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Finance and Public Administration Legislation Committee
25/02/2014
Estimates
FINANCE PORTFOLIO
Department of Finance

Department of Finance

[10:17]

CHAIR: I welcome David Tune, the Secretary of the Department of Finance, and officers of the department. Officers and senators are familiar with the rules of the Senate governing estimates hearings. If you need assistance, the secretariat has copies of the rules. I particularly draw the attention of witnesses to an order of the Senate of 13 May 2009 specifying the process by which a claim of public interest immunity should be raised. The committee has set 11 April 2014 as the date by which answers to questions on notice are to be returned. Officers called upon for the first time to answer a question should state their name and position for the Hansard record, and witnesses should speak clearly into the microphone. Mr Tune, do you wish to make an opening statement?

Mr Tune : No.

Senator SESELJA: Mr Tune, I think yesterday there was some commentary in relation to the 14½ thousand job cuts that Labor set in train before they lost office. I am told that Senator Lundy has claimed that the figures that we have referred to, and which I think were referred to in this committee in November, were not verified. Given that, I want to revisit some of those figures and get you to confirm their veracity. There were three elements. Can we firstly consider the 846 job losses for 'more efficient management structures'. Was this figure announced in the 2013-14 budget and again in the 2013 economic statement?

Mr Tune : Yes. There were a range of measures that were announced in the 2013-14 budget and some further ones in the 2013 economic statement prior to the election. Our view was that that would lead to a reduction of about 800.

Senator SESELJA: Thank you. So that is verified. Secondly, I believe Finance calculated that the additional efficiency dividend increasing to 2.2 per cent over three years, saving around $1.8 billion over the forward estimates, would entail the loss of 4,808 jobs.

Mr Tune : That is correct. The increase in the efficiency dividend was 2.25 per cent rather than 2.2 per cent.

Senator SESELJA: Thank you for that correction. Isn't this cut a decision that was announced in the 2013 economic statement?

Mr Tune : Part of the increase in the efficiency dividend was announced in the 2013 economic statement, so that is correct.

Senator SESELJA: It is now factored into agency budgets?

Mr Tune : Correct.

Senator SESELJA: And what was—

Mr Tune : I should clarify. The dollars it relates to are factored into agency budgets.

Senator SESELJA: What was the basis for this estimate and how did you arrive at it? For instance, was the estimate of positions consistent with your usual methodology for calculating how budget changes flow into staff versus non-staff figures?

Mr Tune : In broad terms it was. That is correct.

Senator SESELJA: At what level in Finance was there sign-off for the advice that this $1.8 billion saving would cost around 4,800 public sector positions?

Mr Tune : I think that, ultimately, I would have signed off on that. I was closely involved in the methodology and the calculations.

Senator SESELJA: Fantastic. Finally, the third element, I think, was the estimated reduction of 8,800 positions, which I believe is implicit in the measures agreed up to and including the 2013-14 budget. That included decisions to end programs or to not replace terminating programs?

Mr Tune : It was a combination of things. As you said, it was the number we thought was implied by looking at the wages and salaries that are the result of a number of measures, including terminating programs or lapsing programs—but also the past effects of things like the efficiency dividend as they flowed through the system. There were a whole series of things that accumulated over time.

Senator SESELJA: So these are all effectively implicit in the 2013-14 budget?

Mr Tune : Correct.

Senator SESELJA: Again, the estimate of positions was consistent with the usual methodology for calculating staff versus non-staff?

Mr Tune : Correct.

Senator SESELJA: Again, at what level in Finance was there sign-off for the advice?

Mr Tune : The three elements we have talked about were all done as one piece of advice and one piece of analysis. So the answer is the same. I signed off on it myself.

Senator SESELJA: So we can verify those three elements ticked off by the head of Finance—846 for more efficient management structures, roughly 4,808 as a result of additional efficiency dividends, and around 8,800 from a range of measures, including termination of programs and the flow-through of previous efficiency dividends.

Mr Tune : That is correct.

Senator SESELJA: Thank you very much.

Proceedings suspended from 10:22 to 10:38

Senator WONG: Mr Tune, I want to talk to you about the fiscal strategy that is set out in MYEFO. I take you to page 26. As I understand it, the government is essentially saying that they are no longer applying the fiscal rules which were in place in the 2013-14 budget, the PEFO and the economic statement and that they will outline details of their medium-term fiscal strategy in the 2014-15 budget. Can you confirm that?

Senator WONG: As I understand this—and perhaps you can confirm this with me—essentially what the government is saying here is that it is no longer applying the fiscal rules which were in place in the 2013-14 budget and the PEFO and the economic statement; and they will outline details of their medium-term fiscal strategy in the 2014-15 budget.

Mr Tune : It certainly says the latter there, as you can see; but as to the former, it has not said it is not complying with that. It just says it will outline its medium-term fiscal strategy in the next budget process. Earlier on on the page you can see there the long-term commitment and medium-term commitment around building a surplus of at least one per cent of GDP by 2023-24. That is a work in progress, basically.

Senator WONG: Sure. But at the point at which MYEFO was prepared, what is your understanding of the government's position in relation to the fiscal rules which were previously in place?

Mr Tune : I do not think the government has made a commitment to those fiscal rules.

Senator WONG: Sorry?

Mr Tune : The government has not made a commitment to those fiscal rules.

Senator WONG: Has not?

Mr Tune : That is right, because they applied to the previous government.

Senator WONG: Sure.

Mr Tune : And it is going to work its way through that, and there will be some announcements in the budget.

Senator WONG: So you took issue with how I described it. Would a better way of outlining this be by saying, 'The fiscals which were previously in place are no longer our fiscal rules, and we will consider what the new fiscal strategy and fiscal rules will be in the 2014-15 budget'?

Mr Tune : Yes, I think that is probably a fair way to characterise it.

Senator WONG: Which means that for the purposes of preparing this MYEFO, the assumptions which flow from some of those fiscal rules were not included in the document?

Mr Tune : Issues like the two per cent of real growth and so forth?

Senator WONG: Correct.

Mr Tune : That is correct, yes.

Senator WONG: So there was a decision—and let us just remind ourselves that the medium-term fiscal strategy was to achieve budget surpluses on average over the medium term. Correct?

Mr Tune : Yes.

Senator WONG: To keep tax as a share of GDP below the average of 2007-08, being 23.7 per cent?

Mr Tune : Correct.

Senator WONG: Improve the government's net financial worth over the medium term?

Mr Tune : That is right.

Senator WONG: And in addition, post the GFC, the government also committed to allowing the level of tax receipts to recover naturally as the economy improves, maintaining the cap on tax to GDP?

Mr Tune : Yes.

Senator WONG: And also holding real growth in spending to an average of two per cent per year whilst the economy is growing at or above trend until the budget surplus is one per cent.

Mr Tune : That was part of the strategy.

Senator WONG: And that was the basis on which the economic statement was done, and the budgets were done, post the 2008-09 budget.

Senator Cormann: Not post the 2008-09 budget. I think that you will find there were some adjustments to your strategy along the way because, of course, the previous government kept promising surpluses and kept delivering more deficits. When you now say that your strategy was to deliver a surplus over the medium term, in 2012-13, the Treasurer told the House of Representatives and the world that the deficit years were over and the surplus years were here, only to deliver and project four more years of deficits in the 2013-14 budget one year later.

The situation we inherited is a situation with $123 billion worth of projected deficits over the forward estimates period and government debt heading for $667 billion without any corrective action. What the government has done in the Mid-Year Economic and Fiscal Outlook is firstly to ensure that some of the economic parameters underpinning the forecast were more realistic than what was in place under the previous government.

For example, the previous government used to use a technical assumption that saw the unemployment rate automatically fall back down to five per cent in the two final years of the forward estimates which, given all of the other parameters and projections, was completely unrealistic. This is the way the previous government approached their forecasting; it was to always overestimate and under-deliver. And that is why the previous government was always chasing its tail: after having promised improvements, having to deliver yet further deteriorations in the budget bottom line. As far as the fiscal rules of this government are concerned, we will be delivering our first budget—the 2014-15 budget—on the second Tuesday in May. The Treasurer, in particular, who is responsible for inclusion of the fiscal rules in the budget, will have more to say about all of that in good time between now and then.

Senator WONG: As I was saying, Mr Tune, the rules you have agreed were in place have essentially been in place since just after the 2008-2009 budget I think, is that right?

Senator Cormann: That is the point that I just made. They changed subsequent to 2008-09 under your government.

Mr Tune : I think it is fair to say they were rules that applied in the 2012-13 budget.

Senator WONG: I think we confirmed on the last occasion but can you just confirm again that PEFO is the only budget update which is done completely independent of government?

Mr Tune : That is correct.

Senator WONG: This was issued by you and Dr Parkinson, as secretaries of Finance and Treasury respectively, and that showed the budget returning to surplus in 2016-17, is that correct?

Mr Tune : At the time, that is correct.

Senator WONG: It showed net debt returning to zero in 2023-24?

Mr Tune : Yes, that is correct.

Senator WONG: You looked at real payment growth over the forward estimates period, 2013-14 to 2016-17, which averaged 1.3 per cent over the five years, including the 2012-13 year. I will take you through it: 2012-13 was actually a reduction in expenditure, so negative 3.2 per cent; off that lower base 2013-14 is 5.6 per cent; 2014-15, 1.6 per cent; 2015-16, 0.8 per cent; and 2016-17, 1.8 per cent.

Mr Tune : This is PEFO?

