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Finance and Public Administration Legislation Committee
Parliamentary Budget Office

Parliamentary Budget Office


CHAIR: I now welcome the Parliamentary Budget Officer, Mr Phil Bowen, and officers of the Parliamentary Budget Office. I thank the office for providing updated information on PBO activity. That information has been circulated to the committee. Mr Bowen, I understand that this will be your last appearance before Senate estimates. Please allow me to place on record our thanks for your service, and particularly your important role in setting up this institution which we hope will serve the parliament for many years. I hope you will miss us as much as we will miss you in future estimates hearings. Mr President, you have an opening statement?

The President: I also wish to place on record the appreciation of the Presiding Officers for the service provided by Mr Bowen. You have correctly noted that this is his last appearance. I particularly acknowledge that he somewhat reluctantly agreed to an extension of one year, primarily to assist the Commonwealth in relation to a potential election—and thank goodness he did, because that election came more quickly than was anticipated. That greatly assisted the Commonwealth and the running of the Parliamentary Budget Office, so I do thank him for that. I will not go into detail about his replacement, because I am anticipating I will get questions about that, but I can confirm that we commenced the replacement process on 8 February this year and are well in place to have a replacement in time for the change.

CHAIR: Mr Bowen, do you have an opening statement?

Mr Bowen : I did not have an opening statement, but let me thank you and President Parry for your kind words. I have been privileged to be the inaugural Parliamentary Budget Officer for the past five years. I have always been very pleased to participate in what I consider Senate estimates to be—a very important part of our accountability process. It is nice to hear that you will miss me. Whether I will miss this process or not I will leave unsaid, but I will have fond memories of it.

Senator McALLISTER: On behalf of opposition senators, I also thank you for the work you have done. I think you should be proud of the high esteem in which your organisation is held across the parliament. We are very grateful for your intellectual and personal leadership in that regard.

Mr Bowen : Thank you.

Senator McALLISTER: I want to ask a couple of questions about the resourcing of the Parliamentary Budget Office. You make some remarks about this in your tabled report. Can you elaborate on how the funding works? It drops from just over $14 million in 2016-17 down to $12 million this financial year.

Mr Bowen : Have you got the right figures there? We have never had a budget higher than about $8 million.

Senator McALLISTER: I am looking at the PBO resource standard on page 8.

Mr Bowen : I am sorry. Those figures are not annual figures. That is the total amount of resourcing available and it includes the total amount in the special appropriation, which is included not in the annual appropriation bill but in the act that established the PBO.

If you have a look on page 10, that shows how much we anticipate to be spending each year. From the special appropriation, you will see an amount for the coming financial year of $788,000 and then going out over the forward estimates. The total amount per year is really there at the bottom; the bottom two lines are the same. They are the amounts that we anticipate spending each year. The figure does drop down in the next financial year and then it rises again. This reflects the additional amount of funding that is provided effectively each third year in anticipation of the additional resourcing required for the election. That is, in broad terms, what that is.

Senator McALLISTER: I am interested in how you manage this transition between election years. Obviously it is a very intense workload for the organisation. How significant is the use of secondees in providing resourcing for that period?

Mr Bowen : We have used some secondees. During the 2013 election, we sought to bring in some consultants to help us. We also looked at secondees, including after that election. Given the experience we had, this time we ramped up with mainly permanent employees in the knowledge that we would have some turnover after the election. So new people came in and have stayed, and some of the people who were here previously stayed for the election and are now moving out.

Our nominal staffing is around 40 people. For the election, from memory, we had closer to 50. The exact figure may have been 48 or 49, I think. We have flagged that our average staffing level for the 2016-17 current financial year will be 45—that is our estimate.

Senator McALLISTER: Is that averaging out across the election period and subsequent months?

Mr Bowen : Forty-five to 40 is our estimate. We are currently, I think, down to 43 so we are coming back to a figure that will be consistent with the basis on which we have done the budget.

Senator McALLISTER: That model of engaging permanent staff in the lead up to the busy period and then using attrition to wind back down—

Mr Bowen : It was natural attrition.

Senator McALLISTER: was that a one-off opportunity that was presented by the particular profile of the office at the time or is this something you see as an ongoing strategy?

Mr Bowen : I think that is something we would need to assess each time depending on circumstances—when I say 'we', I am using the royal 'we' because it will be my successor and staff, I presume. We will look at further pursuing secondments possibly next time on a reciprocal basis. When we first attempted to second people to the PBO, I really was not in a position to offer a reciprocal arrangement, but we may well be for the next election. Clearly, it is not going to be a concurrent reciprocal arrangement, or that would not help, but maybe we could offer some of our staff to other departments to meet their peak periods and, likewise, take theirs during our peaks. But that will have to be looked at in more detail.

