Parliamentary Budget Office

CHAIR: I welcome the Parliamentary Budget Officer, Mr Phil Bowen, and officers. I thank the office for providing the committee with updated information on PBO activity and staffing. I remind officers when called upon for the first time to answer a question that they should state their name and position for the Hansard record, and witnesses should speak clearly into the microphone. Mr Bowen, do you wish to make an opening statement?

Mr Bowen : I do not have an opening statement. You do have a copy of the activity report, which I believe will be entered into the record. I just note two or three things from that report. Firstly, since our last meeting there has been quite a surge in demand for PBO costing work, which you will see. Despite this work—and we have given priority to our requests from parliamentarians—we have also released another quite substantial report on revenue trends over the past 30 years, and other work is in progress. It is also worth noting that the ANAO are expected to complete their performance audit of the PBO and finalise that in the middle of June.

Finally, we are engaging quite extensively with organisations such as the OECD, IMF and World Bank—as well as local organisations, including the Tax and Transfer Policy Institute at the ANU—and there is quite a high level of interest from these organisations in the experience of the Australian PBO. With those comments, I am happy to take questions.

Senator SMITH: If I could just go back to the comments you made at the public hearing in regards to the National Commission of Audit, you talked about the importance of fiscal space—I think that was the terminology you used—and I might just read a quote to you. You reflected on the IMF report, which I think was called Creating More Fiscal Space in Good Times, and it talked about the European experience and the importance of having a capacity to respond to international crises. You said:

It made the point that a key lesson from the crisis—

That is the European crisis.

—was the desirability of having fiscal space to run larger fiscal deficits when needed.

In other words, if there was a need to stimulate the economy, you need to have a basis with which to do that. On the basis of that comment, and looking at the budget that has just been released by the government, do you think that the new budget does set Australia on the right path for having enough fiscal space in the future, should there be an international crisis?

Mr Bowen : Without commenting on the policies that underlie the budget—as you would appreciate, I am not in a position to do that—it is clear that the fiscal consolidation that is explicit in the budget will, over time, provide that sort of a buffer.

Senator SMITH: In other evidence to the National Commission of Audit, you spoke of a report that the PBO had done in regards to the spending profile of the Commonwealth, particularly in areas of health and welfare. I am just wondering whether you would agree that measures in the most recent budget are a step in the right direction to help with some of the largest and fastest growing areas of government spending on a more sustainable footing?

Mr Bowen : I think it is factually correct to say that the measures that have been taken in both of those areas that you referred to will reduce the impact on the Commonwealth budget over time.

Senator SMITH: Would you like to elaborate at all?

Mr Bowen : It is not a matter for me to comment on the appropriateness of individual measures.

Senator SMITH: Agreed. I accept that.

Mr Bowen : That is a policy decision. It certainly is a matter of fact that the measures that have been taken in the budget, in relation to hospitals and schools for example, as set out in the budget summary document will, if fully implemented, help to redress the rapid growth in expenditure that had previously been planned in those areas of activity.

Senator SMITH: At page 3-30 of Budget Paper No. 1 we have a graph and some description which talks about the structural budget balance. If my reading of the budget papers is correct, it does show a strong improvement in the structural budget position of the Commonwealth. Have you done anything to update your estimates since the release of the budget?

Mr Bowen : No. Our position is that with the inclusion of the structural budget balance analysis in the budget papers it would be a duplication of effort for us to continue to do that. We, like you, will rely on the Treasury analysis in the budget papers.

Senator SMITH: You will be using the budget estimates to inform your own calculation and research work?

Mr Bowen : We will.

Senator SMITH: Continuing from the brief comments you made about fiscal space, could we reflect a little bit on what would be the risks to the national economy if the new government did not take any remedial steps like the ones it has taken to correct Commonwealth expenditure? What risks might exist to the national economy if there were no remedial steps undertaken?

Mr Bowen : I think underlying your question is the fact that prior to this budget the trends in revenue and expenses were diverging, and these divergent trends were structural trends. Accordingly, to rectify the structural imbalance it is necessary to take structural measures. The Australian economy is an open economy and it is exposed to the international economy, and it does require a buffer against economic shocks. Those shocks can take a number of different forms, from adverse movements in the terms of trade, given that we are a large commodity exporter, and going as far as the extreme shocks that occurred during the recent global financial crisis which affected the entirety of the global financial system and, of course, the Australian economy.

Senator SMITH: Is there anything in the budget papers that suggests that the government cannot reach its reduced budget deficits?

Mr Bowen : Of course, as you are aware, the budget must be passed by the parliament. But I have no reason to take exception to the estimates, forecasts and projections that have been put forward.