Senator WONG: I am looking at PEFO and the 2012-13 year.

Mr Tune : I cannot find it quickly, but those numbers do not sound incorrect.

Senator WONG: Unless the summary fact sheet I am reading off is wrong; I am not trying to mislead you. That was the budget position as declared independently by Treasury and Finance as at the election, correct?

Mr Tune : Yes.

Senator WONG: In terms of MYEFO, in relation to the questions on fiscal strategy, I just want to be clear: I assume that the non-application of the previous fiscal strategy was a direction of government?

Mr Tune : The government framed its MYEFO on the basis of updated forecasts; it also updated policy decisions that were made subsequent to PEFO.

Senator WONG: I am interested in the assumptions.

Mr Tune : The assumptions of the fiscal strategy?

Senator WONG: Correct.

Mr Tune : I think the situation is the same as I said earlier—it is a work in progress.

Senator WONG: In relation to the spending growth documents, who directed you to use the five years to 2012-13 as the basis of assessment of spending growth? Was that a decision of government?

Mr Tune : I cannot recall.

Senator WONG: Did you independently determine to use five years going back to 2008-09?

Mr Tune : As I said, I cannot recall. I can check back for you if you like, take it on notice.

Senator WONG: It is a pretty important point. Was this a government policy or was this a Treasury and Finance decision?

Mr Tune : As I said, I will take it on notice. I cannot recall. I do not think there was any direction.

Senator WONG: In PEFO and in previous documents you looked forward as well as back. Here you have included the 2008-09 year. I am trying to work out on what basis the 2008-09 year was included. That is on page 23. Actually I am not sure that is right. Sorry, that was the forward projections.

Mr Tune : So 3.7 relates to—

Senator WONG: That is your forward projections.

Mr Tune : Between 17 and 23-24.

Senator WONG: The figure of 3.7 per cent arises as a result of the calculation of spending over the five years to 2012-13; is that not correct?

Mr Tune : Are you referring to the number on page 3?

Senator WONG: I am. It is in the penultimate paragraph on page 3. It says:

Actual average real spending growth over the five years to 2012-13 has been almost double that at around 3.5 per cent.

Can you confirm that the five years to 2012-13 include the 2008-09 year?

Mr Tune : I am assuming it would, if you go back five years from 2012-13.

Senator WONG: What happened in the 2008-09 year?

Mr Tune : The GFC.

Senator WONG: And what happened to government spending in the 2008-09 year?

Mr Tune : It increased substantially.

Senator WONG: Were you one of the individuals involved in that, Mr Tune?

Mr Tune : I was, yes.

Senator WONG: What was occurring in the world at the time, in 2008-09?

Mr Tune : As you are aware, there was a recession in many parts of the world.

Senator WONG: What were the risks that Australia was facing at the time in which the 2008-09 budget was framed?

Mr Tune : It was facing the risk of going into recession itself and the financial sector was under serious strain.

Senator WONG: Correct. What occurred as a result in the 2008-09 year? Was there a significant stimulus spend?

Mr Tune : There was, indeed.

Senator WONG: It would be logical, therefore, if you include a substantial stimulus spend year in your estimates that you are going to get a much higher average spend over the five years; correct?

Mr Tune : You would, yes. Arithmetically, that is true.

Senator WONG: Who directed Treasury or Finance to put the 2008-09 year into determining the average spend?

Mr Tune : That is one I will have to take on notice.

Senator WONG: Was that a decision of cabinet?

Mr Tune : I would not have thought so.

Senator WONG: Did the fiscal strategy go to cabinet?

Mr Tune : The fiscal strategy, as I said, is a work in progress.

Senator WONG: So at the time MYEFO was written there was no cabinet decision on the fiscal strategy?

Senator Cormann: Can I clarify something on process. MYEFO 2013-14 was an update on Labor's last budget.

Senator WONG: No.

Senator Cormann: That is absolutely what it is.

Senator WONG: That is your political spin.

Senator Cormann: It is an absolute fact. It is a matter of public record—

Senator WONG: It is a political document to justify—

CHAIR: Order! One at a time. Senator Wong and Senator Cormann, I want to call you up on two things. Firstly, do not speak over each other. Secondly, I would ask that you address each other with respect. I know you may be personal friends but you should address each other as 'Minister' or 'Senator'. I know that may be stretching it, but we need to try to do the right thing. Please refer to each other in a senatorial away and do not talk over each other. Minister, you are responding to a question.

Senator Cormann: It is a matter of public record that Labor's last budget, delivered in May 2013, was the 2013-14 budget. As happens every year, towards the end of the calendar year there is a half-yearly update on progress in relation to the budget delivered in May. It is a matter of public record that the Mid Year Economic and Fiscal Outlook for 2013-14 was an update on Labor's last budget. What we, the Treasurer and I, are currently working on with the Prime Minister and the cabinet is putting together the budget for 2014-15, which will be our first budget. The budget that we inherited was a budget in very bad shape. It had $123 billion worth of projected deficits.

Senator WONG: That is a lie.

Senator Cormann: It had government debt heading for $667 billion.

Senator WONG: It is a lie. You should stop lying to the Senate.

CHAIR: Senator Wong, you know that language is unparliamentary.

Senator WONG: And I maintain it.

CHAIR: Let the minister conclude his answer and then you can respond but, please, use parliamentary language.

Senator WONG: He should stop lying.

CHAIR: Senator Wong, I do not want to call you on that again. Minister, conclude your answer.

Senator Cormann: Thank you, chair. I know that Senator Wong is very sensitive on this, because in her period as minister for finance she presided over budget blow-outs to the tune of about $107 billion. So I understand that Senator Wong does not want us to reflect back on the record of the previous government when it comes to budget management, but the truth of the matter is that the state of the budget that we inherited was in very bad shape. We are dealing with $123 billion worth of projected deficits and government debt heading for $667 billion. We are very focused on turning that situation around, obviously. The 2014-15 budget will be our plan to repair the budget. It will be part of, obviously, a broader economic plan which will focus on strengthening the economy, creating more jobs and making sure that we put government spending on a more sustainable basis. That is what people across Australia elected us to do.

Senator WONG: Mr Tune, can you confirm that the medium-term projections do not include the two per cent rule?

Mr Tune : No, not exclusively.

Senator WONG: They do not include it—full stop?

Mr Tune : No.

Senator WONG: Who directed you to do that?

Mr Tune : I do not think anybody directed us, Senator.

Senator WONG: Why did you decide—

Mr Tune : The numbers came out as the numbers came out.

Senator Cormann: It is an update.

Senator WONG: I have not finished asking the question. Mr Tune, the government has produced a document which has medium-term projections that do not include the application of the fiscal rules which were previously in place. Correct?

Mr Tune : That is correct. What we had done in PEFO, in fact, was the same thing. We said: 'What did we think—Finance and Treasury combined—was happening to the underlying trend in outlays going out to the medium term, abstracting from the two per cent rule? The two per cent rule implied that the savings would be made to offset the costs in some way. We were taking away that constraint and just saying: 'What was the underlying policy at that point in time?' Therefore, it goes through, as you can see in the graphs in both the PEFO and the MYEFO, the underlying growth in outlays is quite substantial in the out years.

Senator WONG: If the MYEFO is supposedly an update of Labor's budget—which the government keeps asserting, which is incorrect; but let us just take that fiction for the moment—then wouldn't you continue to apply the former government's fiscal rules?

Mr Tune : No. The MYEFO is an update. It bases it against two things, and you can see it on page 29. It bases it against changes that have occurred since the 2013-14 budget, as you were implying; and, secondly, it takes what happened between PEFO and MYEFO. So there were two updates. It was a base of 2013-14, then there was PEFO and then there was MYEFO. These numbers in the early years are not that much affected by the medium-term strategy. It is the out years beyond the forward estimates where we were looking at those graphs that talked about what we thought was going to happen in the medium term, which is where the points you are raising become more relevant.

Senator WONG: It is correct, isn't it, that the medium term projection in the 2013-14 budget papers reflected the government's fiscal strategy? Real growth in spending—I am reading from Budget Paper No. 1—is assumed to be held to:

… 2 per cent a year, on average, until the surplus is at least 1 per cent of GDP, and while the economy is growing at or above trend …

Mr Tune : That was an underlying assumption, yes. You put a constraint on spending and that is how the numbers come out. If you take away that constraint, the underlying numbers increase.

Senator WONG: Correct. And in the MYEFO that constraint has been removed.

Mr Tune : Correct.

Senator WONG: And that is a policy decision.

Mr Tune : In essence, I suppose it is the work of what happens if you take away a constraint.

Senator Cormann: If I might just say—

Senator WONG: Sorry—

Senator WONG: Could I have Mr Tune repeat his answer before you jump in for another lecture?

Senator Cormann: I am adding to the answer.

Senator WONG: I could not hear his answer.

CHAIR: Perhaps, Mr Tune, if you could you repeat your answer, and then Minister Cormann—

Mr Tune : All I was saying was confirming that, if you take away the two per cent real growth constraint, the numbers that we put into both PEFO and MYEFO give you higher growth and outlays.

Senator WONG: Correct.

Senator Cormann: But the obvious—

Senator WONG: Senator—

Senator Cormann: I am just adding to the answer, Senator Wong.

Senator WONG: is it possible for me to just keep asking questions?

Senator Cormann: No.

Senator WONG: I am following up the secretary's answer.

