 May 2012, the day after the Budget, carried the front page headline, ‘Smash the Rich’. The Treasurer, in his budget speech, emphasised that he wanted to alleviate cost of living pressures on ‘families and pensioners on modest incomes.’25

The Budget has not made substantial reforms to ‘middle class welfare’—payments through the tax and transfer systems to relatively affluent people. It is much more difficult to take such benefits

23. P Lowe, Developments in the mining and non-mining economies, Address to the ADC Future Summit, Melbourne, 14 May 2012, RBA website, viewed 17 May 2012. 24. P Lowe, ‘The forces shaping the economy over 2012’, op. cit., p. 88. 25. W Swan (Treasurer), op. cit.

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away than to instigate them. The links in the following discussion are to accompanying briefs in this Budget Review which deal with the measures mentioned.

There have been minor adjustments to some measures, including;

• reducing the tax concession for superannuation contributions of very high income earners (over

$300 000 a year), which increases revenue by $1.0 billion over four years, in the context of tax expenditures on superannuation worth $27.2 billion in 2010-11, when almost 20 per cent of superannuation contributions are made by the top five per cent of income earners. 26

• changes to the net medical expenses tax offset to reduce it for people on high incomes, which

saves $370 million over three years.

There is also increased funding for compliance activities by the Australian Tax Office, but this is to implement the existing system.

There are some measures which will benefit low income earners, including:

• the new ‘Schoolkids Bonus’ cash payment, which replaces the existing Education Tax Refund

• the increase in the rates of payment for FTB-A and

• a new ‘Supplementary Allowance’ providing a small cash payment to certain income support

recipients—particularly Newstart, Youth Allowance and Parenting Payment recipients.

Journalist Ross Gittins quotes the calculations of Professor Peter Whiteford, of the University of New South Wales, to say that the cost of the welfare measures, $8 billion over four years, represents an increase of less than 1 per cent of total budget spending on health and social security.27

These measures will help those who are eligible, but do little to address the kinds of issues identified by the Henry Review with regard to the adequacy, complexity and incoherence of the welfare system. In particular, there has been no attempt to address the increasing gap between allowance and pension payment rates caused by different indexation methods. This issue is dealt with in the accompanying brief on New and increased benefits for families and job-seekers.

Meanwhile, limiting eligibility for FTB-A to young people under 18 years of age or, where a young person remains in secondary school, the end of the year in which they turn 19, results in a saving of $312 million over four years. This measure is discussed in the accompanying brief, Family Tax Benefit

Part A—change to age of eligibility. While it does have a clear rationale, the funds will be lost by people who are by definition not affluent.

26. R Clare, The equity of government assistance for retirement income in Australia, Research Paper, Association of Superannuation Funds of Australia (ASFA), February 2012, pp. 18-21, viewed 6 May 2012. 27. R Gittins, ‘Spreading the love to buy votes? So what, it was about time’, Sydney Morning Herald, 16 May 2012, viewed 17 May 2012.

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Improving the productive capacity of the economy

The Budget contains some measures which are likely to improve the productive capacity of the economy. There are measures applying to individuals and companies, but there is little new expenditure on infrastructure.

The individual measures are mostly directed at improving workforce participation. These are discussed in the accompanying brief Increasing workforce participation.

There are further measures to support mathematics and science education (see accompanying brief Mathematics and science—increasing participation). There is also an increase of $55.7 million over four years in funding for the Home Interaction Program for Parents and Youngsters, which helps parents prepare their children for school. There are few real changes in the education area, but this is in the context of a rise in participation in higher education building on earlier measures, reform of skills training in conjunction with the States and Territories, and a foreshadowed reform of school funding.

The main business focused measure is the business tax loss carry-back, which is discussed in an accompanying brief, Abandoning a reduction in the company tax rate and introduction of tax loss carry-back. This is a new measure which will reduce risk and therefore encourage innovation by

business. It will not be of benefit to all businesses, but it appears to be particularly appropriate, given the uncertainty in the international economy discussed above.

There are few new infrastructure financing measures in the Budget. This is perhaps understandable, given infrastructure funding associated with the response to the global financial crisis, the spending on the National Broadband Network, and creation of the Regional Infrastructure Fund in association with the Minerals Resource Rent Tax.

Reactions from business associations and community groups

Australian Chamber of Commerce and Industry

The Chief Executive of the Australian Chamber of Commerce and Industry, Peter Anderson, has labelled the federal Budget as strong in ambition to repair government finances but lacking in vision and support for the economy. Mr Anderson stated that while returning the budget to surplus is ambitious and should be supported by businesses if the forecast for improved economic conditions is realised, but proceeding with the carbon tax and failing to deliver the company tax cut fails to strengthen the economy and to address falls in the competitiveness and productivity of the business sector. 28

28. P Anderson, A budget of short term appeal, but bigger missed opportunities and a failure on company tax, media release, Australian Chamber of Commerce and Industry, 8 May 2012, viewed 11 May 2012.

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Australian Council of Social Services

The Australian Council of Social Services (ACOSS) has welcomed the overall budget which it believes moves to secure a more sustainable revenue base while funding important national priorities and implements a number of the Council’s recommendations to make the budget more equitable and sustainable. ACOSS notes that, while the budget makes the tax system fairer and will result in improvements for low income earners, there is no strengthening of investment for the long-term unemployed, unsustainable cuts to Job Services Australia and 100 000 sole parents as ‘collateral damage’.29

Australian Council of Trade Unions

According to the Australian Council of Trade Unions (ACTU), the federal budget has been driven by the government’s objective to return a surplus and provides a progressive tax system, better assistance for low and middle income earners and protection for jobs in struggling businesses. However, the ACTU believes cuts to public service jobs and social security are regrettable and while the forecast for Australia’s economy indicates lower unemployment than the United States and much of Europe, the government should be mindful of ongoing global economic instability and the necessity to reconsider their position if necessary. 30

Australian Industry Group

The Australian Industry Group (AIG) welcomes the budget surplus but argues that the Government has sacrificed longer-term drivers of economic growth for a short-term boost to consumption. The AIG considers that additional taxes and costs imposed on industry will affect the capacity of business to boost productivity, improve Australia’s global competitiveness and increase employment by making critical longer term investments. Defence spending cuts also raise concerns about the impact on industry. However, the AIG expects the budget surplus to have important national benefits, particularly for industry, in relation to increased levels of permanent migration addressing skills shortages, emphasis on incentives to encourage mature-age Australians in the workforce, ongoing commitment to higher education, training and skills and the establishment of a manufacturing technology centre and Australian skills centre.31

Business Council of Australia

The Business Council of Australia (BCA) believes that the federal budget takes some steps to strengthen Australia’s economy but has missed an opportunity to outline a clear medium-term economic strategy. While the budget surplus is supported, the BCA believes the test for the

29. C Goldie, Robin Hood comes good, except for single parent families, media release, Australian Council of Social Service, 8 May 2012, viewed 11 May 2012. 30. G Kearney, Government takes important steps toward creating a fairer Australia with 2012 Budget, media release, Australian Council of Trade Unions, 8 May 2012, viewed 11 May 2012. 31. Australian Industry Group, Business pays back to black budget, media release, 8 May 2012, viewed on 11 May 2012.

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government will be in implementing and delivering the projected surplus. The Business Council welcomes the welfare and social services reforms and measures to support the economy’s productive capacity, but sounds a warning against ad hoc measures, recommending comprehensive welfare and tax reform, and an independent audit of the scope and size of government to develop a medium-term strategy for sustainable focussed expenditure and to support growth. 32

Every Australian Counts

Every Australian Counts, an organisation which lobbies for improved services for people with disabilities, has said that the $1 billion to be committed over four years is a welcome measure and, in a tight fiscal environment, represents a positive change for Australians living with a disability. It notes that the scheme, which lays a strong foundation to realise the National Disability Insurance Scheme, comes sooner than expected and will rely heavily on cooperation between federal, state and territory governments.33

32. J Westacott, Budget a start but a comprehensive strategy must follow, media release, Business Council of Australia, 8 May 2012, viewed 11 May 2012. 33. J Della Bosca, NDIS: Budget makes it real, media release, Every Australian Counts, 8 May 2012, viewed 11 May 2012.

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Government debt

Richard Webb

The value of Commonwealth Government Securities (CGS)—Treasury Bonds, Treasury Indexed Bonds, Treasury Notes and Aussie Infrastructure Bonds—that can be issued is limited. The Commonwealth Inscribed Stock Act 1911 limits, to $250 billion, the total face (as distinct from market) value of the stock and securities on issue under this Act and the Loans Securities Act 1919. 34 The Budget contains a proposal to increase the limit to $300 billion.35 The reasons given relate to timing, namely, within-year differences between the times when outlays are paid and revenue is received, and the timing of bond maturities and their refinancing.36

A determinant of the value of CGS on issue is the need to finance budget deficits. Over the period 2008-09 to 2011-12, estimated cumulative deficits (measured in underlying cash balance terms) amounted to $174 billion.37 Over the same period, the market value of CGS rose from $58 billion at 30 June 2008 to $266 billion at 30 June 2012, an increase of 355 per cent. 38 The projected surpluses from 2012-13 to 2015-16, if realised, will help to reduce the value of CGS on issue. 39

A second determinant is the need for a liquid market for government debt, that is, a market where CGS can be readily bought and sold. The Howard Government entertained redeeming all CGS but, following a review of the CGS market, decided to keep it open even though the Budget was in surplus.40 More recently, a panel of market participants and regulators recommended that the CGS market should be maintained at around 12 to 14 per cent of gross domestic product. 41

A factor that influences market—as distinct from face—values of CGS is current and expected interest rates. Market value differs from face value because as interest rates rise, bond prices fall, and as interest rates fall, bond prices rise to ensure that the yield (interest as a percentage of market

price) on CGS already on issue equals the prevailing market interest rate. The Reserve Bank influences interest rates through monetary policy. A major consideration in Reserve Bank decisions is inflation: when expected inflation is too high (or low), the Reserve Bank raises (or lowers) interest rates. The budget papers show the consumer price index—an inflation indicator—as rising by 1.25 per cent in 2011-12, 3.25 per cent in 2012-13, and 2.5 per cent in each of 2013-14, 2014-15 and

34. The limit relates to the amount on issue at any one time, irrespective of flows, that is, new issues and retirements. 35. Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 7-18, viewed 14 May 2012.

36. Ibid., pp. 7-17 and 7-18. 37. Ibid., p. 10-6. 38. Ibid., p. 9-4; Australian Government, Final Budget Outcome: 2007-08, Commonwealth of Australia, Canberra, 2008, p. 15, viewed 15 May 2012;

39. Ibid., p. 10-6. 40. Department of the Treasury, ‘Review of the Commonwealth Government Securities market’, Treasury website, , viewed 14 May 2012. The Howard Government announced its policies with respect to the CGS market in the 2003-04 Budget. See Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2003-04, Commonwealth of

Australia, Canberra, 2003, p. 10-6, viewed 14 May 2012. 41. S Koukoulas, ‘Lift debt ceiling or lose liquidity’, Australian Financial Review, 14 May 2012, viewed 14 May 2012.

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2015-16. 42 This suggests that the influence of inflation on the Reserve Bank’s interest rate decisions may decline over the forward estimates period and that the market value of CGS could increase. However, other factors, such as the economic outlook for the Euro zone, may also influence interest rates.

The Budget estimates that the face value of CGS on issue at 30 June 2012 will be $235 billion but does not contain estimates for the forward years. 43 The Budget does, however, include estimates of year-end market values as shown in the Table, which also shows the per cent change in those values.

Table: Market value of CGS on issue

Year 2011-12 2012-13 2013-14 2014-15 2015-16

Market value at 30 June ($ millions) 265 844 274 231 281 332 281 348 279 234

Per cent change 31.766 3.155 2.589 0.006 -0.751

Sources: Budget Paper No. 1: 2012-13, op. cit., p. 9-4, and Australian Government, Final Budget Outcome 2010-11, p. 17. Note: the estimated value at 30 June 2011 is $201 755 million.

The Table shows that, after increasing by 32 per cent in 2011-12, the market value of CGS (in nominal dollars) is not expected to fall until 2015-16, although it will fall in real terms in 2014-15 and again in 2015-16 assuming inflation of 2.5 per cent in those two years.

CGS are the single biggest component of liabilities. However, the Government also owns assets. Looking only at gross liabilities—which include CGS—may thus give a misleading picture of government finances. Net debt is an indicator of the Government’s financial viability.44 Net debt is the difference between liabilities in the forms of deposits held, CGS, loans, and other borrowings, and assets in the forms of cash and deposits, advances paid, and investments, loans and placements. After reaching 9.6 per cent of gross domestic product in 2011-12, net debt is expected to fall to 9.2 per cent in 2012-13 and to fall thereafter to 7.3 per cent in 2015-16. 45

42. Budget Paper No. 1: 2012-13, op. cit., p. 1-8. 43. Ibid., p. 7-12. 44. Other indicators are net financial worth and net debt. 45. Budget Paper No. 1: 2012-13, op. cit., p. 10-8.

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Savings and revenue

Les Nielson

In the 2012-13 Budget the surplus has been achieved by a number of methods:

• not proceeding with previously announced, but not yet implemented, measures

- for example, the previously announced company tax reductions that are now not going

ahead46

• revenue increases and increased savings from existing programs

- for example, the increase in the final withholding tax rate on distributions from managed

investments paid to overseas residents from 7.5 to 15 per cent 47

• ceasing programs and redirecting the funds elsewhere

- for example, the cessation of the National Health and Hospitals Network - Aged care -

expanded access to multi-purpose services program48

• deferring measures to another time

- for example, deferring the starting date for the increased concessional superannuation

contribution limits from 1 July 2012 to 1 July 2014 49

• reducing funding of existing programs

- for example, the redirection of funding from the Australian Intelligence Community to other

national intelligence priorities,50 and

• improving compliance with existing programs and policies

- for example, the fraud prevention and compliance initiative across several departments.51

The following table, based on the Parliamentary Library’s analysis of the measures in Budget Measures: Budget Paper No. 2: 2012-13, shows the contribution each of the above methods makes to the total of savings and revenue. That is, the increases in revenue were added to the reductions in expenses and classified according to the above methods. The percentage of savings and revenue

46. Australian Government, Budget Measures: Budget Paper No. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 22, viewed 11 May 2012. 47. Ibid., p. 31. 48. Ibid., p. 195. 49. Ibid., p. 40. 50. Ibid., p. 101. 51. Ibid., p. 209.

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increases is shown for each method for each year, including the forward estimates period. The complete list of revenue, expense and capital measures are in Budget Paper no. 2. 52

Table 1: Summary of savings and revenue - percentage of annual totals

Source 2011-12 2012-13 2013-14 2014-15 2015-16

Do not proceed 18 7 22 33 40

Revenue increases/savings 17 39 49 46 42

Programs ceased 29 32 6 6 6

Deferred programs 2 17 16 4 2

Reduced funding 33 3 2 2 2

Compliance 0 2 4 10 8

Annual totals as % of 5 year total 1 17 22 27 32

Source: Parliamentary Library analysis of Budget Paper No. 2

Several points can be drawn from the above table:

• over the forward estimates, the bulk of the program savings arise from measures not proceeded

with and revenue increases/increased savings from existing programs. Over the five year period the latter category is the largest source of savings

• the overall savings increase in the out-years. So the full effect of this particular budget on savings

and increased revenue will not be fully realised until 2015-16

• savings from compliance are significant and increase as a proportion of the overall totals towards

the end of the period. While this is normal (it takes time for increased compliance to show results) it should be borne in mind that this is an uncertain source of savings, unless there is a gross level of non-compliance known to be occurring

• the pattern of savings realised from the other categories is as you would expect:

- a large contribution initially from reduced funding and programs ceasing tapers off over the

forward estimates period

- the contribution of deferred programs decreases as, presumably, they are implemented at a

later date and

- the contribution of the initiatives not proceeded with (especially the cut to the company tax

rate) is projected to increase, as tax collections at the current rates increase due to fiscal drag.

52. Ibid., p. 1 and following (for revenue); p. 47 and following (for expense); and p. 287 and following (for capital measures).

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Arts

Dr John Gardiner-Garden

The 2012-13 federal Budget did not, despite earlier expectations, end up being the vehicle to launch a new national cultural policy. The development of this policy began in 2009 with the setting up of a steering committee, and continued in the follow years with the issuing of a discussion paper, commencement of consultations, receipt of hundreds of submissions and the commissioning of a review of government support for philanthropy and a review of the Arts Council.53 It is now anticipated that the new cultural policy, incorporating the Government’s response to the philanthropy and Australia Council reviews will be unveiled later this year.

The Budget did include an extra $39.3 million over four years to help national institutions open up their collections for community, education and research use. 54 This funding comes in the context of the Collections Councils of Australia and the Collections Australia Network being defunded in 2010 and 2011 respectively.

The Budget also included $3.2 million over two years to help the Australia Business Arts Foundation prepare its response to the Review of Private Sector Support for the Arts; $3 million over four years to boost contemporary music industry innovation and export; $2 million in 2011-12 contribution to the construction of the Antipodes Centre for Greek Culture, Heritage and Language in Melbourne; $1.5 million in 2011-12 to support capital works for the creation of the Islamic Museum of Australia in the heart of Melbourne; $1.6 million over four years to help the Australian National Academy of Music provide elite level brass and percussion training; and $700 000 to support two more years of funding the resale royalty scheme for visual artists and a post-implementation review of the scheme.55 The cost of providing $2.7 million over three years to establish the National Portrait Gallery as a separate statutory authority (‘to bring it into line with other major national cultural institutions’ and give it ‘deserved recognition as an iconic national institution’56), is to be met from within the existing resourcing of the Department of Regional Australia, Local Government, Arts and Sport. 57

53. See Australian Government, National Cultural Policy Discussion Paper, 2011; Building Support: Report of the Review of Private Sector Support for the Arts in Australia, October 2011, viewed 10 May 2012; S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts) Arts support review to secure new audiences and opportunities, media release, 19 December 2011, viewed 10 May 2012.

54. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), Government building the future for arts and creativity, media release, 8 May 2012, viewed 9 May 2012. The funding will apply to the Australian National Maritime Museum, the National Archives of Australia, the Bundanon Trust, National Film and Sound Archive of Australia, the National Gallery of Australia, National Library of Australia, the National Museum of Australia, and the Museum of Australian Democracy at Old Parliament House 55. Ibid.

56. Ibid.

57. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 255, viewed 10 May 2012.

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The Budget also reported a $12.8 million contribution to the filming of The Wolverine for the financial year 2011-12. 58 This had been announced in April 2012 with Minister Crean referring to it as ‘a one-off payment of which will trigger more than $80 million of investment in Australia, create

more than 2000 jobs and reaffirm our nation’s status as one of the world’s best filming destinations’.59 According to the Budget Paper No.2 it is ‘in addition to the Location Tax Offset which provides a 16.5 per cent refundable tax offset for the production of large-budget international film and television projects shot in Australia’.60 Considering there has already been a debate about the liberality involved in the use of existing film-support mechanisms61, this ‘out-of-channel’ funding of a film project may end up attracting the same sort of debate as did the ‘out-of channel’ funding of Melba Records by successive governments between 2004 and 2011 62. Perhaps anticipating this Minister Crean has said screen industry issues would be addressed by the National Cultural Policy.63

58. Australian Government, Portfolio budget statements 2012-13: Budget related paper no.1.16: Regional Australia, Local Government, Arts and Sport Portfolio, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 59. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), Government building the future for arts and creativity, media release, 8 May 2012, viewed 9 May 2012; Australian

Government, Portfolio Supplementary Additional Estimates Statements 2011-12, Commonwealth of Australia, Canberra, 2012, p. 8, viewed 10 May 2012. 60. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 250, viewed 10 May 2012. 61. For example G Jenning-Edquist, First Gatsby, now Miller... how American stories win Aussie film funds, crikey website,

15 March 2011, viewed 10 May 2012. 62. Ben Eltham, Millions for a tiny record label with powerful players, crikey website, 5 April 2012, viewed 10 May 2012. 63. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), and J Gillard (Prime Minister), The Wolverine to film in Australia, media release, 20 April 2012, viewed 9 May 2012: ‘The

issues facing the screen industry are a focus of the National Cultural Policy and as such, will remain on the Government’s agenda in the coming years.’

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Broadcasting

Dr Rhonda Jolly

Bonus for the public broadcasters

Australia’s public broadcasters have suffered a decline in real funding for many years.64 In response, both the ABC and SBS have resorted to a number of compensatory actions. These have included the controversial outsourcing of programming, and for SBS, the inclusion of in-program advertising.65

Prior to this Budget it was suggested by one commentator, that such austerity measures were insufficient and that the ABC at least should be directed to find Budget cuts—reducing the number of television and radio stations and websites it operates—to force it to concentrate on its ‘core purpose’.66 It has been argued in opposition to this view, however, that both broadcasters have been struggling to deliver on their charter obligations as a result of financial constraints. 67 This was particularly the case for SBS, with media analyst Margaret Simons observing that the second public broadcaster was ‘at a turning point in its history. It has never been so neglected by government or so strapped for cash’.68

SBS supporters lobbied the Government intensely before the Budget; the Save our SBS group encouraging people to send nearly 10 000 messages urging increased public funding and the removal of ‘disruptive’ commercial breaks.69 A substantial submission to the Government from the Australian Greens argued that public funding shortfalls led to ‘systematic creeping commercialisation of SBS’, but that advertising revenue has begun to dry up, a situation which will have a significant influence on the broadcaster. 70

For once, however, the Budget has delivered positive outcomes for both the public broadcasters. SBS in particular has benefitted with extra funding of $158 million.71 Commentators have rightly labelled this SBS’s most significant funding ever. SBS Managing Director, Michael Ebeid, has been quoted as saying the funding will provide SBS with the means ‘to be sustainable and to position for the future’. 72 Ebeid believes the funding increase will be sufficient to offset the slower growth in

64. R Jolly, The ABC: an overview, Background note, 20 April 2011, Parliamentary Library, Canberra, 2011, viewed 9 May 2012. 65. Outsourcing was investigated by the Senate Environment and Communications References Committee in its report, Recent ABC programming decisions, The Senate, Canberra, October 2011, viewed 9 May 2012. 66. C Kenny, ‘Looking for Budget cuts? Try the ABC’, Goodly Fabric blog site (linked to The Australian), 24 April 2012,

viewed 9 May 2012. 67. See discussion in Jolly, op. cit. 68. M Simons, ‘Sex before soccer: SBS’, The Monthly, June 2011, view 9 May 2012. 69. ‘Why SBS received a funding increase’, Save Our SBS website, 8 May 2012, viewed 9 May 2012 70. Greens budget submission, Budget submission: additional funding for SBS of $90 million per annum, n.d., Greens

website, viewed 9 May 2012. 71. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 9 May 2012. 72. D Knox, ‘$158 funding boost for SBS’, TV Tonight blog site, 8 May 2012, viewed 9 May 2012.

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commercial revenues and to support the development of news and content that inspires and connects communities.

While in the view of one commentator the Budget funding is akin to winning the lottery prize of $70 million drawn on Budget night, the funding comes with added responsibilities and possible conflicts. 73 SBS will be required to establish a free-to-air national Indigenous television channel to be available through its full terrestrial network and on the Viewer Access Satellite Television service (VAST) during the second half of 2012. The Indigenous television service has been allocated $63 million from the budget measure.

In 2006, academic Ellie Rennie considered it was a real possibility that Indigenous television would become an additional ABC channel.74 The idea of combining an Indigenous television service and either the ABC or SBS was also mooted in a 2008 discussion paper on the future of the public broadcasters.75 According to Rennie’s research however, some Indigenous communities were not convinced that a national Indigenous television channel would actually address the social and political needs of its audience. These communities were concerned at the time that funding for a proposed National Indigenous Television service (NITV) would be spent on ‘slick programming’ instead of an ‘audience-producer engagement model’.76 A Government review in 2010 confirmed that such tensions existed in Indigenous broadcasting;77 these have the potential to carry over into the new SBS-managed environment.

The NITV service established in July 2007 has struggled. The review of Indigenous broadcasting in 2011 labelling it under-resourced, lacking in critical capacity and skills and suffering from being administered across a range of portfolios.78 Recommendations from the review prompted tempered enthusiasm from NITV management for a possible SBS merger, and this remains the case initially following the Budget announcement. 79 Concerns about the possible loss of Indigenous control of content expressed in 2011 appear to have been resolved with SBS promising that editorial control will remain with Indigenous people.80 It remains to be seen if remote communities will be as enthusiastic about the SBS takeover.

There remain questions also about whether the one off funding in this Budget will truly be enough to compensate for years of neglect and, more importantly, whether it will in any way diminish SBS’s reliance on advertising to bolster its revenues. The skeptical would answer that $158 million is

73. ‘SBS scores jackpot in federal budget’, Talking Television blog site, 9 May 2012, viewed 9 May 2012. 74. E Rennie, Let’s spell it out once and for all, Australian Policy Online, 12 October 2006, viewed 9 May 2012. 75. Department of Broadband, Communications and the Digital Economy, ABC and SBS: towards a digital future, DBCDE, October 2008, viewed 9 May 2012.

76. Ibid.

77. N Stevens, Review of Australian Government investment in the Indigenous broadcasting and media sector, Office for the Arts, Department of Prime Minister and Cabinet, 2011, viewed 9 May 2012. 78. Ibid.

79. SBS and NITV, SBS to launch new free to air Indigenous channel, media release, 8 May 2012, viewed 9 May 2012. 80. Comment by NITV Director of Content, Tanya Denning, T Gassin, ‘SBS and NITV begin merger talks’, The Spy Report website, 2 September 2011, viewed 9 May 2012 and SBS and NITV media release, op. cit.

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clearly not enough compensation for past omissions, and given SBS’s added role in promoting Indigenous broadcasting, scarcely sufficient to deal with its added brief. Any one-off funding boost needs therefore to be followed by greater ongoing funding.

The ABC, while less of a beneficiary of budget largess than its fellow national broadcaster, has also been favoured with additional funds. The funding of $7.6 million over five years (including $5 million capital funding in 2011-12), is to assist the broadcaster to upgrade radio transmission sites and studios to compatibility with the VAST platform by the completion of the switchover to digital television. As Senator Conroy noted in his media release, this funding will ensure that access to news, current affairs, sport and entertainment services that many Australians rely on will not be lost. 81 For rural and remote areas it is funding well targeted with the broadcasters due to convert 652 radio services located at 367 transmission sites and to upgrade 60 studio sites. 82

Commercial benefits

Added funding for public broadcasters has not meant that the Budget has over overlooked their commercial counterparts. While commentators have not appeared to notice, these broadcasters will receive funding over five years ($143.2 million) to support the process of restacking of television broadcasting services to new channels to release a digital dividend of 700 MHz of spectrum (the public broadcasters will also receive a share of this funding).83 In addition, the ABC and the commercial broadcasters will receive funding of $53.5 million over four years to assist with the purchase and deployment of electronic news gathering equipment to assist them to operate in alternative spectrum bands and to clear for release the 2.5GHz spectrum band.

This will assist the Government in proceeding with the auction of rights to use portions of the 2.5GHz band for other services such as mobile broadband. This should be popular with industry as only recently the Australian Communication and Media Authority has been criticised for suggesting that the auction may be delayed. Optus for example remarked that timely access to spectrum was vital for Australia’s economy.84

81. S Conroy (Minister for Broadband, Communications and the Digital Economy), Funding boost to support our public broadcasters, media release, 8 May 2012, viewed 9 May 2012. 82. Australian Government, Portfolio Budget Statements 2012-13: budget related paper no.1.3:Broadband, Communications and the Digital Economy Portfolio, Commonwealth of Australia, Canberra, 2012, p. 91, viewed

9 May 2012. 83. The process of clearing digital television services from the digital dividend band is referred to as restacking. 84. D Ramli, ‘Optus hits out at handling of spectrum auction’, The Australian Financial Review, 12 April 2012, viewed

9 May 2012.

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Climate change: out on a limb

Anita Talberg

The Government has put all its climate change eggs in one basket: the Clean Energy Future (CEF) package and its Regulator. Perhaps it hopes the establishment of a price on greenhouse gas emissions will obviate the need for other mechanisms to reduce emissions. Or perhaps it has exhausted most of its funding in providing assistance to cushion the impact of the CEF package. Whatever the reason, it could be a risky move, especially against the current political backdrop.

Clean Energy Regulator

Pre-Budget media leaks suggesting that a third of the Department of Climate Change and Energy Efficiency (DCCEE) staff would be axed have proved inaccurate. 85 While DCCEE itself loses 344 staff, its own agencies—the Climate Change Authority, Low Carbon Australia and the Clean Energy Regulator (CER)—pick up a total of 305. This brings the difference to just 39 jobs. The CER, which replaces three existing statutory bodies—the Carbon Credits Administrator, the Greenhouse and Energy Data Officer and the Office of the Renewable Energy Regulator—and is charged with administering the CEF, will employ 355 staff when it reaches its full complement.86

Climate change programs cut, delayed or ending

Many existing climate change and renewable energy programs are being discontinued because the Government considers them either redundant under a carbon price or just not value for money. As was anticipated on 28 February 2012 when its sudden closure was announced, funding for the Solar Hot Water Rebate has not been extended. 87 The controversial Green Loans/Green Start and Home Insulation Programs have also come to an end. 88 The popular Solar Cities program, which has seen nine Australian cities trial sustainable energy methods, will end as planned in mid-2013.89 The National Solar Schools Program (NSSP), which was initially to end in 2015 but was brought forward by two years in the last Budget, will finish in 2013 despite its success. 90 Budget papers in 2010-11

85. M Franklin, ‘Labor takes axe to green bureaucrats to bolster surplus’, Australian, 4 April 2012, p. 1, viewed 10 May 2012. 86. G Combet, ‘Clean Energy (Consequential Amendments) Bill 2011’, Second Reading Speech, House of Representatives, Debates, 13 September 2011, viewed 10 May 2012; Australian Government, Budget strategy and outlook: budget

paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 6-72, viewed 10 May 2012. 87. A Talberg, ‘The sun sets on solar hot water rebates’, FlagPost, Parliamentary Library, Canberra, 29 February 2012, viewed 10 May 2012; and Australian Government, Portfolio budget statements 2012-13: budget related paper no.

1.4: Climate Change and Energy Efficiency Portfolio, Commonwealth of Australia, 2012, p. 26, viewed 10 May 2012. 88. Portfolio budget statements 2012-13, Climate Change and Energy Efficiency Portfolio, op. cit., p 26. 89. Ibid.

90. A Talberg, Budget 2011-12: Renewable energy, Budget Review 2011-12, Parliamentary Library, Canberra, 2011, viewed 10 May 2012; and Portfolio budget statements 2012-13, Climate Change and Energy Efficiency Portfolio, op. cit., p 26.

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indicated that $49.8 million would be available for NSSP grants until July 2013 yet less than $15 million looks to be disbursed over that time. 91

The Connecting Renewables to the Grid program has been delayed, with a total of $72 million moved to beyond the forward estimates. 92 This program was designed to help deliver renewable energy from remote and regional areas. Similarly, funding for the Low Emission Technology Demonstration Fund has been delayed until 2013-14 and reduced by 80 per cent. 93

Two programs that had been under consultation will not eventuate. The first is the Cleaner Future for Power Stations package. It would have imposed stringent emissions performance standards on new coal-fired power plants.94 Under a carbon price, the Government has decided that an emissions standard is redundant and will not proceed with its implementation.95 The second is the 2010 election commitment for Tax Breaks for Green Buildings. Despite undertaking extensive and promising consultations with stakeholders, the Government is discarding the scheme. It claims that a comparable role is filled by the Clean Energy Finance Corporation established under the CEF to provide loans for sustainable energy solutions.96 A diverse suite of programs to deal with greenhouse gas emissions is thus being reduced, and the replacement is the single CEF package.

Programs outside the CEF

Those programs that have survived or have been introduced are sparse and seem arbitrary. The Minister for Climate Change and Energy Efficiency announced three new funding streams: $37.1 million over four years towards harmonising State and Territory laws on the energy efficiency of appliances; $3 million in 2012-13 for climate change adaptation activities in response to the Productivity Commission’s draft report on barriers to such endeavours; and $2.8 million additional funding over four years for energy efficiency in buildings ($2.4 million of which is redirected from the Green Building Fund).97 The Low Carbon Communities plan, a 2010 election promise to assist local councils in acting on climate change, has survived this Budget; as has the Energy Efficiency Information Grants program that is available to small and medium businesses.98 The Carbon Capture

91. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra, 2011, p. 123, viewed 10 May 2012; and Portfolio budget statements 2012-13, Climate Change and Energy Efficiency Portfolio, op. cit., p. 26.

92. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.17: Resources, Energy and Tourism Portfolio, Commonwealth of Australia, Canberra, 2012, p. 58, viewed 10 May 2012. 93. Portfolio budget statements 2012-13: budget related paper no. 1.17: Resources, Energy and Tourism Portfolio, op. cit., pp. 35, 38. 94. Department of Resources, Energy and Tourism (DRET), ‘A Cleaner Future for Power Stations package‘, DRET website,

viewed 10 May 2012. 95. Australian Government, Draft Energy White Paper - Chapter 6B, Commonwealth of Australia, Canberra, 2011, p. 162, viewed 10 May 2012. 96. G Combet (Minister for Climate Change and Energy Efficiency), Carbon price to cut pollution, support jobs and assist

households, media release, 8 May 2012, viewed 10 May 2012. 97. Ibid; and Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 99, 100, 227, viewed 10 May 2012. 98. Portfolio budget statements 2012-13, Climate Change and Energy Efficiency Portfolio, op. cit., p. 26.

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and Storage (CCS) FlagShip has had some funding pushed out beyond the forward estimates, but monies for the National CO2 Infrastructure Plan and Global CCS Institute are unchanged. 99 For the

small offering of programs DCCEE is administering outside the CEF, it is unsurprising that average staffing levels have been reduced by more than 30 per cent.

Advertising the CEF

The Government has a strong interest in seeing that the CEF is understood and accepted. In June 2011, the Minister for Climate Change and Energy Efficiency announced $12 million for a climate change public information campaign.100 This does not appear in the DCCEE Portfolio Additional Estimates Statement of November 2011. However, there is funding of $30.7 million in 2011-12 for an ‘Advertising Campaign’ under the CEF. 101 It is not clear whether this program is the same as the CEF ‘Public Information Campaign’ which appears in the DCCEE portfolio budget statement this year with $21.6 million earmarked for 2011-12 and $2 million for 2012-13. 102

There are two additional advertising efforts: a program for household advice on improving energy efficiency costed at $5.8 million over four years announced in the 2011-12 Mid-Year Economic Fiscal Outlook; and a plan to provide information on the CEF Household Assistance Package funded at $36.1 million over two years from 2011 to 2013. 103 The Opposition has criticised these expenses as an ‘outrageous waste of taxpayers’ money’. 104

Conclusion

The Opposition has vowed to repeal the CEF if it wins the next election. 105 This would leave only a smattering of programs to reduce greenhouse gas emissions. This could play in favour of the Opposition, which intends to disband DCCEE and significantly reduce overall public service staff numbers under its governance. 106 The challenge for a Coalition Government will be unravelling the associated tax reforms and generous welfare increases, or finding a new way to compensate for the loss of CEF revenue.

99. Portfolio budget statements 2012-13, Resources, Energy and Tourism Portfolio, op. cit., p. 25; and Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.16: Resources, Energy and Tourism Portfolio, Commonwealth of Australia, Canberra, 2011, p. 31, viewed 10 May 2012. 100. G Combet (Minister for Climate Change and Energy Efficiency), Climate change public information campaign, media

release, 16 June 2011, viewed 10 May 2012. 101. Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.4: Climate Change and Energy Efficiency Portfolio, Commonwealth of Australia, 2011, p. 23, viewed 10 May 2012. 102. Portfolio budget statements 2012-13, Climate Change and Energy Efficiency Portfolio, op. cit., p. 23. 103. Australian Government, Mid-Year Economic Fiscal Outlook 2011-12, Commonwealth of Australia, Canberra, 2011, p.

212; and Budget measures: budget paper no. 2: 2012-13, op. cit., p. 140. 104. D Wroe, $36m ad blitz under attack, WA Today, 10 May 2012, viewed 10 May 2012. 105. M Grattan and M Wroe, ‘Abbott’s blood oath to repeal carbon tax‘, The Age, 13 October 2011, viewed 10 May 2012. 106. S Maher, ‘Department of Climate Change for chop: Hockey‘, Australian, 4 August 2011, p. 5, viewed 10 May 2012;

and ‘Cut public service before welfare: Hockey‘, AAP, 4 May 2012, viewed 10 May 2012.

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Environment and natural resources

Bill McCormick

Caring for our country

The five year $2 billion Caring for our Country (CfoC) program was scheduled to finish on 30 June 2013. In the 2012-13 Budget, the government announced the program’s continuation for another five years, with funding of $2.2 billion over that time. This will start with $399 million in 2013-14, and then increase to $406 million in 2014-15 and to $464 million each year after that until 2018. 107

Earlier this year, an extensive review process of CfoC was completed, with the delivery of a final report in April 2012. The report found that CfoC is appropriate, effective and efficient in delivering a national-scale response to natural resource management (NRM) issues.108 A number of themes emerged from the consultation for this review, including the importance of the alignment of national, regional and local NRM priorities, improving efficiency of funding arrangements, and exploring potential to leverage funding from industry, the private sector and philanthropists.109

The next five years of the program will draw on the findings of the review and the strengths and successes of the first phase, focus on activities that address emerging priorities in natural resource management and strengthen the focus on the marine environment. 110

The existing CfoC (and the previous Natural Heritage Trust (NHT) Stage 2) has been delivered by a joint team comprising staff and resources from the Department of Sustainability, Environment, Water, Population and Communities (DSEWPaC) and the Department of Agriculture, Fisheries and Forestry (DAFF). Prior to this, the two departments delivered the 23 NHT Stage 1 programs separately. The CfoC Review Report noted that over the past year there has been a move to establish clearly defined portfolio responsibility for elements of CfoC and suggested that further disaggregation of joint delivery would improve efficiency and effectiveness. 111

The Government has taken note of these findings, and so from 2013-14 CfoC will be delivered separately by the two departments: a national sustainable environment stream, including the Working on Country and Environmental Stewardship programs, to be run by DSEWPaC; and a national sustainable agriculture stream, including Landcare, by DAFF. 112

107. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget Measure: budget paper no. 2:2012-13, Commonwealth of Australia, Canberra, 2012, pp. 267- 68, viewed 10 May 2012. 108. Caring for our Country (CfoC), Review of the Caring for our Country initiative April 2012, CfoC website, viewed 9 May

2012.

109. Ibid. 110. T Burke (Minister for Sustainability, Environment, Water, Population and Communities), Gillard government commits to another five years of caring for our country, media release, 8 May 2012, viewed 10 May 2012.

111. CfoC op. cit. 112. Budget measures: budget paper no. 2, op. cit., p. 267.

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No final decisions have been made about CfoC funding priorities, activities or delivery mechanisms. CfoC will be designed to complement other Government policies and programs such as the Biodiversity Fund and Carbon Farming Futures. It will address the protection and conservation matters of national environmental significance, the long term sustainability of Australia’s food and fibre production and the maintenance of healthy ecosystems essential to national wellbeing.113 The broad framework of Caring for our Country and areas for further consultation will shortly be available on the Caring for our Country website www.nrm.gov.au.114

Consultation on the future program design and implementation of CfoC will take place over the coming months, though regional delivery of CfoC programs will continue. 115

Greens Senator Larissa Waters stated that the Government has failed to extend Reef Rescue, a CfoC program.116 However, it is not clear if this will be the case as the Government is still considering details of any successor to Reef Rescue in CfoC. 117

Budget Measures: Budget Paper No. 2: 2012-13 states that there will be a saving from DSEWPaC of $123.2 million over four years from 2012-13 to provide $110 million as an offset to restructure the Tasmanian forestry industry and to fund other programs.118 However, the $110 million saving appears to have not been identified at the time of the 2011-12 Mid-year Economic and Fiscal Outlook.119 The $13.2 million identified in Budget Paper No. 2 is the additional savings in 2012-13 that were added to $110 million to make the $123.2 million figure. Note that Budget Paper No. 2 also identifies savings of $20.7 million from DSWEPaC in 2012-13 but only $7.5 million of this is transferred to Treasury. The remaining $13.2 million is the savings referred to previously.120

Along with these savings, an additional $95.9 million over seven years has been provided from 2011-12 to address animal and plant pests and diseases in the states and territories under a National Partnership Agreement (See separate brief on Biosecurity). These funds are shown in Budget Paper No. 2 as transferred from DSEWPaC and DAFF to Treasury.

