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Finance and Public Administration Legislation Committee
23/05/2018
Estimates
FINANCE PORTFOLIO
Department of Finance

Department of Finance

CHAIR: Good afternoon. The committee will now resume. The committee will now commence examination of outcome 1 of the Department of Finance and then proceed to outcome 2 and outcome 3. I draw 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. Witnesses are specifically reminded that a statement that information or a document is confidential or consists of advice is not a statement that meets the requirements of the order. Instead witnesses are required to supply some specific indication of the harm the public interest that could disclose from the disclosure of the information or document. The committee has set the 6 July 2018 by the date by which answers to questions on notice are to be returned. I welcome back Ms Rosemary Huxtable, Secretary of the Department of Finance, and officers. Ms Huxtable, do you wish to make an opening statement?

Ms Huxtable : No.

CHAIR: Thank you. Senator McAllister.

Senator McALLISTER: Hello.

Senator Cormann: Hello!

Senator McALLISTER: Minister!

Senator Cormann: It wasn't directed at me?

Senator McALLISTER: Not entirely.

Senator Cormann: I only took 50 per cent of it, I promise!

Senator McALLISTER: I wanted to follow up on question on notice 4 from a question that I asked in February. At that time we were discussing the MYEFO measure, which is the Parliamentary Expenses Management System.

Ms Huxtable : Did you have the question number?

Senator McALLISTER: Yes, it was QON F004.

Ms Huxtable : I'll just grab it.

Senator McALLISTER: I was originally trying to understand the savings that would be found in the Department of Finance and IPIA to fund this measure, but in the answer there was an indication that the measure was offset by $27.2 million, which had been placed in the contingency reserve from previous budget savings. I just wanted to understand the process by which that occurred.

Ms Huxtable : At the time that those savings were proposed and considered by government, there was a decision at the same time to provision savings in the contingency reserve. That would have happened in a previous economic update, and those savings were basically partly utilised to offset the PEMS measure.

Senator McALLISTER: I'm interested in understanding how it is that the savings come to be placed in the contingency reserve in the first instance.

Senator Cormann: I can assist you there. That is a decision by government to adopt a particular measure to defer the announcement of the measure and categorising it in the category 'decisions taken but not yet announced'. We've gone through that, of course, at previous estimates. There's a range of reasons as to why things are put in the contingency reserve, including the fact that some further work has to be made prior to public announcement of a particular measure.

Senator McALLISTER: Right. Which decision point sees $27.2 million placed in the contingency reserve? When was that decision taken?

Senator Cormann: I'd have to take that on notice. As the secretary indicated, it was a decision that was taken in a previous update.

Senator McALLISTER: But we don't know which update.

Senator Cormann: I don't know which. The offsets are for each individual measure in each economic update. I've been involved in five budgets and five half-yearly budget updates, so, no, I don't know for each measure what the specific offset was and when what decision was made, but on notice I'd be quite happy to provide that for you.

Senator McALLISTER: Okay. What savings were found that allowed $27.2 million to be placed into contingency fund at that time?

Ms Huxtable : There would have been quite specific savings measures. I think that, when we received this question on notice, perhaps we didn't realise that that was the information you were seeking. We can certainly go back and provide that information. As I recall from the longer transcript of this at the time, we did talk about some of these savings being from property divestments, but we can go back and provide a more fulsome response as to the actual source of the $27.2 million.

Senator McALLISTER: There are obviously announcements in MYEFO about savings beyond the $27.2 million. In MYEFO it's revealed there will be $1.2 million in savings from IPIA and $9.7 million in savings from within Finance. In addition to that, there are savings that have been lodged in the contingency reserve. So my question is really about understanding what was the source of those savings.

Ms Huxtable : We'll take that on notice in terms of breaking down 27.2, but, just to be clear: the combination of those three things provide the offset for the PEMS measure.

Senator McALLISTER: Correct—and they add up to the $38 million.

Ms Huxtable : That's right.

Senator McALLISTER: Why is it that they were placed into the contingency reserve rather than being booked to the bottom line? Why place them in the contingency reserve?

Ms Huxtable : As the minister said, that was a decision of the government at the time to preserve some of those savings for future purpose.

Senator Cormann: And to deal with future spending pressures that we knew were coming.

Ms Huxtable : That's right—that we were aware of at the time.

Senator McALLISTER: Right. Was it originally earmarked for this particular initiative, or was it just a general response? Were you anticipating general pressures, or was this a particular response that was contemplated?

Ms Huxtable : My recollection—and I'm happy to take on notice more detail—is that we were certainly aware that we had impending pressure around the Parliamentary Expenses Management System. That was a well-travelled path in terms of the parliamentary entitlements review and the issues that it raised, but there was also our lived experience of managing what from my recollection is seven independent systems that embed inefficiencies in the process of managing claims. So we were certainly well aware of that, but we were still working through at that time the costs of responding to the requirement to update that system.

Senator McALLISTER: Okay, thank you. Can we go to Budget Paper No. 1? Do we call them schedules? Anyway, I go to statement 6-51—Expenses and Capital Investment. I'm interested in understanding the approach taken to some of the measures that have been announced but not legislated in establishing these estimates of expenses, particularly in the Social Security and Welfare portfolio. The original start date for the energy supplement was in 2017. That's obviously come and gone, and the decision to cease the energy supplement hasn't yet been legislated. What is the new assumption about the start date for the energy supplement?

Senator Cormann: I think we've gone through this in the past, too. Obviously, whenever something is not legislated, there is a revised assumption as to what the next available opportunity would be for this to be legislated. I think an officer might be able to assist you with what the assumption would be.

Ms Huxtable : The assumption of when it would be?

Senator Cormann: In terms of social benefit savings that have not yet been legislated that were meant to come into effect on 1 July 2017, when would we assume that the next available opportunity would be?

Ms Huxtable : In terms of the process that we go through, at every budget update there's consideration of whether a start date is now in the past and so a consideration of when the next start date would be. Then there are adjustments made through estimates variations in respect of savings or expenses that relate to a particular start date. So, in terms of the budget, we would have gone through, and we did go through, that same process in terms of unlegislated both saves and spends to determine when the next natural start point would be, and the estimates are adjusted appropriately.

Senator McALLISTER: So, specifically in relation to the proposal to cease the energy supplement, what is the assumption about the revised start date for that measure?

Ms Huxtable : Mr Bartlett will be able to help you with that.

Mr Bartlett : At the moment, it has an assumed start date of 20 September 2018.

Senator McALLISTER: How does that flow through into the savings over the current forward estimates from that measure?