Senator Cormann: I am using my prerogative to add to the answer. The point here is very important and obvious. Just because the previous government imposed a so-called rule to constrain spending, that does not mean that they actually did in practice. We had to deal with all sorts of legacy issues where you were imposing rules that were not followed and where you declared from on high that you expected X, Y and Z to happen. But at every update, you had to report on a deterioration in the position because spending was higher than you had projected and revenue was lower. What we set out to do in the Mid-Year Economic and Fiscal Outlook, which is an update on your last budget, is present the true state of the budget. We were totally committed and totally focused on finding the bottom in what was a rapidly deteriorating budget position under Labor. So just maintaining an artificial rule on paper, which cannot be delivered in practice because the hard work had not been done to give effect to it, does not actually make any sense. If you want to present the truth and the true state of the budget, you actually have to present the numbers in the update the way they have evolved by that time. As I have said before, we will be presenting our plan to repair the budget that we have inherited from the previous government in May when we deliver the 2014-15 budget.

Senator WONG: Mr Tune, you reference PEFO. In fact, in your medium-term projections in PEFO at appendix F you model the 'no policy change' scenario, which is the two per cent, and a range of different scenarios. The various charts there show the result if you change the underlying assumptions. Is that correct?

Mr Tune : That is correct. We did a couple of scenarios.

Senator WONG: But in the government's MYEFO you discarded the two per cent for the purposes of the medium-term projections and the various figures that the government is using, like the $123 the minister just used, did you not?

Mr Tune : Yes, we did.

Senator WONG: So it is a political decision to remove the fiscal rules that had previously been in place—

Senator Cormann: No.

Senator WONG: which will automatically generate higher numbers. Is that correct?

Senator Cormann: It is about honestly and transparently presenting the true state of the budget, rather than presenting some fiction. I remind you, Senator Wong, that you delivered a budget in May which was wrong within weeks. In the 11 weeks from the budget in May to the economic statement, the budget position deteriorated by $33 billion—about $3 billion a week—because your budget was a work of fiction. You underestimated expenditure, you overestimated revenue and you were always chasing your tail. Your budget updates always came in much worse than what you predicted and promised at budget time. What this government is doing—and we are not making any apology for it—is presenting the true state of affairs and the facts when it comes to the budget in an open, honest and transparent way. We absolutely make no apology for it, because, if we want to repair the budget and fix the mess that we have inherited from our predecessors, the start of that has got to be to tell the true state of the budget that we have inherited, and that is what we are doing.

Senator WONG: Going back to your answer before the minister spoke, Mr Tune, I think you agreed with me that removing that constraint generates a much higher number for deficits and net debt. Is that correct?

Mr Tune : That is correct. We called that scenario the underlying trend scenario in the PEFO.

Senator WONG: But you created no such scenario for MYEFO?

Mr Tune : No, we did not.

Senator WONG: So in PEFO the Australian people get Treasury and Finance's assessment of what the budget will look like if you apply the two per cent rule and various fiscal rules and what it will look like if you do not. There are no figures presented in MYEFO which applied the constraints that the government previously had in place. Simply—

Senator Cormann: Are you suggesting we spend too much?

CHAIR: Minister, perhaps you could let Senator Wong finish.

Senator WONG: But you instead have a set of assumptions which will generate higher deficits and higher levels of debt.

Mr Tune : It is the underlying trend assumption in MYEFO.

Senator WONG: Which will generate high levels of debt and deficit?

Mr Tune : Yes.

Senator WONG: It generates more scary numbers, basically.

Senator Cormann: More realistic numbers.

Senator WONG: More scary numbers.

Senator Cormann: More realistic numbers. Your number were absolutely proven wrong within 11 weeks—

Senator WONG: Who is sensitive now?

Senator Cormann: Before the election, you were forced to rush out, to fess up, about what a disgraceful work of fiction your budget was in May. It was completely inaccurate. Now I just make this point again. The reason I am sensitive is that, after your record of waste, mismanagement, massive debt and deficits, for you to come in here and criticise us for actually presenting the true state of the budget—for setting out to ensure that the budget numbers are actually credible, believable and stand the test of time, and do not have to be adjusted downwards every couple of weeks as they had to be under you—is quite extraordinary, Senator Wong, with all due respect. We are doing what needs to be done to repair the budget mess we have inherited from our predecessors, and the first step in repairing the budget mess that we have inherited is to present the facts as they are and to have realistic assumptions, not scary assumptions. There is a discussion, as you would know, in the Mid-year Economic and Fiscal Outlook, that clearly explains that our assumptions and our forecasts are based on conservative consensus views.

Senator WONG: Mr Tune, I think we have agreed that PEFO contains a number of projections with different assumptions; correct?

Mr Tune : Yes.

Senator WONG: But those different sets of assumptions are not reflected in MYEFO?

Mr Tune : The underlying trend, that scenario, is more or less the one that is in MYEFO.

Senator WONG: I am sorry. Only one scenario is in MYEFO—that is, the no spending-growth constraints scenario. Correct?

Mr Tune : That is right, and also receipts going forward. Fiscal drag, in other words.

Senator WONG: Given that the secretaries of Treasury and Finance made an independent decision to include both scenarios in PEFO—a scenario that reflected the previous government's fiscal strategy, including rules around spending growth, as well as the no-constraint scenario—can you tell me who made the decision not to include the two per cent scenario in MYEFO?

Mr Tune : The MYEFO, as you know, is the government's document, so what goes into MYEFO is a decision of the government.

Senator WONG: Mr Tune, I noticed in MYEFO that the upgrade to the John Gorton Building was included. Is that right?

Mr Tune : Yes, it is.

Senator WONG: Did you have to offset that expenditure?

Mr Tune : I do not think we did, Senator.

Senator Cormann: Can I just make a point here. Again, it is one of the legacy issues we have inherited from the previous government. When I became the Minister for Finance, literally, rocks were falling off the building of the finance department. It was not safe for people to walk alongside the John Gorton Building, because there was a risk that somebody might end up with a rock on their head. That was one of the early decisions we had to make: whether or not we would allocate some money to ensure that people could actually safely walk around the John Gorton Building. You would know what the departmental budget for finance is and know that there was not a requirement and there was not a capacity to offset that. But of course in the 2014-15 budget we will be looking at the budget as a whole to make up for these sorts of expenditures.

Senator WONG: The previous government had applied an offset rule for new expenditure, Mr Tune.

Mr Tune : That is right.

Senator WONG: Was that applied in MYEFO?

Mr Tune : In many situations it was, yes. You will find in MYEFO a mix of spends and saves.

Senator WONG: Were NPPs, including election policy, permitted to come forward without offsets?

Mr Tune : Yes.

Senator WONG: They were?

Mr Tune : Election commitments were, yes, basically—

Senator WONG: Election commitments were not required to be offset?

Mr Tune : In effect, yes—because the election commitments themselves had spends and saves.

Senator WONG: Maybe you will need to take this on notice, but are you able to tell me which of—or maybe you can take me to it—the MYEFO measures were not fully offset?

Mr Tune : I would have to take that on notice.

Senator WONG: I will move now to ODA. I refer to chart 3.1 on page 21. In this chart, you assume a return to the former government's target of 0.5 per cent of GNI by 2017-18?

Mr Tune : Yes, from 2017-18 onwards.

Senator WONG: But, at this stage, that is not the current government's policy.

Mr Tune : The government's election commitment was to grow the ODA budget by the rate of inflation across the course of the forward estimates. Our normal approach to that would be, as we have done here—unless there is another policy decision—to change that and go back to what was in the base. What was in the base is the target of 0.5 per cent.

Senator WONG: They indicated in their election policy, 'however, it is not possible to commit to a date.' In the absence of a date, you have just—

Mr Tune : You go back to your base policy until there is something firm.

Senator WONG: There was an announcement on 18 January, I believe it was, by the foreign minister about the range of cuts to ODA.

Mr Tune : I think that is correct.

Senator WONG: Would that change the assumptions which are reflected in this chart 3.1?

Mr Tune : No.

Senator WONG: Because that related to the—

Mr Tune : I think that only relates to—

Senator WONG: Within the forward estimates?

Mr Tune : Yes, I think that is right.

Ms Huxtable : I think that announcement related primarily to the 2013-14 financial year.

Mr Tune : Yes, it does. I have it in front of me.

Senator WONG: The same with Students First—or is it Schools First? It is called both: Students First in the graph and Schools First in the note. Did they change the name halfway through? The spin doctors got to it, did they, and had to change? You assume in that no changes to the former government's policy except those announced in December 2013. Is that right?

Mr Tune : That is correct.

Senator WONG: In relation to both ODA and that assumption—was that Finance generated? Or was that assumption Treasury generated?

Mr Tune : That would have been Finance, given it is on the expenses side. The principle would be the same on Students First. Decisions are made up until a certain point in time. In order to do the medium-term stuff, you go back to the base until another decision is made.

Senator WONG: In terms of 'Part 2: Economic Outlook', which was primarily drafted by Treasury—to what extent was Finance involved in the drafting of that part?

Mr Tune : Not greatly. Let me have a look at it.

Senator WONG: Were you or any of your officials engaged in discussions with Treasury regarding the change of methodology for the projected unemployment rate and the calculation of the terms of trade?

Mr Tune : No. Treasury, as you know, are responsible for the estimate of unemployment as part of the overall macro projections. So that was made by them and then converted into the dollars.

Senator WONG: When were you aware of that?

Mr Tune : I could not give you a date, but a couple of weeks before.

Senator WONG: There is a gentleman behind who is jumping out of his seat to answer my question.