113. Personal communication, Department of DSEWPaC 114. T Burke (Minister for Sustainability, Environment, Water, Population and Communities), Gillard government commits to another five years of caring for our country, media release, 9 May 2012, viewed 10 May 2012.

115. Ibid. 116. L Waters (Green Senator), Budget fails Great Reef, media release, 9 May 2012, viewed 10 May 2012. 117. Personal communication, Department of DSEWPaC email 118. Budget measures: budget paper no. 2, op. cit., pp.267-268. 119. Australian Government, Mid-year economic and fiscal outlook: 2011-12, Commonwealth of Australia, Canberra,

2011, pp. 200-01, viewed 10 May 2012 120. Budget measures: budget paper no. 2, op. cit., p. 267.

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Ensuring Australia’s biosecurity

Leo Terpstra and Roger Beckmann

The 2012-13 Budget commits $364.7 million over four years for Reforming Australia’s Biosecurity System:

• $67.3 million in 2012-13

• $141.4 million in 2013-14

• $102.2 million in 2014-15, and

• $53.8 million in 2015-16. 121

The most significant measure is the construction of a new post-entry quarantine facility that will be in Melbourne.122 Post-entry quarantine is when live plants and animals are held in the country while their status is assessed. The new facility is designed to consolidate all existing post-entry stations into one site. Currently, the Department of Agriculture Fisheries and Forestry (DAFF) operates five such facilities on leased sites. These will be closed as their leases expire.

The biosecurity budget 2012-13 factsheet shows the Government’s commitment to biosecurity and quarantine of $524.2 million in the period to 2018-19. 123 This comprises:

• $379.9 million over seven years to construct a new Commonwealth-operated post-entry

quarantine station. The facility will commence operations in 2015-16 and be fully operational on completion in 2018-19 124

• $144.3 million over four years to fund core biosecurity operations, including $124.5 million for

“core frontline biosecurity operations and external review and verification processes” and $19.8 million for biosecurity information technology.125

In addition to the $524.2 million, $65.9 million from the Caring for our Country program (2011-12 to 2015-16) is allocated to supporting eradication programs for nationally significant agricultural and environmental pests and diseases (see separate brief Environment and Natural Resources). This is

121. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 79 and p. 295, viewed 9 May 2012. 122. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 1-36, viewed 9 May 2012. 123. Department of Agriculture, Fisheries and Forestry, Building a sustainable biosecurity system 2012-13, factsheet, May

2012, viewed 9 May 2012. 124. Budget measures: budget paper no. 2: 2012-13, op. cit., p. 295. 125. Ibid., p. 79; J Ludwig, (Minister for Agriculture, Fisheries and Forestry), Boosting biosecurity to protect Australia,

media release, 8 May 2012, viewed 10 May 2012.

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proposed to be continued in 2016-17 and 2017-18 with $15 million per annum, bringing the measure to $95.9 million over seven years.126

This budget continues the government’s reform agenda in relation to quarantine and biosecurity of a system based on ‘a risk management approach’. 127 All known high risk species brought into the country are quarantined. But frontline inspections are critical in preventing incursions that are less readily identifiable, and the $124.5 million mentioned above is to continue this. However, critics contend that frontline inspection rates are too low. 128

The Budget also supports the modernisation of the current legislation (Quarantine Act 1908) and in the latter half of 2012 new biosecurity legislation will be introduced into Parliament.

Industry and opposition response

The response by industry has generally been positive, in light of the pre-budget commentary and media coverage on how severe the funding cuts to agriculture (and quarantine and biosecurity) might be.129

The National Farmers Federation (NFF) gave cautious support to the budget announcements, and it was pleased that the Beale Review recommendations on biosecurity would progress with the budget commitment towards a new post-entry quarantine centre, as well as funding towards pest and disease eradication efforts.130

The Opposition has said that the Government ignores the recommendations from the Beale Review, despite new money in the budget, and that they have concerns that replacing five quarantine stations with one new facility in Melbourne is risky and will be expensive for importers.131

126. Budget Measures: Budget Paper No. 2 2012-13, op. cit., p. 267. 127. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), Ministerial statement 2012-13: Stronger Regions, Stronger Nation, 8 May 2012, pp. 24-5, viewed 10 May 2012. 128. L White, ‘Ag’s mixed bag in a tough Budget’, Weekly Times Now, 8 May 2012, viewed 16 May 2012. 129. C Bettles, ‘Ag spared slashing, but still no vision‘, The Land, 10 May 2012, viewed 11 May 2012; J Cobb, (Shadow

Minister for Agriculture and Food Security), Labor delays biosecurity priorities to try for a surplus, media release, 1 May 2012 viewed 11 May 2012. 130. The Beale Review was a report to the Minister in December 2008 by the independent quarantine and biosecurity review panel, chaired by Mr Roger Beale. The report emphasised that quarantine is but one aspect of biosecurity,

and that greater attention needed to be paid to pre-border and post-border risks; C Bettles, ‘Agriculture unscathed in budget cuts’, The Land, 10 May 2012 p. 6; National Farmers Federation, Ag survives tough budget, but more investment needed for growth, media release, 8 May 2012, viewed 9 May 2012. 131. A Vidot, ‘Opposition attacks closure of quarantine stations‘, ABC Rural News, 9 May 2012, viewed 11 May 2012.

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The GST pool

Daniel Weight

Downward revisions to forecast goods and services tax (GST) receipts are likely to have significant implications for the states’ and territories’ fiscal positions. It remains unclear whether or not receipts will return to their ‘pre-GFC’ rate of growth.

Current GST issues

Even before the release of the 2012-13 Budget, state and territory premiers and treasurers had begun warning about the implications of a reduced GST pool. 132 Media reports indicated that state Treasury officials had already been briefed by the Commonwealth on a likely $2 billion writedown in GST revenues since the November 2011 Mid-Year Economic and Fiscal Outlook.133

The distribution of GST funds was already an issue of contention before the Budget was released. How the GST is, or should be, distributed is a different issue to how much revenue there is in the pool to be distributed. Nonetheless, the resource-rich states (in particular Western Australia) continually criticise the methodology used to redistribute the GST and other revenues to the states and territories. These increasingly vocal concerns prompted the Commonwealth Government to announce a GST Distribution Review on 30 March 2011. 134 An interim report was released by the Commonwealth Treasurer on 23 April 2012. 135

Retailers are also concerned about the rise of GST free online sales. The Productivity Commission’s 2011 report on the Economic Structure and Performance of the Australian Retail Industry recommended that the low value threshold exemption for GST on imported goods and services be lowered from the current $1000, if it was cost effective to do so. 136 The Government noted the recommendation, and established of a Taskforce to investigate options to improve the efficiency of processing low value imported parcels.137

132. J Ferguson, ‘Collapsing GST revenue has Baillieu braced for further cuts‘, The Australian, 23 April 2012, p. 2, viewed 10 May 2012. 133. D Crowe, ‘Ratings fear as states eye GST hit’, The Australian, 4 May 2012, p. 6, viewed 10 May 2012. 134. J Gillard (Prime Minister) and W Swan (Deputy Prime Minster and Treasurer), Review of GST Distribution, media

release, 30 March 2011. 135. W Swan (Deputy Prime Minister and Treasurer), GST Distribution Review Interim Report, media release, 23 April 2012, viewed 11 May 2012. 136. Productivity Commission, Inquiry Report No. 56: Economic Structure and Performance of the Australian Retail

Industry, 4 November 2011, Commonwealth of Australia, Canberra, viewed 11 May 2012. 137. Australian Government, Response to the Productivity Commission Inquiry into the Economic Structure and Performance of the Australian Retail Industry, 9 December 2011, Commonwealth of Australia, Canberra, viewed

14 May 2012.

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GST receipts

The 2012-13 Budget predicts that total GST receipts for 2012-13 will be $50.5 billion. This is projected to grow at around 5 per cent per annum in the outyears to $56 billion in 2014-15. 138 These projections may be somewhat optimistic, given that actual receipts have remained flat since the global financial crisis.

Table 1 shows actual GST receipts until 2010-11 and current estimates from 2011-12 onwards.

Table 1: Size of the GST revenue pool

2006-

071

2007- 081

2008- 091

2009- 101

2010- 111

2011- 122

2012- 132

2013- 142

2014- 152

GST pool (billions) 41.0 44.4 42.6 46.6 48.1 47.8 50.5 53.2 56.1

Per cent change from prior year na 8.2% -4.0% 9.2% 3.3% -0.6% 5.6% 5.4% 5.3%

(1) Australian Government, Final Budget Outcome, Commonwealth of Australia, Canberra, various years, viewed 11 May 2012. (2) Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, p 122, viewed 11 May 2012.

It is difficult to know to what extent the Government’s stimulus package contributed to the sharp increase in GST receipts in 2009-10. It can be seen, however, that the estimated outcome for 2011- 12 is $47.8 billion, which is less than the $48.1 billion actually received in 2010-11. Once the effects of inflation are considered, the GST revenue pool has declined in real terms over the last year.

Treasury appears to assume that GST revenues will return to a longer-term trend. However, they do not appear to know when. Despite GST revenues having been revised down over the last two budgets, the current forecasts still predict strong growth in the size of the GST pool.

138. Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 122, viewed 11 May 2012.

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Chart 1: Changes in forecast GST receipts (billions)

Source: Parliamentary Library estimates

The decline in GST receipts may be associated with changes in consumer behaviour such as higher household savings rates as households pay-down debt and increased online shopping. The recent trend of lower rates of GST revenue growth may reflect a structural change in the economy. If this is so, there will be significant implications for States’ and Territories’ ongoing fiscal positions.

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Transport

Richard Webb and Matthew James

Land transport funding

Estimated land transport funding of $4.8 billion in 2012-13 is about $3.6 billion less than funding of $8.4 billion in 2011-12 (see Table).

Table: Land transport funding 2004-05 to 2012-13 ($ billions)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

2.273 4.214 2.772 2.909 5.889 6.575 4.695 8.443 4.797

Sources: Final Budget Outcome, various years; other sources as in the footnote.139 Note: 2011-12 and 2012-13 are estimates. Assumes National Partnership on the Nation Building Plan for the Future funding for 2012-13 is $1.331 billion.

The main differences between 2011-12 and 2012-13 are in the investment component of the Nation Building Program (NBP), and funding under the National Partnership on the Nation Building Plan for the Future (NBPF). The estimated investment component of the NBP in 2011-12 is $4.2 billion and $1.9 billion in 2012-13, a fall of $2.3 billion. The NBPF has two components: major cities and the Building Australia Fund. In 2011-12, the total of both components is $2.3 billion. However, the sources differ by $339 million on the total for 2012-13: the Department of Infrastructure and Transport website shows a total of $1.3 billion whereas the portfolio budget statement for the Department of the Treasury and Australia’s federal relations: Budget Paper No. 3: 2012-13 show a total of $992 million ($890 million for the Building Australia Fund and $101 million for major cities). NBPF funding in 2012-13 is thus at least $1 billion less than in 2011-12. While the fall in funding between 2011-12 and 2012-13 is large, it needs to be put into perspective. The Table shows that the level of funding (in nominal dollars) fluctuates, that funding peaked in 2011-12, and that funding for 2012-13 is slightly higher than in 2010-11.

The Budget allocates additional funding of $3.6 billion over four years for the duplication of the Pacific Highway by 2016. 140 The estimated cost of duplication is between $8 billion and $9 billion;

139. The budget figures in this brief have been taken from the following sources: Department of Infrastructure and Transport, ‘Infrastructure funding by state for the period 2012-13’, Department of Infrastructure and Transport website, viewed 10 May 2012; Department of Regional Australia, Local Government, Arts and Sport, ‘Financial assistance grants to local government’, Department of Regional Australia, Local Government, Arts and Sport website viewed 10 May 2012; Australian Government, Australia’s federal relations: Budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 90 and 96; Australian Government, Portfolio budget statements 2012-13: budget related paper no.1.19: Treasury Portfolio, Commonwealth of Australia, Canberra, 2012, pp. 47-48, viewed 10 May 2012; Australian Government, Portfolio budget statements 2012-3: budget related paper no. 1.14: Infrastructure and Transport Portfolio, Commonwealth of Australia, Canberra, 2012, p. 29, viewed 10 May 2012; and Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012.

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additional works could add more than $1 billion.141 However, the respective contributions of the federal and NSW governments are in dispute: the federal government wants funding on a 50:50 basis while NSW wants the federal government to fund 80 per cent of the cost. 142

Heavy vehicle safety

The 2012-13 Budget allocates $140.0 million over seven years to continue the Heavy Vehicle Safety and Productivity Program while also increasing the road user charge for the sector from 23.1 to 25.5 cents per litre of fuel from 1 July 2012. 143 The road user charge is the fuel excise of 38.143 cents per litre less the rebate paid under the fuel tax credits scheme. The latter measure would save $698 million over four years by reducing the amount of the fuel tax credits paid.

National transport regulators

The Budget provides $37.9 million over three years to fund three transport regulators: the National Heavy Vehicle Regulator (NHVR), the National Rail Safety Regulator (NRSR), and the National Maritime Safety Regulator (NMSR).144 The NHVR and the NRSR are to develop national laws and regulations to replace state laws that hamper the efficient movement of road and rail freight. The measure includes $15.6 million in 2011-12 and 2012-13 to establish the NHVR which will be based in Queensland, and $9.2 million in 2011-12 and 2012-13 to create the NRSR to be located in South Australia. Funding for maritime safety will be paid to the Australian Maritime Safety Authority (AMSA) in support of its role as the NMSR. The measure also includes capital funding of $10.1 million in 2012-13 and 2013-14 for AMSA to purchase a national information system to support maritime safety regulation. The measure is additional to that provided in the 2011-12 Budget, which provided $25.2 million over two years to establish national regulators for heavy vehicles, rail safety and maritime safety activities, and was additional to the $8.3 million provided in the previous Budget.145

140. Budget measures: budget paper no. 2: 2012-13, op. cit., p. 239. 141. Infrastructure Australia, Communicating the imperative for action. A report to the Council of Australian Governments, Commonwealth of Australia, Canberra, June 2011, p. 56, viewed 10 May 2012.

142. M Whitbourn and G Daley, ‘Coalition adviser on board that talked down rail link’, Australian Financial Review, 8 May 2012, viewed 11 May 2012. 143. Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 240 and 279. 144. Ibid., p. 242. 145. M James, ‘National safety regulation and airports’, Budget Review 2011-12, Research paper, no. 13, 2010-11,

Parliamentary Library, Canberra, p. 85, viewed 11 May 2012.

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Corporate governance—enhancing capacity of regulators

Kali Sanyal

The Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC) are the three national agencies that provide the regulatory supervision of corporate governance in Australia. With the backdrop of implementing the BASEL III framework in the Australian financial sector, the introduction of the carbon pricing scheme, the Future of Financial Advice (FoFA) reform, and the need to ensure that the competition in the market remains intact, the regulatory capacity of these agencies was enhanced in the Budget.

Australian Prudential Regulation Authority (APRA)

In the 2012 Budget, the Government announced that APRA would receive $82.4 million over the forward estimate period of four years (including capital funding of $6.9 million over two years) to ensure the agency’s continued capacity to supervise Australia’s financial system, including the implementation of global regulatory reforms.146

As an aftermath of the Global Financial Crisis (GFC), the international financial market faced a new set of financial guidelines as outlined by the Bank for International Settlements (BIS) through its BASEL III framework. 147

BIS announced the package of reforms (the BASEL III framework) in December 2010 (revised in June 2011) to raise the level and quality of regulatory capital in the global banking system. In response, APRA released a discussion paper, suggesting roadmaps for implementing such reforms in Australia, and solicited formal public consultation on Basel III measures relating to the quality, consistency and transparency of capital, capital buffers and the leverage ratio. 148

Debt-Equity rules—treatment of Tier 2 capital instruments under the Basel III capital reforms

In the Budget, the Government announced that on commencement of the Basel III capital reforms on 1 January 2013, certain capital instruments issued by authorised deposit taking institutions (ADIs) can be treated as debt for income tax purposes. APRA can ask ADIs to write off or convert such debts into ordinary shares if the regulator deems that the ADI would otherwise become nonviable. (Currently the tax law provisions allow those instruments as equity for income tax purposes, and their funding costs would not be tax deductible). Certain Tier 2 regulatory capital instruments issued by ADIs and certain other related entities regulated by APRA will be subject to these changes.

146. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no: 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 12 May 2012. 147. Bank for International Settlement (BIS), Basel III: A global regulatory framework for more resilient banks and banking systems December 2010 (rev June 2011), BIS, Basel, Switzerland, 2011, viewed 12 May 2012. 148. Australian Prudential Regulation Authority (APRA), Response to Submissions, Implementing Basel III capital reforms in

Australia, APRA, Sydney, 30 March 2012, viewed 16 May 2012.

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This measure is estimated to have an unquantifiable but small revenue impact over the forward estimates period. 149

As the process of implementing the global standard is maturing, APRA has been finalising the implementation of the modified capital standard framework in Australia. In addition, APRA would implement relevant aspects of the Government’s Stronger Super reforms and this mostly accounts for the need to upgrade its functioning capacity. 150 (The budget brief on Stronger Super contains more details on this).

The cost of this measure will be fully recovered through financial sector levies paid by APRA regulated entities.151

Australian Securities and Investments Commission (ASIC)

From 1 July 2012, the Government’s carbon pricing scheme will commence and carbon units issued under that scheme, as well as Australian carbon credit units issued under the Carbon Farming Initiative and some international emissions units (together, regulated emissions units), will be recognised as ‘financial products’ under the Corporations Act 2001.

Therefore, ASIC will be responsible for regulating entities and individuals that provide financial services in relation to emissions units. ASIC has announced a relevant regulatory guide to assist the operators in this regard.152

In order to enhance the capacity of the ASIC’s market supervision, the Government has earmarked an outlay of $43.7 million over the forward estimates period (including $16.3 million in capital) to replace its current market surveillance system with an enhanced, integrated system with increased data mining and analysis capacity. In addition, the Government increased operational funding of ASIC by $101.9 million over the four years of the forward estimates period.

With the introduction of the Government’s Future of Financial Advice (FoFA) reform, there has been a greater role for ASIC. Accordingly, the Government has set aside an amount of $23.9 million for four years to ASIC.

The FoFA package of legislation was passed by the House of Representatives on 22 March 2012 and was introduced into the Senate on 10 May.153 It amends the Corporations Act 2001 to introduce a prospective ban on conflicted remuneration structures, a statutory fiduciary duty so that financial

149. Budget measures: budget paper no: 2: 2012-13, op. cit., p. 23. 150. Australian Prudential Regulatory Authority (APRA), op. cit. 151. Budget measures: budget paper no: 2: 2012-13, op. cit., p. 276. 152 . Australian Securities and Investment Corporation (ASIC), 12-45AD ASIC releases guidance and policy proposals for

carbon financial products, ASIC website, 9 March 2012, viewed 14 May 2012; ASIC, Regulatory Guide 236, ASIC website, May 2012, viewed 14 May 2012. 153. Australia. Parliament, Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, Parliament of Australia website, viewed 16 May 2012.

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advisers must act in the best interests of their clients and an opt-in obligation that requires advice providers to renew their clients’ agreement to ongoing fees every two years.154

The cost of this measure is expected to be met by additional fees of $33.0 million over four years on market operators and participants. 155

Australian Competition and Consumer Commission (ACCC)

The ACCC estimated an operating loss of $17.0 million in 2011-12 and break-even results for the forward estimates. The operating loss was a result of higher than anticipated legal expenditure due to increasing complex legal cases undertaken by the ACCC.156 Hence the Budget allocated an extra $4.3 million in 2012-13 to the ACCC to fund additional external legal costs in performing its statutory duties.157

154. ASIC, Future of financial advice, ASIC website, May 2012, viewed 14 May 2012. 155. Budget measures: budget paper no: 2: 2012-13, op. cit., p. 277. 156. Portfolio budget statements 2012-13, Treasury Portfolio, op. cit., p. 95. 157. Budget measures: budget paper no: 2: 2012-13, op. cit., p. 276.

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Defence budget overview

David Watt

With a number of major measures either flagged by the Government or leaked to the media, the 2012-13 Defence budget holds few surprises.158 The overall Defence Budget has been cut by $5.5 billion across the Forward Estimates (to 2015-16). Total Defence funding for 2012-13 will be $24.2 billion, down from the estimated actual outcome of $26.3 billion for 2011-12. 159

Despite these significant cuts, the Government has made clear that funding for operations remains exempt from the cost-cutting and that Australian Defence Force (ADF) members serving overseas will not suffer any adverse effects as a result of the reductions. 160 The table below indicates the main savings in the Defence Budget across the Forward Estimates.

Table 1: Expenditure reduction measures: Department of Defence: 2012-13 to 2015-16

Expenditure reduction measures 2012-13 to 2015-16 $ millions

Defence Capability Plan 1658

Approved Major Capital Investment Program 1305

Major Capital Facilities Program 1210

Reduction in Administrative Costs (Travel, consultants and consumables) 438

1000 APS Workforce Reduction (66% in 2012-13) 360

Early Retirement of C-130H aircraft 251

Navy and Army Gap Year (ceased) 91

One year delay to rollout of ADF Family Health Program 50

Workforce Policy Changes 46

Minor Capital Projects 45

Total 5454

The Budget was delivered at the end of a week of important defence announcements. On 3 May 2012 the Prime Minister and the Minister for Defence announced that there would be a new Defence White Paper during 2013 (one year ahead of schedule).161 In addition, the Minister released the Force Posture Review which will feed into the new White Paper and have implications for future expenditure.162 The announcement of the new White Paper sets out a number of reasons for the

158. J Gillard (Prime Minister), S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), Joint Press Conference, transcript, Canberra, 3 May 2012, viewed 11 May 2012. 159. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.5A: Defence Portfolio, Commonwealth of Australia, Canberra, 2012, p. 23, viewed 11 May 2012. 160. S Smith (Minister for Defence), Budget 2012-13: Defence Budget overview, media release, 8 May 2012, viewed

11 May 2012; see also Joint press conference, op. cit. 161. J Gillard (Prime Minister) and S Smith (Minister for Defence), Prime Minister, New Defence White Paper, media release, 3 May 2012, viewed 10 May 2012. 162. J Gillard (Prime Minister) and S Smith (Minister for Defence), Release of final Defence Force Posture Review report,

media release, 3 May 2012, viewed 11 May 2012.

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decision to move on this, some of which have clear budgetary implications. These include the likely reduction in ADF personnel serving overseas as Australia’s engagement in Afghanistan declines and Australian troops are withdrawn from the Solomon Islands and East Timor; the Defence Force Posture Review; and the effects of the Global Financial Crisis.

In addition, the media release highlights the $1.6 million underspend announced at the time of last year’s budget and the need ‘to ensure that Defence spending is calibrated against an up to date assessment of short and longer term priorities’.163

Table 1 above indicates that while reductions to the Defence Budget have been spread across the portfolio, just over half will come from the large budget areas of procurement and capital facilities. As the Defence Minister said on 3 May:

… there’s a general rule of thumb. In any budget with Defence if there are movements, if there are savings … 50 to 60 percent of that comes from capability.164

Some detail concerning the specific nature of the cuts was provided by the Defence Ministers in their Budget media releases and pre-Budget announcements. These include the deferment of purchasing the Joint Strike Fighter and the cancellation of the proposed purchase of self-propelled artillery. It is worth noting that of the 19 savings measures announced by the Government which concern capability, 14 refer to procurement projects that have been delayed or deferred, rather than being cancelled outright.165 Procurement issues in this year’s Budget are dealt with in the ‘Defence Capability Plan review’ section of this Budget Review.

Nearly half of the Major Capital Facilities savings ($550 million) are due to occur in 2015-16, at the end of the Forward Estimates period, and it is difficult to say if this should be considered a ‘cut’ or a ‘deferral’. While it did not recommend new bases, the Force Posture Review did suggest that a substantial amount of upgrading would be required to existing bases.166 Funding will be required to respond to these recommendations. There has as yet been no formal Government response to the recommendations of the Force Posture Review, so it is unclear what impact this would have on the

Defence Budget.

In its review of the 2011-12 Defence Budget, the Australian Strategic Policy Institute (ASPI) noted that in each Budget since 2009 (which was delivered just days after the public release of the 2009 DWP) the Government has deferred at least some expenditure.167 ASPI states that between 2009 and 2011 a total of $11.7 billion in expenditure was deferred to a later date. ASPI’s Budget Director

163. New Defence White Paper, op. cit. 164. Joint Press Conference, op. cit. 165. S Smith (Minister for Defence), 2012-13 Budget Aide-memoire: the Defence Capability Plan, media release, 8 May 2012. 166. A Hawke and R Smith, Australian Defence Force Posture Review, Department of Defence, Canberra, 30 March 2012,

viewed 11 May 2012. 167. M Thomson et al., The Cost of Defence: ASPI Defence Budget Brief 2011-12, Australian Strategic Policy Institute, Canberra, 2011, pp. 100-101, viewed 11 May 2012.

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Mark Thomson has said that the deferrals this year bring the figure since 2009 to around $17 billion.168

The 2009 DWP promised real growth of 3 per cent in the Defence Budget out to 2017-18. If this growth figure is applied to Defence’s estimated budget in 2009-10 ($26.6 billion), the Department’s budget in 2012-13 should be in the order of $31 billion. 169 Clearly, this has not happened and it is difficult to see how the 3 per cent average real growth can be realised short of a major rebound in the world economic situation leading to substantially increased Government revenues during the coming years. Presumably, the recently announced 2013 Defence White Paper will revisit this issue.

Given the volume of commentary last year pointing to the difficulty the Government was likely to encounter in keeping its ambitious procurement plans on track, it is unsurprising that this year some commentators have consigned the 2009 DWP to history. As Mark Thomson of ASPI says:

Plans to put in place the so-called Force 2030 are in tatters… The 2009 defence white paper is dead. 170

The Australia Industry Group appears to agree:

It is essential that the new Defence White Paper is more realistic, offering opportunities for Australia’s defence industry to participate fully in equipping and sustaining the ADF.171

Perhaps then, as defence commentator Derek Woolner states, ‘Australians … have now been told that the decade of post-9/11 terror is over, and with it the era of high defence spending’.172

168. J Kerin, ‘Winners and losers: biggest cuts to defence since Korea‘, Australian Financial Review, 9 May 2012, p. 22, viewed 11 May 2012. 169. Parliamentary Library estimates. 170. B Nicholson, ‘The cuts: military suffers the biggest blow‘, The Australian, 9 May 2012, p. 8, viewed 11 May 2012. 171. Australian Industry Group, Ai Group Comment on Government Defence Statement, media release, 3 May 2012,

viewed 11 May 2012. 172. D Woolner, ‘Opinion: Budget cuts under fire‘, Australian Financial Review, 4 May 2012, p. 50, viewed 11 May 2012.

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Defence Capability Plan review

Nicole Brangwin and Marty Harris

In the lead-up to the 2012-13 Budget, the Government flagged the reprioritisation of projects slated in the 2009 Defence Capability Plan (2009 DCP). Of the original 180 projects listed in the 2009 DCP, ten have been cancelled or stopped. 173 The majority of these ten projects ‘either had their scope reduced, were subsumed by other related projects or replaced by newer technologies’.174 On Budget day, a further 19 projects were earmarked for cancellation (two projects), reduced scope and provision (three projects) or delays of one (twelve projects) or two (two projects) years. 175

Due to program cuts and delays, a total of around $1.7 billion of savings has been achieved in the DCP program to 2015-16. 176 According to the Budget, six DCP projects are being developed for first-pass approval consideration in 2012-13 and 19 for second-pass approval.177 This is a considerable decrease given last year’s Budget listed 54 ‘significant’ projects for first-pass approval and 36 for second-pass approval consideration in 2011-12. 178 Ultimately, 49 projects received Government approval in 2011. 179

Given the degree of program cuts and delays, the Government has only allocated $275.8 million in 2012-13 for planned Defence Capability approvals.180 This is in stark contrast to last year’s Budget estimate for 2012-13 of $1.3 billion.181 Therefore, the Government plans to spend around $1 billion less on project approvals in the forthcoming financial year than originally estimated. Funding levels are expected to increase from 2014-15 with the total figure for the Forward Estimates reaching $6.7 billion, compared to last year’s budget Forward Estimates total of $8.8 billion.182

Some of the key DCP initiatives are detailed below.

173. J Gillard (Prime Minister), S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), Joint press conference , transcript, 3 May 2012, viewed 10 May 2012. 174. Department of Defence, 2012-13 Defence Budget Aide-Memoir: The Defence Capability Plan, Aide-memoir, 8 May 2012, p. 1. 175. Ibid., p. 2. 176. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.5A: Defence Portfolio,

Commonwealth of Australia, Canberra, 2012, p. 17, viewed 10 May 2012. 177. Ibid., p. 133. 178. Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.5A: Defence Portfolio,

Commonwealth of Australia, Canberra, 2011, pp. 90-92, viewed 10 May 2012. 179. 2012-13 Defence Budget Aide-Memoir: The Defence Capability Plan, op. cit., p. 1. 180. Portfolio budget statements 2012-13: Defence Portfolio, op. cit., p. 32. 181. Portfolio budget statements 2011-12: Defence Portfolio, op. cit., p. 34. 182. Portfolio budget statements 2012-13: Defence Portfolio, op cit., p.32; Portfolio budget statements 2011-12: Defence

Portfolio, op. cit., p. 34.

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The cancellation of LAND 17 Phase 1C—self-propelled artillery

The largest procurement project to be cancelled in the 2012-13 Budget is the acquisition of the Army’s self-propelled artillery under Project LAND 17. The Government’s decision not to proceed with the purchase of two batteries of 155mm self-propelled Howitzers (Phase 1C) is expected to save $225 million.183

According to the Minister for Defence, this project had experienced ‘some difficulties’, and the Australian Defence Magazine has editorialised that the two companies competing to supply the self-propelled guns have ‘been put out of their misery’ with the cancellation decision.184 Conversely, the Shadow Minister for Defence, David Johnston, has criticised the Government’s decision, labelling it ‘short sighted’ and adding that ‘there is no doubt that cancelling this project was 100 per cent political and nothing to do with what capabilities our troops need’. 185

In its place, a new phase to LAND 17—Phase 1C.1—was included in the 2012-13 Budget for the purchase of additional towed artillery and is expected to be considered for second-pass approval in 2012-13. 186

Early retirement for the C-130H Hercules

The early withdrawal of the Royal Australian Air Force’s (RAAF) fleet of 12 C-130H Hercules medium transport aircraft is expected to save the Government $251 million in maintenance and operating costs over the Forward Estimates.187 The C-130H entered into service with the RAAF in 1978 and conducted an estimated 3200 flying hours in 2011-12. The aircraft was slated for retirement in 2013. According to the Government, the tasks previously conducted by the C-130H Hercules ‘will [now] be redistributed across the remaining Air Force air mobility fleet. There is no expectation that this will require additional hours for those platforms’. 188

The National Secretary of the Australian Workers Union, Paul Howes, criticised the Government’s decision to retire the C-130H early, claiming that the decision put at risk the positions of the 250 Qantas Defence Services employees based at RAAF Base Richmond. 189

183. Joint press conference, op. cit. 184. Ibid.; Editorial, ‘Defence pre-Budget announcements’, Australian Defence Magazine (online), 3 May 2012. 185. D Johnston (Shadow Minister for Defence), Another capability falls victim to defence cuts, media release, 8 May 2012, viewed 9 May 2012.

186. Portfolio budget statements 2012-13: Defence Portfolio, op. cit., p. 133. 187. Ibid., p. 17. Note that four of the 12 C-130H Hercules aircraft are earmarked for purchase by the Indonesian military— see B Carr (Minister for Foreign Affairs), S Smith (Minister for Defence), M Natalegawa (Indonesian Minister for Foreign Affairs) and P Yusgiantoro (Indonesian Minister for Defence), Australian Indonesia inaugural 2+2

dialogue, joint communiqué, 15 March 2012, viewed 10 May 2012. 188. Ibid., pp. 53, 55. 189. P Howes (AWU National Secretary), Skilled defence jobs must be retained, media release, 9 May 2012, viewed 10 May 2012.

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Caribou replacement

Two days after the release of the Budget, the Government announced its decision at the RAAF’s Air Power Conference to purchase 10 Alenia C-27J Spartan Battlefield Airlift aircraft at a cost of $1.4 billion under a Foreign Military Sales (FMS) arrangement with the US. 190 This represents second-pass approval for acquisition project AIR 8000 Phase 2, a project which some commentators thought might be delayed or cancelled.191

In October 2011, the Government confirmed that the C-27J was considered a primary option to replace the Caribou. However, the US production line for the aircraft was due to be shut down so the Government authorised Defence to approach the US, via a ‘Letter of Request, seeking price and availability information on the C-27J.’ This approach was non-binding and other options, such as the Airbus Military C-295 aircraft, were still being considered. 192

In early February 2012, the US Air Force cancelled the C-27J program citing changed strategic and budgetary priorities. In response, the Italian-based Alenia warned the US Government not to on-sell the aircraft already sold to the US otherwise those aircraft would not be supported. Alenia CEO, Giuseppi Giordo, did however state that if the US ‘want to sell additional airplanes as FMS’, they would support them. 193

On 7 May 2012, the US House Armed Services Committee ‘released legislative language’ that would prevent the cessation of the C-27J Spartan Airlift program. Given the restrictions and lengthy parliamentary processes in the US, the US Air Force is unlikely to ‘be allowed to begin retiring C-27s until midway through FY-14’. 194 Whether these issues will have any impact on the Australian program remains to be seen.

Unlike its predecessor, the DHC-4 Caribou which was based out of Townsville and retired from service in 2009, the C-27J will be based at RAAF Base Richmond. 195

190. S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), New Battlefield aircraft for the Air Force, media release, 10 May 2012, viewed 10 May 2012, and S Smith (Minister for Defence), Address to the Air Power Conference, transcript, 10 May 2012, viewed 10 May 2012.

191. Editorial, ‘Early retirement for RAAF C-130Hs, but Battlefield Airlifter battles on‘, Australian Aviation (online), 9 May 2012, viewed 10 May 2012; K Bergmann, ‘AIR 8000 Phase 2—Battlefield Airlifter—the missing ingredient,’ Asia-Pacific Defence Reporter, 29 August 2011, viewed 10 May 2012.

192. S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), Caribou replacement project, media release, 19 October 2011, viewed 10 May 2012. 193. V Muradian, ‘Alenia warns US over C-27J sales‘, Defense News, 27 February 2012, viewed 10 May 2012. 194. Editorial, ‘House Armed Services Committee votes to continue C-27 procurement ops (updated)’, Inside Defense

Online, 7 May 2012. 195. Royal Australian Air Force (RAAF), ‘DHC-4 Caribou light transport‘, RAAF website, viewed 10 May 2012; New Battlefield aircraft for the Air Force, op. cit.

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Defence personnel

Marty Harris

For the second year in a row the Government announced that there will be a reduction in the number of civilians employed by the Department of Defence. In the 2011-12 Budget, the Government stated that 1000 civilian employees ‘will not be required [in the Department of Defence] as a result of the introduction of greater efficiencies’.196 This did not mean that 1000 positions would be ‘cut’ at the Department of Defence; rather, this was a reduction in expected, or future, positions.197 Last year’s measure concerning civilian employees was expected to save the Government ‘$300 million or more over a ... three to four year period’.198

In 2012-13 and over the Forward Estimates, however, there will be net reductions in the number of civilian employees at Defence. By 30 June 2014, the Department of Defence will have just over 1000 fewer civilian staff than it does now, and there will be a total reduction of 1313 civilian positions over the Forward Estimates. As the table below indicates, the largest reduction in employees will be in 2012-13.

Table 1: Anticipated number of civilian employees (including contractors), Department of Defence, 2011-12 to 2015-16 199

2011-12 2012-13 2013-14 2014-15 2015-16

Civilian workforce 22 355 21 731 21 347 21 205 21 042

Change (year on year) - -624 -384 -142 -163

According to the Minister for Defence, this measure will save the Government $360 million over the Forward Estimates.200 In terms of how the reduction in employee numbers will be achieved, the Budget Papers note that:

196. S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), Press conference, transcript, 6 May 2011, viewed 9 May 2012. 197. For more information on the Defence civilian workforce and the 2011-12 Budget, see M Harris, ‘Defence civilian workforce‘, Budget Review 2011-12, Research paper, no. 13, 2010-11, Parliamentary Library, Canberra, 2011,

viewed 9 May 2012. 198. Ibid. 199. There is some ambiguity in the Budget documents concerning the timeframe over which these reductions will be made and the number of positions to be cut. The figures in this table are taken from Australian Government,

Portfolio budget statements 2012-13: budget related paper no. 1.5A: Defence Portfolio, Commonwealth of Australia, Canberra, 2012, p. 36, viewed 11 May 2012. However, in Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 11 May 2012, it states that there will be a ‘net reduction of the civilian workforce by 1000 over the forward estimates’ (i.e.: four years; emphasis added), rather than over two years as indicated in the Portfolio budget statements 2012-13, Defence Portfolio. 200. S Smith (Minister for Defence), Budget 2012-13 Defence Budget overview, media release, 8 May 2012, viewed 10

May 2012.

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This reduction has initially been allocated as a proportional reduction of 5 per cent across each Group, pending a more comprehensive review of the requirements across Groups in the new financial year. The reductions will be achieved primarily through a combination of natural attrition, tightening of recruitment practices and other measures.

201

Budget Strategy and Outlook: Budget Paper No. 1: 2012-13 indicates that in the first year most of the reductions will be in the Defence Materiel Organisation—about 70 per cent (432 out of 624) of the staff reductions in 2012-13. 202 This may be linked to the number of procurement projects deferred beyond the end of the 2012-13 financial year.

It is also interesting to note that of the expected reductions in the Defence civilian workforce in 2012-13, not one will be from among the Senior Executive Service.203

Conversely, the number of Australian Defence Force personnel is expected to grow by just under 3000 over the Forward Estimates period, from an estimated 79 132 in 2011-12 to 82 013 in 2015- 16. 204 This reflects the statement before the Budget by the Minister for Defence that in the 2012-13 Budget there would be ‘no adverse impact on the number of [Australian Defence Force] members on the military side’.205 Some commentators argue though that reductions in Defence civilian employees can have a flow-on effect on the military. For example, Brendan Nicholson, writing in The Australian, states that:

Cuts to numbers of support staff will be greeted with dismay by uniformed and civilian staff alike.

An early victim could well be force morale. At a time when the ADF is struggling to retain personnel against strong competition from the mining industry in particular, any deterioration in conditions for soldiers, sailors and airmen and their families will not help.206

201. Portfolio budget statements 2012-13, Defence Portfolio, op. cit., p. 11. 202. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 6:73, viewed 10 May 2012.

203. Portfolio budget statements 2012-13, Defence Portfolio, op. cit., p. 37. 204. Ibid, p. 11. 205. J Gillard (Prime Minister), S Smith (Minister for Defence) and J Clare (Minister for Defence Materiel), Joint press conference, transcript, 3 May 2012, viewed 10 May 2012. 206. B Nicholson, ‘Slicing forces finances spells civilian job losses‘, The Australian, 9 May 2012, viewed 10 May 2012.