Ms Huxtable : We might have to take that on notice. It's quite complicated because a number of factors are coming together at that point. As you'd appreciate, in these demand-driven programs there's another process that also occurs—I know we've talked about this before—at each estimate update where there is work that occurs with the agency to ensure that the estimates are as accurate as possible. That's occurring at the same time as there are also then decisions around a start date for a particular thing. So those two things may well intersect, and it's quite hard to pull the pieces apart. But we can certainly take it on notice and look to see how we can assist you in that regard. Is that fair, David?

Mr Fredericks : Yes, if we could take it on notice we will be able to provide you with the quantum of the measure as it's been amended because of the variation that we've done to it consequent on the delayed starting date. I don't have that number here.

Senator McALLISTER: Okay. Can I just clarify the explanation you've just provided, Ms Huxtable. I think what you're telling me is that the delay may not be the only factor that bears upon the save associated with the measure.

Ms Huxtable : That's right. I'm making the more general point that these supplementary—

Senator Cormann: That is actually true across everything.

Ms Huxtable : That's right. I'm making a more general point. These supplementary payments sit within broader payment structures. There are assumptions made about the number of eligible beneficiaries of these payments. Those are scrutinised and updated at every budget update. So there are a number of moving parts that will be intersecting at that point.

Senator McALLISTER: I'm really not trying to quantify anything specific about the delay. I'm just really trying to understand what saving will be obtained if the measure is proceeded with. I don't need it to be disaggregated to understand whether the drivers for the save come from a delay or anything else. I just want the numbers across the forward estimates.

Mr Fredericks : We can take that on notice.

Senator McALLISTER: It would be good if I could get them for the impact on both the fiscal balance and the cash balance.

Mr Fredericks : Yes.

Senator McALLISTER: Thank you. In terms of the proposal to cease the pension supplement when overseas, it's still factored into the expenses here?

Ms Huxtable : Savings remain in the bottom line until there's a decision not to proceed with the savings.

Senator McALLISTER: Yes, okay. So we can confirm that axing the pension supplement is still on the books. So it's current—

Senator Cormann: The proposal to remove the energy supplement—

Senator McALLISTER: Sorry, I'm talking about the pension supplement when overseas.

Senator Cormann: Sorry.

Senator McALLISTER: That start date was originally July 2018. Is that still the assumption in the budget?

Ms Huxtable : I'll just get Mr Bartlett to check that.

Mr Bartlett : The current start date is 1 July 2018.

Mr Fredericks : The original start date was 1 July 2017, and the current start date is now 1 July 2018.

Senator McALLISTER: Is this the first budget on which that update has been applied? It must have been applied at MYEFO.

Mr Fredericks : I don't know the answer to that. I'll have to take that on notice.

Senator McALLISTER: Logically—

Mr Fredericks : Logically, the answer is yes.

Senator McALLISTER: Okay. Minister, we only have two sitting weeks between now and 1 July.

Senator Cormann: The Senate can be very efficient when the Senate wants to be, so I'm very much looking forward to the well-known efficiency of the Senate at work.

Senator McALLISTER: Should we expect that legislation to be brought on for debate?

Senator Cormann: The government always prioritises legislation on the basis of progressing its agenda as swiftly as possible and takes a range of factors into account, including the likelihood of a successful passage in as speedy a time as possible. If Labor wants to indicate to the government that it will facilitate a speedy passage of the relevant savings then we can work together to make this happen and put the Australian economy on a stronger foundation trajectory for the future, making sure that government lives within its means. So, if that is what you're proposing, I'm all ears.

Senator McALLISTER: I'm not proposing anything; I'm asking about your intentions. My understanding is that the proposal to change the taper rate for the family tax benefit is currently expected to commence in July 2018. Is that the assumption in the budget?

Mr Bartlett : Yes, that's right.

Senator McALLISTER: What is the assumed start date for the proposal to change the liquid assets waiting period?

Mr Bartlett : 20 September 2018.

Senator McALLISTER: And the proposal to increase the pension residency requirement?

Mr Bartlett : 1 July 2018.

Senator McALLISTER: And the proposal to change the pensioner education supplement and the education entry payment?

Mr Bartlett : 1 July 2018.

Senator McALLISTER: And what is the assumed start date for the proposal to increase the pension age to 70 in the medium-term projections?

Mr Bartlett : It's 1 July 2025.

Senator McALLISTER: So you maintain the existing expectation.

Mr Fredericks : That hasn't been changed.

Senator Cormann: And that has no bearing on the forward estimates, because, of course, the next increase in the pension age is the increase that was legislated by the Labor Party when in government, and that measure won't be fully implemented until 2035.

Senator McALLISTER: You took on notice my request for information about the fiscal and cash impacts of these savings measures for the energy supplement. Can I ask the same question for each of the measures that we just walked through?

Senator Cormann: We'll take that on notice for each of those.

Senator McALLISTER: I'm just looking for the impact over the forwards.

Senator Cormann: Yes.

Senator McALLISTER: Can you provide a list of all the unlegislated savings measures that were announced before this budget and the associated financial impacts?

Ms Huxtable : Yes, we can take that on notice. I think we've taken that on notice before and we've quite recently responded to that.

Senator McALLISTER: You have.

Senator Cormann: We will provide you with an updated response, if you want it.

Senator McALLISTER: Great. I would appreciate it.

Senator Cormann: As you know, I pride myself on providing answers within deadlines for this committee, within my portfolio.

Ms Huxtable : Supported by your department.

Senator Cormann: Yes, supported by a very good department, an outstanding department, the best department in the Commonwealth.

Senator McALLISTER: There you go, Ms Huxtable—rare praise. I'd take it.

Senator Cormann: Don't tell Treasury.

Senator McALLISTER: I am seeing them next week and I may bring it up.

Senator Cormann: It was tongue in cheek.

Senator McALLISTER: Just stop digging!

Senator Cormann: I'm having fun! You have to entertain yourself a bit during these long days!

Senator McALLISTER: Can I ask about the new measure for Finance, titled 'Finance—additional resourcing'. It's listed on page 100 of Budget Paper No. 2. There is a description of the measure which says that its intended to strengthen Finance's 'capacity to respond to critical priorities and drive productivity improvements across the Australian Public Service'. That's the headline idea. Then there's an indication that it includes 'modernising Commonwealth cash management by utilising the New Payments Platform'. Firstly, can you talk about what other new functions Finance will be undertaking in addition to those associated with the New Payments Platform.