Ms Huxtable : It was just in the lead-up to MYEFO.

Senator WONG: What does that mean? The day before?

Ms Huxtable : I think, as the secretary said, in the weeks before.

Senator WONG: So would it be correct to say that it was a reasonably early decision?

Mr Tune : When we get the new parameters, which is usually a couple of weeks before that—

Senator WONG: It is a couple of weeks, yes. I will just take you to one election commitment which I could not find in MYEFO—that is, the indexation of military superannuation. There is not an explicit policy decision in appendix A, is there?

Senator Cormann: In relation to all of the election commitments, provision was made in the contingency reserve. That will be reflected as decisions are finalised and all of the processes have come to a conclusion which will lead to implementation of those policy announcements.

Senator WONG: So the decision has been taken but not yet been announced?

Mr Tune : Yes.

Senator WONG: The difficulty I have there—

Mr Tune : Sorry—what I said there is incorrect. It is not actually a decision taken yet; it is just in the CR. There is a provision in the CR for election commitments per se—for decisions to be taken in the budget.

Senator WONG: So it is not a decision taken by government yet.

Mr Tune : It is a decision taken but not announced. It is just a subcomponent of the CR.

Senator WONG: Yes.

Mr Tune : I am just being technical, sorry.

Senator WONG: No, it is very interesting because I am not sure that the way in which the minister himself or others have spoken about it would suggest that there is no decision taken by government on this. In fact, they have been spruiking it—

Senator Cormann: There is a clear commitment, and we are progressing the implementation of the commitment—

Senator WONG: He has just said that no decision has been taken.

Senator Cormann: We are working through the mechanics of formalising it, clearly—and we still have time to hit the deadline, obviously.

Senator WONG: How many other election commitments are in the contingency reserve but not in the decisions-taken-not-yet-announced?

Mr Tune : I do not have the number, but, if you look at page 64 of MYEFO, you will see that the final paragraph there talks about some of the big ones that are not yet included, including the Paid Parental Leave scheme, the Emissions Reduction Fund and the ODA. It is quite explicit. It basically says that every election commitment is either in MYEFO or in the CR for final decision in the budget except for the last sentence there, which is around the 12,000 reduction in the Australian Public Service which will be assessed as part of the National Commission of Audit. So it is everything except that, and, where it is in the CR, it is put in the provision as per costed by the PBO and released by the government during the election campaign.

Senator WONG: Do the others—medium-term net debt, net financial worth and net worth: all of those longer term measures—reflect all of those election commitments as well?

Mr Tune : Yes, they do.

Senator WONG: So the full effect on the fiscal balance of the military commitment is reflected in the MYEFO, in the aggregate?

Mr Tune : MYEFO is only the first four years, remember.

Senator WONG: But you have longer-term projections—

Mr Tune : Okay, but fiscal balance is not in the longer term ones; they are UCB. It will get reflected in the net debt, I think.

Senator WONG: On military superannuation: when you have costed that measure, I assume you have examined the effect on the unfunded superannuation liabilities.

Mr Tune : In terms of costing it for its impact on the budget it is the first four years, obviously. If you are looking forward beyond that there is an impact—as you were implying—which we can calculate.

Dr Helgeby : As Mr Tune indicated earlier, decisions on this matter will be announced as appropriate in the budget. When they are, they will include full impacts on the unfunded liability.

Senator WONG: That was not my question. Have you examined, for the purposes of preparing MYEFO, the effect of the government's election commitment on the unfunded liability?

Mr Tune : I should take this on notice, because it gets a bit technical. But my feeling is that we would have done so, because it was an election commitment and therefore it has an impact out beyond the medium term. So it should be factored into the net debt calculations in some way. But I will confirm that for you.

Senator WONG: Maybe you can come back on what I am actually trying to clarify, which is as follows. On the occasion prior to the last, Dr Helgeby, you indicated a calculation of around $6.2 billion. That was on the basis of actuarial work that had been done by Defence. I just want to know whether there has been any update to that.

Dr Helgeby : The figures we discussed last time are the figures that are appropriate at this point in time, until a decision is made. They will be—

Senator WONG: I am not asking you yet what those figures are; we can have that discussion. I just asked you if you have updated the effect on the unfunded liability since you last gave evidence to this committee.

Ms Ong : The MYEFO liability figures include the impact on the unfunded liability for the previous government's measure.

Senator WONG: That is different evidence to what was given before.

Ms Ong : This is the impact on the liability.

Senator WONG: Unfunded liability is an immediate impact on the balance sheet. Is that correct?

Ms Ong : Yes.

Senator WONG: But I thought that we had established that that is included in MYEFO. My question was: have you updated the assessment of that unfunded liability since we last spoke?

Mr Tune : I think the answer is that the specifics of the election commitment are not yet in there because it will follow from the decision when that is made. I will confirm for you whether it was in the net debt calculations we did for the medium term.

Senator WONG: Do you want to take that on notice?

Mr Tune : I will have to take that on notice.

Senator WONG: Okay. I will ask this next question in different parts because, if you say no, I want to get as far as I can. Has there been an update of the assessment of the unfunded liability since May—or November; I cannot recall, Dr Helgeby, when you told us the 6.2—and, if so, what is that updated figure?

Dr Helgeby : Okay.

Senator WONG: So, even if we argue about 3, you can at least tell me whether or not you have in fact updated it.

Mr Tune : Yes, we can do that.

Senator WONG: I think I asked you question in the last round about the savings from the measure announced in November 2013 regarding the abolition or rationalisation of 21 non-statutory bodies. You said you had not quantified savings as a result of this action. Can you explain why?

It is F62:

The rationalisation will remove duplication of effort and ensure expert advice …

Savings that result have not been quantified by Finance.

Mr Tune : Largely because the last sentence says:

Portfolios have the discretion to direct savings to replacement activities or as a contribution to broader portfolio efficiencies.

So the net effect was zero, basically.

Senator WONG: And the savings were not significant?

Mr Tune : Not that big, no. Many of these were advisory bodies.

Senator WONG: I had some questions on PGPA, but I will put them on notice in case we do not have time. Can I go to the estimates variations, please—in particular the assumptions around unauthorised maritime arrivals. Then I have a range of other questions. I assume the numbers I have here are correct, Mr Tune, but just for fairness I will take you through them. The PEFO assumption for UMAs for 2013-14 was 15,600, for 2014-15 8,826, and for 2015-16 and 2016-17 4,452.

Mr Tune : I think that is right. I think we stated it in PEFO, from memory.

Senator WONG: Yes. Then in MYEFO you have a significant reduction—an estimates variation of over $2 billion, which largely reflects a reduction in the forecast number of IMAs. Are you able to tell me what those assumptions are?

Mr Tune : Yes. For MYEFO we had an estimate for arrivals at 541 per month from December 2013 for the remainder of 2013-14, 300 per month for 2014-15 and 50 per month from 1 July 2015.

Senator WONG: In the previous budget, I think, you gave evidence to the estimates committee about the methodology you used to arrive at the IMAs.

Mr Tune : It is broadly the same. There is a slight difference in the out years, from memory, but I might get Mr Hallinan to take you through that.

Mr Hallinan : Could you repeat that last question, Senator.

Senator WONG: I would if I could recall it.

Mr Tune : I think it was about whether the methodology we used in MYEFO was pretty much the same as we used in PEFO. I think that was the gist of it. Is that right?

Senator WONG: Yes. How did you arrive at it? In PEFO there is a particular set of assumptions. I think Mr Tune detailed the methodology previously. So I am just interested in the methodology which led to these assumptions.

Mr Hallinan : As Mr Tune outlined, the methodology used in PEFO had a 10-year rolling average for the two out years.

Senator WONG: Correct.

Mr Tune : That has been updated through the MYEFO process, which reflects a lower estimate, and it is materially lower than the 10-year rolling average.

Senator WONG: That is just an explanation of the fact. I am asking what the assumptions were which drove these different arrival numbers. I can read everything you told me.

Senator Cormann: The government is going to deliver and implement a policy in a way that delivers outcomes.

Senator WONG: So there is a 10-year rolling average. There is a new set of assumptions which then generate these outcomes. What is that new set of assumptions, and the methodology?

Mr Hallinan : We have taken a judgement about what has happened with actual arrival rates since July last year, and there has been a marked reduction in arrivals. If we had maintained the previous methodology, we would probably be projecting arrival rates above those that we are experiencing at the moment.

Senator WONG: So you looked at actual arrivals post July 2013.

Mr Hallinan : That is correct.

Senator WONG: Was that the primary basis of these numbers?

Mr Hallinan : Primarily, yes.

Senator WONG: Thank you. What are the numbers of arrivals to date in 2013-14?

Mr Tune : About 7,700.

Senator WONG: Thank you. There is an estimates variation on family tax benefit part A and B as well—correct?

Mr Tune : In MYEFO?

Senator WONG: Yes, which I cannot lay my hands on at the moment.

Mr Tune : I cannot immediately find it, Senator, but it would not surprise me.

Senator WONG: Here we go—page 38. Can you give me a breakdown between FTB parts A and B?

Mr Tune : I could not do that immediately.

Senator WONG: But you know everything!

Mr Tune : No, I don't!

Senator WONG: Can you do the same also in terms of the childcare payments? Can you give me a breakdown between the CCR and the CCB?

Mr Tune : We will see what we can get.

Senator WONG: The estimates variations which are listed, which are obviously only some of them—are you able to provide me with detail now about the profile of those over the forward estimates?