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Funding the Centenary of Anzac

Marty Harris

On the eve of Anzac Day 2012, the Prime Minister expressed her hopes for the Centenary of Anzac:

Anzac Day in 2015, I believe, will be like the bicentenary. It will be one of the commemorations that shape our nation and our understanding of who we are today. 207

The 2012-13 Budget has allocated $83.5 million over seven years to fund initiatives relating to the Centenary of Anzac and the 100th anniversary of the First World War. This includes expected appropriations out to 2018-19, beyond the forward estimates period.208

Background

The 2010-11 Budget included the first funding measures relating to the Centenary of Anzac. An initial $2.3 million in ‘seed funding’ was allocated to ‘plan the commemoration activities to mark the Centenary’.209 The funding allocation coincided with the announcement on Anzac Day 2010 by the then Prime Minister Kevin Rudd that a National Commission on the Commemoration of the Anzac Centenary would be formed.210

The Commission recommended the establishment of a Centenary Advisory Board, the formation of which the Government announced in July 2011, chaired by former Chief of the Defence Force Angus Houston. 211 A total of $350 000 was allocated to the Board in the 2011-12 Budget. 212

In late 2010 and early 2011 some commentators expressed concern that the Australian War Memorial (AWM) would be unable to properly commemorate the Centenary within its current budget. As detailed in the Parliamentary Library’s Budget Review 2011-12, the Government announced a four-year $35.2 million funding increase to assist the AWM in maintaining its current

207. J Gillard (Prime Minister), Transcript of doorstop interview, Singapore, media release, 24 April 2012, viewed 10 May 2012. 208. Australian Government, Budget measures: budget paper no. 2: 2012-13: part 2: expense measures: Veterans’ Affairs: Anzac Centenary Program 2014-18, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 209. Australian Government, Budget measures: budget paper no. 2: 2010-11: part 2: expense measures: Veterans’ Affairs:

Centenary of Anzac—seed funding, Commonwealth of Australia, Canberra, 2010, viewed 10 May 2012. 210. K Rudd (Prime Minister), Address on the commemoration of the Centenary of Anzac, Canberra, media release, 25 April 2010, viewed 10 May 2012. 211. W Snowdon (Minister for Veterans’ Affairs), Angus Houston to lead new Anzac Centenary Board, media release, 6 July

2011, viewed 10 May 2012. 212. Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.5B: Defence Portfolio (Department of Veterans’ Affairs), Commonwealth of Australia, Canberra, 2011, p. 72, viewed 10 May 2012.

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activities ‘and, importantly, prepare for the Centenary of the Anzac landings and other important military anniversaries’.213

In November 2011, the Minister for Veterans’ Affairs announced that it was allocating $1.3 million to design an ‘Anzac Interpretive Centre’ in Albany, Western Australia.214 Albany was the point of departure for the first convoy of Australian soldiers sailing to the Middle East in November 1914 and will play a key role in the Centenary commemorations.

2012-13 Budget

The allocation of $83.5 million in the 2012-13 Budget was initially announced on 24 April 2012, and although the federal Opposition indicated support for the program, it expressed dismay at the ‘delay’ in making an announcement regarding funding for the Centenary. 215 It should be noted that up to 40 per cent of the $83.5 million funding was announced prior to the release of the 2012-13 Budget, including $5.6 million for the Anzac Interpretive Centre in Albany and $27 million for the refurbishment of the First World galleries at the Australian War Memorial.216

Interestingly, funding for the Centenary has again increased the AWM’s budget, on top of the increase provided in last year’s Budget. This means that while many other public sector agencies will experience staff cuts this year, the number of employees at the AWM will increase slightly, from 292 to an expected 312. 217 Similarly, and in contrast to many other public service agencies, the budget for the Department of Veterans’ Affairs remains steady this year at $12.2 billion.218

The chart below illustrates the AWM’s dramatic rise in funding since 2010-11, and highlights the expected peak in the institution’s funding (relating to preparations for the Centenary) in 2013-14. 219

213. M Harris, ‘Australian War Memorial funding,’, Budget review 2011-12, Research paper, no. 13, 2010-11, Parliamentary Library, Canberra, 2011, viewed 10 May 2012; J Gillard (Prime Minister) and W Snowdon (Minister for Veterans’ Affairs), Funding boost for the Australian War Memorial, media release, 3 March 2011, viewed 10 May 2012.

214. W Snowdon (Minister for Veterans’ Affairs), $1.3 million for the first Centenary of Anzac project, media release, 26 November 2011, viewed 10 May 2012. The Minister for Veterans’ Affairs had previously announced a $250 000 scoping study for this project; see W Snowdon (Minister for Veterans’ Affairs), Young Australians share bright ideas for Centenary, media release, 6 September 2011, viewed 10 May 2012.

215. M Ronaldson (Shadow Minister for Veterans’ Affairs), Centenary of Anzac funding announcement, media release, 24 April 2012, viewed 10 May 2012. 216. See J Gillard (Prime Minister) and W Snowdon (Minster for Veterans’ Affairs), New Anzac Centre to commemorate the Centenary of Anzac, media release, 18 April 2012, viewed 10 May 2012, and J Gillard (Prime Minister) and W

Snowdon (Minster for Veterans’ Affairs), Refurbishment of the First World War galleries at the Australian War Memorial, media release, 16 April 2012, viewed 10 May 2012. 217. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.5B: Defence Portfolio (Department of Veterans’ Affairs), Commonwealth of Australia, Canberra, 2012, p. 100, viewed 10 May 2012. 218. Ibid, p. 8; Portfolio budget statements 2011-12: budget related paper no. 1.5B: Defence Portfolio (Department of

Veterans’ Affairs), op. cit., p. 8. 219. The chart contains budget figures (not actual appropriations) drawn from each year’s Department of Veterans’ Affairs Portfolio Budget Statements by combining funding allocated under Appropriation Bill (No. 1) and equity

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Source: Parliamentary Library estimates.

injections funded under Appropriation Bill (No. 2). It should be noted that the increase in the AWM’s funding, between 2006-07 and 2008-09 resulted, at least partly, from equity injections to assist in the construction of the AWM’s Eastern Precinct.

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Joint Strike Fighter

David Watt

The Budget has confirmed the announcement on 4 May 2012 by the Minister for Defence that the purchase of 12 of the first 14 F-35A Joint Strike Fighters (JSF) will be delayed by two years.220 This, and delays to the decision on the second tranche of the JSF purchase, will contribute $1.6 billion to the savings measures announced in the Budget. 221 This brief highlights some of the major issues and commentary arising from the Budget, and as such, is not intended to provide a comprehensive background on the JSF program.

The decision to acquire 14 JSFs in the Conventional Take-Off and Landing (CTOL) variant at a cost of $3.2 billion was announced on 25 November 2009 by the Minister for Defence. 222 At this point the Government thought it would make the decision about the next (and much larger) batch of aircraft during 2012. The first two aircraft (purchased for test and training purposes) will now be delivered in 2014-15. It is intended that the remaining 12 will follow some two years after this.

Australia’s decision to delay the purchase of the second consignment of 12 JSFs is in keeping with the US schedule for the introduction of the JSF. In its most recent testimony to the US Congress, the US Government Accountability Office pointed out that the US Department of Defense has deferred procurement numbers of the F-35 for the last three years and that a fully integrated F-35 is unlikely to be tested before 2015. 223

In light of this, Australia’s decision to delay might be characterised as a straightforward recognition of reality with obvious benefits to the budget bottom line. Indeed, the current Minister for Defence has said:

So we are now essentially on the same timetable for delivery of our first batch of Joint strike Fighters as the United States is.224

Most commentators seem to agree with the Minister. For example, Derek Woolner states that:

220. The F-35 has three main models; the F-35A (the version which Australia is acquiring) is the Conventional Take-Off and Landing (COTL) variant, the F-35B is a Short Take-Off and Vertical-Landing (STOVL) variant, and the F-35C is a carrier-based variant. These are being developed with three of the four United States services in mind; the F-35A for the USAF, the F-35B for the Marines and the F-35C for the navy. 221. S Smith (Minister for Defence), Budget 2012-13 Defence Budget overview, media release, 8 May 2012, viewed 8 May

2012.

222. J Faulkner (Minister for Defence), F-35 Joint Strike Fighter—Australia’s next generation air power, media release, 25 November 2009, viewed 9 May 2012. 223. M J Sullivan, Joint Strike Fighter: restructuring added resources and reduced risk, but concurrency is still a major concern, Washington, Government Accountability Office, 20 March 2012, viewed 9 May 2012. This report provides an

assessment of the JSF program in the United States. A review of how these issues impact on Australia can be found in A Davies, What’s Plan B: Australia’s air combat capability in the balance, Australian Strategic Policy Institute, 11 May 2011, viewed 9 May 2012.

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... the $1.6 billion to be saved by delaying acquisition of the F-35 joint strike fighter has few implications for policy....It is probably a sensible step to ensure what should be a less troublesome purchase. 225

In addition to this, the US Air Force (USAF) has already taken steps to cover any capability gap created by further delays in the delivery of the F-35. The Air Force announced plans to extend the lives of more than 300 late-model F-16s and possibly some F-15s ‘to fill the gap caused by delays to the Lockheed Martin F-35 Joint Strike Fighter program’.226 In addition to the USAF measures, the Marine Corps has acquired 74 retired Harrier jets from the British Royal Air Force to provide spare parts for its AV-8Bs (the US version of the Harrier), which could help extend their life until the F-35B arrives in the force.227

Opposition comment on the decision to delay the purchase of the JSF has all been made within the context of the economic debate surrounding the Government’s desire to ensure a surplus in the 2012-13 Budget. Shadow Treasurer Joe Hockey pointed out that ‘…of course, the costs of the Joint Strike Fighter will be further down the track for another government to pay’. 228

In contrast to the major parties the Greens would like to see Australia move away from the JSF altogether:

The Joint Strike Fighter project is a white elephant - Australia should cut its losses. ..Australia should look to other, less costly options. 229

The decision to purchase the F-35 Joint Strike Fighter goes back to the 1990s. The 2000 Defence White Paper stated that the Government would ‘examine options for acquiring new combat aircraft to follow the F/A-18 and potentially also the F-111’.230 ‘Up to 100 new air combat aircraft’ were to be acquired with acquisition ‘planned to start in 2006-07’ and ‘the first aircraft entering service in 2012’. 231 The Rudd Government’s 2009 Defence White Paper, Defending Australia in the Asia Pacific Century: Force 2030 stated that Australia would acquire around 100 F-35 JSFs as well as supporting systems and weapons. Three operational squadrons of ‘not fewer than 72 aircraft’ would be acquired in the first stage, with the acquisition of the remaining aircraft being undertaken ‘in

224. J Gillard (Prime Minister) and S Smith (Minister for Defence), Joint Press Conference, transcript, 3 May 2012, viewed 8 May 2012. 225. D Woolner, ‘Budget cuts under fire‘, Australian Financial Review, 4 May 2012, p.50, viewed 9 May 2012. 226. G Warwick, ‘USAF to extend lives of F-16s to cover F-35 Delays‘, Aviation Week, 8 November 2011, viewed 8 May

2012.

227. C Cavas, V Muradian and A Chuter, ‘US to buy decommissioned British Harrier Jets‘, Defence News, 13 November 2011, viewed 8 May 2012. 228. J Hockey (Shadow Treasurer), Doorstop interview: 3 May 2012, transcript, 3 May 2012, viewed 10 May 2012 229. S Ludlam (Australian Greens), Greens: Government must grab chance to get defence spending right, media release,

3 May 2012, viewed 10 May 2012. 230. Department of Defence, Defence 2000; our future defence force, Commonwealth of Australia, Canberra, 2000, p. 87, paragraph 8.48, viewed 9 May 2012. 231. Ibid.

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conjunction with the withdrawal of the F/A-18F Super Hornet fleet…timed to ensure that no gap in our overall air combat capability occurs’. 232

232. Ibid., pp. 78-79.

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Higher education

Coral Dow

2012 is the first year of the demand driven funding system in higher education which has ‘uncapped’ university places for domestic students. The demand driven system is part of wide ranging reforms to the sector introduced in the 2009-10 Budget which has increased funding for student places and university research, reformed the student income support system and introduced a more generous indexation formula for higher education funding. This increased funding has been implemented in the transition to the demand driven system. As a result the 2012-13 Budget contains no major measures to increase funding.

However total spending will increase due to increased enrolments resulting from the uncapping of places. An estimated 547 900 Commonwealth supported places (undergraduate and postgraduate) in 2012 will require an increase in appropriations from the Higher Education Support Act (HESA) from $6.5 billion in 2011-12 to $6.9 billion in 2012-13 with similar increases forecast in the forward estimates. The bulk of these appropriations contribute to the costs of educating domestic Commonwealth supported students through the Commonwealth Grants Scheme (CGS).233

Higher Education Loan Program (HELP)

The cost of providing income contingent loans to eligible students is expected to increase from $1.5 billion in 2011-2012 to $1.8 billion in 2012-13. 234 Increased enrolments in Commonwealth supported places will see a rise in the number of HECS-HELP loans from 398 000 to 472 000. Vocational Education and Training loans called VET FEE-HELP loans are also forecast to increase from 43 700 to 67 200. 235 A further $60 million over four years will be provided from 2012-13 to extend VET FEE-HELP loans to students enrolled in publicly funded (state subsidised) diploma and advanced diploma courses and to trial an extension of loans for certain high demand publicly funded Certificate IV courses. This measure is part of the National Partnership Agreement on Skills Reform and will require the state and territory governments to contribute 50 per cent of the loan deferral costs.236

233. Australian Government, Portfolio additional estimates statements 2011-12: Education, Employment and Workplace Relations Portfolio, Commonwealth of Australia, Canberra, 2012, Table 3.1, p. 47, viewed 10 May 2012; Australian Government, Portfolio budget statements 2012-13: budget related paper 1.13: Industry, Innovation, Science, Research and Tertiary Education Portfolio, Commonwealth of Australia, Canberra, 2012, pp. 92, 94, viewed 10 May 2012.

234. Portfolio additional estimates statements 2011-12: Education, Employment and Workplace Relations Portfolio, op. cit., Table 3.2, p. 47.; Portfolio budget statements 2012-13: budget related paper 1.13: Industry, Innovation, Science, Research and Tertiary Education Portfolio, op. cit., p. 99.

235. Portfolio budget statements 2012-13: budget related paper 1.13: Industry, Innovation, Science, Research and Tertiary Education Portfolio, op. cit., p. 100. 236. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 233-234, viewed 10 May 2012.

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The Government has taken action to curtail the costs of providing student loans which builds on measures in the past twelve months. Since the 2011-12 Budget it has legislated to reduce the HELP upfront payment discount; reduce the HELP voluntary repayment discount; clarified that Australian students enrolled at an offshore campus of an Australian university are not eligible for loans and that students in dentistry and veterinary science may only access loans for qualifications that lead to the initial registration in their profession.

Similarly in the 2012-13 Budget the Government has announced that Australian citizens enrolled at a domestic campus and who undertake a significant proportion of their higher education course while not residing in Australia will no longer be able to access HELP. This is expected to save $25.1 million over four years.237 The basis of the measure is to ‘ensure that Government funding is targeted towards students who are more likely to remain in Australia and contribute to Australia’s workforce and economy following graduation’.238 There are savings in restricting the loans but also in preventing the possibility of unpaid debt due to graduates moving overseas. HECS-HELP debt is recovered by the Australian Taxation Office in tax returns and if graduates move overseas they are not generally required to lodge Australian tax returns. This ‘overseas’ debt is now substantial. Academics Bruce Chapman and Tim Higgins estimate the amount of forgone revenue as a result of HECS debtors going overseas is $400-500 million and could soon exceed $1 billion.239

In this budget the biggest saving in HELP will be made from increasing the student contribution for mathematics, statistics and science students whose units, from 1 January 2013, will move from the National Priority band ($4696 per student in 2013) to the Band 2 rate ($8361 in 2013). This measure will save $314.9 million over four years. 240 It will reverse a 2008 Rudd Government decision that reduced the student contribution for mathematics, statistics and science that was aimed at addressing falling enrolments in the mathematics and science disciplines.241 At the initial announcement of this measure in the Mid-Year Economic and Fiscal Outlook 2011-12 ,the increased contribution was only to apply to new students, but it has now been extended to also apply to continuing students. This measure to increase student contributions might be seen to be at odds with the $54.0 million provided in the Budget to increase mathematics and science participation in schools and universities which is discussed in a separate brief.

237. Ibid., p. 224. 238. Ibid. 239. J Norrie, ‘Expat workers have cost Australia $450 million in HECS’, The Conversation, 29 March 2012, viewed 11 May 2012.

240. Ibid., p. 227. 241. In the 2008-2009 Budget the Rudd Government honoured an election commitment to reduce the HELP fees for mathematics and science disciplines. The measure was implemented with passage of the Higher Education Support Amendment (2008 Budget Measures) Bill 2008.

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School education

Marilyn Harrington

The 2012-13 Budget continues funding for school education as before without any new money or initiatives resulting from the recommendations of the Review of Funding for Schooling (the Gonski Review). 242 The Government’s decision not to act upon the Gonski Review recommendations in the Budget has been criticised by school education sector representatives, including state education ministers, and by the Opposition. 243

In 2012-13, the Australian Government will provide an estimated $12.9 billion for schools, of which $8.3 billion (64.6 per cent) will be provided to non-government schools and $4.6 billion (35.4 per cent) to government schools. By 2015-16, the 2012-13 Budget projects this funding will increase by 19.6 per cent. Non-government schools will receive 85.0 per cent of this increase. 244

These figures do not include funding for a number of school education National Partnerships which are accounted for in the sub-function ‘School education - specific funding’. Budget paper No. 3 provides more information about the funding for these National Partnerships, disaggregated by school sector. 245

Two significant school education budget measures are the ‘Mathematics and science—increasing participation in schools and universities initiative’, and new funding for literacy and numeracy programs.

The mathematics and science measures are included in the budget papers under the Industry, Innovation, Science, Research and Tertiary Education portfolio information and are the subject of a separate article in this Budget Review.

The new funding for literacy and numeracy, amounting to $243 million over 18 months, was announced by the Minister for School Education, Peter Garrett, just prior to the Budget. 246 This item does not appear as a budget measure in Budget Paper No. 2. However, it does appear in the

242. For information about the Gonski Review of Funding for Schooling, see: Australian Government (AG), ‘Your school our future‘, AG website, viewed 10 May 2012. See also: M Harrington, ‘Brave new world’? The Gonski Review of Funding for Schooling, FlagPost, Parliamentary Library, Canberra, 23 February 2012, viewed 10 May 2012.

243. See, for example, A Stevenson and B Hall, ‘Gonski’s $5.6b urgent recommendations ignored‘, Sydney Morning Herald, 10 May 2012, p. 8, viewed 11 May 2012 and C Pyne (Shadow Minister for Education, Apprenticeships and Training), $5 billion? Try $5 million, media release, 9 May 2012, viewed 11 May 2012.

244. The budget figures in this brief are taken from the following document unless otherwise sourced: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 245. See Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, Commonwealth of Australia,

Canberra, 2012, Table 2.5, pp. 55-6, viewed 10 May 2012. This table does disaggregate some of the national partnership funding by school sector. 246. P Garrett (Minister for School Education), Literacy and numeracy schemes receive $243 million boost, media release, 5 May 2012, viewed 10 May 2012.

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portfolio budget statements with funding for the National Action Plan on Literacy and Numeracy ($650 million four years). 247 The new funding is a response to the cessation of the National Partnership on Literacy and Numeracy, which has been credited with improving literacy and numeracy outcomes.248 The cessation of the National Partnership was also the subject of pre-budget lobbying by education unions and other stakeholders.249

The remainder of the school education budget measures comprise cessation of programs, ‘redirection’ of funds and program parameter changes. These measures affect some of the Government’s headline programs for schools, including Teach Next (less participants but extended support), Reward Payments for Schools (reduction in payments) and the Australian Baccalaureate (postponement of funding).

The redirection of $24.4 million from the Digital Education Revolution’s project pool is in fact a restatement of a measure that was originally announced in the portfolio additional estimates statements for 2011-12. 250 The program also had $132.5 million redirected in the original 2011-12 Budget papers. 251 This means that $10 million over two years now remains for this program.

The Opposition Leader’s announcement, in his address-in-reply to the Budget, that a Coalition Government would work to ensure ‘at least a 40 per cent increase’ in the numbers of Year 12 students studying a language draws attention to the Government’s National Asian Languages and Studies in Schools Program (NALSSP), which finishes at the end of this financial year.252 The Government has chosen not to extend NALSSP because it considers that the program has failed its objectives.253 A decision about further funding for language studies in schools, albeit Asian languages only, is pending the release of the Government’s white paper, Australia in Asia, and, presumably, will be informed by discussions held between the Minister for School Education and business leaders.254

247. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.6: Education, Employment and Workplace Relations Portfolio, Commonwealth of Australia, Canberra, 2012, p. 61, viewed 10 May 2012. 248. P Garrett (Minister for School Education), Literacy and numeracy schemes receive $243 million boost, op. cit. 249. See, for example, Australian Education Union, Funding must continue for literacy and numeracy programs, media

release, 22 March 2012, viewed 10 May 2012. 250. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 120, viewed 10 May 2012 and Australian Government, Portfolio additional estimates statements 2011-12:

Education, Employment and Workplace Relations Portfolio,) Commonwealth of Australia, Canberra, 2012, p. 18, viewed 10 May 2012. 251. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra, 2011, pp. 171-2. 252. T Abbott, ‘Second reading speech: Appropriation Bill (No. 1) 2012-2013‘, House of Representatives, Debates, 10 May

2012, p.85, viewed 11 May 2012.; See: Department of Education, Employment and Workplace Relations (DEEWR), ‘NALSSP: National Asian Languages and Studies in Schools Program‘, DEEWR website, viewed 11 May 2012. 253. D O’Keeffe, ‘The revolution rolls on‘, Education Review, February 2012, pp. 6-7, viewed 11 May 2012. 254. Note: the Australian Government provides specific funding for language studies in non-government schools through its School Languages Program. B Lane, ‘We must invest to latch on to the Asian century‘, The Australian, 5 October 2011, p. 26, viewed 11 May 2012, and P Garrett (Minister for School Education), Working with business to boost Asian awareness and languages in schools, media release, 23 April 2012, 11 May 2012.

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Comment

Funding for school education is in a holding pattern pending outcomes from the recommendations of the Gonski Review. To date the Government has not made any firm commitments apart from developing a ‘roadmap for reform’ with state and territory education ministers, 255 establishing a Ministerial Schools Funding Reference Group256 and providing $5.8 million over two years for further developmental work on the Gonski recommendations. 257 Nevertheless, the Government is intending to introduce new legislation for school funding before the end of 2012. 258 Given the nature of the commitments to date, and with one state education minister stating that new school funding arrangements will not be completed by the end of 2013, it is curious what the scope of the legislation will be.259

255. P Garrett (Minister for School Education), All systems go on school funding reform, media release, 5 April 2012, viewed 10 May 2012. 256. P Garrett (Minister for School Education), Next steps for school funding reform, media release, 9 March 2012, viewed 10 May 2012. 257. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 119. 258. P Garrett (Minister for School Education), Opening remarks—a national conversation with principals 2012, Hyatt

Hotel, Canberra, speech, 3 May 2012, viewed 10 May 2012. 259. J Topsfield, ‘No school funding changes in next year: state minister‘, The Age, 6 April 2012, p. 4, viewed 10 May 2012.

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Skills and training

Leonie Doyle

There is an overall decrease in expenditure on the two skills and training sub-functions in the 2012- 13 Budget, from $4.0 billion in 2011-12 to $3.6 billion in 2012-13. This expenditure comprises $1.9 billion in ‘vocational and other education’ and $1.7 billion in ‘vocational and industry training’. Expenditure is set to remain flat through to 2013-14, but then increase to $3.8 billion by 2014-15. 260

Consistent with this decrease in overall expenditure, there are no significant new measures for skills and training this year. Instead, the Budget continues implementation of the Building Australia’s Future Workforce reforms and funding package announced in the 2011-12 Budget.

The Australian Government provides funding for skills and training in two ways—through intergovernmental payments to the states and territories for vocational education and training and directly through its own programs (chiefly Australian Apprenticeships). With the machinery of government changes that occurred in December 2011, this funding for skills and training is now split across two portfolios. 261

Australian Government payments to the states to support vocational education are made via the National Skills and Workforce Development Specific Purpose Payment (SPP) and through various National Partnership Payments (NPPs). In 2012-13, total payments to the states decrease from $1.9 billion in 2011-12 to $1.7 billion, mainly due to a drop in the value of NPPs for vocational and other education. While the SPP remains constant at $1.4 billion, the NPPs total $316.8 million (down from $526.8 in 2011-12), largely due to the cessation of the Productivity Places Program.262

In April 2012, the Council of Australian Governments (COAG) agreed to a revised National Agreement for Skills and Workforce Development and a new National Partnership on Skills Reform (NP).263 The NP was a 2011-12 budget measure worth $1.7 billion over five years (2012-13 to 2016- 17). Its objectives include: a national entitlement to a Certificate Level 3 qualification; a student loan scheme for diploma and advanced diploma students; and a web portal (MySkills) for information on vocational education and training. The NP is worth $238.4 million in 2012-13, less than the previous National Partnership for the Productivity Places Program (worth $375.9 million in 2011-12). 264

260. The budget figures in this brief are taken from the following document unless otherwise sourced: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 261. The two portfolios are: Industry, Innovation, Science, Research and Tertiary Education; and Education, Employment

and Workplace Relations. 262. Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 69, viewed 11 May 2012. 263. Council of Australian Governments (COAG), COAG communiqué: 13 April 2012, viewed 14 May 2012. 264. Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, op. cit.

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Australian Government funding for its own programs (vocational and industry training) in 2012-13 will total $1.7 billion, down from $2.0 billion in 2011-12. Much of this saving is achieved through two measures that adjust the Australian Apprenticeships Incentives Program in response to concerns over retention and completion rates. 265 The first measure discontinues the commencement payment for existing worker Australian Apprentices ($1500) and increases the completion payment (from $2500 to $3000). The second measure defers the standard apprenticeship commencement payment to six months (rather than three) after start of employment. Together these measures save $401.4 million over four years.266 Initial reaction to these measures from the sector has been mostly positive despite this reduction in funding.267

As noted in Budget Review 2011-12, the tendency to refurbish vocational education and training by renaming programs and redirecting funding across skills initiatives continues.268

The $558 million National Workforce Development Fund, only one year old and incorporating the $200 million Critical Skills Investment Fund established in 2010-11, encounters both deposits and withdrawals in this year’s Budget. This includes the redirection of $18.1 million over four years for three new Australian Skills Centres of Excellence that will support innovative production processes and related skills development (it is not yet known which industries will benefit).269 There is also an additional $35 million over four years to train mature age workers. For information on other mature age worker initiatives, see the Budget Review 2012-13 article, ‘Increasing Workforce Participation’.

The overall message for skills and training in the 2012-13 Budget is ‘business as usual’. The Budget continues to implement the major initiatives announced in 2011-12, but reflects some refinements and savings measures. Chief among these are the new (but less costly) National Partnership on Skills Reform and much tighter targeting of Australian Apprenticeships incentives.

265. The National Centre for Vocational Education Research (NCVER) published data in 2011 that showed that only 55 per cent of all apprentices and trainees were likely to complete their training. See NCVER, Building a clearer picture of apprentice completion rates, media release, 28 July 2011, viewed 9 May 2012. 266. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra,

2012, p. 219, viewed 11 May 2012. 267. J Ross, ‘$400m VET cut welcomed‘, The Australian, 10 May 2012, viewed 11 May 2012. 268. C Kempner, ‘Budget 2011-12: vocational education and training‘, Budget review 2011-12, Research paper no. 13,

2011-12, Parliamentary Library, Canberra, 2011, viewed 11 May 2012. 269. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 220.

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Mathematics and science—increasing participation

Coral Dow and Marilyn Harrington

The 2012-13 Budget’s $54.0 million over four years for ‘Mathematics and science—increasing participation in schools and universities’ is the Government’s response to the Chief Scientist’s report, Mathematics, Engineering and Science in the National Interest. 270 This report is one of the latest of many produced over a number of years which highlight the poor state of mathematics and science education in Australia. 271

The Chief Scientist argued for targeted initiatives that will translate into wider economic gains:

Mathematics, Engineering and Science (MES) are fundamental to shaping the future of Australia, and the future of the world ... Our future lies in creating a high technology, high productivity economy; to innovate and to compete at the high-end of provision. To do so, the technical skills and scientific awareness of the entire workforce must be raised. The number of MES graduates needs to increase to allow industry to expand in these areas. Yet our current performance is wanting, and we compare poorly to our leading Asian neighbours.

272

The concerns about mathematics and science education in Australia have focused on declining school and university enrolments, the supply of qualified school teachers and Australia’s declining attainment relative to other countries. 273 At senior school level enrolments are declining accompanied by students increasingly opting for lower levels of study in mathematics and the ‘softer’ sciences. 274 These trends have continued despite a range of government programs targeted at overturning the declines.

The budget measure is an acknowledgement that mathematics and science education in the senior years of schooling and at the university level are linked and cross-sector initiatives are needed to redress the state of mathematics and science education in Australia. Towards this end, the major element of the measure ($20.0 million over four years) is directed towards university-led outreach projects to encourage school students to study mathematics and science. There are also other elements (with expenditure of $10.9 million) to raise the ‘engagement, curiosity and participation’ of school students. 275 Other initiatives focus on improving the quality of teacher training and providing

270. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 230-31, viewed 10 May 2012. 271. Australia. Office of the Chief Scientist, Mathematics, engineering and science in the national interest, Department of Industry, Innovation, Science, Research and Tertiary Education, Canberra, 2012 viewed 14 May 2012. 272. Ibid., p. 12. 273. Teacher supply problems were also highlighted recently in: Productivity Commission (PC), Schools workforce,

Research report, PC, Canberra, 2012, viewed 15 May 2012. For Australia’s international performance, see Office of the Chief Scientist, op. cit., pp. 15-17. 274. See, for example, A Falkiner, National trends in Year 12 course completions, Policy note, no. 6, Group of Eight, 2012, viewed 15 May 2012. 275. C Evans (Minister for Tertiary Education, Skills, Science and Research) and P Garrett (Minister for School Education),

Investing in science and maths for a smarter future, media release, 8 May 2012, viewed 15 May 2012.

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support and training for teachers ($18.9 million). The remaining $4.3 million will provide for a National Mathematics and Science Education and Industry Adviser to ‘champion’ the role of mathematics and science. 276

There are inconsistencies and mixed messages in recent government decisions on mathematics and science education. The budget measure reverses the Government’s decision last year not to extend its support for the Australian Academy of Science programs, ‘Primary connections: Linking Science with Literacy’ and the ‘Science by Doing’ projects. This decision was widely criticised by the science community and resulted in the Nobel Prize winner Brian Schmidt donating $100 000 of his prize money to sustain the Primary Connections program. 277

Increased higher education student contributions for mathematics and science

The budget measure to increase the contribution rate for higher education students who study mathematics, statistics and science may be at odds with the measure to increase student participation. 278

University applications and enrolment data indicate the demand for science subjects is strong, possibly due to the 2008-09 budget measure (a 2007 election commitment) which reduced the mathematics and science student contribution amounts to the lowest level in order to increase enrolments.279 The reduction had an immediate effect on undergraduate applications for Natural and Physical Sciences which increased by 17.1 per cent from 2008 to 2009. 280 In 2012, of all university applications, Natural and Physical Sciences recorded the largest increase (10.9 per cent).281 Reporting on 2010 increases, the Department of Education, Employment and Workplace Relations (DEEWR) stated ‘the two years’ growth more than reversed the declines in demand for this field between 2004 and 2008.’282 However, such improvements at the broad discipline level of Natural and Physical Sciences, may disguise trends within the various science subjects.

276. Ibid. 277. See, for example, D O’Keeffe, ‘Maths and science education the key challenge‘, Education Review, October 2011, p. 6, viewed 15 May 2012; and ‘Schmidt donates to primary science program‘, Education Review, 8 December 2012, viewed 15 May 2012.

278. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 227. 279. Australian Government, Budget measures: budget paper no. 2: 2008-09, Commonwealth of Australia, Canberra, 2008, p. 133, viewed 10 May 2012; K Rudd (Federal Labor Leader) and S Smith (Shadow Minister for Education and Training), New directions for maths and science: encouraging young Australians to study and teach maths and

science, Australian Labor Party policy document, Election 2007, viewed 15 May 2012. 280. Department of Education, Employment and Workplace Relations (DEEWR), Undergraduate applications, offers and acceptances 2010, DEEWR, Canberra, 2011, p. 2, viewed 15 May 2012. 281. Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE), The demand driven system:

Undergraduate applications and offers, February 2012, DIISRTE, Canberra, 2012, p. 4, viewed 15 May 2012. See also C Dow, ‘Are maths and science enrolments increasing?’ FlagPost, Parliamentary Library, Canberra, 2 December 2011, viewed 10 May 2012. 282. DEEWR, op. cit.

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The Government’s rationale for the new budget measure, which increases student contribution rates, is that the lower contribution rates had not been ‘effective in substantially increasing the number of students undertaking maths and science at university’ and announced budget savings would be made by returning the student contribution amounts to the Band 2 level.283 The increased contribution (from $4696 to $8361 per student) will apply to all continuing and new students from 2013, resulting in savings of $314.9 million over four years.284

The state of university science and mathematics enrolments is complex. Despite reported increases in applications and enrolments, a more detailed analysis of enrolment data commissioned by the Chief Scientist reports:

… higher proportions of students discontinue their study of enabling sciences after first year. In other words, students are less likely to complete majors in chemistry, mathematics and physics than they are in biology and other narrow disciplines within the Natural and Physical Sciences. 285

Measures aimed at improving the numbers of university graduates in these enabling disciplines might be required if productivity and economic gains are to be achieved. Such initiatives are not obvious in this budget measure, which appears to be more directed at encouraging student engagement and participation generally, and improving teacher training and support.

283. C Evans (Minister for Tertiary Education, Skills, Jobs and Workplace Relations), Band 2 student contribution reinstated for maths and science, media release, 29 November 2011, viewed 15 May 2012. 284. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 227. 285. I R Dobson, Unhealthy science?: University Natural and Physical Sciences 2002 to 2009/10, Network for Higher

Education and Innovation Research, University of Helsinki, Centre for Population & Urban Research, Monash University and the Educational Policy Institute, 2012, viewed 15 May 2012.

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Official Development Assistance: a commitment delayed

Dr Ravi Tomar

According to the Aid Budget Statement 2012-13, Australia’s Official Development Assistance (ODA) budget for 2012-13 is $5153.0 million, which is $288.9 million more than the estimated outcome for 2011-12. 286 This represents a four per cent increase in real terms over the estimated outcome for 2011-12. It is estimated that Australia’s ODA will remain at about 0.35 per cent of Gross National Income (GNI), reflecting a revision of the commitment of an ODA/GNI ratio of 0.38 per cent in 2012- 13 included in the Aid Budget Statement 2011-12.

The Government has delayed its commitment to achieve an ODA/GNI ratio of 0.5 per cent by 2015- 16. 287 According to a media release by the Minister for Foreign Affairs, Bob Carr:

In a tight fiscal environment, the Government has decided to defer the achievement of providing 0.5 per cent of GNI to official development assistance by one year.

Funding for ODA will continue to grow each year; it will, however, grow at a slightly slower rate so that 0.5 per cent of GNI is achieved in 2016-17.288

The Aid Budget Statement 2012-13 states:

The Government has committed to increase Australia’s ODA/GNI ratio to 0.5 per cent by 2016- 17. To reach this target, the Government expects to increase Australian aid to around 0.37 per cent of GNI in 2013-14, 0.41 per cent in 2014-15 and 0.45 per cent in 2015-16.

The likelihood of the Government achieving these targets has been questioned by Professor Stephen Howes, Director of the Development Policy Centre at the Australian National University. Writing in the Development Policy Blog he maintains:

Even with a year’s delay, it will be a steep climb to get to 0.5, requiring, on average, increases of about $1 billion for each of the next four years from 2013-14 to 2016-17. The aid program has never had an annual increase of anything close to $1 billion. The biggest increase was $626 million in 2008-09, the second biggest $500 million in 2005-06. Even with looser fiscal constraints, it will not be easy to sustain support for a single $1 billion increase, let alone for four such increases consecutively. Yet this is what it will take to get to 0.5% under the new timetable. Are we serious about 0.5%? Not if this or recent past budgets is a guide...

286. Unless otherwise indicated all information is derived from the Statement by Senator the Hon Bob Carr, Minister for Foreign Affairs, Budget: Australia’s international development assistance program 2012-13, Commonwealth of Australia, Canberra, 8 May 2012, viewed 9 May 2012; see also AusAID, Summary of Australia’s Overseas Aid Program: Budget Highlights 8 May 2012, Commonwealth of Australia, Canberra, 2012, viewed 9 May 2012. 287. Statement by the Hon Kevin Rudd MP, Minister for Foreign Affairs, Budget: Australia’s international development

assistance program 2011-12, Commonwealth of Australia, Canberra, 10 May 2011, viewed 9 May 2012. 288. B Carr (Minister for Foreign Affairs), 2012-13 International Development Assistance Budget, media release, 8 May 2012, viewed 9 May 2012.

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In summary, I come away from the budget not that convinced that we will get to 0.5%, but reassured that aid effectiveness should improve. Perhaps lifting effectiveness will help generate more support for more aid. 289

The Government has also developed a new Comprehensive Aid Policy Framework (CAPF) which provides a roadmap for where and how much Australian aid will be spent in different regions over the next four years.290

Aid allocations

Indonesia remains the largest recipient of Australian ODA ($578.4 million) followed by PNG ($491.7 million).

Afghanistan is now the fourth largest recipient of ODA in 2012-13 ($201.7 million) compared to $20.7 million it received in 2005-06. 291 However, the outlay also reflects the high cost of delivering aid to Afghanistan.

Aid to Burma is set to increase substantially, with an estimated $63.8 million in 2012-13 compared to an estimated outcome of $48.8 million in 2011-12. Fiji also is set to receive an increase in ODA, with $55.6 million this year compared to $45.3 million in 2011-12.

Australia’s bilateral assistance to China and India will conclude by 2012-13 and 2013-14 respectively.

New initiatives include Australia joining the African Development Bank Group ($9.3 million over four years) and re-joining the International Fund for Agricultural Development ($126.4 million over four years).292

Outlay on ODA-eligible expenditure by Other Government Departments (OGDs) is estimated at $505.9 million. The Australian Federal Police remains the largest source of this expenditure ($175.5 million) followed by the Australian Centre for International Agricultural Research ($100 million) and the Department of Immigration and Citizenship ($51.4 million).

Evaluation and Review

From 2012-13, the Minister for Foreign Affairs will report on the aid program in an Annual Review of Aid Effectiveness. This report will replace the Annual Review of Development Effectiveness.

289. S Howes, ‘Weak on quantity, strong on quality: the 2012 Australian aid budget’, Development Policy Centre Blog, 9 May 2012, viewed 9 May 2012. 290. AusAID, Helping the World’s Poor through Effective Aid: Australia’s Comprehensive Aid Policy Framework to 2015-16, Commonwealth of Australia, Canberra, May 2012, viewed 9 May 2012. 291. R Tomar, Australian aid to Afghanistan, Background note, 2011-12, Parliamentary Library, Canberra, 18 July 2011,

viewed 9 May 2012. 292. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra 2012, viewed 9 May 2012.

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The Government has also established an Independent Evaluation Committee (comprising three external members and one senior AusAID representative) to provide independent evaluation advice to the Development Effectiveness Steering Committee (DESC). 293 This committee will also oversee the work of AusAID’s Office of Development Effectiveness which in turn will increase the number of

evaluations that it undertakes.

Reactions to the aid budget

Australian Non-Government Organisations (NGOs) have expressed their disappointment over the decision to defer the target of ODA/GNI ratio of 0.5 per cent by a year, to 2016-17.

The Australian Council for International Development (ACFID), the peak organisation for aid NGOs, said that the ‘budget represents a core promise broken by the Gillard Government’.294

CARE Australia maintained that the ‘aid budget announcement is a double disappointment for the millions of poor people living in developing countries beyond our borders’. 295

Oxfam Australia noted that ‘[m]ore than a quarter of the Gillard Government’s $1.5b surplus will come from cuts to Australia’s aid program that helps the world’s poorest people’. 296

The Shadow Minister for Foreign Affairs, Julie Bishop, said that the Coalition remained committed to the 0.5 per cent ODA/GNI target, but that this year’s Budget had made the 2015 target ‘impossible’.297

293. According to the Statement by Senator the Hon Bob Carr, Minister for Foreign Affairs, Budget: Australia’s international development assistance program 2012-13, op cit., p.135, ‘External members are appointed by the Minister for Foreign Affairs, while the Director General of AusAID appoints the AusAID representative’.