Ms Huxtable : I might pass to Ms Jones in a minute because I can't find my brief at the moment. But, in a general sense, there are three main areas that the measure goes to. There's the New Payments Platform, which one of the officers can talk about in a moment, but there are really two other key areas. One is looking to enhance our capability around the commercial analysis side of the work that we do. You would be aware that, in recent years, there have been a number of additional government business enterprises that have been established. Common to all the government business enterprises is the need to be able to review and analyse their balance sheets and to fulfil the shareholder minister responsibilities with the related departments. So we are looking to grow our capability in that regard. That's one element that the measure would support.

I can give you an example of that. We are investigating the opportunity to collaborate with the university to develop a course that's focused on building those sorts of commercial and business analyst skills. We have done that already in our graduate certificate in public policy, but that's another area where we are quite keen. You'd be aware that these are areas of responsibility that are a little different to what are often seen as core Public Service skills because they really go to that commercial interface. To be honest, it's quite hard to retain staff in those areas because they are very attractive to the private sector as well for the skills that they have. So we need to look at how we grow our own capability, including through those educational opportunities. That is one example.

The other is that, to continue to support the work we are doing in APS reform, which I'm sure we'll get to at some point in today or tomorrow's proceedings, we have been leading the effort to date in respect of the short- and medium-term opportunities building off the modernisation fund. The third area is the New Payments Platform. I'm hoping I've sort of covered them all, in the absence of a brief. Ms Jones can fill in more of the detail. I might just say before she does that that we are still in the process within Finance of allocating those funds, so we're going through our integrated business planning processes now. We're working with the groups to ensure that we allocate those funds appropriately.

Senator McALLISTER: It would be good to talk a little more about each of the specific initiatives underneath, but before we go there I want to understand something. The text underneath the initiative indicates that funding of $1.3 million for this measure has already been provided for by the government.

Ms Huxtable : Yes.

Senator McALLISTER: Has any of that $1.3 million been consumed already?

Ms Huxtable : No.

Senator McALLISTER: Is the effect of this measure to increase the amount available to Finance for this project?

Ms Huxtable : Going back to the discussion that we had earlier in respect of that offsetting amount, there was a residual amount and that is supporting this measure, so it has been redirected to this measure.

Senator McALLISTER: So the total available is the $11.3 million announced in this budget—

Ms Huxtable : Yes.

Senator McALLISTER: Plus the $1.3 million—

Ms Huxtable : No. It's $11.3 million in total, and $10 million is what's being provisioned in this budget and $1.3 million had already been provisioned through previous decisions.

Senator McALLISTER: Thank you. What is the profiling of the $1.3 million?

Ms Jones : The $1.3 million is provisioned for next year specifically to support the Service Delivery Office, which is a function within the Department of Finance that provides shared services to other agencies in government. It's to continue to support the SDO in developing its capabilities.

Senator McALLISTER: When you say 'next year', do you mean 2018-19?

Ms Jones : Sorry, 2018-19.

Senator McALLISTER: I want to talk a little about the new payments platform and how you will be utilising that.

Ms Huxtable : I'll get Dr Helgeby to talk about that.

Dr Helgeby : I'm very happy to talk about that. My colleague Mr Greenslade might want to add as well. I want to say that this is actually quite exciting.

Ms Huxtable : As opposed to some of the things that Dr Helgeby does, this is exciting.

Dr Helgeby : That's right. In the Commonwealth we've been constrained in our approach to cash management by two things. We manage a lot of cash, so $500 billion a year in and $500 billion a year out—billions of dollars. We've been constrained by two things. One is that we've had to use a lot of manual processes and a lot of really just ringing people and asking, 'How much cash do you need?' totting it up and dealing with the Reserve Bank to get the cash flowing. The other is by the actual payments system that's operated in the financial sector in Australia, which has, as you know, had lags in it in terms of transactions being settled. That's meant that government hasn't been able to do things very easily—for example, to move money on a weekend or to move money during a shutdown period, even if there's something important like a national emergency.

Senator McALLISTER: Right.

Dr Helgeby : What the new payments platform does, combined with something else we've done—we've upgraded our underlying whole-of-government financial platform—is enable us to tap into real-time settlement with rich information available to it. It has been developed by the Reserve Bank and others in the sector. It could mean that we can dispense with some of our cash management practices that we've used for decades. For example, at the moment we try to tot up all the cash management needs, ring the Reserve Bank, get the cash, put it into people's bank accounts and then take it back at the end of the day to invest in the short-term money market in order to really get the value out of the government's cash flows. Potentially we could replace that whole approach so that we could have much more real-time information about what the cash needs are, move the money around much more swiftly and do it with more information about what those transactions are. So this is something which is important to Finance as the manager of the cash management system in the Commonwealth but potentially of great significance to agencies as they seek to manage their own resources. I started by saying we are excited. Well, we are excited by this, and it's going to open up a range of opportunities for government that haven't existed to date.

Senator McALLISTER: What proportion of the $11.3 million is to be allocated to this task?

Ms Jones : As Ms Huxtable said, we are going through the process of doing the final allocation of the funding as part of our broader integrated business budget planning process, so that will be determined in coming weeks in the department. If I could just mention one thing, just to correct something I said before, in relation to that $1.3 million, it was 2019-20, and that is, in terms to the rollout of that program, when it was most appropriate.

Ms Huxtable : I might also add, now that I have found the brief, there is another element that I forgot to mention: support for the service delivery office shared service centre.

Senator McALLISTER: So that $1.3 million was expended in 2019-20 so that is a very specific component of the work.

Ms Huxtable : That's right.

Senator McALLISTER: Dr Helgeby, in relation to leveraging benefits off the new payments platform, are you essentially talking about a business process analysis and redesign at your end? Is that the task that is ahead of you or is it a technology based task, I suppose, is my question. Are we talking about a new IT project or are we talking about a business process project?

Dr Helgeby : It has IT dimensions and business process dimensions. Mr Greenslade and his team have been in active conversation with the Reserve Bank for a couple of years now to really understand what is this thing—how does it work, how does it connect and what features hasn't got that we don't have at the moment? With all of these things, the technology is really just an enabler of business process change and it is the business process change that has the greatest benefit for us, and that is really what this project will be about. It will be about mapping all of those things and driving them into the system.