Mr Tune : Not now, but I can take that on notice.

Senator WONG: Really? You would have that. Someone behind you would have that—what each estimates variation is, what 368—

Ms Huxtable : We do not have it with us, Senator.

Senator WONG: You do not have it with you? Really? Okay. If I could have that on notice, please. Was Finance involved in the drafting of the debt statement? Is that what it is called?

Mr Tune : Generally, the debt material in budgets and MYEFO is done by the Treasury.

Senator WONG: Is there any response other than 'generally'?

Mr Tune : We were not involved, Senator.

Senator WONG: Thank you. On pages 61 and 62 is the function and subfunction table—are you able to, on notice, detail these changes between the PEFO and MYEFO? You have done it between the budget and MYEFO.

Mr Tune : We would have to take that on notice, definitely.

Senator WONG: That is fine. Which subfunction or function does the RBA grant fall within?

Mr Tune : Beg your pardon?

Senator WONG: Which function or subfunction does the RBA injection fall within? Would that be under 'other economic affairs'?

Ms Blewitt : That would be in the 'general public services' function.

Senator WONG: 'General public services' function?

Ms Blewitt : That is correct.

Senator WONG: On the CR, there is a movement of $497 million from MYEFO. Can you explain why that has occurred? Page 62.

Ms Huxtable : That is mainly due to the inclusion of the underspend provision in 2013-14.

Senator WONG: The underspend provision in 2013-14? Can you just explain that again?

Ms Huxtable : There are two elements in the forward estimates. One is the underspend provision in the current year which takes into account the fact that, generally, there are underspends in respect of programs in the current year. The conservative bias allowance is the other element, which is over the forward estimates, which basically assumes that the amount of spending that will occur over the forward estimates is underestimated.

Mr Tune : We back that out gradually. We do the first back-out, part of the back-out, in MYEFO and then the full back-out in the budget for the current financial year.

Senator WONG: So the primary impact, or the primary driver, of the $497 million is the unwinding of the underspend provision—is that right?

Mr Tune : Yes. Yes, that is right.

Senator WONG: Can I go now to infrastructure. You might need to take this on notice, unless someone is here who can answer it. Can you break down the individual costs for the following six elements on page 175: Roads to Recovery, road safety black spots, network regeneration and maintenance, heavy vehicle safety and productivity, bridges renewal and planning, and research and evaluation?

Ms Huxtable : Are you looking for the overall cost of those individual elements?

Senator WONG: Yes. You have given me an aggregate figure of $9.5 billion over six years.

Ms Huxtable : I can give you that. Roads to Recovery is $2.1 billion, road safety black spots is $364.5 million—what were the other ones?

Senator WONG: Just go to page 175. Network regeneration and maintenance?

Ms Huxtable : I do not have that one, but heavy vehicle safety and productivity is $248 million and bridges renewal is $300 million. Planning, research and evaluation I do not have broken down in that way.

Senator WONG: Are those six-year figures or forward estimates figures you have given me?

Ms Huxtable : They are 2013-14 to 2018-19.

Senator WONG: They are the components of the $9.5 billion over six years?

Ms Huxtable : Yes.

Senator WONG: Which element is Condah-Hotspur Road included in?

Ms Huxtable : I will have to take that on notice .

Senator WONG: Princes Highway East? I will run through them. Are we going to get a prompt response to questions on notice?

Mr Tune : You might get a better answer out of Infrastructure for these figures.

Senator WONG: I trust Finance more!

Mr Tune : It just might take longer.

Senator WONG: I am going to read them and perhaps you could take on notice the ones you could not give me figures for over the six years, and then if you could also take on notice these: Condah-Hotspur, Princes Highway East, Mount Barker Interchange—can you come back on Mount Barker Interchange today, if possible—Outback Way, Kincora, Shoalhaven River Bridge planning, Jane Street extension, Narellan Road, Moree Bypass, Dalrymple Road and the D'Aguilar Highway. Can you let us know which of the six elements those come under. The only one I am interested in trying to get today is the Mount Barker Interchange—but all of them if possible. There are also 27 local road projects outlined in the government's election policy. Can you tell me where in this measure they would be provisioned for?

Ms Huxtable : I think we will have to take that on notice.

Senator WONG: Do you know what I am talking about?

Ms Huxtable : We are just trying to identify where they are grouped.

Senator WONG: Are they provisioned for within those six elements?

Ms Huxtable : I think we will have to take it on notice.

Senator WONG: Okay. On all of the questions I have asked you on notice, could we have the year-by-year split over the forwards, please?

Ms Huxtable : Yes.

Senator WONG: Thank you. The AusLink measure that we are discussing is a net impact, is it, of $1.1 billion in 2013-14? This is new spending less previous government commitments which were cut.

Mr Tune : Is that at 174?

Senator WONG: Yes.

Mr Tune : Yes, that is the net.

Senator WONG: I might come back to this. I have a couple of questions about the statement of risks. For Australian government domestic property, can you tell me what 'potential remediation issues' means?

Mr Tune : Yes, in general terms I can. We own a fair amount of property, both buildings and vacant land. A lot of the property we own has been inherited, often from previous uses by agencies such as Defence and so forth. We find with a lot of our property that there is contamination of some kind. It can be around asbestos or ordnance that was used for defence purposes in the past—that sort of thing. So, before you can determine a future use for the property, you need to make an assessment of whether such contamination exists and what remediation of the property might be required.

Senator WONG: Can you give me an update on the Davis Samuel case?

Ms Hawley : The update is that it was heard in the court in December last year for final orders and there has been no decision handed down yet.

Senator WONG: Thank you. I have a couple of points arising out of Senator Seselja's question and earlier evidence from you, Mr Tune. I think you previously confirmed to the committee that, in relation to the application of an efficiency dividend, redundancies have never been separately funded.

Mr Tune : No.

Senator WONG: No, as in I am right?

Mr Tune : No, they have not been separately funded.

Senator WONG: That was the case under Mr Costello?

Mr Tune : Yes.

Senator WONG: Regarding the assumptions going forward that you described—I think both to me on the previous occasion and to the senator on this occasion—one of the assumptions you made is that terminating programs would not be refunded.

Mr Tune : That is correct, yes.

Senator WONG: And there are quite a number of terminating programs in the budget—I think drought would be one. Perhaps you could remind me what some of the terminating programs are. There are a lot.

Mr Tune : There are quite a number.

Senator WONG: Correct. 'Device' is probably too strong a word, but it is a process whereby the portfolio has to come back and government has to decide whether the program will continue and, if so, how it should continue and how much should be allocated to it. Correct?

Mr Tune : In effect we have two sorts of situations like that. We call one lapsing programs; they are ones where funds have been provided through the forward estimates or for a specific period of time but there is an assumption that they will probably continue into the future, and they are probably more the ones you are thinking about. Then there are terminating programs where the project or funding has a particular time period attached to it. We were talking about the John Gorton Building earlier on: we have funding for that for a specified period of time—and that is a terminating program, so there is a difference there. So we took account of the terminating programs, those projects or programs that have firm and dates.

Senator WONG: So did you take account of both in your assumptions?

Mr Tune : We are assuming that lapsings continue, so that is what is in the forward estimates. That is not relevant for this purpose. It is the terminating projects.

Senator WONG: Can I go back to infrastructure. With these projects at page 174, excluding the programs which we have been discussing, Ms Huxtable, are you able to give me the profiles which underpinned the MYEFO measure?

Ms Huxtable : I am sorry; I thought we already took that on notice. Is that something else?

Senator WONG: We were talking about the $9.5 billion over six years, which is on page 175, so they are program-level funding. Then I asked some questions about what was included in each of those. Then you have projects which are on page 174, and then over to the next page, which I assume are what was required to construct the MYEFO measure. I am asking for the forward estimate profile of each of those projects.

Ms Huxtable : We will take that on notice.

Senator WONG: You do not have that now?

Ms Huxtable : I do not think so.

Mr Weiss : No.

Senator WONG: But you understand what I am saying, so Bruce Highway—

Ms Huxtable : Yes, that is fine.

Senator WONG: One of the answers you gave earlier, Mr Tune, in relation to ODA was that, essentially in the absence of an alternative policy you applied the previous government's policy for the purposes of that ODA chart that we were discussing?

Mr Tune : Yes.

Senator WONG: But in the absence of a decision about fiscal rules, instead of applying the previous government's policy, as you did in ODA, to the deficit projections going forward, you simply remove any constraint on spending?

Mr Tune : In PEFO we did not, as you know—we had two scenarios. The MYEFO document does do that, that is correct.

Senator WONG: Why does the MYEFO document do that?

Mr Tune : Because that was the choice that was made at the time.

Senator WONG: By the government?

Mr Tune : Yes.

Senator Cormann: As part of our effort to present a true and accurate reflection of the state of the budget.

Senator WONG: Essentially what has happened, and it has been confirmed today, Minister, is that your government has instructed Treasury and Finance to use a set of politically-biased assumptions to generate scary numbers in order to justify your cuts. That is what has occurred. It is quite clear from the evidence given today. We all know, Australians know, the political game that is being played. MYEFO is a political document—

CHAIR: Is there a question, Senator Wong?

Senator WONG: I am speaking as the minister does; there will be a question at the end.

CHAIR: No, no, there is a question—

Senator WONG: There will be a question at the end and I have not finished. This is a political document used for a political purpose—generate a bunch of scary numbers to justify your breach of your election commitments and your cuts.