Senator McALLISTER: I will ask now about the independent review. Senator Smith may also have questions about this. What is the process for responding to the recommendations contained in that review?

Mr Bowen : Just going back slightly, our honourable chair of the Joint Committee of Public Accounts and Audit is here today. The JCPAA, of course, commissioned that review. The committee has asked that, in the context of the PBO consulting with the committee on its work plan for next financial year, we address the recommendations in the review. We have already started, of course, to look at the recommendations to work out what our responses should be, and I would expect that my successor will submit a draft plan to the public accounts committee in good time to have that discussion with the committee prior to the plan having to be published, which is before 1 October this year.

Senator McALLISTER: Mr President, will you be involved in that process at all? What is your role in that?

The President: No, I do not think I will. Unless anything needs to be drawn to the attention of the Speaker or me, I doubt that we would, and it would not be my desire to be in any event.

Senator McALLISTER: You say you are working through them and responding to them. Is it your intention to implement all of them?

Mr Bowen : I cannot commit my successor, obviously, but I think it is safe to say that we do agree with all of the recommendations. We have already—you may be aware—taken steps to modify the approach that we were previously taking, to put reliability ratings in each of the costings. I will be careful in saying this: pending consultation with the JCPAA, we have effectively adopted the recommendation that was made by the committee.

Senator McALLISTER: But the next step for you more globally is to take a response to the report into the JCPAA and seek approval from that body for your proposed response?

Mr Bowen : We need to be careful with language here, Senator McAllister. The JCPAA does not have a role in approving, and I fully expect the JCPAA to take a view on our response to the independent review in the context of our work plan. The committee has an important role to review our draft plan and feed thoughts and ideas back to us and into the plan, but at the end of the day the act is very clear: the plan is a plan of the Parliamentary Budget Officer.

Senator McALLISTER: Looking through the recommendations, do any of them require legislative change?

Mr Bowen : There is one only that requires legislative change, and that is the one dealing with the timing of the preparation of the post-election report. The intent of the review committee in putting that recommendation forward was to recognise that to report within 30 days of the end of the caretaker period can be a very tight time frame. For the last two elections, from our perspective, we have been fortunate because there has been a delay of a number of days after the polling day before the caretaker period has finished, which has given us a bit more time. That is laid down in the act and that would have to be amended to make that change. The committee has also recommended that we give minor parties the opportunity to have their platforms costed and included in the post-election report. Clearly, that would not only take resources to do that but also you would expect that it would involve more time as well. So those two recommendations have a relationship.

Senator McALLISTER: You mentioned that you had already taken steps to respond to the recommendation around reliability ratings. Are there any other recommendations in the report where you are already actively progressing your response prior to the finalisation of the work plan?

Mr Bowen : We are actively progressing our approach, our thinking through, of each of the recommendations—that might not be quite what you are asking. There are a number of recommendations where what is recommended is essentially an evolution of what we are already doing. Not all of course, but there are a number in that category. To that extent, yes, we are. I do not feel unnecessarily inhibited about progressing recommendations which are obvious and which we can do now. On the other hand, there may be some where we will come up with a view but I would prefer my successor to have a look at that before he or she is required to put their position to the committee.

Senator McALLISTER: If we could step through a couple of specifics then if that is the case. There is a recommendation to establish an expert advisory panel that could provide technical input. Is that being progressed?

Mr Bowen : It is being progressed but the progression is not mature. What I mean by that is that it will be important to think through the terms on which that committee would operate. Will it be an honorary body? Where would we draw the people from? Who would those people be? And, then, what would their role actually be? How often would they meet? Would we deal with them on an ad hoc basis? Things of this nature have to be thought through and I will say that we have not got terribly far with that process yet. There are models that we can look at. I guess one of the better known is the congressional budget office model. They have expert panels in a range of areas. Clearly, how they operate is something that we will be looking closely at.

Senator McALLISTER: Would you be expecting to consult with members and senators as you work through those sorts of questions?

Mr Bowen : It would be my intention to consult with members and senators on a range of recommendations. And, yes, certainly we can consult on that.

Senator McALLISTER: There is also a recommendation to build capacity for longer-term analytical ability specifically in relation to considering the next intergenerational report or possibly doing the next intergenerational report if it were transferred to the PBO. Is there a plan to implement that?