Mr Greenslade : Doctor Helgeby has covered most of it. One way to look at it is we have been in tandem with the banking system, and the banking system itself has become quite out of date. You will notice that when you try and key in some text, you have 42 characters or whatever it is and you run out of space. Transactions have to happen by 5 pm and so on. We are mirroring that in the Commonwealth system; we have a banking cut-off at 2 pm. We are limited in how we can send messages, how we do things. Because of that structure, we, for quite some time, have had quite a lot of manual processes around making things work reliably. The other thing, as Dr Helgeby said, is that there is a lot of money so we have to do it reliably. We are tied to our own system. We have had two things come together, in a sense. Firstly, the banking platform is changing to the new platform. As Dr Helgeby said, we are working closely with the RBA, the Office of Financial Management and with some of the authorised deposit institutions—the big banks and so on—to work out what that means so we know where the platform is going, we know what opportunities there are for the likes of the RBA and the ADIs. Secondly, we have got a new computer system, a central budget management system, which was rolled out over the last 12 months. Inevitably, it currently matches the older payment system because that is what we had when we designed it. But the central budget management system is flexibly designed, and we are able to basically put some new modules in there to connect better with the new arrangements. That's what we will be doing. I suppose, in answer to your question, we will be taking out some manual processes as one of the first things we can do and we can then improve our interactions with the entities and with the Reserve Bank. Over time, we're looking at a situation where, potentially, money moves really quickly. There are arrangements we now have to sweep and so on overnight to save money. We can potentially be getting interest savings out of how we manage all of that. That's down the track. We're going to build several layers of reform as we go through. It's a business opportunity, but part of that will come from removing some inefficient processes.

Senator McALLISTER: The ambition makes sense to me and the project, I think, is a sort of business process, mapping and redesign project. That's what the money is for, Dr Helgeby?

Dr Helgeby : Yes, it is a business process project.

Senator McALLISTER: Thank you. We know that $1.3 million has to go to this particular project about—

Ms Jones : The Service Delivery Office.

Senator McALLISTER: The Service Delivery Office. So, of the $10 million that's been allocated next year and the year following, we're just not sure how much of it's going to go to this element yet.

Ms Huxtable : Not precisely, no.

Senator McALLISTER: Roughly?

Ms Huxtable : It's not the majority, but it would probably be around half. It's a significant amount in the order of the work that needs to be done.

Senator McALLISTER: What's anticipated for the third element, APS reform?

Ms Huxtable : I think I mentioned two related elements. The APS reform element was one part of that. The other was around the business analytics piece. We still need to work through the detail of that. But, in terms of APS reform, we have been leading the work under the auspices of the Secretaries Board. I've been chairing a subcommittee of the Secretaries Board that's been developing thinking around APS reform. As to where we're at with that process, it's in the preface to Budget Paper No. 4. I expect you'll come to that at some point. This just gives us a little bit more support to be able to continue that role. One of the things that we're doing as part of that is managing some virtual taskforce work. We're working with other departments across six streams of activity. They're all set out in Budget Paper No. 4. It gives us a bit more support to be able to do that work. It won't be a large call on the money, but it just gives us some flexibility in that regard.

Senator McALLISTER: Thank you.

Senator LEYONHJELM: In the latest budget, were new spending measures more than offset by reductions in spending elsewhere in the budget? In other words, was the government's fiscal strategy complied with?

Ms Huxtable : Yes, Senator.

Senator LEYONHJELM: The budget states:

The overall impact of new spending decisions in this budget is an improvement to the bottom line of $404 million over the four years to 2021-22.

That's from Budget Paper No. 1, page 1-11.

Ms Huxtable : That's correct.

Senator LEYONHJELM: However, in 2017-18, the current year, the overall impact of new spending decisions in the budget is a deterioration to the bottom line of $1.62 billion. So the overall impact of new spending decisions in the budget is a $1.216 billion deterioration over five years to 2021-22. How is this consistent with the fiscal strategy of more than offsetting spending decisions by reductions in spending elsewhere in the budget?

Senator Cormann: I'll give an initial answer and then I'll ask the secretary to add to it. The fiscal strategy for the 2018-19 forward estimates of course applies to the four years from 2018-19 onwards, which shows. If you look at table 5 on page 3-21, what it shows you is that the effect of policy decisions over the forward estimates on the payment side of the budget—that's precisely what you've just indicated—is an improvement in the budget bottom line over the four years of the forward estimates as a result of policy decisions on the spending side of $404 million. And if you look at the budget bottom line for the 2017-18 financial year, at $18.2 billion, it's the best bottom line achieved since the Howard government lost in 2007 and indeed it's a substantially lower deficit than was forecast at the time of the 2017-18 budget. I don't have the precise number at budget to hand, but it's a substantially lower number. We're obviously now on track in getting back to surplus on a faster timetable than was originally anticipated.

Senator LEYONHJELM: The budget contains a measure to re-profile defence department expenditure. It's in Budget Paper No. 2. Was this measure first proposed by the Defence portfolio, the Finance portfolio or the Treasury portfolio?

Senator Cormann: That goes to the heart of the deliberative processes of cabinet. So, as much as we always like to be very helpful in the context of these committees, obviously that is part of the confidential deliberative processes of the Expenditure Review Committee in the cabinet. But I do now have—at the time of the 2017-18 budget the projected deficit for the 2017-18 financial year was $29.4 billion, and of course $18.2 billion is $11.2 billion less. To a large degree that is also because spending in 2017-18 is less. In fact, spending in 2017-18 is about $7 billion less than what was projected in the 2014-15 budget. So, we do believe that on the spending side of the budget we have been successful in controlling expenditure growth. In fact, if you look at expenditure growth that is forecast and projected over the current forward estimates period it is running at about 1.6 per cent above inflation on average over the forward estimates period. But even looking back, if you look at the period since we came into government and you include our past performance since 2013-14 and look forward and include the current period, spending growth has been contained in real terms at 1.9 per cent on average per year in real terms, which is the lowest in the last 50 years for which records are reported in the time series at the back of the budget. In fact, from Labor we inherited four per cent spending growth year-on-year on average, in real terms, and a forward trajectory that was running at about the same level, legislated.

And I'm a great admirer of your commitment to fiscal rectitude, and I know that you would have liked us to go harder. But I don't think anyone in Australia can say that we haven't invested substantial political capital as a government since we were elected in 2013 in bringing the spending growth trajectory down. People can say that we should have gone harder, but we've done as much as we think was responsible in all the circumstances, balancing our focus on the level of economic growth and job creation that you want to see in the economy with the need to bring the budget back into surplus as soon as possible. And of course we are now projected to get back to a small surplus by 2019-20 and to remain in surplus all the way over the medium term, getting to a surplus of 1.3 per cent as a share of GDP by 2016-17.

Senator LEYONHJELM: Well, you're right: my fiscal rectitude is probably greater than yours! But I'm concerned mainly about the way in which some of these expenses have been accounted for. That's where I'm going with this.

Senator Cormann: I did read your opinion piece in the Financial Review, by the way. I always read your—

Senator LEYONHJELM: Well, I'm impressed!

Senator Cormann: I always keep a very close eye on what my fellow senators are putting into the public—

Senator LEYONHJELM: You should have read my alternative budget. It had some suggestions.