Senator Cormann: Senator Wong, I completely reject that assertion. Coming from, as I said earlier, a former finance minister who presided over a budget deterioration of $107 billion—

Senator WONG: You cannot debate the issue so you debate the person.

Senator Cormann: Well, it is actually relevant.

Senator WONG: You cannot debate the issue. It shows the paucity—

CHAIR: Order! Senator Wong, you did not pose a question; you made a statement. The minister is entitled to respond and he is entitled to be heard in silence.

Senator Cormann: This goes to the heart of the issue, Senator Wong.

Senator WONG: It is not about me, it is about you; you are the government.

Senator Cormann: The reason Australia finds itself in the mess we are in after six years of bad Labor government is that you did know how to manage money, you did not know how to live within your means, you did not know how to plan a budget. Every single one of your budgets was proven wrong and exposed as a work of fiction within weeks. And, of course, in the lead-up to the last election it was there for all to see: the budget position deteriorated by $3 billion a week in 11 weeks between the budget and the economic statement before the election.

We understand that, as part of repairing the budget mess that we have inherited, we have to restore confidence in the capacity of the Commonwealth to properly plan its budget. That is why, unlike the previous government, we are setting out to ensure that the numbers that are in our budgets and our budget updates are accurate and believable sets of numbers that will stand the test of time. The same way as the previous government was ultimately judged at an election on its performance on these matters, we will be judged on our performance on these matters. People will be able to judge whether our forecasts are more accurate than Labor's forecasts in the past.

Every single time Senator Wong as Minister for Finance was involved in a budget, the budget numbers were proven to be worse within weeks, and at every single budget update Senator Wong had to preside over a further deterioration in the budget bottom line. We will do a much better job than that.

CHAIR: Thank you. Senator Dastyari.

Senator DASTYARI: Mr Tune, I am not the expert that my colleague to my left is on some of this, so I apologise. You are probably going to have to talk me through things a bit more than you would with others. I am not an expert on the different pages of MYEFO and that. Is there somebody here who oversees the procurement process around limited tenders for you?

Mr Tune : There is in the department. I am not sure if they are here.

Senator DASTYARI: Is Ms Mason the person?

Mr Tune : We have a procurement division. Ms Mason looks after that.

Senator DASTYARI: Do you mind if I address some questions to Ms Mason?

Mr Tune : Absolutely. Ms Mason or Mr Sheridan at the end. He runs the division.

Senator DASTYARI: I apologise here because I tried to get some answers out of people yesterday, and they started to explain to me. What is a limited tender?

Mr Sheridan : A limited tender is one where you do not go out to an open tender. An open tender goes to everybody in the market; a limited tender is one where you do not go to everybody in the market.

Senator DASTYARI: Does that mean someone still has to apply? How does it work?

Mr Sheridan : You would go to a limited number of people on the basis of prequalifications or capabilities.

Senator DASTYARI: Does that mean a tender of one or 10?

Mr Sheridan : It could be one or more. It depends on the situation.

Senator DASTYARI: Do the same tendering guidelines still apply apart from the fact that it is not open?

Mr Sheridan : Value for money is still the driving principle behind procurement even in a limited tender. You could not select one person just on the basis that they were the only who applied if they did not provide value for money in the view of the delegate.

Senator DASTYARI: And how does that work? Who selects this? If I am the government and I want to run a limited tender, what do I do?

Mr Sheridan : First of all you would have to satisfy yourself that an open tender was not appropriate.

Senator DASTYARI: What is the criteria for that?

Mr Sheridan : You would use a limited tender when the process does not meet the rules for either open tender or prequalified tender. Essentially, that is around a range of reasons, and I will read them to you if I may.

Senator DASTYARI: Please do.

Mr Sheridan : I will summarise. It is in 10.3 of the Commonwealth procurement rules, and there are a range of reasons. There was an approach to market, and you have not got any value-for-money submissions as a consequence to that. You did not get any submissions in the open approach to market that met the appropriate requirements. No tender satisfied the conditions for participation. There was an extreme urgency brought about by unforeseen events by the agency that meant that you could not wait to go through an open tender. If there are exceptionally advantageous conditions that only arise in the short term such as unusual disposals, unsolicited proposals, liquidations and that form of thing.

Senator DASTYARI: Okay. I am conscious of time and will look it up myself, but I want to understand. It still prohibits the process whereby I am allowed to offer someone a position or contract and then do the limited procurement process afterwards? Is that allowed under the procurement rules?

Mr Sheridan : I think we are combining two different things there. There might be other circumstances in which someone might get a position that is not covered by procurement rules.

Senator DASTYARI: And I imagine they would still be covered—but here is my question. There is obviously still integrity and a set of rules to be followed in the limited tender process. I am not allowed to say, 'Hi, my cousin, mate, friend or whoever' and then say I am going to hold a limited tender process. The limited tender process is actually independent, isn't it?

Mr Sheridan : Indeed, but hiring a person might not be procurement.

Senator DASTYARI: But it still can come under limited tender.

Mr Tune : It could, yes.

Senator DASTYARI: Okay. The tender process is an independent process regardless of whether it is limited tender or not limited tender, and the whole tender process has been created to be independent of political and government process. Is that correct?

Ms Mason : If there is a tender process on the table then there are basically three different methodologies that can be used for procurement. I think Mr Sheridan has made the point that the appointment of a person to a role may or may not be a procurement process under the Commonwealth procurement rules.

Senator DASTYARI: Maybe I will be more specific. I will go to some that are. Maybe that will help. I draw your attention to the engagement of Mr Tony Shepherd and Mr Peter Crone, Mr Shepherd as the head of the Commission of Audit and Mr Crone as the head of the secretariat. I know you have a bunch of people here, so I might just give you the contract numbers. I am sure someone will be able to pull them up for you: contract notice view CN1884191 and CN1884241. They are the two contracts. I am happy to give you a copy of these if that helps and there is no-one there who has them. I imagine you do a lot of these on a regular basis. Explain to me the process for the determination. That is a procurement, right? It says limited tender. Surely it would have to comply with the act.

Mr Tune : The process we followed in that situation was the government made some decisions about who would be on the Commission of Audit. Then the contract was drawn up between us, finance and those individuals.

Senator DASTYARI: I want to get my head around this. How is that a tender then?

Mr Tune : It was not a tender.

Senator DASTYARI: But the contract says limited tender.

Mr Tune : Yes.

Senator DASTYARI: It went on the AusTender website. If it is not a tender then what is it?

Ms Connell : I believe the appointment was made under an eminent persons exemption, which is part of the procurement process.

Mr Sheridan : It is an exemption from division 2 of the Procurement Rules—exemption 7—which allows the engagement of an expert or neutral person.

Senator DASTYARI: Explain this to me. I am sorry, but I am nowhere near the expert that you guys are in this area. Was it a tender?

Mr Sheridan : The method of procurement was limited tender. The limited tender was covered by the fact that this particular appointment was under an exemption to division 2 of the Commonwealth Procurement Rules.

Senator DASTYARI: Then why is there a process? That effectively says that, as long as I deem someone to be an eminent person, I can hire whomever I want.

Mr Sheridan : If the delegate were satisfied that that were the case in a particular circumstance then, yes, that is true.

Senator DASTYARI: Who was the delegate?

Mr Tune : I think I was. I do not know if I actually signed the contract, but I was—

Senator DASTYARI: Okay, here we go. Mr Tune, you were presented with a contract that was decided by government. Who set the price—what these people were getting paid?

Mr Tune : I set the price after reference to the guidelines that exist around remuneration for those sorts of short-term positions.

Senator DASTYARI: And the government told you whom to hire?

Mr Tune : Yes, the government made the decision about whom to hire.

Senator Cormann: That is a matter of public record.

Senator DASTYARI: It is funny you should say that, Senator Cormann, because it is and it isn't.

Senator Cormann: Yes, it is. We take responsibility for the appointments to the Commission of Audit, including the head of the secretariat. There you go; you have it on the public record.

Senator WONG: Mr Tune, remind us, please, about the exemption from the Procurement Rules that Mr Sheridan referred to for eminent persons. Is it simply that the delegate considers someone to be eminent or is there some other criterion or list? I am sorry if this question has been asked.

Mr Tune : I do not know if we have any firm criteria. Do we, John?

Mr Sheridan : The entire exemption says:

… the engagement of an expert or neutral person, including engaging counsel or barristers, for any current or anticipated litigation or dispute

Senator WONG: So it contemplates QCs and SCs. But, other than that—

Mr Sheridan : My understanding is that it includes them in the definition.

Senator WONG: Is that the only definition? There are no other criteria?

Mr Sheridan : That is clause 7. That is all it says for that particular exemption.

Senator WONG: That is the exemption we are discussing. Therefore it is just whether Mr Tune or whoever thinks someone is eminent—that is the only basis for the ability to use that subclause. Is that right?

Mr Sheridan : That is correct.

Senator DASTYARI: I want to go back to something Senator Cormann said. What is the process, Mr Tune? Who told you that these were the people you were hiring?

Mr Tune : The government. The government announced it.

Senator Cormann: The process is exactly the same as it was under the previous government in those circumstances. The Treasurer and I took a recommendation to cabinet. Cabinet endorsed the recommendation. Relevant departments across government then implemented the decisions made by the cabinet.

Senator DASTYARI: There are two different bits of evidence here. Senator Cormann, you have stated that the Prime Minister's office has had no role in the process—I am not playing a gotcha thing, so I will tell you exactly where you said that.