294. ACFID, Aid: a promise broken, media release, 8 May 2012, viewed 9 May 2012. 295. CARE Australia, Aid budget stall breaks promise to world’s poorest, media release, 8 May 2012, viewed 9 May 2012. 296. Oxfam Australia, Government’s surplus paid for by the world’s poor, media release, 9 May 20012, viewed 9 May 2012.

297. B Hall, ‘Coalition won’t keep aid commitment’, Sydney Morning Herald, 11 May 2012, p. 7.

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Aged care

Rebecca de Boer

The Government’s aged care package ‘Living Longer. Living Better’ was released prior to the Budget as it was not considered a ‘budget measure per se’.298 While there is some new funding, the majority of the $3.7 billion projected expenditure over five years ($2.2 billion over four years) will be off-set by redirected funding and means testing.299 The net cost to Government is expected to be $576.9 million over five years ($284.6 million over four years).300

The 2012-13 Budget details the financing arrangements for the package and the funding associated with the agencies that will be established as part of the reforms.301 There will be some expenditure in 2012-13 ($55.2 million) and 2013-14 ($26.9 million) but the majority of expenditure for this package will occur in 2016-17, outside the forward estimates period.302 In the context of what is currently a $12 billion program (in 2010-11), this represents very little new expenditure. A detailed summary of the ‘Living Longer. Living Better’ package can be found on ‘FlagPost’, the Library’s blog.303

The changes to the Aged Care Funding Instrument (ACFI) and the introduction of means testing will generate savings of around $2 billion over five years.304 Other sources of funds for the package are the transfer of places from residential care to home care ($454.0 million over five years), the transfer of funding from residential care to home care ($153.3 million over five years), the redirection of the Long Stay Older Patients Initiative ($187.5 million over five years) and the transfer of a number of smaller programs.305

These funds will be ‘redirected’ within the aged care budget and will be used to fund the initiatives announced as part of the package. In reality, the amount of expenditure by government will not change much overall (apart from a modest increase of $576.9 million over five years) but where it is

298. J Gillard (Prime Minister),Transcript of joint press conference, media release, 20 April 2012, viewed 10 May 2012. 299. Ibid. 300. Australian Government, Living Longer. Living Better., Commonwealth of Australia, Canberra, 2012, pp. 37-38, viewed 10 May 2012.

301. See, Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 181-191, viewed 10 May 2012. 302. R de Boer, ‘Reform of aged care—a small step’, FlagPost, Parliamentary Library, Canberra, 30 April 2012, viewed 10 May 2012. 303. Ibid; R de Boer, ‘Paying for aged care—should the family home be counted’, FlagPost, Parliamentary Library,

Canberra, 2 May 2012 and ‘Changes to community care’, FlagPost, Parliamentary Library, Canberra, 2 May 2012, viewed 10 May 2012. 304. This consists of around $1.6 billion from changes to the Aged Care Funding Instrument (ACFI) and $561.0 million from means testing. See Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 184, viewed

10 May 2012. 305. For a complete list, see Australian Government, Living Longer. Living Better., op. cit., pp. 37-38, viewed 10 May 2012.

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spent will. The savings were calculated according to expenditure that would have been made by government if current policy settings were to continue. 306

The introduction of means testing for recipients of aged care is expected to generate savings of $561.0 million over five years.307 Annual caps ($25 000 for residential care and $5000 for home care) and lifetime caps ($60 000) will apply.308 Some concerns have been raised about the possible impact on low income earners receiving home care but there is broad consensus by the aged care sector for the underlying approach.309 It is also reflective of the Government’s approach to other social programs which target assistance according to income.

The ACFI is the main source of funding for residential aged care providers to cover the costs associated with the provision of aged care. 310 According to the Minister, the $1.6 billion clawback of the ACFI is the result of ‘unusual claiming’ by residential aged care providers.311 The tightening of the assessment criteria has been described by some in the aged care industry as a reduction in the ACFI subsidy with likely flow-on effects to capital investment. 312 Others have suggested that the Government is unlikely to achieve the proposed increase in residential aged care places (announced as part of the package) as the subsidy is not sufficient to ensure the viability of the sector. 313 The changes to the ACFI will be partially off-set by other measures announced in the package which will give aged care providers greater flexibility to generate income through changes to bond arrangements and the ability to charge for extra service.314

The Government also announced additional payments (from $32.58 to $50.00 per day, current prices) to residential aged care providers who significantly refurbish or build new facilities after 20 April 2012 ($486.9 million over five years). This has been criticised for not rewarding existing aged care providers who have made recent investments to improve their facilities and may meet the yet

306. An example of such an approach is that the Government reported in the 2011-12 Mid-Year Economic and Fiscal Outlook that residential aged care subsidies were expected to increase by $444 million in 2011-12 ($1.9 billion over four years. See Australian Government, 2011-12 Mid-Year Economic and Fiscal Outlook, Commonwealth of Australia, Canberra, 2011 p. 44, viewed 10 May 2012. 307. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 184. 308. For home care, part pensioners will pay a maximum of $5000 per annum and self-funded retirees will pay up to

$10 000. For residential care, an annual cap of $25 000 applies to care contributions but the individual amount will be determined by income and asset tests. Full pensioners are exempt. Thresholds will be indexed annually in line with the aged care pension. 309. The Productivity Commission’s Report, Caring for Older Australians and the ‘agewell ‘campaign both argued that individuals with the capacity to pay should do so. UnitingCare Ageing has raised concerns about the impact on low income earners, see M Metherell, ‘Charges set to rise in aged care reform‘, The Sydney Morning Herald, 25 April 2012, viewed 10 May 2012. 310. Aged care providers also generate additional income through accommodation charges and aged care bonds. 311. J Gillard (Prime Minister),Transcript of joint press conference, op. cit. 312. Aged Care Association Australia, Aged care reform still requires clarification, media release, 9 May 2012, viewed 10 May 2012. 313. Grant Thornton, Review of the Government’s Aged Care Reform Package - Living Longer, Living Better, Reform report #1, April 2012, viewed 11 May 2012. 314. Consumers are protected from high prices as pricing must be approved by the Aged Care Financing Authority.

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to be defined criteria. 315 The new payments will not take effect until 2014 and concerns have been raised that, in high cost jurisdictions and in rural and regional Australia, this may not be reflective of the costs. 316

Despite the offsets announced in the package there will still be implementation costs. Three agencies will be established to implement the package: the Aged Care Financing Authority, the Aged Care Quality Agency and the Aged Care Reform Implementation Council. The Aged Care Quality Agency will be created from the existing Aged Care Standards and Accreditation Agency and no additional funding has been allocated. Funding has been allocated for the Aged Care Financing Authority ($20.9 million over four years) and the Aged Care Implementation Council ($14.6 million over four years). The total allocation for the Council is $15.2 million over five years, with $7.3 million for information and communications. 317 It is envisaged that the Council will report bi-annually to Government on implementation and further development of aged care reform and is resourced with $7.9 million to provide these reports. 318

A major feature of the Government’s package is the establishment of an aged care gateway which will act as a single entry point to the aged care system at a cost of $198.2 million over five years from 2012-13. 319 This will replace the ‘One-Stop Shop’ and associated ‘new front-end’ of the aged care system that was previously announced as part of the Government’s health reform package. 320 The initial focus of the gateway will be on the development of a new ‘My Aged Care’ website which will eventually publish ratings of aged care homes as well as provide information about aged care services. A national call centre will be established in 2013 but it is not clear if this will replace the recently consolidated aged care information line.321

The Australian Nursing Foundation has long campaigned for increased wages for nursing staff in aged care.322 Improved wages for aged care workers and the creation of a Compact also featured in the ‘agewell’ campaign supported by an alliance of aged care organisations. 323 This recommendation was accepted by Government and $1.2 billion over five years (from 2012-13) has been allocated to a Workforce Compact. Additional funding will be given to aged care providers who sign the Compact (due to commence in July 2013). 324

315. R Glickman, ‘Pulling the right levers for reform‘, Australian Ageing Agenda, 10 May 2012, viewed 10 May 2012. 316. Ibid. 317. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 182, viewed 10 May 2012. 318. Australian Government, Australian Government Response - Productivity Commission’s Caring for Older Australians

Report, Commonwealth of Australia, Canberra, 2012, response to recommendation 17.1, viewed 10 May 2012. 319. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 182, viewed 10 May 2012 320. For further explanation of this see Australia, Parliamentary Library, Budget review 2011-12, Research paper, no.13,

2010-11, Parliamentary Library, Canberra, 2011, viewed 10 May 2012. 321. M Butler (Minister for Mental Health and Ageing), First step to aged care reform: new national information line, media release, 1 July 2011, viewed 10 May 2011. 322. Australian Nursing Foundation (ANF), ‘Because we care’ campaign, ANF website, viewed 10 May 2012 323. Agewell campaign, ‘Reform facts‘, Agewell campaign website, viewed 10 May 2012 324. Australian Government, Australian Government Response - Productivity Commission’s Caring for Older Australians

Report, op. cit., response to recommendation 14.1, viewed 10 May 2012.

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Other budget-related implementation measures include:325

• The total number of aged care places will increase from 113 to 120 places for every 1000 people

aged 70 years or over by 2016 and to 125 places by 2021. The number of home care packages will increase by around 40 000 over the next five years326

• Improved funding arrangements for dementia ($268.4 million over five years), including

additional funding for residential and community aged care providers who care for people with dementia327

• The consolidation of capital grants programs into a single Rural, Regional and other Special Needs

Building Fund. Viability supplements to aged care providers who provide care in regional or rural areas or specialist aged services (for example to Indigenous Australians) will continue. The combined cost of these measures is $108.0 million over five years.328

Comment

It will take some time to determine the extent of these changes and subsequent effect on the aged care industry. There have long been claims that government funding arrangements for residential aged care are insufficient to meet the costs associated with the provision of aged care. 329 The Productivity Commission recommended a public benchmarking study be undertaken to determine aged care costs but this was not adopted by Government. 330

The aged care sector is largely united behind the proposed changes in the aged care package. 331 To date, the Opposition has not formally responded to the Government’s proposal although has previously indicated support for reform. 332 The Greens offered their support to the package but are yet to comment on the associated budget measures. 333 The Government expects reform of the aged care system will take up to ten years but careful monitoring, and re-adjustment where necessary, will be required to ensure that the financial framework is adequate to achieve its reform objectives.

325. This is not a comprehensive list. All measures are outlined in Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 180-190. 326. Ibid., pp. 188. 327. Ibid., pp. 190-1. 328. Ibid., p. 187. 329. Senate Standing Committee on Finance and Public Administration, Report of the inquiry into residential and

community care in Australia, Senate, Canberra, 29 April 2009, viewed 11 May 2012. 330. Productivity Commission, Caring for Older Australians, Productivity Commission, Canberra, 2011, p. 503. 331. ‘Aged care overhaul wins support‘, The Australian, 20 April 2012, viewed 10 May 2012. 332. Y Noone, ‘We’re just not there yet‘, Australian Ageing Agenda, 10 May 2012, viewed 10 May 2012. 333. R Siewert, Aged care reform needs budget commitment this year, media release, 20 April 2012, viewed 10 May 2012.

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Dental reforms

Amanda Biggs

This budget demonstrates that the Government’s long-awaited approach to tackling dental reform will be primarily through an injection of funds to state-run public dental services which target low income, concessional groups. Nearly $346 million over three years will be directed to treat patients on public dental waiting lists.334 In addition, the capacity of the public dental workforce will be enhanced by expanding to 100 the number of Voluntary Dental Graduate Year placements, at a cost of $35.7 million over four years, and introducing support for an Oral Health Therapist graduate year program, at a cost of $45.2 million. Also announced is $77.7 million over four years in infrastructure and relocation grants to private dentists who re-locate to regional, rural and remote areas. In addition, some $10.5 million over three years is allocated to fund national oral health promotion activities and $0.5 million to support private dentists’ pro bono work.

Last budget, the Government flagged dental reform would be a major feature of this year’s budget. 335 This was in the context of reports continuing to highlight the poor dental health of some Australians, and the barriers to affordable and timely dental care, particularly for the financially disadvantaged. A recent report found that around one in three adults report avoiding or delaying dental treatment because of cost. 336 Funding for a National Advisory Council on Dental Health (NACDH) was provided to advise the Government on dental priorities. Their final report outlining four policy options was released in February 2012. 337 Briefly, these options were: for children, an individual universal capped dental benefit entitlement; for adults, a means-tested individual capped dental benefit entitlement; and for both groups, improved access to public dental services. Measures targeting specific at-risk groups, which would be expanded over time to include the broader population, were also proposed. The aspiration was that incrementally this would lead to a universally accessible dental scheme.

These budget measures are broadly consistent with the Minister’s initial response to the NACDH. In this, she indicated a preference for a dental scheme that targeted the financially disadvantaged; addressed workforce and infrastructure constraints; did not duplicate existing state dental services; was fiscally responsible; and relied on the closure of the contentious Chronic Disease Dental Scheme

334. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 172-175. 335. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra, 2011, p. 216. 336. J F Stewart and A C Ellershaw, Oral health and use of dental services 2008: findings from the National Dental

Telephone Interview Survey 2008, Australian Institute of Health and Welfare, Canberra, 2012, viewed 9 May 2012. 337. National Advisory Council on Dental Health, Final Report of the National Advisory Council on Dental Health, Department of Health and Ageing, Canberra, 2012, viewed 9 May 2012.

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(CDDS), which provides capped Medicare dental benefits to chronic disease patients on referral from their GP.338

Although the Government declined to adopt a universal scheme as outlined in the NACDH report, it offers some hope for advocates of dental reform by describing its budget initiatives as ‘foundation measures’ and committing itself to a future phase of ‘significant dental reform’ in the next budget.339

Funding for the package will be partially met by re-directing $290 million from the never implemented and now abandoned Commonwealth Dental Health Program, which had been promised at the last election pending the closure of the CDDS. So far, closing the CDDS has been blocked by the Greens, the Opposition and Independents in the Senate. The CDDS is contentious, partly because the cost of the scheme has blown out to $2.3 billion.340 A recent Medicare Australia audit reportedly found significant levels of administrative non-compliance from dentists participating in the scheme. 341 But efforts to recoup Medicare payments to these dentists have been controversial, prompting a Senate inquiry. 342 The Government remains committed to closing the CDDS ‘as soon as possible’.343 However, the timing remains uncertain and still relies on winning the support of the Senate, including the Greens.

So far the dental package has been broadly welcomed, including by the dental profession.344 One dental reform advocate describes it as an important first step.345 But a number of concerns have emerged. There are concerns that the plan to reduce public dental waiting lists relies on the striking of a new funding agreement with the states, which may delay implementation.346 The Minister has indicated the agreement would require states to maintain their existing dental services, and provide information on treatment and waiting lists, to qualify for the funding. 347 There are also concerns that the audit of dentists which found administrative non-compliance may jeopardise the ongoing cooperation of the dental profession in future government-run dental programs.348 Other stakeholders looking for a greater commitment to universal dental care expressed

338. T Plibersek (Minister for Health), Gillard Government welcomes options on dental care, media release, 27 February 2012, viewed 9 May 2012. 339. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p.173. 340. Department of Human Services, Submission no. 201, Senate Finance and Administration Committee Inquiry into

Health Insurance (Dental Services) Bill 2012 [No. 2], p. 2, viewed 9 May 2012. 341. A Biggs, ‘Calls to waive dentists’ debts to Medicare’, Flagpost, Parliamentary Library, Canberra, 19 April 2012, viewed 9 May 2012. 342. Finance and Public Administration Legislation Committee, Inquiry into Health Insurance (Dental Services) Bill 2012

[No. 2], referred 22 March 2012, viewed 10 May 2012. 343. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 174. 344. Australian Dental Association, Dental health investment on the right path, media release, 7 May 2012, viewed 9 May

2012.

345. Australian Healthcare and Hospitals Association, Budget package will ease dental pain, media release, 7 May 2012, viewed 9 May 2012. 346. Consumers Health Forum, Great start - especially if we can just get the States and dentists on board..., media release, 6 May 2012, viewed 9 May 2012. 347. S Dunlevy, ‘Scheme puts bite on states’, The Australian, 9 May 2012, p. 7, viewed 9 May 2012. 348. E Bourke, ‘Dentists reluctant to back fresh dental plan’, ABC News Online, 7 May 2012, viewed 9 May 2012.

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disappointment.349 However, the Greens who also aspire to this goal broadly support the package.350 At time of publication, the Opposition view on the package had not been articulated.

It remains unclear if the capacity building measures announced will reduce long public dental waiting lists, estimated at 400 000 nationwide, or correct the rural dental workforce shortage. Assessing progress will also be difficult unless national waiting list data collection is improved. But the approach taken in this budget—primarily a short-term expansion of state-run public dental services which targets low income earners—still leaves many without access to affordable dental care. Those who do not qualify for public treatment, but find the cost of private dentistry a barrier and those not eligible for services under the CDDS, may continue to delay seeking care. Future dental reforms will need to build on these beginnings and provide for a more sustainable, longer term solution.

349. Australian Healthcare Reform Alliance, An excellent start on dental care - but we need a house (for everyone) of bricks, not straw, media release, 6 May 2012, viewed 9 May. 350. Senator R di Natale, Greens secure biggest reform for dental health in a generation, media release, 6 May 2012, viewed 9 May 2012.

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E health

Dr Rhonda Jolly

Certainty for personally controlled electronic health records

In the 2010-11 Budget the Government committed funding in of $466.7 million over two years to establish key components of a person-controlled electronic health record system (PCEHR).351 While there was some strident opposition to the idea of a PCEHR, based on concerns about issues such as the security and privacy of records in the system, most health stakeholders initially expressed cautious support for the idea of electronic health records. This was because it was generally agreed that these records could save lives and help limit escalating health expenditure.352 From the beginning, however, many stakeholders doubted whether the amount of funding allocated by the Government would be sufficient to deliver promised outcomes. 353

In the months leading up to the 2012-13 Budget more and more stakeholders expressed alarm that funding for the PCEHR was running out and that certainty was needed to ensure that a viable system was delivered, given that the Government continued to promote 1 July as a start date for the PCEHR. In announcing continuing funding for health record initiatives ($233.7 million over three years) the Government argues the Budget will provide the certainty stakeholders have sought, as e health moves from the developmental to operational stage.354

Stakeholders have been notable by their absence in commenting on the new PCEHR funding. Long time critic of government e health policy, Dr David More, is one of the few to provide an assessment, labeling the budget measure ‘a cut in resources for the PCEHR.355 One other assessment also interprets the commitment as ‘underfunding’.356

Uncertainty for e health

Stakeholders may have said little because they feel that they have put their case a number of times without success. For example, a number have consistently pointed out e health is more than

351. Australian Government, Budget measures: budget paper no.2:2010-11, Commonwealth of Australia, Canberra, 2010, viewed 10 May 2012. 352. Booz and Company, Optimising e-health value: using an investment model to build a program for success, 2010, Sydney, viewed 10 May 2012. 353. The consulting firm Booz and Company for example had estimated Australia would need to spend between $4 and

$8.5 billion to implement an overall e-health strategy. 354. T Plibersek (Minister for Health and Ageing), Budget delivers certainty for eHealth system, media release, 8 May 2012, viewed 10 May 2012. 355. D More, ‘There were a few wrinkles in the detail of the Budget that are worth pointing out’, Australian Health

Technology blog site, 9 May 2012, viewed 10 May 2012. 356. ‘E-health, PCEHR, NEHTA: losers in Australia’s budget’, Aussie views news blog site, 9 May 2012, viewed 10 May 2012.

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personal health records.357 While the PCEHR is a fundamental component of e health, in recent submissions to the Government stakeholders have noted that funding for the PCEHR cannot occur in isolation, funding for other components must be provided in conjunction if an electronically oriented health system is to be viable into the future. Overseas examples indicate that the successful implementation of e health involves an integrated approach; but despite such advice, there appears to be no funding to assist other components of e health in this Budget. 358

Similarly, analysis of the direction of the Australian e health program in general, and the PCEHR specifically, has noted that there are fundamental problems with the management of the system, which need to be addressed. The Medical Software Association for example stated strongly in a recent submission to a Senate Committee that the National E Health Transition Authority (NEHTA) should be answerable for ‘poor planning, failure to complete to deadlines and a range of other unacceptable behaviour that contravene normal Australian business practices’.359 Less severe criticism—and an alternative management suggestion—was contained in a Deloitte research document upon which the government has based its e health strategy. 360 Yet, in continuing funding for NEHTA to operate and maintain critical services and standards for the PCEHR, it may appear to stakeholders that the Government is unwilling to accept that there may be room for improvement in developing, managing and delivering the PCEHR . It could be suggested that in the view of certain critics at least, this will be to the detriment of the final system outcome.

Angst for medical practitioners

It has been suggested in relation to the PCEHR that if clinicians’ workloads are significantly increased without accompanying tangible benefits, the system will fail because medical practitioners will not support the system. 361 In 2011, however, the Government argued that it was not its job to fund general practice to keep up with modern technology.362 This Budget confirms the Government’s stance and places a further requirement on general practices; in order to remain eligible for the Practice Incentives Program (PIP), general practices must participate in the PCEHR system.363

357. This is discussed in R Jolly, The e health revolution—easier said than done, Research paper no. 3, 2011-12, Parliamentary Library, Canberra, November 2011, viewed 10 May 2012. 358. See discussion of a number of examples in Jolly, op. cit. 359. Medical Software Industry Association (MSIA), Submission to the Senate Community Affairs Committee, Inquiry into

the provision of the Personally Controlled Electronic Health Records Bill 2011 [and one related Bill], January 2012, viewed 10 May 2012. 360. Deloitte, National E-Health and Information Principal Committee, National e-health strategy, September 2008, viewed 10 May 2012. 361. Audit slams British EHR program for being largely unsuccessful’, iHeathBeat, cited in Australian College of Health

Informatics (ACHI), Response to request for comment on the draft PCEHR Concept of Operations, June 2011, viewed 11 May 2012. 362. K Dearne, ‘E health rebates ruled out’, The Australian, 13 September 2011, viewed 11 May 2012. 363. Australian Government, Budget measures: budget paper no.2:2010-11, Commonwealth of Australia, Canberra, 2012,

viewed 10 May 2012.

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The Royal Australian College of General Practitioners (RACGP) argues it is unreasonable that practices lose their PIP payments ‘due to software conformant issues’. The RACGP considers there may be a likelihood of this occurring if the software industry is not able to deploy systems in time for the implementation of the PCEHR—an argument supported by the software vendors in recent submissions to the Senate. 364

The Australian Medical Association (AMA) has labelled the PIP requirement ‘a threat’ which it sees as coming on top of the Government’s failure to provide compensation to general practitioners for helping patients prepare shared health summaries as part of the PCEHR. The AMA concludes: ‘This double whammy represents a substantial roadblock to the effective implementation of the PCEHR and threatens Australia’s efforts to be a world leader in e-health’.365

The RACGP has also expressed disapproval with the budget funding cuts of $183.9 million to telehealth services. These cuts will be achieved by introducing a distance requirement for certain specialist consultations and phasing out incentives payments for general practitioners to participate in telehealth consultations earlier than expected.

While the RACGP agrees it is reasonable for some patients to travel to see a specialist, it is concerned that the change will affect access to specialist services for those most in need of those services, including elderly patients with mobility issues. Furthermore, whilst the College recognises

that the incentive payments for general practitioners to participate in telehealth consultations were for a finite period, it sees the funding cuts in the Budget as premature, ‘as uptake has been confounded due to both interoperability difficulties between [general practitioners] and other specialists, and the lack of a provider directory’.366

Both associations have signalled their intentions to lobby the government intensely to reconsider the budget changes.

All quiet on the Opposition front

Given that e health is such an important component of health reform, and that there has been significant stakeholder engagement with, and criticism of government e health policy, it is surprising that there has been little comment from the Opposition on budget funding in this area. Health spokesperson, Dr Andrew Southcott, noted only that the cuts to telehealth in the Budget, along with other budget cuts, clearly showed that Labor policies and announcements had proven ‘wasteful’. 367

As the Opposition has yet to articulate a firm policy alternative in response to the Government’s strategies, it appears that it will continue an approach of monitoring government spending, which it

364. RACGP, RACGP overview of the Federal Budget 2012-13 (Health and Ageing), 8 May 2012, viewed 11 May 2012. 365. Australian Medical Association(AMA), Cuts to Practice Incentive Payments (PIP) penalise GPs and pose public health risks, media release, 9 May 2012, viewed 11 May 2012. 366. RACGP, op. cit. 367. A Southcott (Shadow Parliamentary Secretary for Healthcare), General practice short-changed in Labor’s cooked-

books budget’, media release, 9 May 2012, viewed 11 May 2012.

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articulated in late 2011. 368 Some may argue, a sensible approach, given that there is little actual funding to monitor, and much to learn for future reference from watching the PCEHR process take shape.

368. D Ramli, ‘Medibank points to data privacy woes’, The Australian Financial Review, 19 October 2011, viewed 10 May 2012.

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New and changed health measures

Amanda Biggs and Rebecca de Boer

In a post-Budget speech, the Minister for Health highlighted the ongoing challenge of ensuring the sustainability of the health care system.369 The budget papers show Australian Government spending on health is forecast to grow at 2.7 per cent per year over the forward estimates. Some $61.0 billion is allocated for health spending in the 2012-13 financial year.370

Some significant spending cuts have been announced, including savings of $96.5 million over four years from increasing the number of Medicare procedures that are capped under the Medicare Safety Net. The Safety Net applies once out-of-pocket medical costs exceed an annual threshold. 371 Thereafter, the patient is reimbursed 80 per cent of any further costs incurred (out-of-hospital services only). Following significant growth in safety net expenditure, safety net benefits were ‘capped’ for a number of services including obstetrics, IVF, cataract and varicose vein procedures in January 2010. 372 From November 2013, more procedures will be subject to these capping arrangements, including those with high fees and some cosmetic procedures. 373

Although not drawn from the health budget, savings of $370.0 million over four years will come from the means testing of the Medical Expenses Tax Offset. When net medical expenses exceed an annual amount, taxpayers can claim a partial reimbursement through the tax system. The means test would lower the amount that could be reimbursed from 20 cents in the dollar to 10 cents for individuals earning over $84 000 and families earning more than $168 000. The expenditure threshold would be raised to $5000 (up from $2060) for this income group. 374

Other savings of note include: $83.5 million over four years from tightening incentives paid to GPs for undertaking a range of health activities including e health, cervical screening, treating diabetes and the removal of GP incentives for childhood immunisation—now that payments under Family Tax Benefit Part A are linked to immunisation; $67.9 million over three years from streamlining some health workforce programs; $60.7 million over five years from 2011-12 from replacing the proposed Local Lead Clinicians Group with a national Clinicians Network; $43.9 million over five years from amending items listed on the Medicare Benefits Schedule; $44.0 million over four years from

369. T Plibersek (Minister for Health), Australian Institute of Policy and Science Post Budget Health Briefing, media release, 10 May 2012, viewed 11 May 2012. 370. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 6-21, viewed 11 May 2012. 371. The expenditure threshold for concession card holders and Family Tax Benefits (Part A) beneficiaries is $598.80. For

all others it is $1198. Department of Health and Ageing, ‘Extended Medicare Safety Net’, viewed 14 May 2012. 372. Expenditure growth was three times the rate of Medicare. Department of Health and Ageing (DoHA), Extended Medicare safety net review of capping arrangements report 2011: contextual overview, DoHA, June 2011, viewed 10 May 2012. 373. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra,

2012, p. 176, viewed 11 May 2012. 374. Ibid., p. 34. Net medical expenses are those incurred less any Medicare or health insurance benefits paid/payable.

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streamlining the GP Super Clinics program; $14.4 million over four years from the removal of automatic indexation for subsidised products on the Stoma Appliance Scheme; $12.3 million in 2011-12 from the early cessation of diabetes grants available under a COAG program; and $5.8 million over four years from the removal of joint replacement prostheses with high revision rates from the prostheses list.375 Details around e health changes are addressed elsewhere in the Budget Review.

Some of the expected savings will be used to fund other areas of the health portfolio and a number of programs will be expanded. These include $49.7 million over four years to expand the National Bowel Cancer Screening Program which currently screens those aged 50, 55 and 65 using a home-administered faecal occult blood test. 376 Screening for bowel cancer can reduce the risk of dying from the disease by 25 per cent. 377 From 2013, those turning 60 will be eligible for screening and from 2015 those turning 70 will also be eligible. From 2017-18, biennial screening will be available to those aged 72 with other age groups to follow. The program has had a chequered history, beginning with delays in implementation, slow-uptake among those eligible for the test and reports of faulty tests. There were also criticisms from some cancer experts that the targeted age groups were not in line with international practice. 378

Although not in the magnitude of the previous budget, some additional funding for mental health is provided. The Mental Health Nurse Incentive Program will receive $17.6 million over two years to provide community-based clinical support for those with severe, persistent mental illness.379 There will be $21.0 million in funding for an additional six allied mental health services a year for patients treated under the Better Access program.380 This partially restores the number of Medicare funded services, but only until December 2012 when another program is expected to be operational. In the last budget, the number of services claimable under the Better Access program was cut from 18 to 10 a year.381 Funding for this partial restoration will be drawn from other mental health programs.

Low income thresholds exempting low income earners from the Medicare levy and Medicare levy surcharge will be lifted at a cost to the budget of $85.0 million over the forward estimates. 382 These thresholds are typically adjusted annually in line with CPI increases via legislation.

Another major expenditure item announced in the Budget was the final instalment of the regional priority round of the Health and Hospital Fund, part of the Government’s agreement with the

375. Ibid., pp. 172, 177-178, 191-192, 201-204. 376. Ibid., p. 193. 377. K L Flitcroft, G P Salkeld, J A Gillespie, L T Trevena, L M Irwig, ‘Fifteen years of bowel cancer screening policy in Australia: putting evidence into practice’, Medical Journal of Australia, vol. 193, no. 1, 2010, p. 37, viewed 10 May

2012.

378. Ibid. 379. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 193. 380. Ibid., p. 197. 381. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra,

2011, p. 229, viewed 11 May 2012. 382. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 37.

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Member for Lyne and the Member for New England. The total value of the regional priority round was $1.8 billion and this budget allocated $475.0 million over six years to 76 projects in rural, regional and remote areas.383 The $5 billion Health and Hospitals Fund announced by the Rudd Government in 2008-09 has now been fully committed. 384 It will take some time for it to be spent as expenditure on many of these projects is over six years.

Comment

Many Australians with chronic illness and disability already face serious economic hardship.385 A number of the savings measures announced in the Budget, including the means testing of the Medical Expenses Tax Offset, are likely to result in some facing higher out-of-pocket costs, which are high by international standards.386 While the Government will offer some relief to low income earners by lifting the low income thresholds for the Medicare levy and the Medicare levy surcharge, the overall equity of the health care system must be considered, as the onset of chronic illness or catastrophic health events cannot be predicted.

Simply requiring individuals to pay more for their health care costs can pose a serious burden and stop people getting the health care they need. 387 The World Health Organization considers this to be a blunt and inequitable approach to funding health care.388 How the health budget should be allocated still remains a compelling question. The Minister for Health wants ‘maximum bang for the health buck’ but arguably, this should not come at the expense of access and affordability to health care for all Australians. 389

383. Ibid., p. 177. 384. Plibersek, op. cit. 385. S Jan, B Essue and S Leeder, ‘Falling through the cracks: the hidden economic burden of chronic illness and disability on Australian households‘, Medical Journal of Australia, vol. 196, no. 1, 2012, pp. 29-31.

386. Ibid. 387. A Boxall, ‘Paying for health care: how can we sustain it?’, FlagPost, Parliamentary Library, Canberra, 5 May 2011, viewed 13 May 2012. 388. World Health Organization, The world health report - Health systems financing: the path to universal coverage,

World Health Report 2011, World Health Organization, Geneva, viewed 13 May 2012. 389. Plibersek, op. cit.

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Migration program

Janet Phillips

Australia has two distinct programs to facilitate the arrival of permanent migrants—the Migration Program for skilled and family entrants and the Humanitarian Program for refugees and those in refugee-like situations. Each year the Government releases its planning figures for both these programs as part of the Budget process. 390 Temporary entrants on the other hand, including skilled migrants arriving on temporary (subclass 457) business visas, are not counted under the Government’s Migration Program.391

In the 2012-13 Budget the planned intake for permanent migrants under the Migration Program will increase by 5000 places to 190 000. In the history of Australia’s post-war immigration program this planning figure is the highest on record.392

As has been the case for over a decade, the majority of places will be allocated to skilled migrants in order to ‘provide support to the growth regions and sectors of Australia’s economy struggling to meet acute skills shortages’.393 In 2012-13, skill stream places will rise to 129 250 (from 125 850 in 2011-12); family stream places will rise to 60 185 (from 58 600 in 2011-12); and special eligibility stream places will rise slightly to 565 (from 550 in 2011-12). 394

In the 2011-12 Budget there was a focus on measures designed to attract skilled migrants, particularly to regional and rural areas. This included 16 000 places reserved for the Regional Sponsored Migration Scheme (RSMS). 395 In the 2012-13 Budget 16 000 places have again been

390. This practice was introduced by the Howard Government during the 2007-08 Budget. See K Andrews (Minister for Immigration and Citizenship), Budget 2007: A prosperous cohesive nation, media release, 8 May 2007, viewed 9 May 2012. 391. The 457 visa is the most commonly used visa category for employers wishing to recruit temporary skilled workers

from overseas and applications are ‘demand-driven’ by employers seeking to sponsor temporary workers and those seeking to work in Australia on a temporary basis. Temporary skilled migration is not subject to annual caps (or planning places) set by government. For more detail on permanent versus temporary skilled migration to Australia see J Phillips and H Spinks, Skilled migration: temporary and permanent flows to Australia, Background note, Parliamentary Library, Canberra, 2012, viewed 9 May 2012. 392. Source: Department of Immigration and Citizenship (DIAC) advice on departmental planning figures since 1953-54

supplied to the Parliamentary Library on 6 August 2010. Note: the Rudd Government initially planned for an intake of 190 300 in 2008-09, but in response to the Global Financial Crisis (GFC) this figure was subsequently decreased to 171 800 in March 2009. According to departmental records the highest number of settlers to arrive in any one year since 1945 was 185 099 in 1969-70 under the Gorton Government (when the planning figure was 175 000); and the lowest number in any one year was 52 752 in 1975-76 during the Whitlam and Fraser Governments. See DIAC, Key facts in immigration, fact sheet 2, DIAC, viewed 9 May 2012. 393. C Bowen (Minister for Immigration and Citizenship), Targeted migration increase to fill skills gaps, media release, 8

May 2012, viewed 9 May 2012. 394. Ibid. Note: the Special Eligibility stream applies to former (non-citizen) permanent residents. 395. For last year’s measures see Australia, Parliamentary Library, Budget review 2011-12, Research paper, no. 13, 2011-

12, Parliamentary Library, Canberra, 2011, p. 149, viewed 9 May 2012.

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reserved for the RSMS to assist the regions to fill skill gaps. 396 In addition, $1.3 million has been allocated over two years to encourage more permanent employer-sponsored skilled migration. The funding will go towards replacing the current six permanent employer-sponsored visas with two new visas and consolidating the existing three sponsored occupation lists (subclass 457, employer nomination and state and territory sponsored general skilled migration lists) into one.397 This builds on the 2011-12 Budget measures designed to simplify the pathway to permanent residency for 457 visa holders and provides the funding to implement an announcement in March 2012 that the Government would ‘cut red tape for businesses looking to address critical skills gaps by simplifying the permanent employer-sponsored visa program’.398

The Pacific Seasonal Worker Pilot Scheme administered by the Department of Immigration and Citizenship (DIAC) is designed to attract seasonal workers to regional areas. This pilot scheme concludes on 30 June 2012 and will be replaced by the Seasonal Labour Mobility Program. As of 1 July 2012, non-resident seasonal workers participating in this program will be taxed at a flat rate of 15 per cent and will no longer be required to pay the Medicare levy. This will result in a loss to revenue of $6.5 million over four years, however it is anticipated that there will be a reduction in compliance costs for seasonal workers and simplified administration for the Australian Tax Office.

One measure in the 2012-13 Budget that aims to assist new arrivals in regional areas is the allocation of $5 million over three years to pilot virtual English language tuition via the National Broadband Network (NBN). Designed to complement the Adult Migrant English Program (AMEP), the trial will be introduced in two phases and will be reviewed in 2013-14.

Of note in this year’s Budget is a commitment ($4.6 million over four years) to reform the health requirement criteria in response to recommendations made by the Joint Standing Committee on Migration inquiry into the migration treatment of disability conducted between 2008 and 2010. 399 The inquiry highlighted the tensions associated with predicting health care costs of entrants with a health condition or disability and balancing these considerations against the potential economic and social contribution made by migrants. Currently, permanent visa applicants do not meet the health requirement if an applicant has a pre-existing medical condition or disability that may potentially involve costs to the Australian Government of over $21 000 over a five year period (known as the Significant Cost Threshold). 400 Commencing on 1 July 2012, this will increase to $35 000 ‘to better reflect health costs’ for all permanent Migration Program applicants. The Government will also

396. C Bowen (Minister for Immigration and Citizenship), Targeted migration increase to fill skills gaps, op. cit. 397. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 15, 38 and 213-217, viewed 9 May 2012.

398. C Bowen (Minister for Immigration and Citizenship), Simplifying sponsorship for permanent skilled migrants, media release, 9 March 2012, viewed 9 May 2012. 399. See the Joint Standing Committee on Migration report, Enabling Australia: inquiry into the migration treatment of disability, Canberra, 2010. 400. The threshold for significant cost was first calculated in 2000 and has not been altered since then. Source: Joint

Standing Committee on Migration, op. cit., p. 33.

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remove the requirement for offshore Humanitarian Program applicants to meet the Significant Cost Threshold criteria.

Revenue measures in this year’s Budget for the Immigration and Citizenship portfolio relating to the Migration Program include:

• an estimated increase in revenue of $1.7 million over three years due to reforms to employer

sanction processes. The Government proposes to introduce graduated tiers of employer sanctions ranging from warnings and infringement notices with financial penalties to criminal prosecution for serious breaches (currently the only legal recourse for employers who breach employment conditions is criminal prosecution) and

• increases in visa charges estimated to raise $76 million over four years. 401

401. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 15.

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Humanitarian program

Janet Phillips

Since 1995-96, the Government’s Humanitarian Program planning levels have hovered between 12 000 and 13 750 places. In last year’s Budget the Government announced that the Humanitarian Program planned intake would rise to 14 750, consisting of 7000 (previously 6000) refugee places and 7750 Special Humanitarian Program (SHP) places.402 However, in October 2011 this figure was revised back down to 13 750. 403 In the 2012-13 Budget the Government has remained committed to planning levels of previous years and announced a planning figure of 13 750 for the Humanitarian Program.404

The proposed increase to 14 750 in 2011-12 was a result of a bilateral agreement between Australia and Malaysia whereby the Australian Government had agreed to accept an additional 4000 entrants over four years at a cost of $216.4 million. Under this agreement 800 irregular maritime arrivals (arriving on the Australian mainland or at an excised offshore place) were to be transferred to Malaysia for refugee status determination (at a cost of $75.9 million over four years). In exchange Australia would resettle 1000 refugees a year over four years from Malaysia (the additional 4000 places were only to be available to refugees residing in Malaysia).405

However, in August 2011 the proposed ‘Malaysia Solution’ (as it was often referred to) collapsed after the High Court found that this proposal was invalid under the Migration Act 1958—partly because Malaysia was not a party to the 1951 Refugee Convention.406 Subsequently the Prime Minister made it clear that although the Government would honour its commitment to accept 4000 refugees from Malaysia at a rate of 1000 a year, these entrants would now be absorbed within the previous Humanitarian Program intake.407 In other words the Humanitarian Program planning level was returned to 13 750 and not increased to 14 750 as announced in the 2011-12 Budget. 408

For many years stakeholders have argued that Australia’s contribution is modest in terms of refugee resettlement.409 Both the Coalition and the Government have indicated they would be prepared to increase Humanitarian Program intakes under certain circumstances in the future.