Mr Bowen : Much of the work that we currently do, particularly in the area of medium-term projections, requires the type of expertise that is necessary to take it to that next step of looking at the longer term. Intergenerational report projections go out 40 years. Our medium-term projections go out budget plus 10. The people that we have and the skills that they have are quite relevant to the medium term and the longer term. Having said that, I think more work will be required, certainly to look at how we would model out over a longer period. I think the review report talks in terms of longer-term, fiscal-sustainability-type analyses, which implies more work from the PBO on sensitivity testing the fundamental assumptions that underlie the current fiscal settings out into the longer term. There will be more work required to put the PBO in a position to do that.

Senator McALLISTER: The report notes that stakeholders said that the chart packs after each fiscal update were of limited value. Is that a conclusion you share?

Mr Bowen : That is an interesting one. Perhaps the majority of stakeholders have said that, from what I gather. We do have stakeholders who ask us when it is coming out. You might not be surprised by differences of opinion. But what we have decided to do as a first step is to put out a chart pack again after this budget but make it a much more targeted document. The previous chart packs have been fairly comprehensive in that they have looked at all heads of revenue and quite a large number of heads of expenditure. The question really is: is that worthwhile? It may not be—

Senator McALLISTER: I wonder if the question is: shouldn't the government just do it? Why could Treasury not do it? It is their data.

Mr Bowen : There is just one last point I wanted to make, if I could.

Senator WONG: You will answer that question?

Mr Bowen : I will—well, I will address the question. What we think is really the benefit of the chart pack is showing where the major differences lie between the current budget and the previous budget and economic reports—say, MYEFO. We believe we can do that in a smaller, shorter, more succinct document without losing much, if anything. There will be chances to consult further on that document. We will take feedback, and a decision will be made as to whether we should or should not do it next time.

Should the government do it? It is always difficult to comment as an outsider on what the government should or should not do—although many people do that. I think it is important that the public can see simply and clearly what has changed. You might say all of that information is in the budget papers, certainly over the forward estimates, so anything that can be done to improve the presentation in the budget—of course we know there is a huge amount of material there. But, with that particular piece of information, I think it is important that people can see, as I said, very clearly, succinctly, what has changed. Then, of course, there are the questions as to why.

Senator McALLISTER: I guess the question is: would it not be more efficient for the organisation or the entity that is producing the primary analysis to at the same time prepare this set of analyses around what has changed?

Mr Bowen : Senator, I have never felt proprietorial about anything we do that can be done by the government. For example—

Senator McALLISTER : What kinds of resources should they allocate to it if they did set it up?

Mr Bowen : That is very difficult for me to comment on. What I can say is that, now that we have set up the mechanisms for doing it, it does not actually take much of our resources to do it. It takes some—don't get me wrong. But it is not the huge effort that maybe you might think.

Senator McALLISTER : In relation to the memorandum of understanding between you and the government departments, the review concludes that this is a mechanism that is working well. Do you share that view?

Mr Bowen : I do. There are a couple pieces of evidence of that. One is the fact that—and this has happened over time—we are now in a position where we get almost all of the information that we seek from government departments and agencies in a very acceptable time frame. Our statistics used to be based on the average number of days late, I think it was. We now actually get them early, on average. So, that is one piece of evidence I would give to say the memorandum is working well. Allied to that is the fact that we have also put in place standing arrangements for provision of information after each economic and fiscal update from key departments—obviously, Treasury and Finance, but also other departments, such as Immigration, Health and Education, where we do collect huge amounts of data. That is working very well. Finally, on the MOU, it has been a long time since I have actually pulled it out to read it, so that suggests to me that it is working fine.

Senator McALLISTER : I have some questions about the work plan but I am conscious of time.

Senator WONG: Can I follow something up. I think you did go to this with Senator McAllister, but I was just looking back on my release in 2011 when we introduced the legislation establishing the PBO. I think it is correct to say that the primary focus five or six years ago, when we were working to establish this, was policy costings, whether in the election period or a non-election period, and obviously there was a history to that. Senator McAllister has asked a number of questions about the review and, in particular, in relation to the longer-term analytical capacity. This is perhaps somewhat a provocative question, but I wonder the extent to which there is a perception that a second capability is required for some of the longer-term analytical capacity reporting over and above Treasury.

Mr Bowen : Sorry, Senator, are you suggesting—

Senator WONG: Whether there is any concern as to what the Treasury produces should stand without, essentially, any second opinion.

Mr Bowen : In terms of longer term?