Senator Cormann: I know exactly. It is in one of the timely answers to question on notice that we provided.

Senator DASTYARI: That is very cute. It was the answer to question No. 124.

Senator Cormann: Indeed.

Senator DASTYARI: I just wanted to give you that context. That kind of—

Senator Cormann: I can assist you. There are two different aspects. You have the logistics of entering into a contract, which is managed by the department. Separate from that, there is the decision about the establishment of the Commission of Audit. There are two separate processes. The execution of contracts is very much something that is handled by the department under their brief.

Senator DASTYARI: I want to get this straight, because I want to move on to another point around this. In the tender process, Mr Tune, I assume you were given one set of names—

Mr Tune : Yes.

Senator DASTYARI: and you were told to run through a tender process. It strikes me as completely predetermined. It was not a tender. You may call it whatever you want, but it was a predetermined outcome that these were the people who were getting hired. In the process of you doing the contract with them, did they have to sign forms as to their conflicts of interest?

Mr Tune : They did.

Senator Cormann: Yes.

Senator DASTYARI: Are they available? I genuinely do not know what precedent there is for this.

Mr Tune : I am told they have been provided.

Senator DASTYARI: No, they have not.

Ms Connell : Were they not attached to a question on notice?

Senator DASTYARI: No, they have not been. Can I get a copy of them?

Mr Tune : We will take that on notice again.

Senator DASTYARI: No, hang on—

Senator Cormann: I promise we will assist you as fast as possible.

Senator WONG: Can we get the number and maybe the committee secretariat can assist in providing that.

Senator Cormann: We will get back to you as soon as we can.

Senator WONG: The evidence just was that you have provided it on notice. If we could just have the number of the answer then we can—

Mr Tune : We thought we had, but we need to check that.

Senator DASTYARI: So they write to you and say, 'These are our conflicts.' Then do you take them to the minister or do you make the determination on whether the conflicts are too big for them to take the role? Who makes that decision?

Mr Tune : If I had concerns at that point when they came back to the department I would have gone back to the minister and said, 'Look—

Senator DASTYARI: Did you go back to the minister?

Mr Tune : No, I did not.

Senator DASTYARI: Minister Cormann, is it appropriate that the head of the Commission of Audit is in parliament today to hold a lobbying event this evening with federal MPs on behalf of ASTRA while the Commission of Audit report may or may not—you have a copy of it; I do not—have in it cuts or proposals for cuts to ABC and SBS?

Senator Cormann: Let me just say first up that Tony Shepherd is a great Australian who is doing an outstanding job—

Senator DASTYARI: I am not questioning—

Senator Cormann: You asked the question, Senator Dastyari, and I am going to answer it, if you do not mind. Tony Shepherd is a great Australian who is providing great service to the nation by doing the work he is doing through the Commission of Audit. He has been a contributor to public policy debates across Australia for a very long time. The work that he is doing with the Commission of Audit is not a full-time job. We do not expect him not to do anything else while he is doing work for us through the Commission of Audit. Not only is the work with the Commission of Audit a part-time job; it is also temporary. So I am not at all surprised that Mr Shepherd quite appropriately is pursuing other areas of interest. As long as any conflicts are properly declared and properly managed, I cannot see any issue—

Senator DASTYARI: But, Minister Cormann, how can it be done appropriately? Firstly, I put on the record that I have no issues with Mr Tony Shepherd being called an eminent Australian. My question is about whether or not he is too conflicted in these circumstances—

Senator Cormann: I do not think he is.

Senator DASTYARI: Have you seen the Commission of Audit report?

Senator Cormann: It is, again, a matter of public record that the government has received the first part of the—

Senator DASTYARI: I can play this game—

CHAIR: One at a time.

Senator Cormann: You asked me a question and I am answering it in the most direct possible way. It is a matter of public record that the government has received the first part of the Commission of Audit report. We are now considering it in the context of putting the budget together.

Senator DASTYARI: Mr Tune, was the conflict with ASTRA declared to you?

Mr Tune : I do not have it in front of me.

Senator DASTYARI: Can you take this on notice? I do not know if it is something you able to get back to us on after the lunch break, because it is pretty simple. Was the conflict with ASTRA declared to you? Was the conflict with Transfield, which I note yesterday was awarded a $1 billion Manus Island contract, declared to you? Was the conflict with Virgin declared to you? Also, what happens if after I have signed a contract like the one that has been signed with you, which Minister Cormann seems to have no problem with, a new conflict arises? What happens then?

Senator Cormann: The first point to make here is that Mr Shepherd has interests. He does not necessarily have a conflict of interest, as you are implying. That is an important distinction.

Senator DASTYARI: I acknowledge that language.

Senator Cormann: The second point I would make is that the Commission of Audit is making recommendations to the government. It is up to the government to decide what we may or may not do in terms of changes to public policy.

Senator DASTYARI: Sure. Those recommendations help frame your decision making, so if there is a conflict—

Senator Cormann: There is not a conflict. There is an interest. There could potentially be a conflict. The important thing is that if and when a conflict arises it is properly declared and managed. I am satisfied that all of the potential for conflict of interest has been properly disclosed and has been managed.

Senator DASTYARI: You have not answered the question. What happens if a potential conflict arises after the initial forms have been submitted? Do I have to fill out a supplementary declaration?

Senator Cormann: There are processes in place, which are the same processes that were in place under the previous government, to manage potential conflicts of interest.

Senator DASTYARI: Minister, I am trying to ask the secretary what that process is.

Mr Tune : I would have to take that on notice.

CHAIR: Senator Dastyari, that will have to be your final question before we go to Senator McKenzie.

Senator DASTYARI: Is it possible—

CHAIR: The department will be back for outcome 1, after ComSuper, after lunch. That will be by arrangement with you.

Senator DASTYARI: In the meantime, Mr Tune, it would be fantastic if you were able to get a copy of those contracts.

Senator McKENZIE: Could you comment on the efficiency dividend for Department of Finance. Could you let me know exactly what that is.

Mr Tune : It is the same efficiency dividend that applies to everyone else. Despite the people who would impose the efficiency dividend, we do not exempt ourselves!

Senator McKENZIE: As you just mentioned, everybody is subject to it. Is that all departments and all agencies?

Mr Tune : No, not absolutely everyone. There are some exemptions.

Senator McKENZIE: Could you go through the exemptions.

Mr Tune : I will get one of my colleagues to take you through that.

Ms Huxtable : Some agencies are fully exempt from the efficiency dividend. They are the Australian Broadcasting Corporation, Special Broadcasting Service, SBS, and SafeWork Australia. In addition a number of agencies have a partial exemption. The Australian Institute of Marine Science is subject to the ED in relation to 12 per cent of its funding. CSIRO is subject in relation to 30 per cent of its funding. For Defence, including the Defence Materiel Organisation, the efficiency dividend applies to 11 per cent. ANSTO, the Australian Nuclear Science and Technology Organisation, is subject to it in relation to 15 per cent. Then there are a number of agencies where a specific element of their activity is exempt, so that is also a partial exemption: the Australian Customs Service, in relation to coast watch contractual arrangements for surveillance aircraft and helicopters, and the import processing charge; the Australia Council in relation to grants to major performing arts organisations; the Australian Maritime Safety Authority in relation to funding for search and rescue activities and for aircraft contracts; and the National Disability Insurance Agency in relation to funding for two programs: reasonable and necessary care and support for participants, and sector development and support.

Senator McKENZIE: Are there any special criteria you have to meet to be eligible for an exemption?

Ms Huxtable : Some of these exemptions have been very long-standing. They go back through time.

Senator McKENZIE: Could you give me a sense of that timeline.

Ms Huxtable : The ABC has been exempt from the ED from the time it was introduced. From memory, I think that was in 1984.

Senator Cormann: It was 1997-98. There was actually an answer to a question on notice in relation to this, I think, in response to a question from Senator Wong. If my memory serves me right I think it has been exempt since 1997-98. SBS has been exempt since, I think, 2003-04.

Senator McKENZIE: In terms of the historical perspective, are they the longest exemptions?

Ms Huxtable : For the ABC the full exemption applied from 1997-98 and for SBS it was from 2003-04. The import processing charge element of Customs also dates back to 1996-97. The other partials are more recent. Defence goes back to 2005-06.

Senator McKENZIE: Of the list you have given me of exemptions from the efficiency dividend, could you comment briefly on the carve-outs or exemptions to the efficiency dividend within the 43rd parliament—that is, the term of the last government?

Ms Huxtable : I have some information here that differentiates between the one-off efficiency dividends. There have been annual efficiency dividends—and I have data here back to 2006-07. In addition, there have been several one-off efficiency dividends, one in 2008-09 and one in 2012-13. We can probably take some of this on notice because it will get a bit long-winded.

Senator McKENZIE: That would be great.

Ms Huxtable : But to give you a sense, the annual ED from 2006-07 has been 1.25 per cent. There have been periods when it has gone up a little more than that, but for the first five years it certainly was 1.25 per cent. In 2008-09 there was a one-off efficiency dividend of two per cent and, again, in 2012-13 the one-off efficiency dividend was 2.5 per cent. Also, in the economic statement the previous government announced an increase to the annual efficiency dividend of one percentage point, so it took it to 2.25 per cent for the three years from 2014-15.

Senator McKENZIE: Going through those carve-outs we can see quite clearly that some thought has been put into either a percentage of their budget or an aspect of the agency's work that is exempt from the efficiency dividend. Yet, in relation to the three—particularly the ABC and SBS—they are exempt, full stop. Is that correct?