Senator Cormann: I read that, too. I think you should take it to the next election!

Senator LEYONHJELM: I might just do that! So, I'm going to refer to some accounting measures in the budget that I'd like you to talk about. I referred to the re-profiling of defence department expenditure. It involved $488 million being withdrawn from the department over the four years to 2021-22 but $500 million being provided to the Defence Department in 2017-18. Can the Defence Department have spent that $500 million by 30 June this year?

Senator Cormann: We have difficulty with the way you are characterising this. You are not actually saying that we withdrew anything; you are saying there was an additional spend in the Defence portfolio. In Defence, when it comes to procurement and various other expenditure that they incur as part of their responsibilities from time to time, they are substantial numbers and we obviously adjust the budget based on Defence requirements. These are decisions that have to be made from time to time. Sometimes that involves bringing expenditure forward and sometimes it involves pushing expenditure back, consistent with what the actual requirements are. Defence is not alone in that. The two big departments where that can take place—because some of the investments can be a bit lumpy—are Defence and Infrastructure. For a department like Social Services, essentially you have a more regular pattern. But for a department that is involved in major capital acquisitions or major infrastructure investments, some of these matters can be a bit more lumpy from time to time.

Senator LEYONHJELM: I accept all of that. It's just that I would like you to tell me that that $500 million you brought forward to this current financial year, and then show in the subsequent four years with most of it showing a decline in almost the same amount, is not just an accounting exercise to show that you are reducing expenditure—and my fiscal rectitude nerve kicks in pretty severely at that point—and actually the Defence Department wants that money this year.

Senator Cormann: Yes they do. This is a reflection of the funding requirements of an important department of the Commonwealth.

Senator LEYONHJELM: The budget also included spending of $199 million before 30 June on the National Research Infrastructure Investment Plan. Once again, the question is: how much of this $199 million will the Department of Education spend by 30 June and what purpose was achieved by bringing it into this current financial year, which is nearly at an end, rather than spreading it out over the subsequent four years? Did they need it this year?

Senator Cormann: The same answer applies at the higher level. In terms of the specifics, the Department of Education would probably be able to be more helpful in terms of what the specific reasons were. The budget papers are a reflection of the funding requirements at a particular point in time. Obviously, no budget is ever static. Things change and are adjusted as new information comes to hand. Sometimes expenditure needs to be brought forward. Sometimes expenditure, as a result of what is happening on the ground, needs to be delayed. In the end, everything is reconciled in the final budget outcome. I would remind senators that the final budget outcome for 2016-17, which is the most recent one we have released, was more than $4 billion better than what had been anticipating in the previous updates. I've already indicated that for the 2017-18 financial year, the financial year that we are currently in, the underlying cash balance is substantially better than the $29.4 billion that was forecast at budget time last year. In fact, we are looking at $18.2 billion with, as you said, the financial year nearly completed. If you look at the expenditure side of the budget and compare what we are currently forecast to spend in '17-18 with what was projected we would spend back in the '14-15 budget, the expenditure in the '17-18 financial year is actually about $7 billion less than what was anticipated, which I would have thought demonstrates how we have been able to control expenditure growth better.

Senator LEYONHJELM: Yes. I am just looking for areas where you could have done even better.

Senator Cormann: I appreciate the spirit.

Senator LEYONHJELM: Let me go on a little further because I haven't finished on this line. In the budget there is also—this one has been canvassed in estimates this week already—the spending of $444 million before 30 June on the Great Barrier Reef 2050 partnership program. We asked the Department of Environment and Energy about that. They are saying the money will be spent but it will be going to the Great Barrier Reef Foundation. They then say it will be spent over the subsequent seven years. What objective was achieved by frontloading that spending in this current year rather than spreading it out over the period during which it will be spent?

Senator Cormann: We're not front-end loading at all. We are providing certainty through a foundation by providing capital to the foundation to ensure that the necessary resources are available on an ongoing basis for what is a very high policy priority. It's—

Senator LEYONHJELM: I'm not arguing about the policy priority; I'm arguing about the manner in which it is accounted for.

Senator Cormann: This is a reflection of the government's policy decision that doing it this way provides certainty of funding for on-ground Reef protection activities, and it sends a very strong signal to potential investors that the government is committed to long-term protection of the Reef. Through discussions with the private and philanthropic sectors over recent years, the department—that was my advice at the time—has come to understand that investors are more likely to provide financial contributions to entities outside the government sector but aligned with government priorities. The foundation has high ambition in terms of the funding. It plans to leverage and to support this investment by the government. I'm sure that this is also something that you would be very supportive of. We don't just want to provide a government grant and then that's it. We want to say, 'There is an important priority', but, as we always want to do, we want to leverage additional contributions, including private sector contributions because there is a private sector commercial interest at stake here as well. The policy decision that was made was that this was the most efficient way of doing it.

Senator LEYONHJELM: I have another one. There's provision in the budget for $70 million to be spent before 30 June on Australia's supercomputing infrastructure. How much of this $70 million will the Department of Industry, Innovation and Science spend by 30 June? Now I've got your attention, can you tell me that this spending by 30 June produces a superior outcome for the Commonwealth than spending it after 30 June?

Senator Cormann: Yes.

Senator LEYONHJELM: You can?

Senator Cormann: Yes.

Senator LEYONHJELM: You are quite adamant that none of those examples that I gave you were brought forward for the purpose of showing that in subsequent years spending declines?

Senator Cormann: All of these decisions have been made in pursuit of the public interest and based on making sure that funding is provided consistent with requirements.

Senator LEYONHJELM: That wasn't my question though. My question was, are you assuring me that these additional amounts in this budget, to be allocated by 30 June—to the matters which I just referred to—were allocated on the basis of policy decisions rather than in order to show that in the subsequent four years, the forward estimates, spending will actually decline?

Senator Cormann: These were all decisions that were based on the policy considerations of the government, I can absolutely assure you of that.

Senator McALLISTER: I might pick up on some of those issues around the payment to the Great Barrier Reef Foundation. When was Finance first consulted on the proposal?

Senator Cormann: This is a proposal that is part of the budget process. I'm quite happy to take on notice consideration of the date as to when this was first considered. But you would, of course, appreciate that, consistent with convention, I'm not going to be at liberty to reveal the content of cabinet deliberations or deliberations of cabinet subcommittees.

Senator McALLISTER: Would it first have been brought to the Department of Finance's attention before Christmas, as part of the portfolio budget submission?

Senator Cormann: I've taken it on notice. It's part of the deliberative process of government and part of the budget process. In the course of the budget process, this came forward as a proposal, and it was dealt with in the usual way through the deliberative processes of the cabinet.