402. Australia, Parliamentary Library, Budget review 2011-12, Research paper, no. 13, 2011-12, Parliamentary Library, Canberra, 2011, p. 149, viewed 9 May 2012. 403. J Gillard (Prime Minister) and C Bowen (Minister for Immigration and Citizenship), Transcript of joint press conference, transcript, 13 October 2011, viewed 9 May 2012. 404. C Bowen (Minister for Immigration and Citizenship), Australia committed to refugees most in need, media release, 9

May 2012, viewed 9 May 2012. 405. Australia, Parliamentary Library, Budget review 2011-12, op. cit. 406. For further detail see E Karlsen, Can Oakeshott’s Bill end the asylum impasse?, FlagPost, Parliamentary Library,

Canberra, 2012, viewed 9 May 2012. 407. J Gillard and C Bowen, Transcript of joint press conference, op. cit. 408. The Humanitarian Program intake would now consist of 6000, not 7000, refugee and 7750 SHP places. 409. For more detail on this issue see J Phillips, Asylum levels and trends 2011, FlagPost, Parliamentary Library, Canberra,

2 April 2012, viewed 9 May 2012.

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The Minister for Immigration and Citizenship, Chris Bowen, has stated on several occasions that his preference would be to increase the intake to 20 000:

As you know, and as I set out at the ALP National Conference in December, I would like to progressively increase Australia’s Humanitarian Program to 20 000 places, but we simply cannot afford to do that so long as we are forced to devote a disproportionate amount of resources to dealing with boat arrivals, which is a very expensive proposition...

Even an orderly increase in the Humanitarian Program is expensive. For the first four years of any increase in our Humanitarian Program, every additional 1000 resettlement places would cost the Australian Budget around $216 million. By extension, an increase to 20 000 would cost the Budget around $1.35 billion over the first four years.

410

The Leader of the Opposition, Tony Abbott, also proposes to increase Humanitarian Program intakes under a Coalition Government through sponsorship options by allowing ‘community groups to sponsor refugees on a bonded basis that would take the annual intake to 15 000’. 411

In the context of the 2012-13 Budget, the Minister for Immigration and Citizenship announced that the Government would consider sponsorship options to help alleviate pressure on the Humanitarian Program and increase Australia’s intakes of humanitarian entrants:

Significant pressures on the special humanitarian program from the high number of protection visa grants in Australia will require further consideration of options to alleviate pressure on the program. The exceptionally high demand for visas under the humanitarian program far exceeds the number of places available ... Consequently we will be seeking the community’s views on the feasibility of introducing a private sponsorship pilot program.

412

Other measures of note in this Budget include:

• the removal of the requirement for offshore Humanitarian Program applicants to meet the

Significant Cost Threshold criteria for applicants with a pre-existing medical condition or disability413

• savings of $13.1 million due to the Government’s decision to cap the maximum level of

humanitarian settlement services to asylum seekers who are found to be owed protection, have been granted a permanent visa and who have been living in the community for over six months. According to the budget papers this measure ‘recognises the settlement supports already

410. C Bowen (Minister for Immigration and Citizenship), The Refugee Convention and beyond, Keynote address to the International Association of Refugee Law Judges, Melbourne, 3 February 2012, viewed 9 May 2012. 411. T Abbott (Leader of the Opposition), The Coalition’s plan for more secure borders, address to the Institute of Public Affairs, Melbourne, 27 April 2012, viewed 9 May 2012. 412. C Bowen, Australia committed to refugees most in need, op. cit. 413. For more detail see the ‘Migration Program’ brief in this Budget Review.

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available to this client group while in the community on bridging visas’, but more detail on exactly what is proposed is not provided. 414

414. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 213- 217, viewed 9 May 2012.

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Responding to unauthorised arrivals

Harriet Spinks, Cat Barker and Monica Biddington

Throughout 2011-12, as in previous years, the Government continued to be dogged by claims of a cost blowout associated with increasing numbers of asylum seekers arriving by boat. 415 This is certainly an area which has seen a steady rise in costs, not only in relation to detaining and processing Irregular Maritime Arrivals (IMAs) but also in relation to improving border security measures and prosecuting alleged people smugglers.416 In the 2012-13 Budget, however, expenditure across most (although not all) of these areas is projected to decrease, with further decreases expected across the forward estimates. Of course past experience shows that expenditure in this area can be unpredictable, and budget figures have had to be revised up. 417 Whether the decreases in expenditure projected in this Budget actually come to pass remains to be seen.

Offshore asylum seeker management

In previous years, all Department of Immigration and Citizenship (DIAC) funding for managing IMAs, including detention and processing costs, as well as regional cooperation efforts aimed at curbing arrivals, was provided under a single program measure—Program 4.3 Offshore Asylum Seeker Management. In the 2012-13 Budget, these costs have been divided between three programs. Program 4.3 is now concerned only with the care and management of IMAs in detention centres, community detention, or in the community on a Bridging Visa E. Other expenditure which was previously included under Program 4.3 has been moved to two new programs: Program 4.5 Regional Cooperation and Associated Activities, and Program 4.6 Refugee Status Determination for Offshore Entry Persons. Consequently, total funding for Program 4.3 is reduced from the level provided in 2011-12, down from just under $1.2 billion to just over $1 billion. When added together, funding for these three program areas is $1.1 billion—$70 million less than the revised budget for 2011-12. 418

The savings are spread across all three program areas, with each area seeing a decrease in expected expenditure due to the anticipated effects of various policy changes in offshore asylum seeker management. For instance, the reduction in expected expenditure on the care and management of IMAs in detention and the community reflects a change in policy, announced in October 2011, allowing some IMAs to be released from detention and reside in the community on a Bridging Visa E, as well as an increase in the use of community detention. 419 The Government is clearly anticipating

415. For example see S Morrison (Shadow Minister for Immigration and Citizenship), Labor’s ‘building the detention centre revolution’ costs each Woodside resident over $38K, media release, 19 April 2012, viewed 10 May 2012. 416. For detailed information on the costs associated with IMAs and preventing people smuggling see H Spinks, Australian Government spending on irregular maritime arrivals and counter-people smuggling activity, Background note,

Parliamentary Library, Canberra, 2011, viewed 10 May 2012. 417. Ibid., p. 7. 418. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.12: Immigration and

Citizenship Portfolio, Commonwealth of Australia, Canberra, 2012, pp. 56-8, viewed 10 May 2012. 419. J Gillard (Prime Minister) and C Bowen (Minister for Immigration and Citizenship), Transcript of joint press conference, transcript, 13 October 2011, viewed 10 May 2012.

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significant savings to flow from this initiative, as the forward estimates project expenditure under Program 4.3 to decrease from $1 billion in 2012-13 to $800 million in 2015-16. The costs associated with refugee status determination for IMAs are also expected to decrease, due to ‘the Government decision to move to a single protection visa process and the responsibility for merits reviews of refugee status determinations to transition to the Refugee Review Tribunal’.420 However, this decrease will offset the additional funding of $8.6 million which has been allocated to the Refugee Review Tribunal (RRT) for 2012-13 only, to cover the costs associated with the move to the single protection visa process, and the RRT’s resulting additional caseload.421

Combating people smuggling

Significant funding was allocated to counter-people smuggling measures in the 2009-10 and 2011-12 budgets. The 2009-10 Budget allocated $654 million (mostly over the two years to 2010-11) to a whole-of-government strategy to combat people smuggling and ‘address the problem of unauthorised boat arrivals’.422 The 2011-12 Budget provided funding for the continuation of many of the measures making up the 2009-10 package to the end of 2012-13. Only four of the measures listed in Budget Measures: Budget Paper No. 2: 2012-13 are directed specifically at combating people smuggling. With the funding for existing measures coming to an end in a year’s time and continuing pressure on the Government to stem the tide of unauthorised arrivals, further announcements are likely next year.

Regional cooperation

The Government has consistently argued that combating people smuggling is a complex regional and global problem requiring a multi-faceted solution that involves cooperation between source, transit and destination countries. 423 Regional cooperation, now a separate program within Outcome 4 for DIAC, is one component that has received a boost in the Budget, but it is modest. A total of $11.3 million over two years has been allocated to DIAC to enhance engagement and capacity building with regional immigration agencies to assist those agencies to detect and disrupt irregular

420. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.12: Immigration and Citizenship Portfolio, op. cit., p. 54. For information on the move to a single protection visa process see Department of Immigration and Citizenship (DIAC), ‘Implementation of a single process for Irregular maritime arrivals (questions and answers)‘, DIAC website, viewed 10 May 2012.

421. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 216, viewed 10 May 2012. 422. B Debus (Minister for Home Affairs), $1.3 Billion to Combat People Smuggling and Strengthen Australia’s National Security, media release, 12 May 2009, viewed 10 May 2012. 423. S Smith (Minister for Foreign Affairs and Trade), Joint Ministerial Statement - 9th Australia-Indonesia Ministerial

Forum, media release, 12 November 2008, viewed 10 May 2012; B O’Connor (Minister for Home Affairs), Border Protection Command intercepts vessel, media release, 10 March 2010, viewed 10 May 2012; B O’Connor (Minister for Home Affairs), K Rudd (Minister for Foreign Affairs) and C Bowen (Minister for Immigration and Citizenship), Strengthening our borders through regional co-operation, media release, 10 May 2011, viewed 10 May 2012.

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people movements.424 $6.3 million will be absorbed from within DIAC’s existing resources, with the remainder offset from the provision for expanded aid funding held in the contingency reserve.

Border protection

Border protection was another area that received some additional funding. The Government provided $19.8 million to meet the operating costs of a new surveillance and enforcement vessel for the Australian Customs and Border Protection Service to replace the Ashmore Guardian after 30 June 2013. 425 However, the capital costs for the measure have not been published as they are subject to commercial negotiation. Existing resourcing of $9.5 million from within the Department of Defence will be used to continue Operation Resolute, which represents the military contribution to surveillance activities to protect Australia’s offshore resources and deter people smuggling.426

People smuggling prosecutions

The Commonwealth Director of Public Prosecutions’ (CDPP) resources for people smuggling prosecutions has been the subject of recent parliamentary scrutiny. In 2009, the CDPP was allocated specific funding of $11.3 million for people smuggling prosecutions. 427 This funding ceased on 30 June 2011. At Senate Estimates in May 2011, Senator George Brandis noted that ‘in the very year when the number of people smuggling prosecutions has trebled, the resources made available to [the the CDPP] through the budget has been reduced.’428 The total number of people smuggling cases on hand in May 2011 was 288. 429 That compares with 32 cases in 2009 and 102 cases in 2010. 430

While in the year 2010-11 the cost of people smuggling prosecutions was $6.2 million, the amount spent in the seven month period from 1 July 2011 to 31 January 2012 was $7.6 million.431 These figures include all costs to the Commonwealth, including internal costs and disbursements. For the year 2012-13, the Government will provide $8.8 million to the CDPP to prosecute crew and organisers of people smuggling ventures.432 This measure will fund the CDPP for the workload resulting from existing and anticipated cases. This funding will continue to be closely scrutinised as it may still be insufficient to cover the increase in people smuggling prosecutions. Further, there is no indication of future funding after 1 July 2013.

424. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 213, viewed 9 May 2012. 425. Ibid., p. 81, viewed 9 May 2012. 426. Ibid., p. 102, viewed 9 May 2012. 427. Australian Government, Portfolio budget statements 2009-2010: budget related paper no.1.2: Attorney-General’s

Portfolio, Commonwealth of Australia, Canberra 2009, p.453, viewed 9 May 2012. 428. Senate Legal and Constitutional Affairs Committee, Attorney-General’s Portfolio, Budget Estimates, Hansard, 25 May 2011, p. 85, viewed 9 May 2012. 429. Ibid., p. 80. 430. Ibid., p. 88. 431. Senate Legal and Constitutional Affairs Committee, Attorney-General’s Portfolio, Additional Estimates, Hansard 14

February 2012, p. 58, viewed 9 May 2012. 432. Australian Government, Budget measures: budget paper no.2: 2012-13, op. cit., p. 83.

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Court reforms

Moira Coombs

National Native Title Tribunal reform

The Government will achieve savings of $19.0 million over four years by introducing efficiencies in the native title system. Certain functions of the National Native Title Tribunal (NNTT) will be transferred to the Federal Court of Australia. The Court will take over the administration of the NNTT from 1 July 2012 and will be responsible for the ‘mediation of native title claims and the provision of claims-related Indigenous Land Use Agreement negotiation assistance.’433

The NNTT will no longer be a prescribed agency under the Financial Management and Accountability Act 1997 but will become a sub-program within the Federal Court’s appropriation. 434 It will still maintain its status as a statutory agency but will take its place with the other tribunals within the Federal Court’s structure such as the Australian Competition Tribunal, the Copyright Tribunal and the Defence Force Discipline Appeal Tribunal.435

The Attorney-General’s Portfolio Budget Statement states:

The NNTT will continue to exist as a separate entity and will continue to play a crucial role in the effective functioning of the native title system. It will remain responsible for assisting with the negotiation of non-claim related ILUAs and for performing its other statutory functions. 436

Agency staffing estimates indicate that, once the NNTT has transferred to the Federal Court structure, 50 less staff will be employed across the two bodies. 437 The savings resulting from these efficiencies will be directed towards the Stronger Futures measures in the Northern Territory. 438

The NNTT was established under the Native Title Act 1993 (Cth). The original role of the NNTT was to try to achieve consensus in resolving applications to the NNTT which sought the determination of the existence or otherwise of native title, or applications for compensation. The courts remained the decision-makers in contested cases in determining the existence of native title or the entitlement to compensation. 439 Over time, changes to the Native Title Act 1993 have affected the division of

433. Australian Government, Portfolio Budget Statements 2012-13: budget related paper no. 1.2, Attorney-General’s Portfolio, Commonwealth of Australia, Canberra, 2012, p. 386, viewed 10 May 2012. 434. Ibid., p. 386. 435. Federal Court of Australia, Annual report, 2010-11, pp. 147-150, viewed 16 May 2012; see also A Boxsell, ‘Federal

Court may get power, not funds‘, Australian Financial Review, 4 May 2012, viewed 10 May 2012. 436. Australian Government, Portfolio Budget Statements 2012-13, op. cit. p. 386. 437. Australian Government, Budget Measures: budget paper no. 1: Statement 6, Appendix C, Additional Agency Statistics, Table C5: Estimates of average staffing level of agencies in the Australian Government general government sector,

2012, viewed 10 May 2012. 438. Ibid., p. 386; It is understood that the move on 1 July 2012 may also lead to redundancies at the tribunal as stated in A Boxsell, ‘Court fees budget rise disappoints’, Australian Financial Review, 11 May 2012, p. 50. 439. National Native Title Tribunal, Annual Report 1993-94, p. 1.

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responsibilities between the NNTT and the Federal Court. These have arisen both in response to High Court decisions and policy changes. The measures announced in the Budget represent a further development of the relationship between, and responsibilities of, the two agencies. 440

In the Native Title Amendment Act 1998 the Federal Court was given responsibility for making determinations on native title and compensation, while the NNTT had power to make determinations about whether certain future acts could be done and whether certain agreements concerning native title were covered by the Act as well as undertaking mediation in native title matters. 441

In 2009, the Native Title Amendment Act 2009 gave:

the Federal Court control over the management of native title claims from start to finish, allowing opportunities for negotiated settlements to be more effectively identified and progressed. 442

The amendments allowed the Court to:

• refer a matter to a mediator, other than the National Native Title Tribunal or a Court registrar;

• make orders to give effect to the terms of an agreement between the parties that are about

matters other than native title, whether or not a determination of native title is made; and

• make these orders where only some of the parties are in agreement about the orders which are

sought.443

Court Fees Increase

The Government will increase court fees to achieve revenue of $76.9 million over four years. Budget Paper No. 2 states that:

the reforms will send more appropriate price signals to court users to encourage them to utilise alternative dispute processes where appropriate, and will focus particularly on fees for corporations and resource intensive matters. 444

The Government currently recovers only 15 per cent of court costs through fees. The level of fee increases and who they will apply to has not been determined as yet. The Government will work

440. The revised responsibilities of the NNTT are set out in NNTT, Native Title institutional reforms will ensure NNTT’s continuing role in the native title system, media release, 17 May 2012, viewed 17 May 2012. 441. Section 4, Native Title Amendment Act 1998. 442. R McClelland (Attorney-General), Native Title reforms pass Parliament, media release, 14 September 2009, viewed

10 May 2012. 443. Federal Court of Australia, Annual report 2009-2010, Commonwealth of Australia, Canberra, p. 14. 444. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra,

2012, viewed 10 May 2012.

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with the courts on the appropriate fee structure and the outcome will be announced this year with the new fees applying from 1 January 2013.

A recent media report comments that ‘the Federal Court has already complained to government about its existing financial circumstances’ and further:

Consultants O’Connor Marsden & Associates were appointed last year by the court to review its financial position, which O’Connor found was unsustainable. The court posted a $1.7 million loss in the 2010-11 financial year, and has reported a deficit in three of the last four financial years. O’Connor found the court had already cut costs to the bone and “ultimately such an approach is unsustainable, and a re-base of its funding should be considered as an immediate priority”.

445

However, other comment has indicated concern about the impact of court fee increases on access to justice. The President of the Law Council of Australia, Catherine Gale commented that the Council was:

very concerned at the prospect of further increases in court fees which could establish a ‘user pays’ system that reduces access to justice. The government should recognise that as one of the biggest litigators in federal courts, it also placed a major cost burden on the justice system. 446

Senator George Brandis, Shadow Attorney-General, stated that:

he had a philosophical objection to the government’s approach because the rule of law depended on the courts being available to all. “I entirely agree with Chief Justice Bathurst. Middle Australia, as a result of pending increases in court fees and a failure to address gaps in legal aid funding, is being rendered unable to protect their interests”.

447

The Government states that changes to court fees and the reforms concerning the NNTT ‘will add to the Government’s current court reform agenda which is designed to provide more certainty around the role of each of the Federal Courts and the establishment of a new Federal Court, the Military Court of Australia.’448

445. A Boxsell, ‘Federal Court may get power, not funds’, Australian Financial Review, 4 May 2012, p. 44, viewed 17 May 2012. 446. A Boxsell, ‘Court fees budget rise disappoints’, op. cit. 447. C Merritt, ‘For middle Australia, access to justice is fast becoming a pipedream‘, The Australian, 11 May 2012, p. 33,

viewed 17 May 2012. 448. N Roxon (Attorney-General), Improving our courts and tribunals, media release, 8 May 2012, viewed 10 May 2012.

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Indigenous law and justice programs—redirection of funding

Diane Spooner

The Government will redirect $23.9 million over four years from Indigenous law and justice programs to support Indigenous community safety initiatives in the Stronger Futures in the Northern Territory package.449

On 28 March 2012, Ministers Roxon and Snowdon and Senator Crossin announced measures in relation to safety in Northern Territory Aboriginal communities. Some of these were:

• a $619 million funding boost to remote policing, community night patrols and legal assistance

services for the next ten years

• continued support of the Substance Abuse Intelligence Desks (SAID) and Dog Operations Unit, to

disrupt commercial drug distribution networks

• the Australian Federal Police will continue to support the Northern Territory Child Abuse

Taskforce, and the Australian Crime Commission will continue to work with the National Indigenous Violence and Child Abuse Intelligence Taskforce. 450

Budget Measures: Budget Paper No. 2: 2012-13 specifically refers to this media release for further information in relation to the expense measures for Indigenous Law and Justice Programs.

The redirected $23.9 million is to be taken from the following programs in the following amounts:

• $4.1 million from the expensive cases component within the Indigenous Legal Aid and Policy

Reform Program

• $4.5 million from the early intervention grant component within the Family Violence Prevention

Legal Services Program, and

• $15.3 million from Closing the Gap in the Northern Territory law and order measures. 451

The movement of funds from existing programs that provide Australia-wide assistance to Indigenous people to programs focussed on the Northern Territory means that less money will be available to

449. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 85-86, viewed 9 May 2012. 450. N Roxon (Attorney-General, Minister for Emergency Management), W Snowdon (Minister for Indigenous Health) and T Crossin, Improving safety in Northern Territory Aboriginal communities, media release, 28 March 2012, viewed

9 May 2012. Many of these measures are included in the statement of J Macklin (Minister for Families, Community Services and Indigenous Affairs, Minister for Disability Reform), Continuing our Efforts to Close the Gap, Budget statement, Commonwealth of Australia, Canberra, 8 May 2012. 451. Budget Paper No. 2, op. cit., pp. 85-86. For more background see J Gardiner-Garden and K Magarey, Stronger Futures in the Northern Territory Bill 2011, Bills digest, no. 103, 2011-12, Parliamentary Library, Canberra, 2012, viewed 9 May 2012.

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assist Indigenous people in other states and territories. This is of concern, given the over-representation of Indigenous people in the prison system throughout Australia and recognising that the highest rates of imprisonment of Indigenous people are in Western Australia and South Australia.452 The Australian Greens have expressed concern that cutting some national programs to transfer funding to the Northern Territory is a poor outcome for Aboriginal and Torres Strait Islander people.453

In the Ministerial Statement, Budget, Stronger Regions, Stronger Nation, Government initiatives in regional Australia are set out by Portfolio.454 The following information from the Attorney-General’s Portfolio is relevant to Indigenous law and justice programs:

Aboriginal and Torres Strait Islander Legal Services Program

Commonwealth funding overall for Indigenous legal aid will be $65.6 million in 2012-13. An additional $2.3 million will be made available in 2012-13 under the Stronger Futures initiative in the Northern Territory.455

Indigenous Family Violence Prevention Legal Services Program

The statement says:

The Government will commit $19.1 million in 2012-13 to 14 Indigenous Family Violence Prevention Legal Service providers covering 31 identified high-need rural, regional and remote areas. 456

Indigenous Justice Program

This program will provide funding of $11.7 million in 2012-13, of which, approximately $6.0 million has already been allocated to projects in regional and remote areas.457

Northern Territory Community Night Patrols

Community night patrols across 80 remote and regional areas in the Northern Territory. The Government will provide $28.8 million in 2012-13 towards these patrols.458

452. Australian Bureau of Statistics, Prisoners in Australia, ABS website, viewed 10 May 2012. As at 30 June 2011, the age standardised imprisonment rate for Aboriginal and Torres Strait Islander prisoners was 14 times higher than non-Indigenous prisoners; Australian Bureau of Statistics, Corrective Services, ABS website, p. 6, viewed 10 May 2012.

453. Australian Greens, Intervention funding could be stripped from existing programs: media release, 10 May 2012. 454. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), Budget, Stronger Regions, Stronger Nation, Budget statement, Commonwealth of Australia, 8 May 2012.

455. Ibid, p. 45. 456. Ibid. 457. Ibid. p. 47. 458. Ibid, p. 48.

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Legal aid

Christos Kyrgios

A legal aid framework exists to allow all Australians an elementary right of access to legal advice and services, so as to satisfy the premise that all are equal before the law.

The mission of legal aid commissions is to provide access to justice to marginalised and economically disadvantaged Australians.459

The Government provides funding to the states and territories for legal aid commissions through the National Partnership Agreement on Legal Assistance Services.460 In 2012-13 the Government will provide $198.1 million dollars under the Agreement, an increase of $3.3 million from last year.461 Included in this amount is $9.9 million for the Expensive Commonwealth Criminal Cases Fund (ECCCF).462 The forward estimates indicate that the total funding to be provided under the Agreement will increase by $11.2 million between 2012-13 and 2015-16. 463

Legal Aid Commissions will also directly receive $14.5 million in 2012-13 under the Attorney-General’s Department Program 1.3: Justice Services. This represents a significant increase of $4.7 million when compared to last year’s revised Budget figures.464 The amount is estimated to reduce to around $3.8 million in 2014-15 and 2015-16, which will mean a return to the levels of legal aid funding under the Justice Services program that were forecast in the 2010-11 Budget for the forward years, prior to revision in the 2011-12 Budget to include ‘additional funding for legal aid for people smuggling, national security and drug-related cases’. 465 The Budget papers do not explain

459. Legal Aid Victoria, ‘Legal Aid in Australia’, Legal Aid Victoria website, viewed 9 May 2012. 460. Australian Government, National Partnership Agreement on Legal Assistance Services, Commonwealth of Australia, Canberra 2010, viewed 9 May 2012. 461. Australian Government, Budget Measures: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra,

2012, p. 115, viewed 9 May 2012. 462. The Attorney-General established an Expensive Commonwealth Criminal Cases Fund in December 1999. The fund is intended to ensure that the cost of providing assistance in a serious Commonwealth criminal matter does not impact on the capacity of legal aid commissions to maintain assistance in others. Australian Government, Budget Measures:

Ministerial Statements, Stronger Regions, Stronger Nation - Attorney-General, Commonwealth of Australia, Canberra, 2012, p. 46 viewed 9 May 2012. 463. Australian Government, Budget Measures: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 115, viewed 9 May 2012. 464. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.2: Attorney-General’s

Portfolio, p. 30, viewed 9 May 2012. 465. The Portfolio budget statements 2010-11: budget related paper no. 1.2: Attorney-General’s Portfolio forward estimates stated that expenditure on legal aid to Legal Aid Commissions under Departmental program 1.3: Justice services would be around $3.5 million for the 2010-11 financial year and for the corresponding forward years.

However these figures were revised in the 2011-12 Budget to include ‘additional funding for legal aid for people smuggling, national security and drug-related cases’. The revised figures were: $20.5 million in 2010-11; $10.4 million in 2011-12; $10.6 million in 2012-13; $3.7 million in 2013-14; and $3.8 million in 2014-15. Australian Government, Portfolio budget statements 2010-11: budget related paper no. 1.2: Attorney-General’s Portfolio, p. 33, viewed 9 May 2012; Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.2:

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the basis on which expenditure on legal aid under the Justice Services program is expected to decrease.

The Government has also continued the National Broadband Network (NBN) Regional Legal Assistance Program, which provides grants to increase legal assistance delivery to remote areas. This was originally announced in the 2011-12 Budget to be funded with $4 million over four years.466

Funding for community legal services and indigenous legal aid will continue at existing levels in 2012-13. The Attorney-General’s Department Program 1.3: Justice Services administers $36.2 million ($35 million in 2011-12) for the provision of community legal services across Australia.467 Under the Attorney-General’s Department Program 1.5: Indigenous Law and Justice, the amount of Commonwealth funding for indigenous legal aid and policy reform has remained steady, at $65.5 million, from 2011-12 to 2012-13. 468

The Law Council of Australia (LCA) commented on the legal assistance Budget allocation in 2011- 2012, describing a monetary disaster facing the legal assistance segment ‘due to 14 years of underfunding by the Commonwealth Government’.469 The LCA has again expressed its disappointment with the 2012-13 Budget allocation, stating that ‘the underfunding of the legal assistance sector cannot continue—the structural re-adjustment must commence immediately so the Commonwealth’s contribution to legal aid returns to at least 50 per cent’.470 Commonwealth funding levels have been below 50 per cent of combined Commonwealth/state funding for legal aid commissions since 1999-00. 471 The LCA reiterated that it will continue to lobby the Government to ensure increased provision of legal aid.

Attorney-General’s Portfolio, p. 31, viewed 9 May 2012; Senate Legal and Constitutional Affairs Committee, Attorney-General’s portfolio, Additional Estimates, 22 February 2011, pp. 105-106, viewed 10 May 2012. 466. Australian Government, Budget Measures: Ministerial Statements, Stronger Regions, Stronger Nation - Attorney-General, Commonwealth of Australia, Canberra, 2012, viewed 9 May 2012. 467. Australian Government, Portfolio budget statements 2012-13, 1.2: Attorney-General’s Portfolio, p. 30. 468. Ibid. p. 32. 469. Law Council of Australia, Commonwealth Budget ignores legal assistance sector, media release, 11 May 2011, viewed

9 May 2012. 470. Law Council of Australia, Commonwealth Budget ignores legal assistance sector, media release, 9 May 2012, viewed 9 May 2012. 471. National Legal Aid, Financial Tables, National Legal Aid website, 18 April 2011, viewed 10 May 2012.

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National Children’s Commissioner

Ian McCluskey

The Government will provide $3.5 million over four years to establish and fund a National Children’s Commissioner (NCC) to operate within the Australian Human Rights Commission (AHRC).472

The AHRC already protects and promotes human rights within Australia. The establishment of the NCC will assist the AHRC in relation to children’s issues.

On 29 April 2012, in announcing the creation of the NCC, Ministers Roxon, Macklin and Collins stated that:

• the NCC would focus on promoting the rights, wellbeing and development of children and young

people in Australia

• the establishment of the NCC was a key action under the Government’s National Framework for

Protecting Australia’s Children 2009-2020 and

• the NCC is to be a national advocate for children, complementing the work already being

performed by states and territories. 473

The NCC’s interests will include the promotion of public awareness of issues affecting children, the conduct of research and education programs, and consultation with children and representative organisations. The NCC will also monitor Commonwealth legislation, policies and programs which impact upon children’s rights, wellbeing and development. On the international level, the NCC will be able to monitor Australia’s level of compliance with the United Nations Convention on the Rights of the Child.

Funding for the establishment of the NCC will be fully offset from savings across the Attorney-General’s and Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) portfolios.

The NCC will join the six existing Commissioners at the AHRC: the Human Rights Commissioner, the Aboriginal and Torres Strait Islander Social Justice Commissioner, the Age Discrimination Commissioner, the Race Discrimination Commissioner, the Disability Discrimination Commissioner, and the Sex Discrimination Commissioner.

Legislation to establish the office of the NCC will be introduced in 2012 and the NCC is expected to take office at the end of the year.

472. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 86-87, viewed 10 May 2012. 473. N Roxon (Attorney-General, Minister for Emergency Management), J Macklin (Minister for Families, Community Services and Indigenous Affairs) and J Collins (Minister for Community Services), Gillard Government to establish

National Children’s Commissioner, media release, 29 April 2012, viewed 10 May 2012.

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The Australian Greens have welcomed the Government’s announcement. Senator Sarah Hanson-Young stated she had previously introduced two bills into the Senate which sought to establish an office of Children’s Commissioner. Senator Hanson-Young is now looking forward to reviewing the Government’s Bill later this year.474

Families Australia CEO Brian Babington welcomed the establishment of the NCC, seeing it as ‘a major step forward in promoting the wellbeing and safety of Australia’s children and young people’.475

Ben Schokman of the Human Rights Law Centre noted that the creation of the NCC has been advocated by NGOs for some time and was a key recommendation of the UN Committee on the Rights of the Child in its last review of Australia in 2005.476 Mr Schokman also noted that the UN Human Rights Council recommended the office of NCC be created when it reviewed Australia’s human rights record in 2011. 477 Certain comparable jurisdictions, such as the United Kingdom, New Zealand and Norway already have full-time children’s rights commissioners.478

474. Australian Greens, Government to adopt Greens push for a National Children’s Commissioner a welcome step: Greens, media release, 30 April 2012, viewed 17 May 2012. 475. Families Australia, National Children’s Commissioner: a welcome move, media release, 29 April 2012, viewed 17 May 2012. 476. UN Committee on the Rights of the Child, UN Committee on the Rights of the Child: Concluding Observations,

Australia, 20 October 2005, paras. 15-16, viewed 17 May 2012. 477. UN Human Rights Council, Report of the Working Group on the Universal Periodic Review: Australia, par. 86.28, 24 March 2011, viewed 17 May 2012. 478. Human Rights Law Centre, New National Children’s Commissioner will promote and protect the human rights of

vulnerable children and young people, media release, 29 Apr 2012, viewed 17 May 2012.

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Policing, security and intelligence—key issues

Cat Barker

In a budget where the Government is determined to achieve a surplus, there is little new funding for police, security and intelligence measures. Most measures announced in the Budget are either being funded from within existing resources or are expected to pay for themselves through anticipated revenue.

Key expense measures

Community safety and justice in the Northern Territory (NT)

This year’s Budget provides a total of $619.3 million in expenditure over ten years for a range of measures including the continued employment of 60 NT police officers across 18 remote communities, continuation of night patrols and construction of a further four permanent remote area police complexes.479 The funding is provided across the Attorney-General’s, Treasury and Families, Housing, Community Services and Indigenous Affairs portfolios.

Pacific Police Development Program

This Program first received funding in the 2008-09 Budget, with funding of $80.1 million over four years for the Australian Federal Police (AFP) and the Attorney-General’s Department (AGD) to undertake capacity building in Samoa, Nauru and Papua New Guinea and the continuation of the Pacific Regional Policing Initiative, which commenced in 2003. 480 A further $5.8 million was provided in the 2010-11 Budget to expand the Program to Tonga and Vanuatu. 481 This year’s Budget continues funding for the Program by providing $97.1 million over four years, the bulk of which will be offset from the provision for expanded aid funding held in the Contingency Reserve, with the remainder sourced from within the existing resources of AusAID and AGD.482

479. J Macklin (Minister for Families, Communities and Indigenous Affairs), N Roxon (Attorney-General), W Snowdon (Minister for Indigenous Health) and T Crossin (Senator for the Northern Territory), Improving safety in Northern Territory Aboriginal communities, media release, 28 March 2012, viewed 10 May 2012. The figure included in the media release is $619 million; The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 10-11, 81-90, 101 and 149, viewed 9 May 2012.

480. Australian Government, Budget measures: budget paper no. 2: 2008-09, Commonwealth of Australia, Canberra, 2008, p. 196, viewed 10 May 2012; AusAID, ‘Women in Blue‘, AusAID website, viewed 10 May 2012. 481. Australian Government, Budget measures: budget paper no. 2: 2010-11, Commonwealth of Australia, Canberra, 2010, p. 109, viewed 10 May 2012. 482. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia,

Canberra, 2012, p. 6:12, viewed 10 May 2012, states that the Contingency Reserve ‘represents the difference between the amount of overseas ODA already committed by Australia and the Government’s target levels of ODA’.

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Customs vessels

The Government has announced $33.3 million for the operations costs of two new vessels for the Australian Customs and Border Protection Service (Customs). 483

A 6500 tonne Offshore Support Vessel will be used to protect Australia’s interests in the Southern Ocean, including against threats such as illegal fishing. The $123.0 million cost of acquiring the vessel will be met through existing resources within the Department of Defence. The Government will provide $13.5 million to Customs for the operating costs of the shared use of the vessel for two years from 2014-15, with the vessel to be transferred to Customs in 2016 when the lease on the Ocean Protector expires.

The second vessel will be used for surveillance and enforcement in the vicinity of Ashmore Reef to ‘manage suspected illegal entry vessels, protect fragile fisheries and respond to safety at sea and pollution incidents’.484 The vessel will replace the Ashmore Guardian funded in the 2007-08 Budget, which in turn replaced a vessel on permanent station since 2000. 485 Budget Measures: Budget Paper No. 2: 2012-13 includes operating costs of $19.8 million but states that ‘the capital costs for this measure have not been published because they are subject to commercial negotiation’.486

Increased use of SmartGates

Capital funding of $7.9 million over two years will be used to purchase an additional 20 self-processing kiosks (SmartGates) for passport control at Australia’s major international airports.487 They have been progressively rolled out across Australia since 2007. 488 This is expected to generate net savings of $11.9 million over four years due to efficiencies achieved through the increased use of the SmartGates and streamlining of security measures at Sydney Airport.

Expansion of the National Document Verification Service (DVS)

While only Commonwealth agencies have been using the DVS to date, the private sector, including the telecommunications and financial services sectors, will now have access.489 The Government will spend $7.5 million over three years to roll the DVS out to those sectors as well as the aviation and

483. N Roxon (Attorney-General) and J Clare (Minister for Home Affairs and Justice), New customs and border protection vessels, media release, 8 May 2012, viewed 9 May 2012. 484. Budget measures: budget paper no. 2: 2012-13, op. cit., p. 82. 485. Ibid., p. 81; Australian Government, 2007-08 budget paper No. 2: Budget measures 2007-08, Commonwealth of

Australia, Canberra, 2008, p. 77, viewed 9 May 2012. 486. Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 81-82. See also the separate brief ‘Responding to unauthorised arrivals’ in the Immigration section of the Budget Review 2012-13. 487. J Clare (Minister for Home Affairs and Minister for Justice), Modern technology to get Australian travellers through

Customs easier, media release, 5 May 2012, viewed 9 May 2012. 488. M Sharma, ‘SmartGate passport check goes national‘, The Australian, 8 April 2008, viewed 9 May 2012. 489. N Roxon (Attorney-General), Keeping your identity safe, media release, 8 May 2012, viewed 9 May 2012.

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maritime security industries. The introduction of a transaction fee is expected to generate revenue of $6.9 million over the three years.

New forensic facility

The Government has announced the construction and fit-out of a new forensic science and technical intelligence facility for the AFP to replace the existing centre, which the Minister for Home Affairs says is outdated. 490 Funding for the facility will come from within the AFP’s existing Departmental capital budget, though the cost has not been revealed as it is subject to commercial negotiations. 491 The only funding that appears against the measure in the 2012-13 Budget is a transfer of $200 000 from the AFP to the Department of Finance and Deregulation for the Gateway review process, which is intended to provide quality assurance of major capital projects. This funding appears to have been rolled over from 2011-12. 492

Savings, efficiencies and revenue measures

As is the case across the Budget, a range of savings and efficiencies have been identified, including:

• $81.6 million over four years from redirecting funding from across the Australian Intelligence

Community (AIC), including deferring planned growth in staffing for the Australian Secret Intelligence Organisation, to support other national intelligence priorities

• $58.3 million over four years through the deferral of payments from the Confiscated Assets

Account made under section 298 of the Proceeds of Crime Act 2002 and managed by AGD - payments from this account were also deferred in the last budget to achieve savings of $32.0 million over four years

• $25.9 million over three years through the deferral by one year of the recruitment target of 500

additional sworn AFP officers (initially announced in the 2008-09 Budget to fulfil an election commitment).

The police and security sector is also projected to generate revenue of $728.1 million over four years. This will be achieved by partially recovering the costs from operators of the AFP’s community policing role at major international airports from 1 July 2013 (which will generate $118.1 million), and increasing the Passenger Movement Charge (PMC, which replaced departure tax) by eight dollars to $55 per passenger from 1 July 2012 and indexing the charge to annual movements in the CPI thereafter (estimated to generate $610.0 million). The increase to the PMC has been criticised by the tourism sector, with Qantas claiming it will hurt international and domestic travel and the

490. N Roxon (Attorney-General) and J Clare (Minister for Home Affairs and Justice), New forensic facility to provide the Australian Federal Police with better criminal intelligence, media release, 8 May 2012, viewed 9 May 2012. 491. Ibid. 492. See Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra,

2011, p. 104, viewed 10 May 2012.

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Tourism and Transport Forum and Australian Airports Association both expressing frustration at not having been consulted in advance. 493

493. L Allen, ‘Shocked operators bag passenger charge hike‘, The Australian, p. 25, viewed 10 May 2012; N Wilson, ‘Warning of flight price take-off‘, Herald Sun, p. 50, viewed 10 May 2012.

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Public service

Dr Nicholas Horne

Background

Public service staffing

The Budget gives an estimate of 258 563 average staffing level (ASL) for agencies in the general government sector (GGS) for 2012-13 and a revised estimate for 2011-12 of 261 637 ASL (down from 262 995 in the 2011-12 Budget). 494 ASL is not a headcount but rather a figure showing full-time equivalent staffing levels.