Senator WONG: Correct.

Mr Bowen : We have not gone into longer term at this point. The reason that some years ago now we started to prepare detailed medium term projections out 10 years was not that there was any question mark over Treasury's medium term estimates so much as the fact that Treasury did not produce medium term projections in detail.

Senator WONG: They do not disclose; they underpin. I can see some grins behind you. Let us be honest. They do not disclose all of the drivers of the range of medium term information—shall I just put it broadly in that way—that is in the budget papers. Of course they have to feed those assumptions into the process; otherwise, you cannot create a whole range of these charts and other assertions that are contained in the budget papers.

Mr Bowen : Sure. I used the word. I said 'produce'; I should have said 'publish'. Because the government, Treasury backed, publish a single bottom line result—underlying cash balance out budget plus ten—we felt there was a niche we could move into where information was lacking. That is why we have been doing medium term projections which cover all the heads of revenue and about the top 20 or so heads of expenditure. We are collecting information and working on that now, and we are hoping to have our projections on the 2017-18 budget out next month. So it was not because we felt Treasury was not doing a good job; it was just not being published. We felt that information is important. If you are going to publish a bottom line you cannot have a debate about it—

Senator WONG: I agree.

Mr Bowen : unless you know what is driving it. That is why we did that.

Senator WONG: One could argue it acts as a quality control.

Mr Bowen : You could.

Senator WONG: Let us be frank. I think there has been a lot more public debate about the quality of some of Treasury's work in the last couple of years. Whether that is right or wrong I think is a discussion for another day. The PBO does not do as comprehensive a set of projections, but if the government of the day knows the PBO is going to do some of these I think that does potentially add to the quality control.

Mr Bowen : Senator, just on your comment that we do not do 'as comprehensive' a set, I actually take exception to that.

Senator WONG: You do not write as much, okay?

Mr Bowen : Maybe. Let me explain. Of course we must under legislation use the official economic forecasts and parameters that drive the fiscal settings. But between the economic parameters and forecasts you then move to your fiscal projections.

Senator WONG: Sorry. I used the wrong term.

Mr Bowen : That is all right. The point I want to make is that our medium term projections are comprehensive because we do project all of the heads of revenue, we project the same if not more—Treasury does not publish—heads of expenditure and we use similar methodology for projecting the rump of expenditure. So they are just as comprehensive.

Senator WONG: Yes. It is just not as long as a lot of BP 1.

Mr Bowen : No, thank God!

Senator WONG: Yes, that is true. As finance minister, we liked BP 2. It is easier.

Mr Bowen : BP 1 is good but—

Senator WONG: Let's not get into this. No-one else will be interested, I am sure. I did want to ask this: with your legislation, we made the decision to not have two sets of, as you said, economic parameters—

Mr Bowen : Yes.

Senator WONG: bandied about. Obviously external entities like to do their own et cetera, and that is fine. Do you think the rationale for that remains sound? Or would you say that is a decision for government?

Mr Bowen : It is a decision for government and then the parliament because it would require legislative change. But there was a fundamental rationale. You have mentioned one rationale where you did not want two sets of—

Senator WONG: We made that assessment many years ago. Okay? The Labor Party now has indicated a different view on that—

Mr Bowen : I appreciate that.

Senator WONG: and I think things have moved on since that legislation, but I invite you to talk about that.

Mr Bowen : There was another rationale as well, you will recall.

Senator WONG: It was a while ago.

Mr Bowen : I am sure you will. The preparation of economic forecasts is very, very resource intensive.

Senator WONG: That is true.

Mr Bowen : There is a costing on the public record from us of your election commitment to give the PBO that function.

Senator WONG: Yes—forecasting capacity.

Mr Bowen : Without going into detail, it would almost double the size of the PBO. That gives an indication of the level of resources that Treasury or the Reserve Bank put into developing economic forecast. The other argument was: why duplicate that level of resources?

Senator WONG: And personnel—that is, whether there are sufficient people in Australia who are actually capable of—

Mr Bowen : That is a really big issue.

Senator WONG: Yes.

Mr Bowen : While I have a very skilled staff—and I must pay tribute to my staff on the record. You have said some very nice things about the PBO and it could not have been achieved without the people who have worked in the PBO, so I pay tribute to them. But they are scarce and we do not have a lot of that particular expertise. We would have to get more and—

Senator WONG: Yes. You would have to gear up for it.

Mr Bowen : Yes.