Senator McALLISTER: Is this the largest donation that the Australian government has ever provided?

Senator Cormann: I don't agree with that characterisation of it as a donation. It's an investment by the Australian government into the future health of the Great Barrier Reef, something that I'm sure all Australians support—and I would have thought the Labor Party would support, actually.

Senator McALLISTER: Is it an investment in the sense that you hold equity? Or do you mean that in a more general sense?

Senator Cormann: As I've indicated, it's an investment in the health of the Great Barrier Reef. It's not a commercial investment. It's not an equity investment.

Senator McALLISTER: Okay, I was just checking.

Senator Cormann: We've structured this in a way that is designed to help leverage additional private sector investment for the same very meritorious purpose.

Senator McALLISTER: If it's not an investment in the commercial sense, what is it? Is it a grant?

Ms Huxtable : It's a grant.

Senator McALLISTER: Okay. In the guidance that the Department of Finance provides on grants, what process is usually required to award funds?

Ms Huxtable : Dr Helgeby can go into the detail of this, but the involvement of the Department of Finance is generally around the review of the grant guidelines that would follow a decision in respect of a grant. So we would go into, and probably are already involved in, a process with Environment about the grant guidelines that they would draw up in respect of this funding.

Senator Cormann: But before—

Senator McALLISTER: So the grant guidelines in this instance—

Senator Cormann: I'm just finishing the answer before Dr Helgeby gets into it. This foundation is an entity outside the general government sector. Providing the funding this way will accelerate the Reef 2050 plan delivery by addressing poor water quality, the plague of crown-of-thorns starfish, coral restoration, reef monitoring and reporting, and community engagement. The foundation, as a trusted partner that actively supports the Reef 2050 plan, will have a robust corporate and financial governance framework overseen by a board that includes current and former CEOs, chairs and executive officers of some of Australia's largest companies, partnering with the foundation. It provides an opportunity for the government, as I've indicated to Senator Leyonhjelm, to leverage funding from non-government sources to complement the government's investment. The foundation has a strong track record of working with a diverse range of reef stakeholders to deliver on-ground benefits to the reef. The foundation has a successful fundraising record, generating around $80 million for the reef from private and philanthropic sources.

Under the previous government—in fact, your government—the foundation received funding of $12.5 million over four years from 2013-14 in the 2013 budget, which was a budget measure in that particular budget. The Department of the Environment and Energy collaborated with the Great Barrier Reef Foundation in July 2013 to deliver the Resilient Reefs Successfully Adapting to Climate Change program. So there is a history, a track record, here, and now, with the foundation, we work closely with the Great Barrier Reef Marine Park Authority and the Department of the Environment and Energy to maximise the benefits of this investment and minimise duplication of effort. The foundation partnership will be governed by a funding agreement with the Department of the Environment and Energy which will be consistent with the PGPA Act requirements and the Commonwealth Grant Rules and Guidelines, which I think goes directly to what you were asking me about.

In terms of Finance's role in relation to all these things, because this is, of course, a core issue for the Department of the Environment and Energy, Finance assists entities by providing advice on the requirements in the Commonwealth Grants Rules and Guidelines. Finance provided advice to the Department of the Environment and Energy, and, as part of that advice, indicated a range of factors for consideration. It's ultimately up to accountable authorities and officials to meet the requirements of the Commonwealth Grants Rules and Guidelines and to determine what approach to take to satisfy the better practice principles. Perhaps Dr Helgeby wants to add to that.

Dr Helgeby : Senator, as the minister has explained, the Commonwealth Grants Rules and Guidelines apply to anything which is a grant, and a grant is defined in a particular way in the rules. A grant is an arrangement for the provision of financial assistance, by which money is transferred to another body outside the Commonwealth to help that recipient achieve its goals and to help address one or more of the Australian government's policy objectives, and under which the recipient may be required to act in accordance with specified terms or conditions. The first thing we do in these circumstance when we become aware of something being considered as a possible grant payment is to ask the question: is it a grant or is it something else? As I have set it out, the payment that we are talking about is a grant, clearly, under those definitions.

Senator McALLISTER: I will make a point, because I'm looking at the grant guidelines and 2.6 is very specific. It says:

For the purposes of the CGRGs, the following financial arrangements are taken not to be grants …

And then at point (f) it says:

an investment or a loan.

Dr Helgeby : And I think underneath that it then specifies what a loan—

Senator McALLISTER: That's okay; it's a minor point. But it mustn't be an investment—a grant is distinct from an investment?

Dr Helgeby : An investment is, for example, something where government puts money into the Future Fund so that it can do something to earn some money.

Senator McALLISTER: Or an Inland Rail project or something like that?

Dr Helgeby : The government puts some money in for the purpose of getting a return, where government is, in fact, directly the beneficiary of it. I would go back to the earlier requirements which define what a grant is, which are at 2.3.

Senator McALLISTER: Is it ordinarily the case that a grant can be provided without there being any contestability around the availability of that grant?

Ms Powell : There are a range of way that grants can be provided. They are often contestable. Sometimes they go to select groups of people, sometimes they are eligibility based, and sometimes they are one-off and ad hoc type grants. There are many different ways.

Senator McALLISTER: How would you characterise the grant to the Great Barrier Reef Foundation?

Ms Powell : This grant would be an ad hoc grant.

Senator McALLISTER: I should say that I think is a very good organisation with a very good track record of doing very important work.

Senator Cormann: What was—

Senator McALLISTER: It's all right; you can relax. I just said I think it's a good organisation, Minister.

Senator Cormann: Yes, of course; I agree. We've provided good support.

Senator McALLISTER: What kind of due diligence would ordinarily be required in allocating any kind of grant?

Ms Huxtable : I think the point that the minister makes is that in these cases it's the accountable authority that has responsibilities under the PGPA Act.

Senator McALLISTER: Okay, but you're providing guidance to them about what sort of work they must do.

Ms Huxtable : I know that we provide guidance to them, yes, but we do not take over the responsibilities of the accountable authority to make their own determinations and decisions in that regard.

Senator McALLISTER: Yes, of course. But what advice—

Ms Huxtable : Sorry; just to add: I'm sure some points that the minister made earlier would have been in their consideration, and I know that this was subject to some discussion at the environment committee the other day, so I'm sure they've gone over this, but I didn't actually hear their evidence. But, in regard to the foundation being a trusted partner that actively supports the Reef 2050 plan, the foundation has a robust corporate and financial governance framework overseen by a board that includes current and former CEOs, chairs and executive officers of some of Australia's largest companies. It has a strong track record of working with a diverse range of stakeholders. It has a successful fundraising record, generating around $80 million for the reef from private and philanthropic sources. It has received funding, including in earlier budgets—the 2012-13 budget I think is referenced here—et cetera.