Ms Huxtable : That is correct.

Senator McKENZIE: And the rationale seems to be historical rather than being based on any criteria or methodology—

Ms Huxtable : I think certainly the exemptions do go back a long way. There was a period where SBS was subject to the efficiency dividend, from 1996-97, and it applied through for their next two triennial funding agreements. But a decision was made—I think it took effect from 2003—to remove them. That was a decision of government at that time. In respect of the partial exemptions, I think it is fair to say that, for some agencies, because of the way in which their funding is provided they may receive it as departmental funding, but it is more like administered funding in terms of what it is they are providing. Probably the National Disability Insurance Agency is a good example of that. Because of the nature of that agency their money goes as a departmental funding line, but in fact a lot of their funding is used for providing services—care and support et cetera—hence the partial exemption they have.

Senator McKENZIE: On the example of SBS, who were subject to the efficiency dividend over that period of time, did they meet it? Were they able to conduct their business in a way that—

Mr Tune : They meet it automatically. We take it out of what we give them. They have to live within their budget.

Senator McKENZIE: I now have some questions about the caretaker period and some decisions that may or may not have been made within that period. Could you comment briefly on whether we appointed anyone to boards or in senior roles either within the caretaker period or within the cusp.

Mr Tune : In Finance the answer is no.

Senator McKENZIE: Was there any correspondence on offers of grants or projects during the caretaker period or on the cusp of the caretaker period?

Mr Tune : One contract was signed.

Senator McKENZIE: Signed in the caretaker period?

Mr Tune : In the caretaker period—there was an authorisation. That related to what is called the post entry quarantine facility, which is a new biosecurity facility that Finance is project managing on behalf of the Department of Agriculture down in Melbourne. It is a big construction project, basically. On 14 August 2013 I received the tender evaluation report for a managing contractor to get that going, and I approved negotiations to occur with the best tenderer during the caretaker period. On 6 September I signed what is called the FMA regulation 9, following the conclusion of negotiations for a contract of approximately $2.7 million to Leighton Contractors to undertake the work. My judgement was that that was an apolitical issue. Both sides of politics were supporting that project, and it was important to get that going as soon as we could.

Senator McKENZIE: You just made a comment regarding 'best tenderer'. Could you comment on the competitive process that this project went through?

Mr Tune : I think it was an open tender, but I had better check.

Mr Owens : Yes, it was a competitive tender through two major contracting companies done in the normal way.

Senator McKENZIE: There were two companies that tendered for it?

Mr Owens : Through the construction market.

Mr Tune : No, it was more than two, wasn't it?

Mr Owens : Yes, it was more than two. It was a general tender.

Mr Tune : It was an open tender.

Senator McKENZIE: It was an open tender, so anybody could apply?

Mr Owens : Yes.

Senator McKENZIE: How many did apply?

Mr Owens : I would have to take the number of tenderers on notice. I do not have that information with me.

Senator McKENZIE: Did we short-list?

Mr Tune : Yes. The first one I mentioned, on 14 August, was the tender evaluation. That was the short-list. The tender panel, the evaluation panel, inside my department, which probably has a representative from another agency on it, would come to a view about the best tenderer in terms of value for money, capability, capacity to do the job. That is the short-list. The short-list is the recommendation.

Senator McKENZIE: Given that this was conducted in the caretaker period, can you comment on the level of involvement of the minister?

Mr Tune : None.

Senator McKENZIE: Over the last three years, how much have unions been in receipt of grants, procurement, properties that we leased or any other mechanisms under which unions would receive Commonwealth funds?

Mr Tune : We would have to take that on notice in relation to the Department of Finance. If you were looking for that more broadly you would have to ask each individual agency, because we would not hold that information. But we can check that for you in relation to the Department of Finance.

Senator McKENZIE: I will be asking each individual agency. In fact I am asking you now.

Mr Tune : We will take that on notice.

Senator McKENZIE: Was there any contract negotiation or process called on prior to contract execution during the caretaker period?

Mr Tune : Was that the period I was talking about?

Senator McKENZIE: Between the 14th and the 6th. Was that the only one?

Mr Tune : That is it.

Ms Huxtable : Can I clarify in respect of my answer on the efficiency dividends. You asked about exemptions. What I failed to mention was that there were a number of agencies that were exempt from those one-off efficiency dividends that I mentioned—the two per cent in 2008-09 and the 2.5 per cent in 2012-13. It is quite a long list. I am not sure whether you want me to read it or whether we could table it. We could probably just table what I have here.

CHAIR: Is everybody happy with that? It is this document which has the exemptions.

Senator WONG: Is it current government policy to replicate those exemptions for the higher efficiency dividend which is being imposed?

Ms Huxtable : No.

Senator Cormann: We are not going to deliver the budget here for you today.

CHAIR: Senator Wong, this was information that was sought by Senator McKenzie.

Senator WONG: Yes, and I am just trying to clarify which information it is.

CHAIR: Perhaps Ms Huxtable could respond.

Ms Huxtable : To clarify, I think I went through the list of those organisations that are subject to exemption or partial exemption from the annual efficiency dividend. What I failed to mention is that there are a number of exemptions from the two one-off efficiency dividends, and that is the information that I wanted to table.

Senator WONG: All I was clarifying as we were receiving the information is that that only relates to the former government's decision to exempt, and that this is not an indication that this list would apply to the current government's additional ED.

Senator Cormann: My answer to that question on behalf of the government is that we will deliver the budget in May.

Ms Huxtable : Senator, I am just providing factual information.

CHAIR: Please table that information, Ms Huxtable.

Senator McKENZIE: I now want to turn to the Australian Public Service Commission's capability review. I am seeking a progress report.

Mr Tune : The capability review for Finance was done well over 12 months ago. It is now in the public arena. It was a pretty positive review from our point of view. We were reasonably pleased with it, and I included some comments at the back of the review, as is required. There were a number of things that they recommended we think about and put in place, and we are required to do an action plan to demonstrate that we are doing something about the recommendations in the review. I will just pick out a couple, rather than go through every recommendation.

There was one around the way that the executive board in the organisation functions. The executive board is me as the chair plus my four deputies. We should be more transparent in the way we operate, explaining to the staff in the department why we are making decisions as well as telling them what the decisions are. We have tried to take that on board. We try to operate in a very collegiate way, looking at the department's operations as a whole as distinct from each deputy's particular perspective about what they run. It is part of my role as the chair to try and ensure that occurs.

One of the other big important recommendations was that we should do better in relation to our workforce planning—we were doing it, but we were doing it fairly informally, and we should formalise that process. We are currently in the process of doing exactly that. There is a lot of consultation going on inside the organisation to develop this plan. One of our key priorities for this year is to get that in place. That will guide us in terms of capabilities that we need inside the organisation, issues around mobility inside the organisation, issues around recruitment—even though that is limited at the moment—and how we go about doing all those things. We are bringing to the fore, in a more formal way, that what we have been doing intuitively we should be doing explicitly—and that is what we are doing. They are two of the big ones.

Senator McKENZIE: Are there any other reviews or outcomes of other reviews of the Department of Finance that you are trying to bed down or implement within the department at the moment? Are you having to deal with any of the ructions that often occur, even slightly after implementation, as things are fully bedded down over time?

Mr Tune : There is nothing major. In the past we have done some reviews of the processes we apply to our administration of parliamentary entitlements and whether there were more efficient ways of doing that. That was an internal review that we looked at.

Senator McKENZIE: When was that conducted?

Mr Tune : That would have been about two to three years ago, probably. We have also done a similar sort of review around the Australian Government Information Management Office ICT issues. Once ago, it was about whether systems were fit for purpose and so forth. They are the two that have come to my mind.

Senator McKENZIE: How is bedding down the outcomes of those two reviews progressing?

Mr Tune : Regarding the one around parliamentary entitlements, it was almost about the stance that we take as an organisation along a spectrum from a highly compliant administrative approach to one that was very customer focused.

We were probably a bit on the compliant side, for good reasons, but there needed to be a balance there. So that one was basically saying over a period time: let's change that balance back to a more central balance between customer service and making sure that things are done properly, in a compliant way. Ditto the one for AGIMO. It was following what was called the Gershon review that was done in 2009-10, I think, which was around the use of ICT across the government and the role of AGIMO in coordinating and promulgating that. We were looking at whether AGIMO, in the light of that report, was fit for purpose and whether it needed to change its focus a little bit after the implementation of the Gershon review. The Gershon review resulted in quite big changes to ICT in government about three or four years ago. So that would have been done, and we were then starting to move our thoughts to 'What do we do next?'

Senator McKENZIE: Just to clarify: over the last six years you have had the ICT and the administrative entitlement review.

Mr Tune : Yes; both internal.

Senator McKENZIE: Have there been any external reviews that have had impact?

Mr Tune : Only the capability review that we spoke about.

Senator McKENZIE: Are there any unactioned aspects of either of those reviews that you are currently working through?

Mr Tune : We are still working through the capability one—it is fair to say. Many of the recommendations have been implemented but some are still being worked on. The workforce planning is a work in progress.

Senator McKENZIE: And you are hoping to get that done over what time line?

Mr Tune : The next couple of months.

Senator McKENZIE: Excellent. Thank you.

CHAIR: The committee will now break for lunch. We will resume at 1.30 with ComSuper, and then we will go back to outcome 1 with the Department of Finance.

Proceedings suspended from 12:31 to 13:30