In April 2012 the Prime Minister indicated that public service employment would be one of the ‘tough choices’ in the Budget process. 495 From late 2011 staffing reductions have been reported for various agencies; at Senate Estimates in February 2012 some agencies also flagged possible staffing reductions in connection with the efficiency dividend increase (see further below). 496

Efficiency dividend increase and capital funding reduction

In the November 2011 Mid-Year Economic and Fiscal Outlook (MYEFO) the Government announced that the efficiency dividend would rise by 2.5 per cent from its current annual rate of 1.5 per cent to four per cent for the 2012-13 financial year only; the increase is expected to result in savings of $1.5 billion over 2012-15.497 A number of agencies have been exempted from the increase including

494. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 6-54, 6-72-6-77, 9-3, viewed 11 May 2012. The general government sector ‘comprises all government departments, offices and some other bodies’ and ‘provides public services that are mainly non-market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income’: ibid., p. 9-13. 495. J Gillard (Prime Minister), Transcript of press conference: Parramatta, media release, 4 April 2012, viewed 11 May

2012.

496. For example E Hannan and A Hepworth, ‘$1.5bn cuts ‘will slash 3000 jobs’‘, The Australian, 30 November 2011, viewed 11 May 2012; M Mannheim, ‘14,000 PS jobs set to be slashed‘, The Canberra Times, 1 February 2012, viewed 11 May 2012; C Lucas and M Mannheim, ‘Public servants face axe in $500m budget cuts‘, The Age, 5 April 2012, viewed 11 May 2012; T Negus, ‘Senate Legal and Constitutional Affairs Legislation Committee: Additional Estimates‘, Senate, Debates, 14 February 2012, pp. 103-105, viewed 11 May 2012.

497. Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, Commonwealth of Australia, Canberra, 2011, viewed 11 May 2012, p. 216. The pre-existing rate of 1.5 per cent per annum was itself an increase from the base annual rate of 1.25 per cent; the increase to 1.5 per cent was announced in April 2011 and is intended to apply over 2011-13 before returning to 1.25 per cent: P Wong (Minister for Finance and Deregulation), Driving efficiencies in government, media release, 21 April 2011, p. 1, viewed 11 May 2012.

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the Australian Communications and Media Authority, the Australian War Memorial, the National Library of Australia, the National Gallery of Australia, the Federal Court, and the High Court.498

The Government expects that agencies will ‘continue to meet the efficiency dividend without resorting to forced redundancies, or reduced services to regional Australia’; agencies will also be required ‘to report on their efficiency measures’.499 Specific areas of expenditure identified for savings including consultant and contractor use, travel, hospitality and entertainment, media and advertising, printing and publication, and training.500

The efficiency dividend is not only applied to Australian Public Service agencies (such as the main Departments of State) but also to non-Australian Public Service agencies within the GGS such as the Australian Federal Police and the parliamentary departments.

In the MYEFO the Government also announced a 20 per cent reduction in departmental capital funding over 2012-15 for those agencies in receipt of such funding; significant capital projects of more than $10.0 million will not be affected by the reduction. 501 The reduction is expected to result in savings of $710.0 million over 2012-15. 502

2012-13 Budget measures

Public service staffing

Over the course of the 2012-13 financial year the Budget estimates:

• total ASL reductions for GGS agencies of 6562 ASL, and

• total ASL gains for GGS agencies of 3487 ASL.

Overall the Budget estimates a net decrease of 3074 ASL from 2011-12 levels (261 637 ASL). The Minister for Finance and Deregulation has stated that the decrease is ‘[o]verwhelmingly … a result of natural attrition and voluntary redundancies’.503

The largest projected ASL reductions for 2012-13 are for the Department of Education, Employment and Workplace Relations (DEEWR) (-1145 ASL), the Australian Taxation Office (-1039 ASL), the Australian Bureau of Statistics (-680 ASL), the Department of Human Services (-440 ASL), the Defence Materiel Organisation (-432 ASL including contractors), the Department of Climate Change

498. P Wong (Minister for Finance and Deregulation), Driving efficiency savings within government, media release, 29 November 2011, pp. 2-3, viewed 11 May 2012. 499. Ibid., p. 2. 500. Wong, Driving efficiency savings within government, op. cit., pp. 1-2. 501. Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, op. cit., p. 301. 502. Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, op. cit., p. 301. 503. P Wong (Minister for Finance and Deregulation), Delivering better government services, more efficiently, media

release, 8 May 2012, p. 1, viewed 11 May 2012.The Minister also noted the existing cap on senior executive staffing.

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and Energy Efficiency (-344 ASL), the Department of the Prime Minister and Cabinet (DPMC) (-196 ASL), Department of Defence civilian staff (-192 ASL including contractors), and the Australian Customs and Border Protection Service (-190 ASL). 504 Together these account for 71 per cent of the total estimated ASL reductions for 2012-13.

The largest projected ASL gains for 2012-13 are for Department of Defence military and reserve staff (+754 and +400 ASL respectively), the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) (+729 ASL), the new Clean Energy Regulator (+278 ASL), the Department of Families, Housing, Community Services and Indigenous Affairs (+162 ASL), and the new Office of the Fair Work Building Industry Inspectorate (OFWBII) (+155 ASL). Together these account for 71 per cent of the total estimated ASL increases for 2012-13.

The Budget indicates that some ASL changes (for example those for DEEWR, DIISRTE, DPMC and the OFWBII) are related to transfers of responsibilities or functions. 505

For 2012-13 the Budget estimates an increase of $296.0 million (1.6 per cent) in gross wage and salary expenses for the GGS compared to 2011-12; a reduction of $164.0 million (just under one per cent) is projected for 2013-14 followed by increases over 2014-16. These figures substantially revise the November 2011 MYEFO estimate of a $667.0 million (3.4 per cent) reduction in gross wage and salary expenses for 2012-13 followed by small increases over 2013-15. 506

Efficiencies and savings

The Budget confirms the 2.5 per cent increase in the efficiency dividend rate for 2012-13 announced in the November 2011 MYEFO (expected to save $1.5 billion over 2012-15). 507 The Budget also identifies various other savings including:

• $5.4 billion in the Defence portfolio over 2012-16 arising from acquisition deferral, capital

equipment adjustment, and operational efficiencies

• $184.9 million in the Education, Employment and Workplace Relations portfolio over 2011-16

from efficiencies associated with the establishment of the OFWBII, efficiencies in employment services arrangements, and program consolidation, and

504. A reduction of at least 1000 civilian staff (including contractors) is estimated for the Department of Defence over 2012-16; figures vary in the Budget papers: see Budget Measures: Budget Paper No. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 298, viewed 11 May 2012; Portfolio budget statements 2012-13: budget related paper no. 1.5A: Defence portfolio, Commonwealth of Australia, Canberra, 2012, p. 36, viewed 11 May 2012. The reduction is to be ‘effected primarily through natural attrition and tightening of recruitment practices’: Australian Government, Budget Measures: Budget Paper No. 2: 2012-13, op. cit., p. 298. 505. Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2012-13, op. cit., pp. 6-76-6-77. 506. Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, op. cit., p. 304. 507. Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2012-13, op. cit., p. 1-13.

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• $19.0 million in the Attorney-General’s portfolio over 2012-16 from efficiencies associated with

the transfer of National Native Title Tribunal functions to the Federal Court of Australia.508

In his response to the Budget the Leader of the Opposition questioned staffing levels in the Defence Materiel Organisation and indicated that the Coalition would impose annual savings targets on agencies if in government.509

508. Australian Government, Budget Measures: Budget Paper No. 2: 2012-13, op. cit., pp. 87, 111-12, 116, 123, 298. 509. T Abbott (Leader of the Opposition), ‘Second reading speech: Appropriation Bill (No. 1) 2012-2013‘, House of Representatives, Debates, 10 May 2012, pp. 82-86, viewed 11 May 2012.

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Science and research overview

Matthew L James

Science and research

The Federal Government announced an extra $126 million on spending for science and research in universities for 2012-13 and kept funding relatively stable for the wider sector. 510Investment block grant funding for universities now totals $1.72 billion for research spread over six existing programs.

As a new initiative, the Government proposed that an extra $54 million over four years would go to improving participation in the study of science and mathematics at school and university. (See the Budget Review 2012-13 paper: Mathematics and science - increasing participation).

The Government increased funding for the Australian Research Council (ARC) and very slightly trimmed the National Health and Medical Research Council (NHMRC). The 2012-13 funding of $760.5 million to the NHMRC Medical Research Endowment Account comes in close to last year’s $746.1 million allocation.511 Total net resourcing for the ARC rose from $844.7 million in 2011-12 to $915.3 million in 2012-13. 512

The International Science Linkages program, axed last year, received no funding. The situation for the Commonwealth Scientific and Industrial Research Organisation (CSIRO) is slightly more complex. In addition to government funding, it receives income from a variety of other sources including consulting, intellectual property rights and commercialisation of research. Its total resourcing is projected to dip slightly from $1642.2 million in 2011-12 to $1602.9 million in the 2012-13, but appropriation from the Government will actually rise by a very slight $11.9 million to $736.7 million.513 As a result of its overall decrease, CSIRO expects to lose 116 staff in the year.

At the time of writing, the Australian Government’s 2012-13 Science, Research and Innovation Budget tables were not available.

Innovation and development

The Government claimed that new research and development tax incentives would deliver $1.8 billion in support over 2012-13 and that Commercialisation Australia would receive $294.1 million

510. C Evans (Minister for Tertiary Education, Skills, Science and Research), ‘Investing in world-class science and research‘, media release, 8 May 2012, viewed 9 May 2012. 511. AAMRI (Association of Australian Medical Research Institutes), ‘Medical research funding saved from the budget knife‘, media release, 8 May 2012, viewed 9 May 2012. 512. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.13: Industry, Innovation,

Science, Research and Tertiary Education Portfolio, Commonwealth of Australia, Canberra, 2012, p. 234, viewed 9 May 2012. 513. Ibid, p. 293.

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over the forward estimates.514 As well, it announced funding of $29.8 million for the start-up of a new Manufacturing Technology Innovation Centre to foster researcher and manufacturer creativity.515 However, funding for the Cooperative Research Centres Program will fall from $165.7 million in 2011-12 to $154.5 million in 2012-13. 516

Reflecting the sector’s stability, the Australian Industry (Ai) group noted that ‘In the lead-up to the Budget, Ai Group argued against further changes to the Research and Development Tax Incentive and we are pleased that the Government has not sought to achieve further savings in this area.’517 Generally, reaction to the science and research budget was relaxed and muted, although concerns remain about the wider role of scientific innovation in the economy and in Australian society. 518

514. G Combet (Minister for Industry and Innovation), ‘Innovation the key to driving productive industries‘, media release, 8 May 2012, viewed 9 May 2012. 515. Ibid. 516. Portfolio budget statements 2012-13: Industry, Innovation, Science, Research and Tertiary Education Portfolio, op.

cit., p. 48.

517. Ai (Australian Industry Group), ‘Business pays for back to black budget‘, media release, 8 May 2012, viewed 9 May 2012. 518. A Salleh, ‘Budget: Science spared but concerns remain‘, Australian Broadcasting Corporation website, 9 May 2012, viewed 9 May 2012.

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Abolition of ‘saved’ Parenting Payment arrangements

Peter Yeend

The Government announced several changes to welfare payments that will realise savings in the 2012-13 Budget. One of the most significant items is the Parenting Payment-changed eligibility for 1 July 2006 grandfathered recipients measure.519 This measure is estimated to realise savings of $685.8 million over four years.

Background

The Howard Government made substantial changes to Parenting Payment - Single (PPS) and Parenting Payment - Partnered (PPP) with the Welfare to Work reforms of 2006.520 From 1 July 2006 the participation requirements for PPS and PPP were521:

• single people claiming PPS after 1 July 2006 could receive the payment while their youngest child

was aged less than eight years. However, they would have participation requirements once that child turned eight years of age and be required to claim another income support payment, mainly Newstart Allowance (NSA).522

• partnered people claiming PPP after 1 July 2006 could receive the payment while their youngest

child was aged less than six years of age and then be required to claim another income support payment, mainly NSA.

There were some PPS and PPP recipients receiving payment on or before 1 July 2006, who were ‘grandfathered’ in respect of the new participation requirements. The ‘grandfathering’ meant that people receiving PPS or PPP before 1 July 2006 could continue to receive the payment until their youngest child reached 16 years of age, provided they did not change their relationship status or have their payment cancelled. While they were allowed to remain on PPS/PPP, they did have participation requirements until 1 July 2007 or once their youngest child reached the age of seven years, whichever occurred later.

Amendments to grandfathering

Amendments have been made to the above PP provisions under the Social Security Amendment (Parenting Payment Transitional Arrangement) Act 2011.523 The effect of these amendments was

519. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 116-117, viewed 9 May 2012. 520. D Daniels and P Yeend, Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005, Bills digest, no. 70, 2005-06, Parliamentary Library, Canberra, 2005, viewed 9 May 2012. 521. Participation requirements could include a requirement to look for work of at least 15 hours a week and sanctions

can apply for non-compliance. 522. NSA is more commonly referred to as the Unemployment Benefit. 523. Social Security Amendment (Parenting Payment Transitional Arrangement) Act 2011, viewed 9 May 2012.

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that only those children who were born or came into the principal care of a parent before 1 July 2011 (being a parent who had continued to receive PP since July 2006) were exempt, under the ‘grandfathered’ provisions, from the changes introduced in 2006. The provisions of the Act, in effect, drew a line under the group covered by the ‘grandfather’ provisions. Prior to the 2011 amendments, any new child born or coming into the care of a person, who was receiving PP prior to July 2006, would have extended that person’s eligibility for PP until the new child in care turned age 16.

There are also proposed amendments to the PPP and PPS ‘grandfathered’ participation requirements currently before the Parliament in the Social Security and Other Legislation Amendment (Income Support and Other Measures) Bill 2012. For the detail of those amendments see the Bills Digest.524

The effect of the changes to the ‘grandfathered’ arrangements presented in the Budget will supersede the changes made by the Social Security Amendment (Parenting Payment Transitional Arrangement) Act 2011, and by the Social Security and Other Legislation Amendment (Income Support and Other Measures) Bill 2012, should the latter be passed into legislation.

Proposed changes to ‘grandfathered’ participation requirements

The changes proposed in the Budget require all PP recipients who were on the payment prior to 1 July 2006 to be assessed under the same eligibility requirements as the new PP recipients (post 1 July 2006). In short, they will have the same participation requirements as those who claimed PP after 1 July 2006 and will no longer be ‘grandfathered’.

Who will be disadvantaged

PPP and PPS are more advantageous payments than NSA. The advantages PPS has over NSA are:

• PPS is paid at a higher rate— as at May 2012 the maximum PPS rate is $648.50 per fortnight (pf)

whereas the equivalent NSA single with dependent rate is $529.80pf

• PPS provides access to the Pensioner Concession Card whereas NSA only provides access to a

Health Care Card

• PPS recipients can also gain access to the Pensioner Education Supplement (up to $62.40pf) if

engaged in approved education

• PPS has more generous income and assets testing than NSA

• NSA has more rigorous participation requirements than PPS

• PPS recipients also receive the Pharmaceutical Allowance ($6.20pf)

524. M Klapdor, Social Security and Other Legislation Amendment (Income Support and Other Measures) Bill 2012, Bills digest, no. 127, 2011-12, Parliamentary Library, Canberra, 2012, viewed 9 May 2012.

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The differences between PPP and NSA are less marked. NSA and PPP are paid at the same rate and have the same income and asset testing. The main difference is that NSA has more rigorous participation requirements.

Proposed more generous parenting payment single income test

This proposed removal of the ‘grandfathering’ arrangements for participation requirements should be read alongside another Government initiative. From 1 January 2013, the Government proposes to introduce a more generous income test for single principal carer parents on NSA. 525 Currently, the NSA income test taper rate is 50 cents in the dollar for fortnightly income between $62 and $250 and 60 cents in the dollar for income above $250. The more generous proposed income test for single parents on NSA will have a lower taper rate of 40 cents in the dollar for income above $62 a fortnight. This will allow single principal carer parents to earn around $400 more per fortnight, before losing eligibility for payment.

Savings

The Budget papers indicate that the removal of the ‘grandfathered’ participation requirements will realise $685.8 million in savings over four years.526 These savings would be realised through PP recipients being paid NSA rather than PPS or PPP and also through the increased workforce participation of some recipients who have had to meet increased participation requirements.

Comment

The Australian Council of Social Service (ACOSS) has been quite critical of some measures in the Budget, especially in regards to single parents.527 PPS has its origins in the Supporting Mother’s Benefit introduced by the Whitlam Government in 1973 and this payment became known as the Sole Parent Pension and then PPS. The fact that there was some ‘grandfathering’ of PP recipients, who had been on PP or PPS prior to 1 July 2006, was recognition that the imposition of any participation requirements was controversial. Now, however, most income support payments for the working aged have participation requirements. There are only a few older aged persons who can still access Widows Allowance (if born before 1 July 1955), which does not have participation requirements. Other working age payments with no participation requirements like Partner Allowance, Wife Pension and Widow B Pension are no longer granted.

525. Ibid. 526. Ibid. 527. A Horin, ‘Most vulnerable still fall between the cracks, says agency’, The Sydney Morning Herald, 10 May 2012, p. 7, viewed 10 May 2012.

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Changes to residency and portability requirements for Australian Government payments

Peter Yeend

Change to residency requirements

Background

The Government announced a tightening of the Australian working life residency (AWLR) requirements for persons to be paid an income support payment while resident overseas in the 2012-13 Budget.528

Australian working life residency—strengthening requirements

Normally, to qualify for an Age Pension (AP) or a Disability Support Pension (DSP) in Australia a person must have been resident in Australia for at least 10 years. Thereafter, only some Australian income support payments are payable when a person leaves Australia to reside overseas. These are the AP, Wife Pension (WP), Widow B Pension (WidB) and some DSP recipients.

As at June 2010, there were 71 360 income support recipients residing overseas permanently. The majority (79 per cent) reside in European countries. Of those resident overseas, 62 148 (87 per cent) were receiving AP, 7572 were receiving the DSP, 575 receiving WidB and 969 receiving WP.529 Annual expenditure as at June 2010 on Australia’s pension payments paid to people living overseas was $571.3 million and at the same time, pensions from overseas countries being paid to people residing in Australia totalled $1.2 billion.530

Currently, for a person resident overseas, to be paid the maximum rate of AP they would otherwise be paid if resident in Australia, they require 25 years AWLR. Recipients with less than 25 years of AWLR are paid a proportional rate based on the duration of their working life residence in Australia. For example, if a person has 16 years of working life residence, they can receive 16/25th of the rate

otherwise payable when a resident in Australia. Most overseas contributory based pension systems pay their minimum overseas rate after about 15 years and their maximum rate of pension after about 40 years of contribution.

From May 1973, a pension granted in Australia could be paid in any country in which the person lived. The initial AWLR rules for AP were introduced from 1 July 1986. From 1986 to 2004, different payments had different rules as to how long they could be paid where a person was overseas. From

528. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 134, viewed 11 May 2012. 529. Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Statistical paper No. 9. Income support customers; a statistical overview 2010, Canberra, p. 96, viewed 10 May 2012. 530. Ibid., p. 101.

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1988, payment of the Sole Parent Pension, where a person was overseas, was limited to 12 months and the Wife Pension, Widow B Pension and Disability Support Pension also had limited payment periods in some cases from 1991. Originally, Carer Payment was not portable for any period from 1987 but now has limited portability. 531 The Howard Government standardised the payment overseas rules for the different payments in 2004 and also provided a reduced payment period during a temporary absence overseas. Generally, payment was reduced from 26 weeks down to 13 weeks from 1 July 2004. 532

Budget proposal

The Budget proposal is to extend the current 25 years AWLR requirement, to attract a full-rate of payment otherwise payable in Australia, out to 35 years of AWLR. 533 This is to apply from 1 January 2014 to persons who, having exceeded their 26 weeks temporary absence period, are resident overseas. Additionally, the AWRL rule is to be applied separately to a partnered pensioner. Currently, a partnered pensioner (WP) can rely on the primary pensioner’s AWLR to set their rate. This latter requirement will not involve many recipients — as at June 2010 there were only 24 655 Wife Pension recipients and, of these, only 969 were resident overseas.534

The Budget proposal estimates savings of $50.8 million over four years. 535

Comment

The increase in the AWLR rules from 25 to 35 years will see increased numbers of people resident overseas paid lesser amounts of pension. This is where the estimated savings will be realised. A person’s AWRL is fixed by the number of years they have been resident in Australia — this is not an element a person can readily change. Changing the year requirement from 25 to 35 years will adversely affect those with an AWLR of between 26 to 34 years.

Changes to portability rules

Background

The Budget also proposed a reduction in the period a person can receive an Australian income support payment while temporarily overseas: from 13 weeks down to six weeks.536 Portability allows most income support and supplement payments to continue being paid where a person is

531. Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Guide to Social Security Law: 7.1.1.10 Overview of Portability Legislation, FaHCSIA, Canberra, viewed 10 May 2012. 532. P Yeend, Family and Community Services and Veterans’ Affairs Legislation Amendment (2003 Budget and Other Measures) Bill 2003, Bills digest, no. 43, 2003-04, Parliamentary Library, Canberra, 2003, viewed 10 May 2012. 533. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 134. 534. FaHCSIA, Statistical paper No. 9. Income support customers; a statistical overview, op. cit., p. 21; Ibid., p. 96. 535. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 134. 536. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 144.

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temporarily absent from Australia. Where a person leaves Australia permanently, and their payment is not payable overseas, payment is stopped on departure.537 The payments affected by the proposed portability changes are listed in the Budget announcement. 538

Savings

It is estimated the proposal will realise savings of $127.2 million over four years from 2012-13. 539 There is no statement about the numbers projected to be affected by this proposed change.

Comment

The Howard Government reduced the portability of most income support payments from 26 weeks to 13 weeks from 1 July 2004. 540 This proposed initiative is similar to the previous reductions in the portability periods.

Generally, income support and income supplement payments that are provided by the Australian Government have means testing (income and/or assets tests) to target persons with lesser means to provide for basic living costs. It could be argued that this refers to living costs incurred in Australia and therefore these payments should be targeted to persons living in Australia rather than elsewhere. It could also be argued that for those receiving government assistance, trips overseas should only be for exceptional events.

It is a requirement under both the Social Security (Administration) Act 1999 and the A New Tax System (Family Assistance) (Administration) Act 1999 that if a person intends to leave Australia they are required to notify of their intention to do so. 541 There will be some payment recipients who have the means to take a temporary absence from Australia for a period of more than six weeks. In such cases, payment will probably be able to be made for the initial six weeks and then the person will need to reapply upon return. Currently, for a few payments, there is the capacity to allow an extension of payment beyond 13 weeks on a case-by-case basis.542 It is probable this facility will also apply to this proposed reduced portability period.

537. The only payments payable while a person is permanently resident overseas are the Age Pension, Wife Pension, Widow B Pension and a Disability Support Pension in special cases. 538. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 144. 539. Ibid. 540. P Yeend, op. cit. 541. Social Security (Administration) Act 1999, section 68, viewed 10 May 2012; A New Tax System (Family Assistance)

(Administration) Act 1999, section 25, viewed 10 May 2012. 542. The discretion to extend portability applies to DSP, Newstart Allowance, CP and Partner Allowance.

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Consolidation of dependency tax offsets

Les Nielson

The government has proposed to consolidate the following dependency tax offsets (or rebates) into one single offset:

• invalid spouse

• spouse/carer spouse

• housekeeper (and house keeper with child)

• invalid relative, and

• parent and parent-in-law.

These tax offsets are only allowed where the taxpayer’s adjusted taxable income, or a couple’s combined adjusted taxable income, is below $150 000 per annum.

Under the proposed changes, these offsets will now only be allowed where the individual concerned is generally unable to work due to carer obligation or disability.

Where a taxpayer could claim two (or more) of the above tax offsets, under the proposed changes they will be able to claim the same number of the new consolidated tax offsets. For example, if a taxpayer could claim both the spouse and invalid relative offsets, under the proposed changes they could also claim the proposed consolidated offset in respect of their spouse and also in respect of their invalid relative.

This new offset will be set at the level of the most generous of the above tax offsets. In 2011-12 this was the dependent spouse rebate with a maximum value of $2355. The budget papers note that this will mean that in some cases the person claiming the rebate will receive additional after tax income.543

This measure was first put forward in the Australia’s Future Tax System report (the Henry Review) to reduce tax system complexity.544 This proposed measure is projected to increase revenue by about $70m over the forward estimates period.545

Reaction

As at the date of writing there no reaction to this proposed change.

543. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 35, viewed 14 May 2012. 544. Dr Ken Henry (Chair), Australia’s Future Tax System - List of Recommendations, Canberra, 2010, p. 81, viewed 14 May 2012. 545. Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit.

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Family Tax Benefit Part A—change to age of eligibility

Peter Yeend

The Government announced in the Budget a change to the upper age limits for a young person to qualify as a dependent child for Family Tax Benefit Part A (FTB-A).546 The upper age limit is to be reduced to 18 years, or where still in secondary school, the end of the year in which they turn 19. The proposed reduction in the FTB-A qualifying age is estimated to realise $360.9 million over four years.547

Background

Currently, for a parent/guardian to qualify for FTB-A, they need to have a qualifying FTB-A child. The upper age limit for a FTB-A child is currently age 21 with some up to age 24 years still qualifying (those who were aged 22 prior to 1 January 2012 and are still continuing a qualifying course of full-time education). 548

FTB-A is an income supplement payment aimed at helping families with the cost of raising children. For details on the FTB-A criteria see the Centrelink information page.549 The upper qualifying age limit had been set at 24 for a long time and was a carryover from the family assistance payments that preceded FTB, which was introduced in 2000. These payments were Child Endowment and then Family Allowance.

Age of independence

The Gillard Government previously adjusted downwards the maximum qualifying age for a young person to qualify as a dependent child for FTB-A from 1 January 2012. 550 The age was lowered from age 24 down to 21 years in order to align it with changes to the age of “independence” for Youth Allowance (YA)(student) recipients. 551 In turn the change to YA had its origins in the Bradley Review of Education.552

The YA maximum age of dependence for students has been gradually lowering from age 24 to 21. As at 1 January 2012, a young person is considered independent once they turn 22. This is important in

546. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 139, viewed 11 May 2012. 547. Ibid. 548. Section 22, A New Tax System (Family Assistance) Act 1999, viewed 11 May 2012. 549. Centrelink, FTB-A information, Centrelink website, viewed 11 May 2012. 550. D Daniels, J Garden, L Buckmaster, and P Yeend, Family Assistance and Other Legislation Amendment Bill 2011, Bills

digest, no. 145, 2010-11, Parliamentary Library, Canberra, viewed 10 May 2012. 551. M Klapdor, Social Security and Other Legislation Amendment (Income Support and Other Measures) Bill 2012, Bills digest, no. 127, 2011-12, Parliamentary Library, Canberra, 2012, viewed 11 May 2012. 552. D Bradley (chair), Review of Australian Higher Education: final report, Department of Education, Employment and

Workplace Relations (DEEWR), Canberra, 2008, viewed 11 May 2012.

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terms of accessing payments. The age of assumed independence for YA job-seekers has been 21 years for some time. For YA, parental means testing and lower rates of assistance apply to dependent YA claimants. 553 Where a young person is ‘independent’, no parental means testing applies and in some cases Rent Assistance can also be paid.

No longer able to access Family Tax Benefit Part A - accessing Youth Allowance

With the lowering of the FTB-A qualifying age, for those young persons who will no longer be able to access FTB-A, their only real alternative assistance will be to access YA. For some on very low personal and family incomes (family income below $46 355), there will be no difference as they are probably already accessing YA instead of FTB-A as it is paid at a higher rate.

The maximum FTB-A rate for a dependent secondary student aged 16-19 years is $214.06 per fortnight (pf) and for a young person aged 18-21 years (not a secondary student) the maximum rate is $70.56pf. For a dependent young person aged 18 or over, the YA maximum rate is $265.00pf.

However, the parental means testing cut-out limits and taper rates for YA are quite a bit tighter than the means testing that applies to FTB-A. There will be some families whose income would have allowed access to FTB-A, but not to YA, and/or the reduced rate of FTB-A would be higher than the reduced rate of YA. 554 So for an 18-21 year old living at home and entitled to the dependent rate ($265.00pf), no YA would be payable where annual parental income exceeded about $80 900 a year.555 This contrasts the current FTB-A family income limit of $102,870 for an only child, with higher levels applying if there are other dependent children in the family.

Comment

These changes to FTB-A will now make it the primary form of assistance paid for school-aged and younger children and YA will be the primary payment for those who are older or no longer receiving support from their families. However, in lowering the FTB-A age to 18, there will be some young persons (and their families) who will not be able to access an alternative payment, or the alternative payment will be less. These will be families where the young person is not considered independent and the family is on higher levels of income. The increase in FTB-A payments announced elsewhere in the Budget will exacerbate the loss to these families.

553. The rate and means testing applied to a YA claimant is determined by whether they are considered to be dependent or independent - for further information see Centrelink website. 554. Centrelink, ‘The FTB-A parental means test limits’, Centrelink website, viewed 11 May 2012. 555. Centrelink, ‘Guide to Australian Government Payments’, Centrelink website, viewed 11 May 2012.

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Increasing workforce participation

Matthew Thomas

Generally speaking, the workforce participation measures contained in this year’s budget represent a continuation of those of previous years’ budgets. For the most part they are focused on refining existing Australian Government provided employment services and programs and targeting resources so as to better cater to the needs of disadvantaged and difficult-to-place job seekers. This is in keeping with the Government’s ongoing objective of increasing the employment participation and self-reliance of disadvantaged job seekers, as well as its more immediate objective of achieving a budget surplus.

There is an emphasis in this year’s budget on measures calculated to increase the recruitment and retention of mature age people in the workforce. They seek to do so by, firstly, encouraging employers to take on older workers, and, secondly, increasing the skills and qualifications of existing mature age workers. The measures form a response to the recommendations of the Advisory Panel on the Economic Potential of Senior Australians which recently advised the Government on how seniors might better contribute to all aspects of society.556

Workforce participation measures

The workforce participation measures include: 557

• Up to $10.0 million over four years for a Jobs Bonus scheme, which provides a $1000 bonus for

up to 10 000 employers who take on a worker aged 50 years or over for at least three months 558

• $15.6 million over four years for the expansion of the Corporate Champions initiative, which

supports a number of employers in their recruitment and retention of mature age workers559

556. Advisory Panel on the Economic Potential of Senior Australians, Realising the economic potential of senior Australians: turning grey into gold, Treasury, Canberra, 2011, viewed 9 May 2012. See also W Swan (Treasurer) and M Butler (Minister for Mental Health and Ageing, Minister for Social Inclusion), Government responds to the Final Report of the Advisory Panel on the Economic Potential of Senior Australians, media release, 18 April 2012, viewed 10 May 2012.

557. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 558. Swan and Butler, op. cit.; Opposition leader, Tony Abbott has accused the Government of copying its own mature age

employment policy from the last election. Under the Coalition’s policy a Seniors Employment Incentive Payment of $3250 would have been paid to employers of workers aged 50 years and over. Liberal Party of Australia and the Nationals, The Coalition’s plan for real action on employment participation, Coalition Policy Document, Election 2010, pp. 6-7, viewed 15 May 2012. 559. Ibid.

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• $25.7 million over four years to provide intensive Job Services Australia (JSA) employment

preparation assistance to job seekers aged over 55 years who are seeking employment in regions or industries that are prioritised by the Government

• $35.0 million over four years towards improving the skills of workers aged 50 years and over

through the National Workforce Development Fund (NWDF)

• $225.6 million over five years to support increased child care through the Jobs, Education and

Training Child Care Fee Assistance (JETCCFA) program for parents on eligible income support payments who are undertaking work, study or job search activities and

• $59.6 million over four years to Australian Disability Enterprises to continue existing support for

workers with disability in supported employment.

The above Jobs Bonus scheme and expansion of the Corporate Champions initiative are to be funded, in part, through savings realised by cessation of the Experience+ Training, On-the-job Support and Job Transition Support programs. The support for skills assessments and training costs provided to mature age workers through these programs will be furnished through the Investing in Experience - Skills Recognition and Training Program. This program is the newly revised and renamed More Help for Mature Age Workers program. When the savings gained through not proceeding with existing training and support programs are taken into account, there is a modest increase in new funding to support mature age workforce participation.

The measures also include changes to JSA arrangements that are calculated to deliver savings.

Servicing provided to Stream 1 job seekers (who are the most work ready and typically require little assistance) is to be reduced and employment services providers will receive reduced service fees for these job seekers. This is estimated to deliver savings of $162.6 million over four years. The current Provider Brokered Outcome (PBO) and Provider Assisted Outcome (PAO) payments for employment services providers who achieve an employment outcome for job seekers are to be discontinued. They are to be replaced with a single Job Service Outcome payment. This measure is anticipated to save $44.3 million over four years. Savings from both of these measures are to be redirected to support other, unspecified, government priorities.

Comments

It is now widely recognised by governments and by many employers in Australia that, given the nation’s rapidly ageing population, there is a need to ensure that older workers are retained in the workforce. Over the past decade or so governments and employers in Australia have implemented a range of supply- and demand-side strategies calculated to increase the workforce participation of mature age workers.

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Workforce participation rates for older Australians have increased quite dramatically in recent years. Indeed, mature age labour force participation in Australia has grown to such a degree that it now exceeds the OECD average in almost every age-sex combination.560 Some researchers have argued, based on an analysis of Household, Income and Labour Dynamics in Australia Survey (HILDA) data, that Australia is likely to not just meet but exceed the Intergenerational Report recommended workforce participation rate of 67 per cent of 55 to 64 year olds by 2049-50. 561

Nevertheless, there is evidence that if rates are to be further increased then this demands a shift in the attitude of many employers to taking on older workers, stronger incentives for employers to hire and retain older workers and assistance for a number of older workers to improve their current skill levels and employability. The budget measures should go some way towards achieving this.

The rationalisation of JSA outcome payments is in response to evidence that many employment services providers have been ‘gaming’ the system, that is, declaring that they have found employment for job seekers and claiming higher PBO fees when in fact job seekers had secured

employment themselves with little or no assistance from service providers. A review of JSA provider brokered outcomes conducted between 1 July 2011 and 31 December 2011 recommended, among other things, that the differential payment rate between PBO and PAO be removed and replaced with a single outcome rate set at 110 per cent of the previous PAO rate.562 The change will apply to all new employment services contracts from 1 July 2012.

The finding that some providers have been rorting the system where it comes to outcomes payments would also appear to have been the trigger for the reduction in servicing and service fees for Stream 1 job seekers. This measure should not pose problems so long as initial interviews with job seekers accurately assess their level of disadvantage and which of the four streams of assistance is most suitable for meeting their needs. While the JSA streaming arrangements are flexible, with job seekers able to request that they be moved into a higher level of assistance if their circumstances change, there is no guarantee that they will do so. The danger, then, is that some job seekers who are classified as Stream 1 job seekers might receive less assistance than they require and lose valuable time in the process.

The increased funding for JETCCFA is undoubtedly to cater for the enhanced demand for childcare fee assistance that is likely to result from the removal of ‘grandfathered’ participation requirements from some Parenting Payment (Single) and Parenting Payment (Partnered) recipients (see separate article on the abolition of the ‘saved’ Parenting Payment arrangements).

Australian Disability Enterprises are not-for-profit organisations that employ people with disabilities who cannot sustain employment in the open market. Additional funding for these organisations will

560. See National Seniors Productive Ageing Centre, Ageing and the barriers to mature age labour force participation in Australia, Department of Education, Employment and Workplace Relations (DEEWR), December 2011, p. 12, viewed 10 May 2012.

561. B Headey, J Freebairn and D Warren, Dynamics of mature age workforce participation: policy effects and continuing trends, Melbourne Institute of Applied Economic and Social Research, September 2010, viewed 10 May 2012. 562. DEEWR, Job Services Australia provider brokered outcomes, DEEWR, Canberra, 2011, viewed 10 May 2012.

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be welcomed as there is evidence that these enterprises are currently operating at capacity, and there is likely to be existing and increased demand for funded places in the future. 563

563. Senate Community Affairs Committee, ‘Answers to Questions on notice’, Families, Housing, Community Services and Indigenous Affairs Portfolio, Budget Estimates 2011-12, Australian Disability Enterprises, Question No. 341.

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Indigenous Affairs

Dr John Gardiner-Garden

The 2012-13 Budget initiatives in the area of Indigenous affairs might be grouped into those relevant to the new Stronger Futures in the Northern Territory and those of broader relevance. All come in the context of existing commitments through National Partnerships on Remote Indigenous Housing, Closing the Gap in Indigenous Health Outcomes, Indigenous Early Childhood Development and Indigenous Economic Participation. 564 Most of the expenditure does not, however, represent a higher level funding commitment than in previous years. Most of the Stronger Futures commitments simply pick up where the Northern Territory Intervention funding commitment will end in the middle of this year, and the new remote jobs and community development package essentially reshapes existing services and programs.

With respect to Stronger Futures in the Northern Territory, if the legislation presently before the Parliament is passed and negotiations with the Northern Territory Government proceed as expected, at the end of this financial year the Closing the Gap in the Northern Territory National Partnership will be replaced by a Stronger Futures in the Northern Territory National Partnership. In this context the Budget provides for a cross-portfolio $3.4 billion 10-year package. This total includes considerable money redirected from other programs. 565 It does not represent a funding commitment at higher than recent levels, as in May 2010 Minister Macklin reported the Government had ‘committed $1.2 billion since 2007 to continue the Northern Territory Emergency Response’.566

The Stronger Futures package includes:

• $254.4 million over four years ($713.5 million over 10 years) for better primary health care, and

better access to allied health services567

• $239.6 million over four years ($619.3 million over 10 years) to improve the safety of

communities (for example, policing)568

564. J Macklin (Minister for Families, Community Services and Indigenous Affairs), Continuing our efforts to close the gap, budget statement, Commonwealth of Australia, Canberra, 2012, viewed 10 May 2012. 565. See notes in text that follows and Australia Greens, Intervention funding could be stripped from existing programs: Greens, media release, 10 May 2012, viewed 11 May 2012. 566. J Gillard (Deputy Prime Minister, Minister for Education, Minister for Employment and Workplace Relations),

J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs), N Roxon (Minister for Health and Ageing), R McClelland (Attorney General), Senator M Arbib (Minister for Employment Participation), P Garrett (Minister for Environment Protection, Heritage and the Arts), and W Snowdon (Minister for Indigenous Health), Closing the Gap—Strengthening Indigenous Communities, media release, 11 May 2010, viewed 15 May 2012. 567. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra,

2012, viewed 10 May 2012, p. 205. 568. Ibid., p. 149.

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• an as yet not-for-publication sum to be provided over 10 years to support measures to tackle

alcohol abuse in communities569

• $187.3 million over four years ($411.8 million over 10 years) to continue to improve school

outcomes for Aboriginal children570

• $141.6 million over four years ($326.3 million over 10 years) to support the wellbeing of

Aboriginal children, youth and their families and continue eight programs under the Alice Springs Transformation Plan571

• $149.2 million over four years ($413.4 million over 10 years) to increase the number of

Indigenous Engagement Officers, ensure local services are effective, support governance and leadership and local planning, and continue to support interpreting services572

• $54.2 million over four years to improve remote Indigenous housing, including removing asbestos

from houses and community buildings573 and

• $67.8 million over four years ($206.4 million over 10 years) to support the continuation of basic

municipal and essential services for up to 9000 Aboriginal people living in outstations and homelands.574

Minister’s Macklin’s relevant Budget press release also includes in the Stronger Futures in the Northern Territory package $40.9 million over 10 years for food security, and $19.1 million to create 50 extra Aboriginal Working on Country ranger positions in remote Northern Territory communities over the next four years and to offer local traineeships for up to 100 Indigenous traineeships.575 However, these measures do not attract new funding in the 2012-13 Budget.

The Budget also includes initiatives with more general relevance.576

With respect to remote jobs and the former community development employment projects (CDEP), the Budget features a commitment from 1 July 2013 of $1.5 billion for a new cross-portfolio Remote Jobs and Communities Program. As with the Stronger Futures commitment, this is not new money.