Senator McALLISTER: I take your point, Ms Huxtable, that it's difficult for you to provide detailed information about the specific grant in question. I'm really just trying to understand more generally what the guidance you provide to agencies who are administering grants is. So, for example, what kind of due diligence ought an agency conduct in terms of grant recipients?

Ms Powell : They would look to things like: have they got appropriate governance arrangements in place, have they got the right accountabilities that are needed, are they able to manage those or likely to be in a position to be able to manage the kinds of activities that the grant is for—those kinds of questions.

Senator McALLISTER: So you'd want to know the number of staff of the receiving organisation?

Ms Powell : We wouldn't go to that. We would provide guidance to agencies, and it would vary.

Senator McALLISTER: Not the Department of Finance; I'm sorry. An agency that was seeking to implement the guidelines would want to know how many staff the receiving organisation had.

Ms Powell : It would depend.

Dr Helgeby : Our role in advising is to advise—in this case, the Department of the Environment—and to help them work through what their obligations are under the PGPA and under the grant guidelines. They are the responsible and accountable agency, and, really, the decisions are taken by them or by their minister in a context where we've provided advice around how to interpret the obligations that are placed on them.

Senator McALLISTER: Yes.

Ms Huxtable : And I would say, too, that there are three steps, if you'd like to call them that, in this regard. One is around the initial decision as to the recipient of the grant, the second is around the development of the grant agreement itself and the protections and requirements that are introduced through the grant agreement, and the third is the assurance mechanisms to ensure effective expenditure of the grant. I'd see it as a multilayered set of guidance. The guidance, I think, goes to all those issues, so, in regard to the initial decision about the recipient of a grant, I've gone to some of the issues that the accountable authority may take into account. Then I think the assurance mechanisms are obviously a key part, as well, of the way in which the grant agreement itself is drawn up and of the governance steering committee arrangements.

Senator McALLISTER: I am looking at section 7.10. That section talks about risk management. It sets out some of the risks involving the grantee and provides some examples of the risks that an awarding entity might need to be alert to, including the experience, capacity and past history of grantees. When we're talking about capacity, what are we talking about, Ms Powell?

Dr Helgeby : Could I just clarify what you are quoting from?

Senator McALLISTER: Section 7.10. It sets out some of the risks that an awarding agency might need to be alert to when it's establishing a grant relationship. It looks at some of the risks involving the grantee and it sets out some examples. It speaks about the 'experience, capacity, and past history of grantees'. I'm just wondering what sort of information would need to be available to an agency to make an assessment about the experience, capacity and past history of grantees. For example, you'd want to know how many staff there are. That goes directly to capacity, does it not, Ms Powell?

Ms Huxtable : I really think the guidelines state that experience, capacity and past history of grantees are things that should be taken into account when considering risks. In my view, it is a matter for the accountable authority to determine how they address these risks. That is one of a number of risks that are pointed out here, by way of example. We are just providing indicators of where risks may lie. I don't believe we are providing guidance along the lines of, 'To assure yourself on experience, capacity and past history, here is a checklist of 20 things you should consider.' This is a matter for the accountable authorities to really consider themselves when coming to a view.

Ms Powell : It's not a checklist; it's a framework.

Ms Huxtable : I would just say, in the devolved framework in which we operate, not only in this space but in a number of areas that Finance is involved in, we provide guidance of this sort, but it is very firmly the roles and responsibilities of the accountable authorities to then operate accordingly and consistently with the framework.

Senator McALLISTER: In implementing these guidelines, though, you would expect that the grantee's organisation and board would be consulted before a grant was awarded under these guidelines. They would require that.

Dr Helgeby : I think that's a question for the environment department. The exact nature of the process—

Senator McALLISTER: Dr Helgeby, are you seriously telling me you could be in compliance with these guidelines if you gave a grant to an organisation without properly consulting their board?

Dr Helgeby : I am saying that the accountable—

Ms Huxtable : As I said before, there are three steps in the process: one is about the recipient, the second is about the grant agreement and the third is about the assurance mechanisms. At every point in a process you can put checks and balances and assurance mechanisms in place. Clearly, in the process of negotiating a grant agreement, there will be engagement with the recipient of the grant.

Senator McALLISTER: It does seem a bit late to engage with the recipient of the grant. These are mandatory guidelines, are they not?

Dr Helgeby : The structure of it is such that we differentiate musts and shoulds.

Senator McALLISTER: Yes, but the first half of the document is mandatory and then there is guidance on key principles.

Dr Helgeby : Yes, and I think 7.10 is part of the guidance section and not part of the must section.

Senator McALLISTER: Dr Helgeby, I still really don't think that you intend to give evidence to this committee that it's optional to consult with the board of an organisation that's receiving a grant. I'm sure that's not your intention.

Ms Huxtable : I think I have already addressed that question, because the grant agreement would be negotiated with the recipient. The grant money doesn't flow until the grant agreement is in place.

Senator McALLISTER: I see, so you can announce it and then have the negotiation.

Senator Cormann: Of course, that is business as usual. You make decisions on what policy objectives you want to pursue and what funding you allocate for a particular purpose and through what methodology. Then you make assumptions over a four year period—or, as it happens, over the current financial year, plus four years—as to when certain things are likely to be in position for the expenditure to occur. After all of that is done you work through the administrative process to give effect to that in the appropriate way, including by making sure that you comply fully with the relevant Commonwealth grant rules and guidelines.

Senator McALLISTER: That is a process the agency will now be stepping through before they hand the cash over. I think the advice you are giving now is that there is a distinction between the point of announcement and the point when the grant arrangement is finalised?

Senator Cormann: But it has always been thus. You make—

Senator McALLISTER: I don't think it has always been thus. I think this is quite unique and interesting.

Senator Cormann: With any government, whether it is Labor, Liberal, National, or any other government that might happen in the future, there is going to be some space between the time you make the policy decision to pursue a particular objective in a particular way and the practical implementation of that decision on the ground. You go through a costings process to determine how much you are likely to need to allocate—

Senator McALLISTER: Nearly half a billion in a single financial year—

Senator Cormann: —in order to achieve a particular objective. For the expenditure to be able to occur, all of the relevant rules and requirements have to be complied with, including the Commonwealth Grants Rules and Guidelines. The very important point that the secretary made is that no organisation can be forced against its will to sign on to an agreement to take on the funding to deliver on a particular objective the Commonwealth wants to pursue. If the organisation is not inclined to do what they are asked to do for particular funding commitments, then obviously the funding will not take place.

Senator McALLISTER: Have all of the requirements of the grant guidelines been achieved?