Senator WONG: The public questioning around some of Treasury's assessments of key economic parameters and forecasts has, in my experience, been greater in recent years than previously, but maybe that is a perception. The merit of having a third party or another party—because the RBA really does it for different purposes—

Mr Bowen : Sure.

Senator WONG: make those assessments, particularly given some of the longer-term discussions about the budget and the economy is, I would suggest to you, a meritorious proposition.

Mr Bowen : I will leave that for others to make the point.

Senator WONG: Okay, thank you.

Mr Bowen : One point I would make—and this is very clearly disclosed in the budget papers—is that we all talk about central-point estimates—

Senator WONG: Yes. You are talking about sensitivity analysis—right?

Mr Bowen : I am talking about uncertainty.

Senator WONG: Sure, but that is not how the public messaging is.

Mr Bowen : It is not, but what I am saying is that maybe more focus ought to be put onto the uncertainty because if you look at the back of Budget Paper No. 1 and see the 90 per cent confidence interval that Treasury put on the underlying cash balance, it has plus or minus 2.9 percentage points of GDP, which is huge.

Senator WONG: With respect, the public debate is not going to be around that. So if there is a sense or perception that some of those judgements about economic parameters are, at worst, questionable or, at least, arguable, maybe it is not a bad thing to have a completely independent body to put its views to.

Mr Bowen : That may be. That is a political decision obviously, not one for me. Increasingly, it is important to have a debate. It is important to get the best estimates, the best economic forecasts, the best predictors et cetera. But it is also important, in my view, to have a realistic discussion about uncertainty and what that means for the sustainability or the fragility of the fiscal settings or how strong they are, how capable they are of coping with economic shocks. If we just assume that the central point estimate is going to be achieved or not and we only have very slim margins then we are not recognising that there is a huge probability—and the further you go out, the wider those bands of uncertainty become that we may not hit the target and there will be fiscal policy consequences.

Senator WONG: Has there been much discussion between the PBO and Treasury in the lead up to the budget about their parameters, their forecasts? Do you push back informally? Do your staff say: do you not reckon that is a bit ambitious on the employment?

Mr Bowen : You are leading the witness here.

Senator WONG: I am allowed to lead the witness; this is not a courtroom. I am asking you: in relation to this budget, did any staff member from PBO have conversations with Treasury officials in which they queried any of the economic parameters?

Mr Bowen : I could not comment on informal discussions people may have had in their capacity as colleagues or former colleagues or possibly future colleagues. We do of course interact with Treasury closely to understand what Treasury has done, what their parameters are—published and unpublished—because that is where we can add value without actually publishing something that might be confidential but that we can use in our analysis. We do need to understand what the parameters are, what they look like over the medium term, but the words in the act say I 'must' use the economic parameters from Treasury so it would not be appropriate to voice a view, I do not think, here on Treasury's parameters.

Senator WONG: No, I did not ask you to voice a view here; I asked if your staff had put a view to Treasury about the veracity, the accuracy, the robustness or otherwise of its decisions around key economic parameters for this year's budget.

Mr Bowen : I have said I cannot comment on informal discussions.

Senator WONG: What does that mean? What does 'I cannot comment on informal discussions' mean?

Mr Bowen : No, I will not.

Senator WONG: You are not actually allowed to do that. On what basis do you say you will not?

Mr Bowen : I honestly do not know what discussions my staff may have had in the context of their understanding of Treasury's parameters but, given my legislative mandate, it is really not appropriate for me to go there.

Senator WONG: You are answering a different question. That is not the question I asked. Did anyone from PBO put a view to a Treasury official in the lead-up to or subsequent to the budget that any of that economic parameters were ambitious?

Mr Bowen : I have 40 staff. They will not have all spoken to Treasury.

Senator WONG: No, but you know who might have. They are probably sitting behind you.

Mr Bowen : I can honestly say to you that is something I do not know. And if I did, I would not be saying so here.

Senator WONG: You are not actually entitled to do that. That is what the Senate said. We can re-read the statement at the beginning.

CHAIR: Senator Wong, I think we have gone over this one in quite some detail.

Senator WONG: I will be putting some questions on notice. Maybe we can handball it to your successor.

Mr Bowen : I think the deadline might be before I leave.

Senator WONG: Oh well, bad luck!

Mr Bowen : In any case, I will make sure we answer before I leave.

CHAIR: Thank you, Senator Wong. Any further questions? I will just note for the record that we are about an hour post where we hoped to be at this point, so if you could bear that in mind.

Senator WONG: I will stop here. Sorry, I jumped in.