569. Ibid., p. 152. 570. Ibid., p. 129. 571. Ibid., p. 148. 572. Ibid., p. 152. 573. Ibid., p. 150. 574. Ibid., p. 151. 575. J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs), S Conroy (Minister for

Broadband, Communications and the Digital Economy), P Garrett (Minister for School Education, Early Childhood and Youth), W Snowdon (Minister for Indigenous Health), K Ellis (Minister for Early Childhood and Childcare), and J Collins (Minister for Indigenous Employment and Economic Development), Investing to close the gap on Indigenous disadvantage, media release, 8 May 2012, viewed 10 May 2012. 576. J Macklin, Continuing our efforts to close the gap, op. cit.; J Macklin et. al., Investing to close the gap on Indigenous

disadvantage, op. cit.

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Indeed, against prior relevant commitments in Budget forward estimates, the establishment of the new program is estimated to cost $9.3 million in 2012-13 but save $79.8 million in 2013-14, $92.1 million in 2014-15 and $41.5 million in 2015-16. The cost of the program to the Department of Education, Employment and Workplace Relations being more than offset by savings to the Department of Family, Housing, Community Services and Indigenous Affairs, and to the Department of Human Services.577 The program will include:

• combining Job Services Australia, Disability Employment Services, Community Development

Employment Projects to create a new single assistance provider which will work with communities to develop Community Action Plans as well as with individual job-seekers (this element producing savings of $62.0 million over four years)

• $137.5 million over three years to establish a Community Development Fund to support

community development projects

• $44.4 million over three years for a Remote Youth Development and Leadership Corps which will

provide up to 3000 places by 2015-16 for young people aged under 25. The National Congress of Australia’s First People particularly welcomed this commitment but noted that there will be $22.8 million in savings from ending new enrolments in the Indigenous Youth Leadership Program578 and

• five more years of CDEP wages to approximately 4000 long-term CDEP participants (budget

neutral over six years).

Budget initiatives relating to services and infrastructure include:

• $43.4 million in 2012-13 for remote communities to continue the provision of municipal and

essential services to 38 000 Aboriginal people in approximately 350 remote communities across Western Australia, South Australia, Queensland, Victoria and Tasmania.579 This measure was announced on 28 March 2012 and is intended to supplement the efforts of State and Territory Governments.580 With small homelands and outstations communities persisting and their need for better services great, this commitment was well received by most but criticised by some as too little, not involving sufficient Northern Territory Government contribution and not helping to clarify long-term responsibilities and expectations581 and

577. Australian Government, Budget measures: budget paper no.2: 2012-13, op. cit., p. 118. 578. National Congress of Australia’s First People, Congress Statement on the Federal Budget 2012-13, media release, 9 May 2012, viewed 10 May 2012; Australian Government, Budget measures: budget paper no.2: 2012-13 op. cit., p. 131.

579. Ibid., pp. 141-2. 580. J Macklin (Minister for Families, Community Services and Indigenous Affairs), W Snowdon (Minister for Indigenous Health), and T Crossin (Senator for the Northern Territory), Municipal and essential services for outstations and homelands in the Northern Territory, media release, 28 April 2012, viewed 10 May 2012.

581. J Altman, ‘Homelands policy debacle set to continue for a decade‘, Crikey, 9 May 2012, viewed 10 May 2012.

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• $21.2 million to deliver environmental health infrastructure in the Torres Strait region, including

water projects, sewerage infrastructure, roads and serviced housing lots.582

There are two small initiatives in the area of Indigenous education:

• $14.3 million over three years to attract and retain high-calibre teachers in remote areas, by

expanding the Teach Remote program583 and

• $4.8 million over three years to expand (through the Clontarf Foundation) the Sporting Chance

Program which helps promote school engagement amongst Indigenous boys, and to fund strategies to promote school engagement amongst Indigenous girls.584

However, these are more than offset by the redirection to Stronger Futures spending of savings of $56.3 million over four years ($152.9 million over 10 years) by ceasing the Closing the Gap— Intensive Literacy and Numeracy Programs for Underachieving Indigenous Students. 585

With respect to health and aged care, Budget initiatives include:

• $43.1 million over five years to deliver an extra 200 aged care places for older Indigenous people

who have high care needs so that they can stay close to home in culturally appropriate care 586 and

• $475.0 million over six years for new and extended regional and remote health care facilities,

including $48.6 million for 10 projects in regional and remote Indigenous communities which will deliver improved health care services.587

Other initiatives include:

• $63.0 million over four years for the Special Broadcasting Service Corporation to establish a free-to-air national Indigenous television channel588 (see the Budget Review paper on broadcasting )

• $55.7 million over four years for the Home Interaction Program for Parents and Youngsters to

better prepare children for school through a home-based parenting and early childhood program in 100 sites across Australia. Fifty of these will be targeted towards communities with a high proportion of disadvantaged Indigenous Australians.589

582. Australian Government, , Budget measures: budget paper no.2: 2012-13, op. cit., pp. 154-155. 583. Ibid., p. 125. 584. Ibid., p. 109. 585. Ibid., p. 130. 586. Ibid., p. 186. 587. J Macklin (Minister for Families, Community Services and Indigenous Affairs), Continuing our efforts to close the gap,

op. cit., p. 14. 588. Ibid., p. 96. 589. Ibid., pp. 112-113.

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• $11.8 million to extend the Cape York Welfare Reform Trial until 31 December 2013 590 and

• $10.0 million to support activities to build community understanding and support for

constitutional recognition of Aboriginal and Torres Strait Islander Australians—with the cost being ‘met from within the existing resourcing the Department of Families, Housing, Community Services and Indigenous Affairs’.591

Comment

There has been limited response to the budget announcements regarding Indigenous programs to date, perhaps reflecting that most of these measures had been pre-announced and the net budget impact is low. The National Congress of Australia’s First Peoples, noting what appear to be extra investments in the Budget, declared that they and their member organisations will ‘monitor the effectiveness of this investment’.592 The importance of effectiveness of expenditure was highlighted by last year’s Strategic Review of Indigenous Expenditure.593 Australians for Native Title and Reconciliation (ANTaR) has welcomed ‘the long-term funding for health, education, justice and homeland services in the Northern Territory’, and programs to support governance and leadership, but is disappointed there was no extra funding for native title bodies, and continues to express concern about the Stronger Futures legislation.594

590. Ibid., p. 135. 591. Ibid., p. 137. 592. National Congress of Australia’s First People, op. cit. 593. Department of Finance and Regulation, Strategic Review of Indigenous Expenditure, Commonwealth of Australia,

Canberra, February 2010, viewed 10 May 2012. 594. ANTaR, Budget delivers investment in remote communities, media release, 9 May 2012, viewed 15 May 2012.

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National Disability Insurance Scheme

Luke Buckmaster

The Government has committed $1.0 billion over four years for the first stage of the National Disability Insurance Scheme (NDIS), to be established in up to four locations from 2013-14. The locations will be determined through negotiations between the Australian Government and the states and territories. In its first year, the NDIS will provide care and support for up to 10 000 people with significant and permanent disability. This will increase to 20 000 people from 2014-15. 595

What is the NDIS?

In recent years, there have been increasing calls from within the disability sector in Australia for the introduction of a new mechanism for funding support for people with disability. In 2009, in response to these calls, the then Rudd Government requested that the Productivity Commission (the Commission) investigate ‘the feasibility of new approaches, including a social insurance model, for funding and delivering long-term disability care and support for people with severe or profound disabilities however they are acquired’.596 The Commission reported to Government on 31 July 2011, finding:

The current disability support system is underfunded, unfair, fragmented, and inefficient. It gives people with a disability little choice, no certainty of access to appropriate supports and little scope to participate in the community. 597

In response, the Commission presented recommendations for a new disability care and support scheme, the NDIS, in which all Australians with a significant and ongoing disability (around 410 000 people) would get long-term care and support. 598

The Commission proposed that the NDIS would include the following features:

• entitlements to individually tailored supports based on the same assessment process

• certainty of funding based on need

• genuine choice over how needs are met (including choice of provider)

595. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 142-3, viewed 11 May 2012. 596. J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs) and B Shorten (Parliamentary Secretary for Disabilities and Children’s Services), Disability Investment Group report released, media release, 3

December 2009, viewed 11 May 2012. 597. Productivity Commission, Disability care and support: Productivity Commission inquiry report: volume 1, Report, no. 54, Productivity Commission, Melbourne, 2011, p. 2, viewed 11 May 2012. 598. The Commission also recommended a second, smaller scheme, the National Injury Insurance Scheme (NIIS), which

would cover the lifetime care and support needs of people who acquire a catastrophic injury from an accident (based on the motor accident compensation schemes that operate in some states and territories).

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• local area coordinators and disability support organisations to provide grass roots support and

• a long-term approach to care with a strong incentive to fund cost effective early interventions. 599

Commonwealth, state and territory governments would establish a single agency, the National Disability Insurance Agency (NDIA), to administer and fund the NDIS. Services would be provided by non-government organisations, disability service organisations, state and territory disability service providers, individuals and mainstream businesses.600

The Commission emphasised the role of increased choice for people with disabilities under the proposed NDIS:

… support packages would be tailored to their individual needs. People could choose their own provider(s), ask an intermediary to assemble the best package on their behalf, cash out their funding allocation and direct the funding to areas of need (with appropriate probity controls and support), or choose a combination of these options.601

The Commission estimated that the NDIS would require an additional $6.5 billion annually. When added to current annual expenditure on disability services of $7.1 billion, this would amount to an increase in funding of around 90 per cent. Noting that ‘current funding for disability is subject to the vagaries of governments’ budget cycles’, the Commission proposed that the Commonwealth Government ‘should finance the entire costs of the NDIS by directing payments from consolidated revenue into a ‘National Disability Insurance Premium Fund’, using an agreed formula entrenched in legislation’.602

On release of the Commission’s report, the Gillard Government announced that it would ‘start work

immediately with states and territories on measures that will build the foundations for a National Disability Insurance Scheme’.603

What is being funded?

On 30 April 2012, the Prime Minister, Julia Gillard, announced that the Government would fund its ‘share’ of the cost of the first stage of the NDIS in the 2012-13 Budget. 604 The Government’s NDIS media release accompanying the Budget states that its share includes ‘the total administration and running costs for the first stage of an NDIS’.605 In addition the media release says that ‘states and territories that host the initial locations will also be required to contribute to the cost of personal

599. Ibid. 600. Ibid. 601. Ibid., p. 3. 602. Ibid. 603. J Gillard (Prime Minister), Productivity Commission’s final report into disability care and support, media release, 10

August 2011, viewed 11 May 2012. 604. J Gillard, National Disability Insurance Scheme to launch in 2013, media release, 30 April 2012, viewed 11 May 2012. 605. J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs) and J Gillard (Prime Minister), Funding the first stage of the National Disability Insurance Scheme, media release, 8 May 2012, viewed 11 May 2012.

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care and support for people with disability’. At this stage, it is not clear what the Government has in mind as ‘locations’ for the first stage of the NDIS but the Commission’s proposal was for ‘regions that each contained a modest number of people who were likely to be eligible for the scheme (say, around 10 000 per region)’.606 Commencement of the NDIS in 2013 is one year ahead of the timetable proposed by the Commission.

The $1.0 billion to be provided by the Australian Government includes:

• $342.5 million over three years from July next year for individually funded packages for people

with significant and permanent disability

• $154.8 million over three years from July next year to employ Local Area Coordinators to provide

an individualised approach to delivering care and support to people with a disability

• $58.6 million over three years from July next year to assess the needs of people with a disability

in the launch locations

• $122.6 million over four years to start preparing the disability sector for the new way of

delivering disability services

• $240.3 million over four years to build and operate an NDIS information technology system and

• $53.0 million over four years to establish a new National Disability Transition Agency to

coordinate implementation and manage the delivery of care and support to people with a disability and their carers in the initial launch locations from 2013-14. 607

Comment

The NDIS will be a major and highly complex reform to the way in which disability care and support are funded. It is likely to have far-reaching effects throughout the disability services sector. The NDIS will also represent a significant new area of Commonwealth responsibility and expenditure. The estimated annual cost (nearly $14 billion) is around the same amount spent on the Disability Support Pension, more than the current annual cost of the Pharmaceutical Benefits Scheme ($10 billion), and not substantially less than the current annual cost of Medicare ($18 billion).608

Currently, the states and territories provide around $4.7 billion for disability services, while the Commonwealth Government provides around $2.3 billion.609 As such, if the NDIS was to be fully funded by the Commonwealth, this would require a renegotiation of national disability funding

606. Productivity Commission, Disability care and support: Productivity Commission inquiry report: volume 2, Report, no. 54, Productivity Commission, Melbourne, 2011, p. 932, viewed 11 May 2012. 607. Ibid. 608. Australian Government, Budget strategy and outlook: budget paper No. 1: 2012-13, Commonwealth of Australia,

Canberra, 2012, p. 6-10, viewed 11 May 2012. 609. Productivity Commission, op. cit., p. 3.

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arrangements. Renegotiations of Commonwealth, state and territory financial arrangements tend to be complex and problematic.

The Government’s decision to introduce the NDIS has been almost universally welcomed by people in the disability sector and across the broader community. The Opposition Leader, Mr Abbott, has offered the Government ‘bipartisan support for a responsible and timely NDIS’.610 State and territory governments have also committed themselves to the establishment of the NDIS through the Council of Australian Governments (COAG) process. 611

It is probably fair to suggest that much of the support for the NDIS relates to the concept of addressing the problems with the disability system outlined above, rather than a widespread understanding of the details of how the NDIS is intended to operate. To date, the only details available on the design of the NDIS are in the form of ‘high level principles’ agreed by COAG.612

A COAG Select Council on Disability Reform has commenced work on ‘funding, governance and the scope of eligibility and support’ of the NDIS for consideration at the next COAG meeting, which is expected to be later in 2012.613 In the absence of such details it is difficult to make a proper assessment of the NDIS, including whether it is likely to be effective in addressing the problems identified by the Productivity Commission.

The question of how the NDIS will be funded (will be there be an agreed formula entrenched in legislation?) is crucial in determining whether the longstanding problem of funding shortfalls will be adequately addressed. In the absence of an adequate and secure funding base, the NDIS would, in the long run, provide little advance on current arrangements. Governance issues will also be important—particularly those relating to relationships between the main institutional structures (NDIA and local area coordinators), entitlement holders and those engaged to provide support.

Determining precisely who will be eligible for support and what supports can be provided will also be crucial. Despite the proposed significant increase in funding, the NDIA will inevitably need to make difficult decisions about who and what will be included in the NDIS. The decision about where these lines are drawn will have important consequences for affected individuals, their families and the overall effectiveness of the NDIS.

610. C Bennett, ‘Abbott backs national disability scheme‘, Sydney Morning Herald, 30 April 2012, viewed 11 May 2012. 611. Council of Australian Governments (COAG), ‘Communique’, COAG Meeting, Canberra, 13 April 2012, p. 6, viewed 11 May 2012. 612. Ibid. 613. Ibid., p. 7.

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New and increased benefits for families and job-seekers

Michael Klapdor

The Budget includes three measures providing higher levels of assistance to families and individuals receiving income support and family assistance payments as part of the Government’s ‘spreading the benefits of the boom’ package:

• a new ‘Schoolkids Bonus’ cash payment, replacing the existing Education Tax Refund

• an increase in the rates of payment for Family Tax Benefit Part A (FTB-A) and

• a new ‘Supplementary Allowance’ providing a small cash payment to certain income support

recipients - particularly Newstart, Youth Allowance and Parenting Payment recipients.

The Treasurer stated in his speech that these measures are intended to help low and middle income families ‘make ends meet and get ahead’.614 They come on top of the lump sum and supplement payments that will be made to the same group as part of the carbon price household assistance package—the first of which will begin to be paid in May 2012.

Schoolkids Bonus

The Schoolkids Bonus will provide eligible families with an annual amount of $410 for each child in primary school and $820 for each child in high school. Eligible families are those who qualify for FTB-A and young people in school receiving Youth Allowance or other qualifying income support payments on the two days when qualification for the Bonus is determined (1 January and 30 June each year).615 The new Schoolkids Bonus will be paid in two instalments each year, in January and July, from 2013.

As a transitional measure, the Government intends to pay the 2011-12 Education Tax Refund in full in June 2012 for all eligible families. This transitional measure, referred to as an ‘ETR payment’, will be paid directly to families who receive the qualifying benefits for children attending school so that these families do not have to make a claim for the Education Tax Refund in their tax return. The Government has claimed that up to one million families have not claimed their full entitlement or have not claimed any amount under the existing system.616 This system requires families to keep receipts of school education-related expenses and claim up to 50 per cent of these expenses at the end of the financial year (up to a maximum refund of $397 for each primary school child and $794 for each secondary school child).

614. W Swan (Treasurer), Budget speech 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 9 May 2012. 615. See the Centrelink website for details regarding eligibility for these payments. 616. J Macklin (Minister for Families, Community Services and Indigenous Affairs), Schoolkids Bonus, media release, 8 May 2012, viewed 9 May 2012.

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While the stated rationale of the new payment is to help families pay for costs related to schooling (such as uniforms or music lessons), the decoupling of the payment from a claim based on actual costs incurred by families removes any direct connection between the benefit and schooling. The Schoolkids Bonus and ETR payment will essentially be direct payments to families considered to require extra financial assistance because they have school-aged children. The measure will cost an additional $2.1 billion over five years, on top of the $4.3 billion previously allocated for the Education Tax Refund over this period. 617

Family Tax Benefit Part A increases

The Budget proposes to raise the maximum rate of FTB-A by $300 a year for families with one child and by $600 a year for families with two or more children. The base rate of FTB-A will also be increased by $100 a year for families with one child and by $200 a year for families with two or more children. Different payment rates apply depending on parents’ income and the number of children in their care. Current maximum rates for FTB-A are $5018.75 per year for each child aged under 13 or $6307.20 per year for children aged 13-19 who are attending school. The current base rate for those aged under 18 years and those aged 18-19 who are attending school is $2098.75 per year. 618

The measure, to begin 1 July 2013, will provide a significant boost to the 1.1 million families who receive FTB-A above the base rate and the 460 000 families who receive FTB-A at the base rate and will cost $1.8 billion over the forward estimates.619

The increase in the rates of FTB-A in this Budget goes against the trend in recent budgets to find savings through cuts to family assistance payments including a freeze on the indexation of the higher income free area of FTB-A (the limit at which families will be paid the base rate of FTB-A), introduced in the 2009-10 Budget and extended in the 2011-12 Budget. 620 This pause on the indexation of the higher income free area for six years, combined with the removal of the link between FTB-A indexation and pension indexation in 2009-10, have produced savings to the Budget far beyond the expenditure on the proposed increases to the maximum and base rates of FTB-A.

New supplementary allowance for job-seekers and parents

From March 2013, recipients of Newstart Allowance, Youth Allowance, Parenting Payment (Partnered), Parenting Payment (Single), Austudy, and a number of other income support payments will be eligible for a tax-free payment of $210 per year for a single person or $175 per year for a

617. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, viewed 11 May 2012. 618. These rates include the FTB-A supplement ($726.35 per child) which is paid after the end of the financial year. 619. J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs), Boosting payments for low

and middle income families, media release, 8 May 2012, viewed 9 May 2012. 620. The 2011-12 Budget saw an increase in the rates of FTB-A paid for children aged 16-19 to make them the same as for 13-15 year olds. This removed an anomaly in the rates of FTB-A and was part of a move to make FTB the main benefit for school aged children, as opposed to Youth Allowance.

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partnered person or a person with dependent children.621 Those eligible will receive the payment in instalments: half the payment in March and the other half in September of each year. Payment recipients who receive more than the base rate of the Pension Supplement (for which some Parenting Payment recipients are eligible) will not be able to receive the new supplementary allowance.

At around $4 extra a week, the new Supplementary Allowance falls far short of the campaign from welfare groups and the Greens for a $50 a week increase in allowance payments.622 This campaign has grown amidst widespread concern at the adequacy of the current Newstart Allowance payment levels. Calls for an increase have come from across the political spectrum, from both business and community groups, and was a recommendation of the Henry Review.623

Comment

The new Schoolkids Bonus, ETR payment and increases in FTB-A rates are of financial benefit to eligible families and come on top of other significant measures to take effect this year such as the raising of the tax-free threshold and the Clean Energy Advance lump sum payments. While the extent of cost of living pressures faced by these families is debateable, the new changes will offer real assistance to the 1.5 million households expected to benefit. 624 The Opposition has condemned the Schoolkids Bonus measure arguing that it ‘takes a properly targeted educational expenditure … and then changes that into something that is simply a handout’, and argued that the issuing of the

ETR payment in this financial year is an ‘accounting trick’.625

The new Supplementary Allowance, on top of the forthcoming Clean Energy Supplement and lump sum payment will not address the issues many have raised around the adequacy of benefits for job-seekers and, arguably, this Budget does not attempt to deal with any of the identified structural problems within the welfare system. The increasing gap between allowance and pension payment rates caused by different indexation methods is one example—the single rate of Newstart Allowance is currently $489.70 per fortnight while the single rate of Disability Support Pension is $695.30. The Henry Review estimated that by 2040, if the current arrangements remain in place, a single pensioner would be paid twice as much as a single unemployed person. In 1980, the unemployment benefit was 89 per cent of the pension rate. 626 The proposed measure is welcome but does little to address the kind of issues identified by the Henry Review in regards to the adequacy, complexity and incoherence of the welfare system.

621. Department of Education, Employment and Workplace Relations (DEEWR), Over one million Australians to benefit from new Supplementary Allowance, factsheet, DEEWR website, viewed 21 May 2012. 622. Australian Council of Social Services (ACOSS), ‘$35 a day is not enough!’, ACOSS website, viewed 9 May 2012. 623. ‘Recommendation 83’, Australia’s Future Tax System Review (K Henry, chair), Report on Australia’s future tax system,

Commonwealth of Australia, 2010, viewed 9 May 2012. 624. See B Philips, J Li, M Taylor, Prices these days! The cost of living in Australia, AMP.NATSEM Income and Wealth Report, Issue 31, AMP, Sydney, May 2012, viewed 10 May 2012. 625. K Andrews, ‘Second reading: Family Assistance and Other Legislation (Schoolkids Bonus Budget Measures) Bill 2012’,

House of Representatives, Debates, 9 May 2012, p. 7, viewed 10 May 2012.

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‘Stronger super’ implementation and related changes

Kai Swoboda

The 2012-13 Budget includes several measures to assist in the implementation of the Government’s ‘Stronger super’ package, the Government’s response to the Cooper Review of superannuation conducted over 2009-2010. These are:

• funding for the Australian Taxation Office and other agencies for the ‘Superstream’ reforms to

improve backoffice administration of superannuation through the use of tax file numbers and standardising data and payment standards

• funding for the Australian Securities and Investments Commission (ASIC) to develop and maintain

an on-line registration system for auditors of self managed superannuation funds (SMSFs)

• capital gains tax and loss relief for superannuation fund mergers and the consolidation of default

member balances in implementing MySuper.627

The cost of these measures is partly funded by a combination of a levy on Australian Prudential Regulation Authority (APRA) regulated funds, an increase in the levy applied to SMSFs, and by fees imposed by ASIC (table 1). On balance, the increase in industry levies and ASIC fees ($411.4 million) exceeds the combined cost of total expenditure and capital measures ($406.1 million) over the forward estimates.

Table 1: 2012-13 Budget ‘Stronger super’ implementation measures and offsetting revenue

2011-12 2012-13 2013-14 2014-15 2015-16 Total

Total expenditure 23.4 68.1 97.9 76.1 63.5 329.0

Total capital 13.7 30.4 15.6 9.3 8.1 77.1

Offsetting industry fees/levies

APRA regulated funds 0 -121.5 -111.1 -83.1 -69.3 -385.0

SMSF levy 0 -9.0 -5.2 -5.5 -5.8 -25.5

ASIC fees

-0.5 0.0 -0.2 -0.2 -0.9

Total 0 -131.0 -116.3 -88.8 -75.3 -411.4

Source: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 21, 280-281, viewed 14 May 2012

The increase in levies and fees in this Budget follows on from an increase of $66.9 million in the 2011-12 Budget from higher levies on APRA regulated funds for the implementation of MySuper and

626. ‘Chapter F1. Income support payments’, Australia’s Future Tax System Review ,op. cit. 627. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 21, 280-281, viewed 14 May 2012.

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an increase in the annual SMSF levy to fund a range of tighter regulatory measures.628 A one-off levy was also introduced in 2011-12 on APRA regulated funds to recover the $55 million compensation package paid to benefit the members of four superannuation funds that were formerly under the trusteeship of Trio Capital Limited.629 Levies on APRA regulated funds are largely based on the size of each fund by asset value, with a cap on the amount contributed by the largest funds meaning that the largest funds have a lower per member cost than smaller funds. 630

While the superannuation industry opposed other superannuation measures in the 2012-13 Budget (see the Parliamentary Library’s summary of changes to tax concessions for higher income earners and a deferral of higher concessional contributions caps), the industry welcomed the proposals for capital gains tax and loss relief when it was announced prior to the Budget. 631 A fund and industry group have reported that the increase in levies could lead to an increase in administration fees charged to members but would accelerate consolidation in the sector. 632

The imposition of levies and charges is a long-established way of funding industry supervision in the financial services industry. However, if levies applied to superannuation funds are passed on to members in the form of higher administration fees, they come at the cost of lower member balances.

The Regulation Impact Statement for the implementation of Stronger Super package did not make reference to the administrative and regulatory costs associated with implementing a range of measures, so it is difficult to assess whether the proposed benefits outweigh the increase in regulatory costs proposed by the Budget. 633 Further, it is unclear whether these additional costs are included in the modelling used to assert the benefits of the MySuper and Superstream reforms, which for a 30 year old worker on average weekly earnings, are claimed to result in an extra $40 000, or 7 per cent, in retirement savings (with around 80 per cent of this attributable to MySuper). 634

628. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra, 2012, pp. 323-324, viewed 14 May 2012. 629. B Shorten (Minister for Financial Services and Superannuation), Financial Assistance to Trio’s Superannuation Fund Investors, media release, 13 April 2011, viewed 15 May 2012. 630. Recent examples include the Superannuation Supervisory Levy Imposition Determination 2011 and the

Superannuation (Financial Assistance Funding) Levy and Collection Amendment Regulations 2011 (No. 1). 631. Association of Superannuation Funds of Australia (ASFA), CGT relief in fund members’ best interests: ASFA, media release, 24 April 2012, viewed 15 May 2012; Financial Services Council (FSC), FSC supports government measures to facilitate super fund mergers, media release, 24 April 2012, viewed 15 May 2012. 632. S Patten, ‘Budget 2012: Funds warn of fee rises to cover cost‘, Australian Financial Review, 10 May 2012, p. 12,

viewed 15 May 2012. 633. Treasury, Regulation Impact Statement Stronger Super reforms, 17 October 2011, viewed 14 May 2012. 634. Australian Government, Stronger Super Government response key points, Stronger Super website, 23 September

2011, viewed 14 May 2012.

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Thirty per cent contributions tax for high-income earners, delayed changes to contribution cap

Kai Swoboda

Concessional tax treatment for superannuation contributions and earnings is estimated to cost the Budget around $27.2 billion in 2010-11, although some industry groups and commentators believe the methodology used by Treasury overstates their real value.635

The Australian Greens’ recent call for a reduction in tax concessions for higher income earners636 and the value of potential savings to the budget bottom line by reducing the value of tax concessions may have influenced the Government’s proposal for two measures in the 2012-13 Budget that have equity and budget savings impacts:

• imposing an additional 15 per cent tax to be paid on their deductible superannuation

contributions for individuals earning more than $300 000, and

• deferring a higher concessional contributions cap for people aged 50 or over with a

superannuation balance of less than $500 000 from commencing in 2012-13 to 2014-15. 637

The proposed measure to increase the tax paid on superannuation contributions by 15 per cent is expected to impact on around 128 000 people in 2012-13, or 1.2 per cent of people contributing to superannuation.638 The annual value to an individual of the changed higher tax rate is in the order of $7500, with analysts estimating that an individual would need to be paid an extra $14 019 to get back to their original position.639 The proposed measure will apply to all members of both accumulation and defined benefit schemes whose adjusted taxable income exceeds the $300 000 threshold and who make a personal contribution to their super, including members of parliament and public servants who are members of defined benefit schemes.640

The proposed deferral of lifting the concessional contributions cap—the maximum amount of eligible superannuation contributions attracting a 15 per cent contributions tax rate—for those aged 50 and over with a superannuation balance of less than $500 000 will mean that for 2012-13 and

2013-14 a threshold of $25 000 will apply for all individuals, irrespective of their age or stage of life.

635. Department of the Treasury, Tax Expenditures Statement 2011, January 2012, p. 4, viewed 3 May 2012; Association of Superannuation Funds of Australia (ASFA), The equity of government assistance for retirement income in Australia, Research Paper, February 2012, pp. 18-21, viewed 6 May 2012; D Ingles, The great superannuation tax concession rort, Research Paper No. 61, The Australia Institute, February 2009, pp. 11-13, viewed 6 May 2012.

636. Australian Greens, Fairer superannuation tax concessions, February 2012, p. 1, viewed 3 May 2012. 637. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 40-41, viewed 9 May 2012. 638. Ibid., p. 41. 639. S Patten, ‘Well-off to take $7500 hit‘, Australian Financial Review, 1 May 2012, p. 7, viewed 9 May 2012. 640. P Wong (Minister for Finance and Deregulation), Superannuation tax concession changes, media release, 9 May 2012,

viewed 10 May 2012.

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Combined, these two measures improve the budget outcome by almost $2.5 billion over the forward estimates (table 1).

Table 1: Budget savings attributable to selected superannuation measures ($million)

Measure 2012-13 2013-14 2014-15 2015-16 Total

Additional 15 per cent contributions tax for those earning more than $300 000 Nil 200 355 475 1030

Delay in implementing a higher concessional contributions cap for those aged 50 or more with a superannuation balance of less than $500 000

580 730 130 -10 1430

Total 580 930 485 465 2460

Source: Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 40-41, viewed 9 May 2012.

What are the equity considerations in increasing the contributions tax for higher income earners?

Perceptions about the equity of tax concessions for superannuation are largely due to benefit derived by higher income earners compared to those on low incomes:

• the Australian Greens note research that almost half of the tax concessions go to the top 12 per

cent of income earners—although the superannuation industry points out that this statistic relates to 2005-06 when much higher contributions caps applied. The superannuation industry notes that updated research based on 2009-10 data shows that the top 5 per cent of employees (in terms of income) accounted for less than 20 per cent of the total superannuation contributions (in terms of value). The industry also claims that if consideration is given to current superannuation policy settings the distribution of superannuation tax concessions across income groups is more even.641

• the Henry Tax Review considered that the structure of the existing superannuation tax

concessions was inequitable because high-income earners benefit much more from the superannuation tax concessions than low-income earners. To address this inequity the Review proposed a number of measures including taxing superannuation contributions at an individual’s marginal tax rate (less a flat rate tax offset which should be set so that a majority of taxpayers do not pay more than 15 per cent on their contributions) and maintaining a $25 000 concessional contributions cap, which would be doubled for those aged 50 or over. 642

The Government has made an explicit link between fairness and increasing the contributions tax for higher income earners, with the Minister for Financial Services and Superannuation noting that:

641. Australian Greens, op. cit.; ASFA, op. cit. 642. Henry Tax Review, Australia’s future tax system Report to the Treasurer, Part Two: Detailed analysis, December 2009, p. 100, viewed 6 May 2012.

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It is clear that a small number of people on high incomes are getting a better tax deal out of super than millions of Australians on average incomes. ... The Government will make the system fairer by ensuring that the tax incentives for super are more in line across income ranges. 643

There are a number of ways the income tax system and superannuation system interact to affect the value of tax concessions provided to different income groups. For example, although the income tax system is progressive in the sense that higher income earners pay a higher proportion of additional income in tax, the superannuation system ignores this progressiveness by generally providing for superannuation payments in retirement to be tax-free, irrespective of the income of the recipient.

In a broader context, discussions about the equity of retirement income should also consider other equity aspects, such as government assistance through the age pension, vertical and horizontal equity so that that people in similar positions should be treated equally and people should pay taxes or receive government benefits according to their ability to pay and intergenerational equity of treating individuals differently depending on when they were born. 644

In the absence of any other related measures, the value of the tax concession is considerably larger for higher income earners than those on low incomes. For example, those on the highest marginal tax rate, which in 2011-12 means those earning more than $180 000, face a marginal tax rate of 45 per cent (excluding the Medicare levy) and therefore receive a tax concession of 30 per cent on their eligible superannuation contributions This compares with those on between $37 001 and $80 000 who face a marginal tax rate of 30 per cent (excluding the Medicare levy) and therefore receive a tax concession of 15 per cent on their eligible superannuation contributions.

While there are other superannuation-related measures that also have equity implications— including the low income government contribution of up to $500 for those earning less than $37 000 and the availability of a capped $1000 government co-contribution for those earning less than $61 920—the Government’s rationale to implement a 15 per cent additional contributions tax for those earning more than $300 000 appears to do little to address the distributional effects of superannuation tax concession. Rather, it adds additional complexity into the superannuation system by retaining the existing 30 per cent tax concession available to those earning between $180 000 and the $300 000 threshold.

Views on the proposals and expected impact on superannuation savings

As expected, the superannuation industry does not support the proposed changes, with the Association of Superannuation Funds of Australia considering that superannuation tax concessions must be set with a long-term view of ensuring better retirement incomes for ageing Australians and that making small changes at the edges to gain revenue for short-term political gain does not

643. B Shorten (Minister for Financial Services and Superannuation), 2012-13 Budget - Superannuation reforms, media release, 8 May 2012, viewed 10 May 2010. 644. Association of Superannuation Funds of Australia, op. cit., p. 4.

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contribute to the development of long-term sustainable retirement incomes policy.645 The Financial Services Council, representing for-profit superannuation funds, considered that the changes undermine retirement planning and that the Government had ‘confirmed its willingness to use retirement savings to pay for other political objectives’.646

Social service advocacy groups have generally supported the Government’s proposals, with the Australian Council of Social Services considering that the redirection of ‘that wasteful spending to begin the work on some of our most pressing social issues’. 647

The Coalition have not explicitly commented on the Budget announcement, but the Coalition spokesman on financial services and superannuation, in response to pre-budget speculation about possible increases in superannuation contributions tax for high income earners, was reported to be critical of such a proposal on the grounds that it was a ‘tax grab’ which would make it harder for people to achieve self-funded retirement.648

The anticipated savings from the proposed changes imply that there will be a reduction in superannuation contributions and therefore lower superannuation balances for affected individuals than had the changes not been implemented. It is argued that the implication of such a reduction is that higher income earners will invest in other types of assets that attract tax concessions (such as housing) and that there will be an additional cost to government as some individuals become eligible as a result of lower superannuation balances for transfer payments such as a part- pension and associated benefits. 649 However, these effects are difficult to quantify.

645. Association of Superannuation Funds of Australia (ASFA), Parliamentary Inquiry needed into tax efficient investments: ASFA, media release, 8 May 2012, viewed 9 May 2012. 646. Financial Services Council, More super changes: Less savings, more complexity, media release, 8 May 2012, viewed 9 May 2012. 647. Australian Council of Social Services (ACOSS), Robin Hood comes good, except for single parent families, media

release, 8 May 2012, viewed 10 May 2012. 648. V Tait, ‘Govt must rule out super tax concession cuts‘, Investor Daily, 23 April 2012, viewed 10 May 2012. 649. H Ergas, ‘Doubling super tax will destabilise savings strategy‘, The Australian, 30 April 2012, viewed 9 May 2012;

Australian Institute of Superannuation Trustees, Budget hits older worker’s ability to catch up on super, media release, 9 May 2012, viewed 9 May 2012.

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Abandoning a reduction in the company tax rate and introduction of tax loss carry-back

Kai Swoboda

A significant change to expected business taxation arrangements in the 2012-13 Budget was the abandonment of a general reduction in the company tax rate from 30 per cent to 29 per cent in 2013-14 (and from 2012-13 for small businesses). The Government’s rationale for not proceeding with the proposed company tax rate cut was that the likely rejection of the proposal in the Parliament by the Coalition and Australian Greens would deny the community the benefits flowing from the resources boom and that savings available from not proceeding with the company tax rate cut could be redirected through other measures. 650

Partly to address business concerns about abandoning the company tax rate cut, the Government has instead proposed a limited form of tax refund from tax paid in prior years to offset a tax loss—so called ‘loss carry-back’. 651 The views of the business sector are generally consistent with those of the Australian Chamber of Commerce and Industry—which has criticised the Government for abandoning the company tax cut given that the quid pro quo mining tax had already been legislated and for a lack of vision in pursuing broader-based tax reform but expressed general support for the tax loss carry-back scheme.652 The Coalition, whilst not supporting the reduction in the company tax rate on the basis that it is linked to the minerals resource rent tax, have nevertheless been critical of the abandonment of the company tax rate cut, citing it as another instance where a commitment has been dumped. 653

What is loss carry-back and what are the key eligibility and thresholds for the proposed scheme?

Current company tax arrangements provide that nominal tax losses can be carried forward indefinitely subject to some integrity rules. However, there are no provisions that provide for companies which have previously made profits to claim back the tax paid. This refunding of previous tax paid when a loss is incurred is described as ‘loss carry-back’ and corrects the existing asymmetry where only previous losses are allowed to be carried forward and offset against future profits.

As announced by the Government, a limited form of loss carry-back will be implemented which provides for:

650. W Swan (Treasurer), ‘Second reading: Appropriation Bill (No. 1) 2012-13‘, House of Representatives, Debates, 8 May 2012, p. 40, viewed 9 May 2012. 651. P Durkin, ‘Labor loses friends in the boardroom‘, Australian Financial Review, 10 May 2012, p. 14, viewed 10 May 2012. 652. Australian Chamber of Commerce and Industry (ACCI), A budget of short term appeal, but bigger missed

opportunities and a failure on company tax, media release, 8 May 2012, viewed 10 May 2012. 653. T Abbot (Leader of the Opposition), ‘Second reading: Appropriation Bill (No. 1) 2012-13‘, House of Representatives, Debates, 10 May 2012, p. 83, viewed 11 May 2012.

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• eligibility to be restricted to entities that are taxed like companies and be limited to revenue

losses only

• a one year loss carry-back will apply in 2012-13, where tax losses incurred in that year can be

carried back and offset against tax paid in 2011-12

• for 2013-14 and later years, tax losses can be carried back and offset against tax paid up to two

years earlier

• the maximum carry-back of previous tax losses in a year will be $1 million or a company’s

franking account balance (whichever is lower)—providing for a maximum cash benefit of up to $300 000 a year. 654

The cost of the measure is $700 million over the forward estimates, with the Government expecting 110 000 companies to benefit from the measure. 655

Although the scheme is proposed to apply to tax paid in 2012-13, a consultation paper, due to be released shortly, will provide more details about how the scheme may operate. 656

While there is a bias towards smaller businesses in the application of the thresholds, restricting eligibility to entities that are taxed like companies excludes a significant number of small businesses, such as sole traders and partnerships, which do not operate under a company structure,.

Tax loss carry-back is part of business taxation arrangements in a number of countries, although its application differs across jurisdictions by the types of entities to which it applies, thresholds relating to the maximum amount of tax carry-back, and the number of years of tax paid that can be accessed (table 1). Compared to other countries where tax loss carry-back applies, the proposed scheme in Australia appears to be less generous in restricting eligibility to companies.

654. G Gillard (Prime Minister) and W Swan (Treasurer), Spreading the benefits of the boom, joint media release, 8 May 2012, viewed 10 May 2012. 655. Ibid. 656. W Swan (Treasurer) and D Bradbury (Assistant Treasurer), Tax relief for businesses in our patchwork economy, joint

media release, 6 May 2012, viewed 10 May 2012.