Senator SMITH: To put it another way: is it achievable for the government to realise the reductions in budget deficits that are forecast in the budget documents?

Mr Bowen : As a technical exercise, of course. At the end of the day, the outcome of the budget will depend in large measure on the attitude of the parliament.

Senator SMITH: Putting that aside at the moment, there is nothing in the budget papers that suggests that those deficit reductions are not achievable.

Mr Bowen : I have not examined every last element of the budget, but I have no reason to doubt, as I said, the figures in the budget as presented.

Senator SMITH: I will just turn briefly to the recent terms of trade forecasts and what we have seen in the figures for nominal GDP growth. Does that increase the urgency for budget remedies?

Mr Bowen : It is true that with a downturn in both the terms of trade and nominal GDP, there will be an impact on revenue. Other things being equal, that would place more pressure on the budget.

Senator SMITH: So therefore it would increase the urgency for some budget remedies?

Mr Bowen : It would not reduce the urgency and, yes, it would create more pressure. As you are aware, while we still have a relatively low level of debt, that debt—because of continuing deficits—has been rising and rising rapidly. I think it is generally accepted that the trend in fiscal aggregates is of concern.

Senator SMITH: It is the rate of increase that is the issue that people's attention should be drawn to, not the size. Am I correct in saying that?

Mr Bowen : The rate of increase, if allowed to go unchecked, would mean that net debt would increase quite rapidly—to the point where that fiscal buffer we talked about would not be available.

Senator SMITH: When we look at the rate of increase, do you have some comments about how that compares internationally? Where does Australia fit relative to other comparable economies with that rate of increase? Are we in the middle? Are we at one of the ends?

Mr Bowen : I have seen figures, which I do not have with me. From memory, currently Australia's debt is increasing at the fastest rate of any OECD country.

Senator SMITH: Is that cause for concern?

Mr Bowen : Certainly if allowed to continue it would be.

Senator LUNDY: Is the PBO subject to a further 0.25 per cent efficiency dividend as a result of this budget?

Mr Bowen : Yes, we are.

Senator LUNDY: What will the impact of that efficiency dividend be in dollars, staff and services?

Mr Bowen : It will mean a reduction of $162,000 over the period of the budget and the forward estimates. It will have some impact, but, at this point, we are not curtailing recruitment or reducing staff numbers. We can accommodate further increase because we are still below the level for which we are funded to recruit.

Senator LUNDY: What about the forward work plan for the PBO, noting that the 2014-15 plan is going to be released before 1 October?

Mr Bowen : In what sense? In the sense of the funding for the plan?

Senator LUNDY: In part, but also if you could give me some detail on that forward work plan as well.

Mr Bowen : I will give you a lot of detail in October when, I believe, we will come back together. But at this point it is a little early for me to go into that detail. We have commenced our planning for next financial year. You will get some guide out of what is in the 2013-14 plan because, as we hopefully made clear there, there is quite a range of topics that we intend to work on that would not all be completed in 2013-14. To give you an indication of some of the work—and it is spelt out briefly in the activity report—we hope that before the end of this financial year we will have completed work on an analysis of spending trends over the medium term, and early in the next financial year we expect to publish a report on the sensitivity of the medium-term projections to key economic parameters. Senator Smith will be interested in this: we have commenced our work on looking at national fiscal trends—Commonwealth, state and territory expenditures, revenues et cetera—and we are looking to publish that in the first quarter of next financial year, as we are trends in drivers of health expenditure. But that will be a bit later in 2014-15. It is a little early for me to give you too much more, but come October we can talk in quite some detail.

Senator LUNDY: Just going back to the $162,000 in your forward estimates. Can you give the fiscal year breakdown of that impact of the efficiency dividend?

Mr Bowen : I could give it to you shortly, if you like. We can get that and give it to you. You could divide it by about four, but we will give you the exact figures before we leave.

Senator LUNDY: So it is just a fraction over $40,000.

Mr Bowen : I think so, but we can give you that shortly.

Senator LUNDY: If you could take that on notice, that would be sufficient.

Mr Bowen : It is on page 11 of our portfolio budget statement. It compounds, and it is $18,000 in 2014-15, $38,000 in 2015-16, $53,000 in 2016-17 and it stays at that level—so $53,000—in 2017-18.

Senator LUNDY: You are yet to fill your staffing contingent, but could you perhaps tell us whether the $18,000, $38,000 et cetera will have an impact on your overall final staffing contingent in the PBO?

Mr Bowen : At this stage it will not, provided we do not have other imposts. At this point, we are budgeting to get to 39 staff in 2014-15 and to stay at that level on average from there going forward.