Senator McALLISTER: I want to ask some questions about your current work plan, the one that was published in August last year. Can I check-in on some of the publications which are listed there and find out how you are going with them. The national fiscal outlook: it appears on page 4 of the PBO work plan. It is due for an update after the budget. How is that going?

Mr Bowen : I will ask Mr Pyne, who heads up the area. He is not well. If he has a coughing fit and has to leave, we have a backup.

Mr Pyne : We have published a national fiscal outlook this year, and it is our intention in the future to attempt to publish that annually after each budget. We will do that after each of the states and territories have also brought out their budgets. The last one of those, from memory, tends to be Tasmania, which is around August. So we have a target each year. We will be looking at a September-October time frame. We published one this year as soon as we could after the election and the work on the post-election report was completed.

Senator McALLISTER: When was that last publication out?

Mr Bowen : We will get you that in a minute or two.

Mr Pyne : Yes, we should be able to get that to you before the end of the—

Senator McALLISTER: Can I ask about the unlegislated measures report? I assume that is going to be significantly easier now that the majority of the zombie measures have been dropped?

Mr Bowen : Yes, we have had a look at this. I think there was a question as to whether we really need to publish a report at the moment. On our looking at it, there are only four remaining unlegislated measures that have not been significantly amended that were on our latest report. The two main ones are the increase in the age-pension qualifying age and the abolition of the energy supplement for remaining new recipients. They are the only two material measures that remain on our list. In those circumstances, we were not necessarily going to publish at this point. Of course, there are measures that the government will have to introduce, but, because they have not been introduced before, they would not come onto our list at this point.

Senator McALLISTER: I understand. At this stage, have you made a final decision not to publish the unlegislated measures report? In some regards, it is not necessarily representative given the other legislative measures which are in the pipeline and yet to be considered.

Mr Bowen : At this point in time, we would not, unless we were requested to do something. But it would be a very short list at this point.

Senator McALLISTER: The work plan has a range of other research reports in paragraph 25, including the ageing population report. How is it going?

Mr Pyne : We have been undertaking some analysis on the impact of ageing, particularly on the expenditure estimates. This work would be consistent with the material that was contained within the Intergenerational report. We have not completed that work at this time. We were intending, to the extent that they were a major contributor to the medium-term projections, to include some of that analysis in our medium-term projections report, and then after we had published that, consider further what we might publish in relation to the impact of ageing.

Senator McALLISTER: It was included in the work plan for 2016-17; should we expect it to be included—it has not been completed—should we expect it to be included in the work plan for next year, given that it sounds as though the analysis has been done internally?

Mr Pyne : A significant proportion of the work has been completed. The issue, then, will be to what extent we address it in our medium-term projections report or, then, what additional material and how we would present that. That is something that we will have to consider in our work plan and with the new Parliamentary Budget Officer and the interactions that we have with people on our work plan.

Senator McALLISTER: Is there a reason it was not published within the time frame covered by this work plan?

Mr Pyne : One of the challenges that we have with some of the pieces of analysis that we have is completing the analysis based on the current fiscal estimates and publishing that in a timely fashion. One of the issues was whether you publish material two weeks before the budget on a set of parameters that are now out of date. That is something that we have to manage within our work plan. It has been a challenge at times because you could release material—for instance, releasing a set of medium-term projections—just before the budget in a way that may, rather than inform people, confuse people.

Senator McALLISTER: This is, presumably, the case for all of the research reports that are listed in the work plan at 25. Is the implication of the contribution you have just made that you are revisiting the very nature of these specialist research reports, given that these updates occur at least twice a year?

Mr Pyne : One of the things we have tried to do in our work plan is indicate the areas of research that we are currently undertaking. It is true, looking at our performance, that we have not always been able to publish as many reports as we would have liked to. That, at times, reflects some of those issues I have just mentioned about the timing of the release and the need to re-update our analysis. But the complexity of the research, as we delve into it, and the data that we need to get from other agencies is sometimes quite an iterative process on the level of detail.

A good example of that would be the age pension, where we are still working on the data requirements that we need to even undertake the analysis and we have been working on that—that was included in the work plan that you have mentioned—but when you are dealing with very large datasets, two million recipients, trying to focus down on which details we need on those recipients.

Senator McALLISTER: Did you have an additional comment, Mr Bowen?