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Table 1: International loss carry-back systems

Country Loss carry-back arrangements

Canada 3 years, permitted for unincorporated businesses France 1 year (recently reduced from 3 years) and subject to a €1 million annual cap Germany 1 year (extends to sole traders and partnerships), capped at €0.5 million per year Ireland 1 year (permitted for unincorporated businesses, 3 years if business ceases trading Netherlands 1 year (3 years for 2009, 2010 and 2011 losses), capped at €10 million per year Norway No (temporarily introduced for 2 years if business ceases trading or for losses in 2008

and 2009), capped at NOK 20 million per year

Switzerland No (one canton does allow 1 year carry in respect of local taxes) United Kingdom 1 year (permitted for unincorporated businesses, 3 years if business ceases trading and temporarily extended to 3 years for losses incurred in 2008 and 2009) but subject to a £50,000 cap

United States 2 years (permitted for unincorporated businesses up to 5 years for 2008-09 losses)

Source: Business Tax Working Group, Final report on the tax treatment of losses, April 2012, p. 21, viewed 10 May 2012.

Benefits of loss carry-back

Some of the purported benefits of such a scheme are:

• it acts as an automatic stabiliser by increasing the cash flows of previously profitable companies

during economic down turns—this may in turn make government revenue more volatile, although company tax collections may recover more quickly during economic upturns

• it removes an inherent bias against risky investments by reducing expected losses for profitable

businesses in the early stages of undertaking a possible loss-making investment: the existing wedge between post-tax returns for risky projects and those for safer investments has the effect of reducing investment in more risky proposals relative to a tax system that treats profits and losses symmetrically.657

Not all businesses are expected to benefit from loss carry-back, with the measure primarily aimed at assisting companies that experience a temporary setback which results in a period of losses following a period of profits. It is of limited benefit to start up companies and businesses that typically experience a sustained period of losses before generating a profit (for example, large scale infrastructure projects).658

657. Business Tax Working Group, Final report on the tax treatment of losses, April 2012, pp. 17 and 20, viewed 10 May 2012. 658. Pricewaterhouse Coopers (PWC). ‘Loss carry back: Loss ‘carry back’ measure for companies‘, PWC website, viewed 10 May 2012.

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Policy development

The proposal for the introduction of loss carry-back in Australia was a recommendation of the Henry Tax Review, which recommended that companies should be allowed to carry back a revenue loss to offset it against the prior year’s taxable income, with the amount of any refund limited to a company’s franking account balance. 659 Further discussions about the measure at the Tax Forum in October 2011 led the Government to commission the Business Tax Working Group (BTWG), to ‘look at reforms that can increase productivity and deliver tax relief to struggling businesses in our patchwork economy and develop a set of savings options within business tax’.660

However, prior to the Henry Review completing its final report, the Coalition policy, released in April 2009, proposed the introduction of carry-back of tax losses, capped at $100 000 of refunded tax per firm over the past three years.661 The opposition leader, in his response to the 2009-10 Budget in May 2009, re-affirmed this proposal.662

The BTWG, in its interim report released on 11 December 2011, examined a number of different tax reform options, including a limited form of loss carry-back. 663 The BTWG’s final report, released in April 2012, considered that that loss carry-back would be a worthwhile reform in the near term but that the group had not had an opportunity to explore the relative net benefit of loss carry back compared with other business tax reforms.664 Most of the design features proposed by the BTWG are reflected in the Budget proposal: eligibility only open to companies, a two-year loss carry-back on an ongoing basis, and a cap of not less than $1 million (or the balance of a company’s franking account). 665

659. Australia’s future tax system, Report to the Treasurer, Part One Overview, December 2009, recommendation 31, p. 87, viewed 10 May 2012. 660. W Swan (Treasurer), Business Tax Working Group - Membership and Terms of Reference, media release, 12 October 2012, viewed 10 May 2012. 661. M Turnbull (Leader of the Opposition) and S Ciobo (Opposition spokesman on small business), Small business action

plan, joint media release, 2 April 2009, viewed 10 May 2012. 662. M Turnbull (Leader of the Opposition), ‘Second reading: Appropriation Bill (No. 1) 2009-10‘, House of Representatives, Debates, 14 May 2009, p. 3974, viewed 10 May 2012. 663. Business Tax Working Group, Interim report on the tax treatment of losses, 2011, p. 15, viewed 10 May 2012. 664. Business Tax Working Group, Final report on the tax treatment of losses, 2012, p. vii, viewed 10 May 2012. 665. Ibid., p. ix.

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Better targeting of the employment termination payment tax offset

Les Nielson

What is the employment termination payment (ETP) tax offset?

Employment Termination Payments or ETPs are payments made upon the termination of a person’s employment. They are not superannuation payments and cannot be rolled over into a superannuation fund. Generally they have two components:

• a tax free amount, which is not affected by the current measure, and

• a taxed amount.

The taxed amount is added to a person’s assessable income. A tax offset is available to ensure that the tax actually paid on this second component is no more than:

• 15 per cent (excluding Medicare levy) on the first $165 000 (in 2011-12, indexed), with the

remainder taxed at marginal rates if the recipient is above his or her preservation age (55 to 60 depending on date of birth) or within one year of reaching this mark, or

• 30 per cent (excluding Medicare levy) on the first $165 000 (in 2011-12, indexed), with the

remainder taxed at marginal rates, if the recipient is under his or her preservation age.

What is the proposed change?

Where the ETP received is not related to genuine hardship (i.e. genuine redundancy, invalidity compensation or death) the ETP offset will only apply to that part of this payment that takes the total income of the recipient to $180 000 (which is the income threshold where the top marginal rate commences to apply).

For example two people receive ETPs, neither of which relates to genuine hardship. Both are over their respective preservation ages; Jack receives an ETP on 30 June 2013 of $60 000. His annual income is $90 000 p.a.

At the same time Jill also receives an ETP of $60 000. Her annual income for that year was $170 000 p.a.

If this proposal did not go ahead Jack and Jill would respectively receive an offset of $13 200 and $17,200, so both would effectively pay income tax of $9 000 on their ETP (excluding Medicare levy).

Under this proposal Jill receives an offset of $2 200 relating to the $10 000 of her ETP that takes her to the $180 000 whole of income cap. Jack continues to receive the full $13 200 in offset as he is below the whole of income cap. Jack is no worse off, while Jill receives $15 000 less in taxpayer concessions for her payment.

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Over the forward estimates period this proposal is expected to generate a total of $196.4m in net savings.666

As at the date of writing press reaction to this particular measure highlighted:

• concerns that the proposed measure could be an additional cost on the redundancy payments

made to the mining workforce, 667 and

• a suggestion that some higher paid employees could bring forward their retirement date. 668

666. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 33, viewed 11 May 2012. 667. D Kitney, ‘Extra slug on mining workforce’, The Australian, 10 May 2012, p. 25, viewed 10 May 2012. 668. D Cleveland, ‘Bring forward retirement plans’, Australian Financial Review, 10 May 2012, p. 13, viewed 10 May 2012.

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FBT—further reform of living away from home allowance

Les Nielson

Previous announcement

In the 2011-12 Mid Year Economic and Financial Outlook (MYEFO) the government announced that it would act to stop the misuse of the Fringe Benefits Tax (FBT) exemption for living-away-from-home allowances and benefits by:

• requiring individuals to substantiate their actual expenditure on accommodation, and food

beyond a statutory amount; and

• limiting access to the tax concession for temporary residents to those who maintain a home for

their own use in Australia which they are living away from for work. This change ensured that a level playing field exists between temporary residents and permanent residents669

- permanent residents were not required to maintain a residence in a location away from

where they were currently working.

New announcement

As part of the 2012-13 Budget the government has extended these reforms as follows:

• limiting access to this concession for all employees (not just temporary residents) to those who

maintain a home for their own use and which they are required to live away from for work,

- under the Budget announcement both permanent and temporary residents are now required

to maintain a residence within Australia other than where they are located for work, and

• providing the tax concession for a maximum of 12 months in respect of employees in any

particular location.670

The additional savings flow from the newly announced 12 month limit on the application of this exemption, and the new requirement for permanent residents to maintain a residence in a location other than where they are working.

What are the total savings?

The following table shows the total savings projected to arise from these two announcements:

669. Australian Government, Mid Year Economic and Fiscal Outlook 2011-12, Canberra, November 2012, p. 163, viewed 11 May 2012. 670. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 24, viewed 1 May 2012.

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Table 1: Projected savings from reform of FBT tax concession for living away from home allowance, $m

2011-12 2012-13 2013-14 2014-15 2015-16

MYEFO 0.5 218.0 220.0 242.0

2012-13 Budget - 50.0 217.0 353.0 399.0

Total 0.5 268.0 437.0 595.0 399.0 Sources: Budget Paper No 2 2012-13 and MYEFO 2011-12

Over the forward estimates period these two measures are projected to produce about $1.7 bn in gross savings.

When it was first announced in the MYEFO in November 2011 this initiative was to apply to new arrangements from date of announcement and existing arrangements from 1 July 2012. The government has announced that the additional Budget 2012-13 measures will apply from 1 July 2012 for arrangements entered into after 7:30 pm on 8 May 2012 and from 1 July 2014 for arrangements in force before 8 May 2012 after taking into account the MYEFO changes. On 15 May 2012 the Assistant Treasurer issued a media release which further explained these details.671

This measure initially arose from comments made during the Tax Forum held in Canberra in 2011. 672 The total amount of tax-free living away from home allowance reported by employers to the Australian Taxation Office increased from $162 million in 2004-05 to $740 million in 2010-11. 673 This is an obvious drain on revenue as these amounts are effectively a tax deduction to the employer and not taxed in the hands of the employee.

Both the MYEFO and the 2012-13 Budget announcements were careful to note that the above measures would not apply to fly-in, fly-out arrangements or to allowances paid to employees travelling for work reasons for short periods (defined as usually being less than 21 days).

As at the date of writing there has been no specific reaction to this proposal.

671. Budget Paper no. 2, op.cit., p. 25; D Bradbury, Assistant Treasurer, ‘Reform of Living-Away-From-Home Allowances and Benefits - Draft Legislation Released for Consultation‘ media release, Canberra 15 May 2012, viewed 18 May 2012

672. Mid Year Economic and Fiscal Outlook, op. cit. 673. W Swan, Treasurer, B Shorten, Assistant Treasurer, ‘Tax measures in Mid-year Economic and Fiscal Outlook‘, media release, Canberra, 29 November 2011, viewed 10 May 2012.

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GST compliance activities of the ATO and the Budget surplus

Bernard Pulle

The Budget Strategy and Outlook: Budget Paper No. 1: 2012-13 and the Budget Measures: Budget Paper No.2: 2012-13 describe measures that effect changes to the collection of revenue from the goods and services tax (GST). This article will deal with the impact on the cash surplus of two compliance activities for which the Australian Taxation Office (ATO) will be specially funded and which have GST revenue implications for the Budget. Budget Paper No. 1 in Table 6 of Statement 5 gives information of the anticipated revenue from these two measures on a receipts basis. These details are set out in the first four rows of the following table. 674 The fifth row gives the details of the anticipated cash surplus for the forward estimate years, namely, the years 2012-13 to 2015- 16. 675

Budget measures for ATO tax compliance activities 2012-13 2013-14 2014-15 2015-16 Total

Tax compliance - managing tax debt in challenging times: a balanced and differential approach (tax debt managing activity) ($m) 311.7 393.3 272.4 147.6 1,125.0

GST - compliance program - two year extension (GST compliance program) ($m) - - 462.9 613.2 1,076.1

Total anticipated revenue from ATO tax compliance activities ($m) 311.7 393.3 735.3 760.8 2,201.1

Anticipated budget cash surplus ($b) 1.5 2.0 5.3 7.5

Percentage of revenue from ATO compliance activities to anticipated budget surplus (%) 20.8 19.7 13.9 10.1

Budget Paper No. 2 states that the tax debt managing activity, which will increase cash receipts by $1 125.0 million over the forward estimates period, will include a GST component of $391.4 million that will be paid to the states and territories. 676 The figure of $1 125 million in Budget Paper No. 2 agrees with the receipts anticipated in Table 6 of Statement 5 of Budget Paper No. 1 set out above.

Budget Paper No. 2 also states that the GST compliance program in cash terms will increase receipts by $880.9 million, and will include a GST component of $554.1 million that will be paid to the states and territories. 677

These compliance activities are expected to increase tax revenue in underlying cash terms of $2 005.9 ($1 125.0 plus $880.9) million, including the GST component of $945.5 ($391.4 plus $554.1)

674. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, Statement 5, Table 6, p. 5-16. 675. Ibid., Statement 1, Table 1, p. 1-6. 676. Australian Government, Budget measures, budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra,

2012, Tax compliance —managing tax debt in challenging times: a balanced and differential approach, p. 44, viewed 11 May 2012. 677. GST- compliance program - two year extension, ibid., p. 26, viewed 11 May 2012.

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million, over the forward estimates period. The variance between the figure of $2 005.9 million from these two compliance activities as shown by Budget Paper No. 2 and the figure of $2 201.1 million as shown in the above table, sourced to Budget Paper No. 1, is $195.2 million. This variance appears to be the amount of $195.3 million (allowing for rounding up differences) which the Australian Government will provide to the ATO in 2014-15 and 2015-16 to continue the GST compliance program in those two years and which will be recovered from the states and territories under the GST Administration Performance Agreement.678

In referring to the 2012-13 budget cash surplus of $1.5 billion, one commentator raises the following concerns:

And there are two time bombs in the Budget unveiled by Treasurer Wayne Swan on Tuesday night. The first is that the budget gave cash to the Australian Taxation Office to chase more revenue. That will be fine where it raises genuine revenue, but many businesses will have to spend even more time justifying their perfectly proper tax record. The other is that recent economic weakness has generated just as big a shortfall in state budgets as it did for the feds. That bears watching. If the state premiers cut back as a result, then the pressures on Australia’s two-speed economy could worsen further.

679

The figures in the table above indicate that only $311.7 million is expected in 2012-13 from tax debt managing compliance activity, out of total expected revenue in cash terms of $1 125.0 million. The risk of the $311.7 million not being entirely collected in 2012-13 is low as this amount relates to the collection of outstanding debts and not to amounts to be raised by assessment.

Further, the budget papers show no revenue from the GST compliance program activity for 2012-13 and 2013-14, with revenue from that activity expected thereafter. In the circumstances, one may take the view that the surplus of $1.5 billion for 2012-13 is not dependent on the success of this particular GST compliance activity.

However, there is scope to argue there is a risk that the ATO compliance targets will not be fully achieved and the expected revenue from the debt management activity of the ATO of $311.7 million, which is 20.8 per cent of the anticipated cash surplus of $1.5 billion for 2012-13, will not be fully collected. If this happens the surplus will be reduced.

The same arguments may be advanced to support the view that there is a risk to the anticipated budget surplus of $2.0 billion in 2013-14 being fully realised, if the ATO falls short of the estimated target of $393.3 million or 19.7 per cent of the budget surplus, from the debt management compliance activity.680

678. Ibid., p. 26. 679. C Richardson, ‘Behind Labor’s surge to surplus‘, The Australian Financial Review, 10 May 2012, p. 75, viewed 10 May 2012.

680. Australian Government, Budget strategy and outlook, budget paper no. 1:2012-13, Commonwealth of Australia, Canberra, 2012, Statement 3, Table 5, p. 3-10.

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The anticipated budget surplus for 2014-15 is $5.3 billion and the anticipated revenue from both projected compliance activities by the ATO in that year is $735.3 million. As the expected contribution from the ATO compliance activity to the projected cash surplus for 2014-15 is only 13.9

per cent, there is low risk to the projected cash surplus for 2014-15 being achieved, if the ATO does not collect the anticipated revenue.

The same argument applies to conclude that the threat to the projected cash surplus of $7.5 billion for 2015-16 is low, if the ATO compliance activity does not result in the collection of the expected revenue for that year of $ 760.8 million, as it is only 10.1 per cent of the projected cash surplus for that year.

In the above analysis, no account has been taken of the fact that any shortfall in GST collections by the ATO will result in the GST distributions to the states and territories being reduced by an amount equal to that shortfall. In consequence, the budget surplus of $1.5 billion for 2012-13 and the other projected budget surpluses referred to above will not be adversely affected by any shortfall in the GST collections. The GST components, of the two ATO compliance activities as indicated above, is expected to total $945.5 million for the forward estimates period. However, any shortfall in GST collections will adversely impact on the budgets of the states and territories and not the Australian Government.

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Increase in managed investment final withholding tax

Les Nielson

Current policy

A withholding tax of 7.5 per cent applies to distributions from managed investment trusts made to residents of countries with whom Australia has a tax information exchange agreement. In all other cases the withholding tax rate is 30 per cent.

Withholding tax recent history

During the 2007 election campaign the Australian Labor Party undertook to cut the rate of withholding tax from 30 to 15 per cent on managed investment trust distributions to foreign residents.

As part of the 2008-09 Budget the Labor government announced that the final rate would be reduced from 30 to 7.5 per cent in three stages:

• 22.5 per cent for certain distributions in relation to the first income year starting on or after the

first 1 July after the day on which Royal Assent is received for the relevant Acts

• 15 per cent for certain distributions in relation to the second income year starting on or after the

first 1 July after the day on which Royal Assent is received for these Acts, and

• 7.5 per cent for certain distributions in relation to the third and later income years starting on or

after the first 1 July after the day on which Royal Assent is received for these Acts.

Royal Assent was granted to the main enacting Bill, which became the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 on 23 June 2008. Other relevant bills were granted Royal Assent on the same day. Thus the 7.5 per cent rate has only applied to distributions made since the 2010-11 financial year.

The budget measure

The Government has announced that it will increase the withholding tax rate applying to distributions from managed investments to residents of a country with whom Australia has a tax information exchange agreement, from 7.5 to 15 per cent. This measure is projected to raise an additional $260m over the forward estimates period. 681 The 30 per cent tax rate will continue to

apply to distributions made to residents of another country with whom Australia does not have such an agreement.

681. Australian Government, Budget Measures: Budget Paper No 2: 2012-13 Commonwealth of Australia, Canberra, 2012, p. 31.

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Reaction

This particular initiative came as a surprise to the Australian investment industry. Reported reactions have been: this initiative will jeopardise investment in crucial infrastructure, it will undermine efforts to develop the Australian asset management industry and it undermines Australia’s reputation for having a stable, favourable investment environment for international capital. 682

Withholding tax regimes are very common within the Organisation for Economic Cooperation and Development (OECD). Some recent tax rates for withholding tax regimes with a similar function to the Australian regime are:

• United Kingdom - 15 per cent 683

• United States of America - 15 per cent 684

• Singapore - 15 per cent, where no tax treaty applies 685

• France - 18 to 30 per cent 686

• Germany - 25 to 15 per cent 687 , and

• Canada - 25 to 0 per cent. 688

An increase in the withholding tax rate to 15 per cent would place Australia on a similar level with like countries within the OECD.

682. J Keho and J Wiggins, ‘Industry slams rise in withholding levy’, Australian Financial Review, 10 May 2012, p. 13, viewed 10 May 2012; F Chong, ‘Tax flip sends ‘an appalling message’, The Australian, 10 May 2012, p. 35. 683. UK Customs and Revenue, Countries with Double Taxation Agreements with the UK - rates of withholding tax for the year ended 5 April 2012, viewed 10 May 2012. 684. US Internal Revenue Service, Publication 901, Application of Tax Treaties, Table 1, viewed 10 May 2012. 685. Inland Revenue Authority of Singapore, Withholding tax rates, 17 April 2012, viewed 10 May 2012. 686. Deloitte, International Tax, Withholding Tax Rates 2012, viewed 10 May 2012. 687. Ibid. 688. Ibid.

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Minerals Resource Rent Tax: changes to revenue and expenditure estimates

Kai Swoboda

When it announced the introduction of a Resource Super Profits Tax (RSPT) in May 2010, the Government directly linked the revenue from the new tax to a number of superannuation and other tax expense measures, including:

• funding the income tax forgone from lifting the superannuation guarantee from 9 per cent to

12 per cent

• the introduction of a $500 low income government superannuation contribution for those

earning less than $37 000 to effectively compensate for the 15 per cent superannuation contributions tax paid

• providing for a higher concessional contributions cap for workers aged 50 and over with

superannuation balances below $500 000 from 1 July 2012

• a phased cut in the company tax rate to 28 per cent from 2013-14, with a one-year head start for

small business from 2012-13

• allowing small businesses to immediately write off all assets costing more than $5000 from

2012-13, and

• introducing a standard deduction of $500 for work-related expenses from 1 July 2012, rising to

$1000 from 1 July 2013. 689

Following a period of consultation in the second half of 2010 and negotiations in early 2011 between the Government and some mining companies to make a resource rent tax-based more palatable for the mining industry, the RSPT was modified to what became the Minerals Resource Rent Tax (MRRT). The key differences between the RSPT and MRRT were that the RSPT covered all minerals and had a headline tax rate of 40 per cent and the MRRT covered only coal and iron ore and had a headline tax rate of 30 per cent. A key change to linked expenditure measures under the MRRT was that the reduction in the company tax rate was to be 29 per cent rather than 28 per cent, with small businesses still to receive a one-year head start from 2012-13. 690

689. W Swan (Treasurer) and C Bowen (Minister for Financial Services, Superannuation and Corporate Law), Stronger, fairer, simpler superannuation banking the benefits of the boom, joint media release, 2 May 2010, viewed 9 May 2012; W Swan (Treasurer) and K Rudd (Prime Minister), Stronger, fairer, simpler: a tax plan for our future, joint media release, 2 May 2010. 690. G Gillard (Prime Minister), W Swan (Treasurer) and M Ferguson (Minister for Resources and Energy), Breakthrough

Agreement with Industry on Improvements to Resources Taxation, joint media release, 2 July 2010, viewed 10 May 2012.

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The Bills introducing the MRRT passed the Parliament on 19 March 2012 and received Royal Assent on 29 March 2012. Several of the linked measures, including lifting the superannuation guarantee and low income government superannuation contribution, have been legislated and commence from 1 July 2012.

The 2012-13 Budget included announcements relating to several linked measures, including abandoning the company tax rate cut and the standard deduction for work-related expenses, and deferring the higher concessional contributions caps for those aged 50 or over. (For a summary of abandoned or deferred measures in the Budget see the Parliamentary Library’s analysis of the 2012- 13 Budget savings measures). A new package of measures, described as redistributing some of the MRRT revenues, provide for transfer payments to low income earners and families, and some tax relief for some companies through revised taxation arrangements.

So what is now the overall picture for the expected revenue from the MRRT and related expenses?

MRRT revenue

Estimates of revenue raised by the MRRT have been revised twice since the introduction of the MRRT-related Bills in the Parliament in November 2011. Revisions in the November 2011 MYEFO and 2012-13 Budget have resulted in revenue reductions of $1.4 billion between 2012-13 and 2014-15 compared to the November 2011 projections (table 1).

Table 1: Changes in Minerals Resource Rent tax revenue projections

2012-13 2013-14 2014-15 2015-16

May 2010 announcement of Resource Super Profits Tax $3.0 billion $9.0 billion Not available Not available

November 2011 introduction of MRRT Bills $3.7 billion $4.0 billion $3.4 billion Not available

November 2011 MYEFO $3.7 billion $3.8 billion $3.1 billion Not available

2012-13 Budget $3.0 billion $3.5 billion $3.2 billion $3.7 billion

Difference between introduction of MRRT Bills and 2012-13 Budget $0.7 billion $0.5 billion $0.2 billion Not available

Sources: Australian Government, Budget measures: budget paper no. 2: 2010-11, Commonwealth of Australia, Canberra, 2010, p. 45, viewed 9 May 2012; Revised Explanatory Memorandum, Minerals Resource Rent Tax Bill 2011, p. 4, viewed 9 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, Commonwealth of Australia, Canberra, 2011, p. 264, viewed 9 May 2012; Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, p. 5-20, viewed 9 May 2012.

Several commentators, including mining executives, continue to question whether the Government will raise this revenue, considering that various factors are likely to contribute to lower than

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expected MRRT revenue.691 It is also possible that moves by state governments to increase state royalties based on the volume of production, which companies can offset against any MRRT liabilities, may further reduce MRRT revenue projections. 692

MRRT-related expenses

In addition to the proposed reduction in the company tax to 29 per cent, a number of other measures originally linked to the RSPT were also changed between the 2010-11 Budget and this Budget. For example, the standard deduction for work-related expenses, originally planned for implementation from 1 July 2012, was deferred in November 2011 to commence from 1 July 2013. 693

The net savings of $1.127 billion presented in the 2012-13 Budget relate only to changes since the November 2011 MYEFO. They come from abandoning some measures originally linked to the RSPT, and delaying others (table 2) .

Table 2: Savings and expense measures announced in the 2012-13 budget related to the MRRT

Measure

2011-12 ($ million) 2012-13 ($ million)

2013-14 ($ million) 2014-15 ($ million)

2015-16 ($ million) Total ($ million)

Company tax cut - do not proceed 50 317 1232 1596 1561 4756

Company loss carry back -7 -155 -251 -301 -714

Increasing rate of FTB Part A -603 -615 -626 -1844

Supplementary allowance

-153 -299 -306 -313 -1071

Total 50 157 175 424 321 1127

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 1-18, viewed 10 May 2012.

A different way of looking at the net impact of expenditures linked to the MRRT is to examine the expected cost of each measure at announcement, including those that have been legislated, and the impact of the 2012-13 Budget proposals. Such a presentation provides a further picture of

691. G Roberts, ‘Questions raised on reliability of tax‘, Sydney Morning Herald, 8 May 2012, viewed 9 May 2012. 692. S Kompo-Harms and K Sanyal, The Minerals Resource Rent Tax—Selected concepts and issues, Background note, Parliamentary Library, Canberra, 2011, p. 18, viewed 9 May 2012. 693. Australian Government, Economic statement July 2010, Commonwealth of Australia, Canberra, 2010, p. 24, viewed

9 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, Commonwealth of Australia, Canberra, 2011, p. 170, viewed 9 May 2012.

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expenditure now linked to the MRRT and the accumulated savings of abandoning previously announced measures since their original announcement (table 3).

Net impact of MRRT revenue and linked expenses

For those three years where it is possible to determine the revenue and expenses for the MRRT and related measures, 2011-12, 2012-13 and 2013-14, the MRRT package provides an overall impact on the budget of -$43 million in 2011-12, +$2068 million in 2012-13 and -$619 million in 2013-14. While these results can be viewed as providing support for the implementation of the MRRT as a way of funding a range of worthy programs, unless MRRT revenue increases significantly in future years it will be difficult to cover expected future higher costs of some measures, such as the $3.6 billion costs in 2019-20 associated with the superannuation guarantee reaching 12 per cent. 694

Of course there is no practical hypothecation of MRRT revenue to linked measures. While legislation that has been passed by the Parliament to implement some measures has been dependent on the successful passage of the MRRT legislation, future revenues and expenses are simply put through the Consolidated Fund.

MRRT revenues will be heavily dependent upon (Australian dollar) commodity prices. In particular, movements in exchange rates and world prices for iron ore and coal will be fundamental in determining the revenue raised by the MRRT. The revenue flows will be highly procyclical. That is, MRRT revenues will vary significantly with nominal GDP growth. In addition, the design features of the tax in terms of how mining profits and losses are defined and the deductibility of certain types of expenditures mean that there will be significant lags in MRRT collections in the event of significant rises or falls in commodity prices. This is similar to the way in which company tax revenues fluctuate with nominal GDP growth. In short, significant volatility will be a feature of the tax.

If we take the measures as being ‘tied’ to the MRRT, then the overall package of the measures’ impact on the Commonwealth Budget will depend on how the flow of MRRT revenue compares to the flows of expenditure and other revenues forgone over time. There are some risks here. The expenditures, which are relatively stable and expected to grow over time, will have to be paid even if the mining revenue falls.

694. Australian Government, Budget Measures, Budget Paper no.2, 2010-11, Commonwealth of Australia, Canberra, 11 May 2010, p. 42.

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Table 3: Impact of 2012-13 Budget on Minerals Resource Rent Tax-linked expenditures

Measure 2011-12 2012-13 2013-14 2014-15 2015-16

Company tax rate cut to 28 per cent and then revised to 29 per cent

Original cost adjusted for (a) 300 1400 Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil Reduced to nil Reduced to nil

Reduced to nil Reduced to nil

Early company tax rate cut for small business

Original cost (b) 50 100 50 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil Reduced to nil Reduced to nil

Reduced to nil Reduced to nil

Superannuation guarantee increase from 9 per cent to 12 per cent

Original cost (c) 240 500 Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated -

no impact

Legislated - no impact Legislated - no impact

Raising the superannuation guarantee age limit from 70 to 75

Original cost (d) -22 27 Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated -

no impact

Legislated - no impact Legislated - no impact

Low income government superannuation contribution

Original cost (e) 1 20 892 976 Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated -

no impact

Legislated - no impact Legislated - no impact

Higher superannuation caps for people aged 50 or more with a superannuation balance of less than $500 000

Original cost 545 785 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

-580 -730 -130 -10

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Measure 2011-12 2012-13 2013-14 2014-15 2015-16

Instant asset write-off for small business ($5000 threshold)

Original cost (f) 1030 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated -

no impact

Legislated - no impact Legislated - no impact

Standard work-related deduction

Original cost(g) 410 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to

nil

Reduced to nil Reduced to nil

Phasing down interest withholding tax on financial institutions

Original cost (h) 80 Not available

Impact of 2012-13 Budget and intervening policy announcements

Not yet

legislated - no impact

Not yet legislated - no impact

50 per cent refund on tax paid on savings

Original cost (i) 470 480 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to

nil

Reduced to nil Reduced to nil

Reduced to nil

Regional Infrastructure Fund

Original cost 42 794 867 665

Impact of 2012-13 Budget and intervening policy announcements

No impact No impact No impact No impact No impact

Expanding the definition of exploration to include geothermal energy

Original cost 5 5

Impact of 2012-13 Budget and intervening policy announcements

No impact No impact No impact No impact No impact

Supplementary income support for low income earners

Original cost Not applicable Not

applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy 153 299 306 313

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Measure 2011-12 2012-13 2013-14 2014-15 2015-16

announcements

Increase in the rate of Family Tax Benefit A

Original cost Not applicable Not

applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy announcements

603 615 626

Tax loss carry-back

Original cost Not applicable Not

applicable

Not applicable

Not applicable

Not applicable

Impact of 2012-13 Budget and intervening policy announcements

150 250 300

Net expenditures

Original costs now avoided 50 570 1240 Not available Not available

Original costs now implemented and 2012-13 Budget expenditure announcements

43 932 4119 Not available Not available

Notes: Measures can be linked to the MRRT through a number of mechanisms, including the packaging of measures in the initial announcement of the RSPT and by subsequent announcements by Government members. Measures can also be linked to the MRRT if they were part of negotiations with non-Government parties and members in finalising the MRRT Bills for passage through the House of Representatives. The cost of measures does not include associated administrative costs that were allocated to agencies (a) Original cost as presented in the 2010-11 Budget and subsequently changed by the announcement on 2 July 2010 which changed the proposed cut to 29 per cent; (b) The early start for the small business company tax rate reduction to 28 per cent was amended to 29 per cent in the 2 July announcement. (c) Original estimates updated were updated in the Supplementary Explanatory Memorandum for the Bill to introduce the measure; (d) Original cost for this measure was to include increasing the age limit to 75. This was amended during the Bill’s passage through Parliament. Original costs were updated by Supplementary Explanatory Memorandum for the Bill and amended by the Revised Explanatory Memorandum; (e) Original cost estimates as provided in the 2010-11 Budget; (f) Cost of original proposal excluding the further increase to $6500 under the Clean Energy Future package; (g) Original cost amended in the November 2011 MYEFO by being deferred by 1 year; (h) Original proposal to commence from 2013-14 but deferred in November 2011 MYEFO to commence in 2014-15; (i) Original estimates updated by three subsequent policy changes until decision to abandon the proposal in the 2012-13 Budget.

Sources: Parliamentary Library estimates based on Australian Government, Budget measures: budget paper no. 2: 2010-11, Commonwealth of Australia, Canberra, 2010; Australian Government, Mid-Year Economic and Fiscal Outlook: 2010-11, Commonwealth of Australia, Canberra, 2010; Supplementary Explanatory Memorandum, viewed 10 May 2012; Superannuation Guarantee (Administration) Amendment Bill 2011, viewed 10 May 2012; Revised Explanatory Memorandum, Superannuation Guarantee (Administration) Amendment Bill 2011, viewed 10 May 2012; B Shorten (Minister for Financial Services and Superannuation), One-year deferral of interest withholding tax phase down, media release, 23 November 2011, viewed 9 May 2012; Australian Government, Economic statement July 2010, Commonwealth of Australia, Canberra, 2010, viewed 10 May 2012; Australian Government, Mid-Year Economic and Fiscal Outlook: 2011-12,

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Commonwealth of Australia, Canberra, 2011, viewed 10 May 2012; Australia Government, , Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 1-18, viewed 10 May 2012.

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Non-residents

Les Nielson

The 2012-13 Budget proposes to change the personal income tax scale applying to non-residents and remove their access to the 50 per cent capital gains tax discount. Together these measures are projected to increase revenue by $143.9m over the forward estimates period.

Personal income tax rate

Personal income earned by non-residents in Australia (whether or not they are actually present in Australia) is subject to Australian income tax, albeit with some differences:

• withholding tax applies to interest and dividends paid

• they do not pay the Medicare Levy

• they are not entitled to the personal income tax-free threshold

• they not entitled to claim certain tax offsets or tax credits that are available to residents, and

• they have different personal income tax rates. 695

The following table illustrates the difference between residents’ and non-residents’ personal income tax rates.

Table 1: Resident and non-resident personal income tax rates 2011-12 (Medicare Levy not included)

Non-Residents Residents

Taxable income Tax on this income Taxable income Tax on this income

$0 - $37 000 29c for each $1 $0 - $6 000 Nil

$37 001- $80 000

$10 730 plus 30c for each $1 over $35 000 $6 001- $37 000

15c for each $1 between $6 001 and $37 001

$80 001 - $180 000 $23 630 plus 37c for each $1 between $80 000 and $180 000

$37 001- $80 000

$4 650 plus 30c for each $1 over $37 000

$180 001 and over $60 629 plus 45c for each $1 over $180 000 $80 001- $180 000

$17 550 plus 37c for each $1 between $80 001 and $180 000

$180 001 and over

$54 549 plus 45c for each $1 over $180 000

695. Australian Taxation Office, ‘Working in Australia - what you need to know‘, Fact sheet, July 2011, viewed 14 May 2012.

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Source: CCH Australian Master Tax Guide 2012.

Under changes to the residents’ tax free threshold already legislated (i.e. increasing threshold to $18 200 p.a. and a change in rates) under this proposal from 1 July 2012 the resident and non-resident tax rates will be as follows: 696

Table 2: Resident and non-resident personal income tax rates 2012-13 (Medicare Levy not included)

Non-Residents Residents

Taxable income Tax on this income Taxable income Tax on this income

$0 - $80 000 32.5c for each $1 $0- $18 200 Nil

$80 001 - $180 000 $26 000 plus 37c for each $1 between $80 001 and $180 000

$18 201- $37 000

19c for each $1 between $18 001 and $37 000

$180 000 and over $63 000 plus 45c for each $1 over $180 000 $37 001 - $80 000

$3 572 plus 32.5c for each $1 between $37, 001 and $80 000

$80 001 - $180 000 $17 546 plus 37c on each $1 between $80 000 and $180 000

$180 000 and over $54 546 plus 45c on every $1 over $180 000

Source: Parliamentary Library derived from tax scales published in the Clean Energy (Income Tax Rates Amendments) Act 2011

This particular budget measure is projected to increase revenue by about $88.9m over the forward estimates period.

Capital gains tax

A non-resident’s net capital gains and losses realised on taxable real property more than 12 months after purchase can be assessed under one of two methods:

• the net gains are discounted by inflation during the period September 1986 to September 1999

for assets purchased during that time, and the resulting figure included in the taxpayer’s assessable income, or

• 50 per cent of the net gain is included in the individual taxpayer’s assessable income.

During a period of low inflation the latter method usually produces the least amount of capital gain, and thus the lowest assessed income.

696. See Clean Energy (Income Tax Rates Amendments) Act 2011 and Clean Energy (Tax Laws Amendments) Act 2011.

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The 2012-13 Budget proposes to exclude non-residents from using the 50 per cent discount method for including realised capital gains in their assessed taxable income. All other things being equal this will lead to a higher tax bill. This proposed change is projected to increase revenue by $55.0m over the forward estimates period.

This change will apply from 7:30 pm on 8 May 2012. For gains accrued before this date the 50 per cent discount method will remain available, if the non-resident obtains a market valuation of the asset in question as of 8 May 2012. This may be somewhat difficult for some unlisted assets, or managed investments holding assets that are not easily valued, such as infrastructure projects.

Comment

Press comment has been somewhat critical emphasising that these proposed changes will reduce Australia’s position as a destination for foreign investment. 697 Other possible implications are that the proposed changes will reduce Australia’s attractiveness as a place for highly skilled foreign workers to undertake short term assignments.

697. M Hele, ‘Industry critical of Budget‘, Courier Mail, 11 May 2012, p. 95, viewed 14 May 2012; K Walsh and J Wiggins, ‘No vote, more tax, few perks: foreigners pay‘, Australian Financial Review, 10 May 2012, p. 25, viewed 14 May 2012.

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Workplace relations agencies overview

Steve O’Neill

The workplace relations agencies reviewed in this brief fall under Outcome 4 of the Department of Employment, Education and Workplace Relations (DEEWR). One significant change to the agencies is the replacement of the Australian Building and Construction Commission (ABCC) with the Fair Work Building Industry Inspectorate, following the passage of the Fair Work (Building Industry) Act 2012.The new agency commences with somewhat fewer resources than its predecessor while retaining the staff of the former Commission. The Opposition has long opposed the replacement of the ABCC and would seek its reinstatement.698

The table below compares departmental expenses of the key workplace agencies along with average staffing levels (ASL) for 2012-13 against those of 2011-12.

Workplace relations agencies

2012-13 $,000 2011-12 $,000

ASL

2012-13

ASL

2011-12

Fair Work Australia 74 648 75 260 343 343

Fair Work Ombudsman 128 771 141 790 753 823

The Fair Work Building Industry Inspectorate 30 726 36 070 155 155

Safe Work Australia (jointly funded with the Commonwealth by the States and Territories, Cwlth contribution itemised) 9.2 8.9 110 110

Comcare699 485 994 454 213 595 652

Source: Portfolio budget statements 2012-13: budget related paper no. 1.6: Education, Employment and Workplace Relations Portfolio, Commonwealth of Australia, Canberra, 2012.

Comcare, which operates the Commonwealth’s workers’ compensation fund, will receive higher contributions from premiums.700 Workplace relations programs which continue in 2012-13 include Protected Action Ballots, Australia’s subscription to the International Labour Organisation and provision for the Commonwealth to meet asbestos-related compensation claims from its current and former employees, which is expected to cost around $70 million for this and future years. 701 The Home Workers Code of Practice program has been discontinued.

698. The Parliamentary Library canvassed stakeholder views on the repeal of the Building and Construction Industry Improvement Act 2005 which supported the operation of the ABCC in the Bills Digest on the Building and Construction Industry Improvement Amendment (Transition to Fair Work) Bill 2011. The Opposition’s call for the ABCC’s reinstatement was aired once again in the Leader of the Opposition’s Budget Reply speech on 10 May 2012.

699. The bulk of Comcare’s resources are funded from workers compensation premiums paid by Commonwealth and other agencies. 700. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.6: Education, Employment and Workplace Relations Portfolio, Commonwealth of Australia, Canberra, 2012, Table 1.1, p. 189, viewed 9 May

2012; Comcare, the Safety, Rehabilitation and Compensation Commission, and the Seafarers’ Safety, Rehabilitation and Compensation Authority, ibid. 701. Ibid., Table 2.4.3, p. 105.

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Reflecting a general economic malaise experienced in particular sectors such as manufacturing, the Government has revised potential commitments under the General Employee Entitlements and Redundancy Scheme. The scheme meets unpaid employee entitlements in the event of employer insolvency. The GEERS budget was predicted to fall to $102.3 million in 2011-12 but the outcome has been revised to $199.3 million.702 The GEERS budget in 2012-13 will be $202.6 million rising to $214 million in 2015-16. The Fair Work Guarantee legislation underpinning the GEERS system was to have been introduced in 2011 but is now likely to be introduced later in 2012.

702. Ibid., Table 2.4.1, p. 103.

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