Senator SMITH: I want to go into a little more detail around the requests for work that you have received and that you talked about in the statement you provided to us. I am keen to understand those numbers by way of individual parliamentarians as opposed to those that have come to you as requests of parliamentary parties. I recall that, in the lead-up to the last election, a mechanism—for want of a better word—was put in place so that you could identify requests that were coming from parliamentary parties as opposed to individual parliamentarians. Does that process still work now that we are outside of a caretaker period?

Mr Bowen : In a word, yes. Of course, this is a matter for the individual party. We encourage this because we find it very useful to help us sort out priorities with the parties, but I think experience is showing that the parties find it very useful as well. If you look at page 4 of the statement, table 1 is broken up into requests from parliamentary parties. We have had 167, one of which was withdrawn, and we have had 13 requests from individual parliamentarians. That was to 16 May.

Senator SMITH: Regarding requests have been withdrawn, do people give you a reason why they are withdrawn or do they just choose to withdraw them?

Mr Bowen : Sometimes they may, but they are not required to.

Senator SMITH: Do you have details of what requests have been withdrawn by parliamentary party and individual parliamentarian status?

Mr Bowen : Yes.

Senator SMITH: Is that on the same sheet?

Mr Bowen : The one that was withdrawn was from a parliamentary party.

Senator SMITH: What sorts of reasons are given for, or how do you justify, not completing inquiries that are made of the PBO? Is it because the request made to you is not thorough or detailed enough?

Mr Bowen : There are a couple of categories, I guess. In the lead-up to an election, if we get to, I think, polling day and we have not completed certain costings, then they are deemed to have been withdrawn. That may be because we just did not have the time or resources to do them, although that has not been the case. It may be because we have not received sufficient or necessary information from other government agencies in time. I do not believe that has been the case. Or it may be that we have been waiting for information from the requestor, and that has certainly been the case.

Senator SMITH: How do you go about prioritising the work of the PBO? Are requests that come from parliamentary parties given priority, or are individual requests given priority based on the timing of those requests?

Mr Bowen : There is no simple answer to this. We do our best to meet the demands that come to us, whether they come from parliamentary parties or from individual parliamentarians. As I said, with individuals and parliamentary parties who coordinate through a single point, we are able to work with them to determine what the most important items to process are. We have not, to this point, had to make very hard decisions between parliamentary parties and individuals. But we do have to be mindful of the level of representation in the parliament by particular parties and individuals—if I could put it that way. That would be a factor we would take into account in setting priorities.

Senator SMITH: So a larger party may be given precedence or a smaller party with fewer resources may be given precedence?

Mr Bowen : It is a matter of judgement and it depends on the workload we have. But it would be hard to justify, for example, putting all of our resources into servicing one parliamentarian who gave us 100 requests when there was a large party which had also given us the same amount—if you take my meaning.

Senator SMITH: I have some other questions, particularly on staffing, which I will put on notice.

Senator MOORE: I did not intend to ask any questions in this segment, but, in looking at the graph you provided, I see one little box there—51-plus. That appears under 'Response time for completed requests' and it also appears under 'Commonwealth bodies—response time for completed information requests'. Is that a particularly complex series of requests? It just seems to be a very large amount of time.

Mr Bowen : Yes, it is. Without having more detail here, it is difficult for me to say. But sometimes requests can be complex—or the issues that are being asked about can be complex. The agency concerned may be very busy. Requests that have taken 50-plus days are very much outriders, as you can see.

Senator MOORE: When you go up above 'Average days overdue' for 'Currently overdue requests', I would imagine that 43 business days could be blown out by having just a couple that are 51 and over. That could be quite a negative reflection on the work.

Mr Bowen : It is a small number of outliers. By and large—and I think if you look at figure 3 you can see that the average lateness in business days is only two—in average terms we are not doing too badly.

Senator MOORE: Can you also explain the first graph for me? I understand the timing, but what is the vertical thing—the frequency? What does 'frequency' mean in that sense? In the other two it is numbers—and I understand that it refers to the number of requests—but what does 'frequency' refer to?

Mr Bowen : Which figure are you looking at?

Senator MOORE: It is figure 1. I understand 'Response time—business days'. What does 'frequency' mean?

Mr Bowen : The dotted line is giving our average response time—about 16 days. We have responded to 45 in less than 10 days.

Senator MOORE: So 45 is a number?

Mr Bowen : Yes.

Senator MOORE: In figures 2 and 3, it says 'Number of responses'. In figure 1, I just could not work out what the word 'frequency' was referring to.

Mr Bowen : Yes, it is number of responses.

CHAIR: I understand that concludes the questioning of the Parliamentary Budget Office. I thank you for your attendance today and the information you have provided. It was very comprehensive and greatly appreciated.