Mr Bowen : The other issues are resourcing and flexibility of resource use. As you know, we have a high level of on-demand or demand-driven work. We have to give priority to our costing work. That has grown and is consistently high. This year we also provided three staff to be the secretariat to the independent review, so they were out of action, as far as the core PBO work was concerned, for five months, I think it was. These are factors that in a small organisation mean you rob Peter to pay Paul and, of course, you cannot necessarily do everything that you had hoped to do—or even do the things you are doing—as quickly as you would like to.

To go back to your point: I do not think it is a question of us walking away from these issues. Mr Pyne has talked about incorporating some of the key elements of the analysis of ageing into the medium-term projections. I think, in fact, that will be a very useful element of the explanation of some of the drivers of key programs in that context. To really look at the impact of ageing, you have to look over a longer time period, I think.

Senator McALLISTER: We have just been talking about the review of the PBO and the recommendation that the PBO further develop its capability for medium- and long-term analysis. The ageing population, as you observe, is clearly something which falls into that kind of activity. Where you are looking to develop a capability, you set out to do so in this current year. I appreciate that you think you could deliver on the intent of that commitment without actually publishing a report on the ageing population—I understand that—but it would be good to not see that capability lost when we see the next work plan.

Mr Bowen : Certainly. I think we can assure you the capability and the analysis that we have done will not be lost. We will put as much of it that is relevant into the medium-term projections report. I think there will be value in that but, going forward, we fully appreciate that we need capability to analyse demographic trends which drive not just ageing but demographic trends which impact many government programs.

Senator McALLISTER: Quickly, just to finish up: can we run through each of the measures listed at the bottom of that work plan and just get a very quick update on where they are up to. You said that the ageing population work and the drivers of spending on the age pension are both works in progress and that some outputs may turn up in the update to the medium-term fiscal projections. In terms of 25B, the role of the Future Fund, you have undertaken that work.

Mr Bowen : Yes.

Senator McALLISTER: And 25C, the medium-term projections for the Pharmaceutical Benefits Scheme?

Mr Pyne : That is something we are still working on in our model to complete that work. The complexities of the Pharmaceutical Benefits Scheme particularly have to do with when drugs come off patent, and then incorporating that into our modelling. That is still to be completed.

Senator McALLISTER: Is there an end point for that in the work plan?

Mr Bowen : That will not be this financial year now, but it will be next financial year—that is the intention.

Senator McALLISTER: The drivers of spending on the disability support pension?

Mr Pyne : That is one which, for resource reasons, we have not been able to devote as many resources to as we would have liked. We still intend to publish that next financial year, but that is still in the early phases.

Senator McALLISTER: Additional analyses in selected areas of revenue and expenditure?

Mr Bowen : That is a pretty broad statement, Senator, as you can see.

Senator McALLISTER: It is a broad statement.

Mr Bowen : It is to give us scope to do other things. This financial year, which is coming to a close fairly quickly, we will not have any more in that category.

Mr Pyne : Just to add to that, we did publish a short report on 14 December on the National Broadband Network impact on the budget, which was the sort of issue that paragraph 26 was addressing. I now have the details of the other question on the national fiscal outlook, which we published on 2 November 2016.

Senator McALLISTER: At paragraph 27 in the work plan, you indicated that you were preparing a technical note on the inclusion of second-round effects and behavioural responses.

Mr Bowen : We expect that to be completed this financial year—that is, within the next few weeks.

Senator McALLISTER: I have no further questions.

Senator SMITH: I have two questions and then I will get my chance at the Joint Committee on Public Accounts and Audit. Could we discuss two points, given that you are exiting, Mr Bowen? One goes to the virtues that might be contained in giving the management of the Intergenerational report to a body like the PBO as opposed to it being retained by government. Of course, that is a recommendation in the Watt review, the independent review of the Parliamentary Budget Office. Given your experience and your perspective across the Commonwealth, what might be the virtues in the Intergenerational report being managed and published by the PBO?

Mr Bowen : The first thing that comes to my mind is that there would be synergies between the work that we do on medium-term projections and the work that is required to produce the Intergenerational report. That is the first point. I think I said earlier that we would have to gear up a little more in that area, but there are real synergies between those two pieces of work. The other benefit—and I say this without making an explicit or implicit criticism of anybody—of giving that work to an independent body such as the PBO is that the PBO produces analyses that are based on purely objective analysis of data and our mandate is to be completely apolitical. Any document that is prepared by the government of its nature has a political element. So, if there is a desire to depoliticise the Intergenerational report, a way to do that is to give it to an independent body.

Senator SMITH: By depoliticising the report, do you expect that more attention might be given to the report? And do you expect that it might have more utility if it were depoliticised?

Mr Bowen : That is probably an open question, but hopefully it would mean that the debate was more about the analysis, the hard facts and the objective analysis rather than about any particular political positions that might be put. To that extent you may get a more meaningful debate about the issues.

Senator SMITH: The recommendation specifically talks about making sure that the PBO has the capacity, should government decide that the PBO would be best placed to manage, publish and execute the intergenerational report. In building that capacity do you expect that there will be a further call on resourcing?

Mr Bowen : There will inevitably be a call on resourcing in the future for the PBO. The only question is when. If additional functions are provided they will require additional resourcing. Whether we have broken it out I cannot quite recall, but there is information on the Labor Party's policy in that regard in the post-election report. Irrespective of new functions, there will be a requirement for additional resources for the PBO. We do not see that requirement over the forward estimates but we see it definitely immediately afterwards.

Senator SMITH: Do you expect that when you make your report available to the public accounts and audit committee you will be able to quantify what that additional resourcing might be?

Mr Bowen : We certainly could. That is something that we will take on board.

Senator SMITH: I will turn to the post-election report. One of the recommendations talks about giving an option to members and senators. I will read the exact recommendation. Recommendation 13 says:

The PBO should provide parliamentary political parties with fewer than five Members or Senators the option to have the financial impact of their election commitments included in the PBO’s Post-election Report of election commitments.

I am specifically curious to know what your view is of the word 'option'. What we have seen in recent years is minor parties, crossbenchers and parties with less than five people having, some would argue, a disproportionate impact or influence over the passage of the budget through the parliament, particularly through the Senate. The word 'option' is what drew my attention.

Mr Bowen : I am not entirely privy to the review committee's thinking there except to say that currently the legislation mandates that we must report on the election platform and costings of any party that has five or more members in the parliament prior to polling day. Without a change in legislation there is no way to mandate other parties to be part of that process. I read the word 'option' as saying that there may be parties who would like to participate and would request the PBO to include them in the process. In that situation we would need to look very carefully at how we engage with other parties. Currently we have three political groupings—the coalition, Labor and the Greens.

Senator SMITH: I can hear Senator McKenzie sniggering. She would say four political parties but you said three groupings.

Mr Bowen : I was very careful about what I said. For the purpose of our act it is three. Sorry, Senator McKenzie. If we were to extend that to each and every independent member or minor party, some of whom are parties of one, that would certainly add to the workload. Under our mandate, we would have to give priority—unless the legislation were changed—to reporting on the three groupings.

Senator SMITH: But the objective is to increase the level of transparency and the reverse of that, accountability, within political parties. I am an old-fashioned Senate man, so I think the Senate should be a place for minor parties and others, but we have a situation where the greatest authority might be being exercised over whether certain legislative measures pass or do not pass. At the moment there is a carve-out, if you like, in terms of them participating in the post-election report process.

Mr Bowen : I take your point completely. The importance of the independent members of the Senate cannot be overestimated, I guess, given the critical role they play. Ideally you would have a situation like we have in the Netherlands, where most parties submit their policies for costing to the Netherlands' equivalent of our PBO, but they do so under some fairly strict rules in terms of timing. Where I am getting to is that, if we were going to do that and still produce a report in the mandated time frame, we would have to have some fairly significant rules around when we would accept parties' platforms for costing. At the moment there are no such rules. We have costings coming in very late in the piece that we then have to include. If we had to do that for all parties, it could be very difficult.

Senator HINCH: I have two questions for the President.

Mr Bowen : Can I just add one point? In concept, I think it is a very desirable idea that parties can opt in. We will endeavour to find a way to make that practical. I am pointing to some of the practical issues that we will have to consider as we do that.

Senator SMITH: Thank you, Chair.

Senator HINCH: I have a quick question for President Parry, and I will phrase it very carefully. Back in February you were saying that we will not break down the costings et cetera for this new security fence around here. I think you said that if we start breaking down individual components in the public arena, if we start to break it down too much, the information could get out, and it could be harmful. With that in mind, and if we accept that the total package of security is, say, $60 million, approximately, can you give us any information on whether the costing is to-budget as we speak? Has it increased in the past six months?

The President: I do not want to thwart your question, but this is really for the Department of Parliamentary Services. This is really not in the purview of the Parliamentary Budget Office. I will be guided by the chair here, but that would be my view. I will be very happy to answer that in the next segment.

CHAIR: We are coming back to the Department of Parliamentary Services right after lunch. We will suspend and resume at 1.30 pm.

Pr oceedings suspended from 12:29 to 13:30