Senator Cormann: That is a matter for the Department of the Environment and Energy because, as we've indicated, ultimately the final accountability and responsibility is with the accountable department and, more importantly, the accountable officers in that department. Ultimately, the secretary of the Department of the Environment and Energy has to be satisfied that the expenditure is incurred for a proper purpose in the appropriate way, consistent with all of the relevant requirements.

Senator McALLISTER: It is nearly the end of May and the secretary of that department has until 30 June to execute an arrangement for almost half a billion with an organisation that a week before the budget appears not to have possibly even been aware that they were receiving the money.

Senator Cormann: You are making assertions, but there is nothing unusual—

Senator McALLISTER: Nothing unusual!

Senator Cormann: There is nothing unusual about reaching agreements over a six-week period.

Senator McALLISTER: Given the hard deadline that the government is up against, it certainly will put a certain amount of pressure on the kinds of negotiations you are talking about.

Senator Cormann: I disagree. We've made a judgement that that is the appropriate time period, but let me assure you—

Senator McALLISTER: But you've got to get it out the door by 30 June, haven't you?

Senator Cormann: No—

Senator McALLISTER: You do, because that is what the budget orders.

Senator Cormann: No, that is wrong. This is the bit that Labor doesn't understand, and maybe that is why you get yourself into trouble when you are in government. The budget is our plan based on the best available information and based on the decisions we have made up until that point. We make assumptions on what we are able to progress and in what time period. If we reach a particular point where it is obvious that we can't reach a particular milestone that needs to be reached before we can take the next step, then we make adjustments to the budget, which is then updated at a future budget update. That is the way it has always worked.

Senator McALLISTER: So you might not do it by 30 June?

Senator Cormann: We believe we will and we are confident we will. I reject your characterisation, which was that we are just going to rush the money out of the door because that is what the budget says. The budget is a reflection of what we believe we can do, what we should do and what we will do, but ultimately budgets are estimates and projections. The actual performance against budget is something we can report on at the end of the financial year, and we will be releasing the final budget outcome for 2017-18 by the end of September 2018. At that point in time, you'll be able to ask us questions in the October estimates as to whether or not we have performed against budget as anticipated. I mean, these are estimates. These are not actuals. These are budget estimates. The actuals are going to be in the final budget outcome, but I can assure you there is absolutely no circumstance in which we would just rush money out the door for an improper purpose just because budget estimates indicate that that is what we believe will happen. It will only ever be done for proper purpose in the appropriate way, consistent with all of the rules and requirements, and always mindful of the need to treat taxpayers' money with respect and to spend money wisely, efficiently and effectively.

Senator McALLISTER: Okay. Minister, everything going well, nonetheless, your estimate is that you will be able to do this by 30 June?

Senator Cormann: That is our estimate. That's right.

Senator McALLISTER: And you will report that in the final budget outcome?

Senator Cormann: In the final budget outcome, we'll report actual performance against estimates. That's right.

Senator McALLISTER: At that point in time, everything going as you plan, you'll have made this payment and it will be logged as an expense in the 2017-18 financial year?

Senator Cormann: That's right.

Senator McALLISTER: You were talking earlier about the fiscal strategy and offset rule, and that will only apply from 2018-19 onwards—won't it?

Senator Cormann: The relevant fiscal rule is that for new spending decisions over the forward estimates period any expenditure on higher priority is more than offset by spending reductions in other areas. That is what I indicated very clearly in response to questions by Senator Leyonhjelm. The other thing I pointed out—

Senator McALLISTER: But the timing of this expense—

Senator Cormann: Sorry, I haven't finished.

CHAIR: Order!

Senator Cormann: I haven't finished. The other thing I pointed out to Senator Leyonhjelm was that, as a result of the good economic and fiscal management by the government, in 2017-18, the deficient at $18.2 billion—as estimated as we're sitting here today—is substantially lower than the $29.4 billion that was estimated as we were meeting this time last year. So we've had an $11.2 billion improvement in the budget bottom line. And, of course, I further pointed out that expenditure in 2017-18 is about $7 billion less than what it was projected to be when we delivered the 2014-15 budget in May 2014. So, in all of the circumstances, as a result of sound economic and fiscal management, yes, we are in a position to make this particular investment into the future of the Great Barrier Reef in the 2017-18 financial year, and we will report on our success in achieving that objective in the final budget outcome later this year. And, if we don't get there, we will report on that too.

Senator McALLISTER: Nonetheless, Minister, this expense won't fall within the time period of your fiscal strategy.

Senator Cormann: Based on what our expectations are—

Senator McALLISTER: It won't.

Senator Cormann: Let me finish.

CHAIR: Order!

Senator Cormann: Based on our budget estimates, based on what our expectations are, it is our expectation that the expenditure will be incurred in the 2017-18 financial year—that is true. But, obviously, it's going to be a matter of what can be achieved over the next weeks to the end of June to see whether, in the final budget outcome by the end of September this year, we'll be able to report that that is what, indeed, happened. That is what we believe will happen. That is what we're working towards to ensure it will happen, but, ultimately, the expenditure will only be incurred if it is for the proper purpose that we identified and if the money is able to be expensed in a wise, appropriately efficient and effective way consistent with all of the rules and requirements.

Senator McALLISTER: I'll ask the question again: should this proceed on the timetable that you've set out in the budget, that expense will take place before your new fiscal rule kicks in—won't it? Because—

Senator Cormann: It's not a new fiscal rule—that's number 1. And, number 2, I can again confirm what is reflected in the budget papers, and that is that our current expectation is that this expenditure will be incurred by 30 June 2018—and that is what is reflected in the budget papers.

Senator McALLISTER: Right. Outside the framework for your fiscal report?

Senator Cormann: We expect that the expenditure will be incurred in the 2017-18 financial year by 30 June 2018, which is the year in which we've been able to reduce the underlying cash balance deficit from $29.4 billion, as estimated at last year's budget, to $18.2 billion, which is the lowest deficit since John Howard lost government in 2007. Substantially it is because we've been so successful in better controlling expenditure growth, in reducing the unsustainable and unaffordable spending growth trajectory that we inherited from Labor, which was running at about four per cent in real terms—that is, four per cent above inflation—year on year, on average, which of course wasn't sustainable over the long term. We have been able to more than halve that. That is the reason why we are able to afford these sorts of investments into priorities that I'm sure have the support of most Australians.

Senator McALLISTER: But you'd understand that other commentators are saying that this is a sneaky attempt to bring forward expenditure into a period so that you don't have to find the offsets—half a billion dollars worth of expenditure into a single year, in a chaotic process, to an organisation whose existing annual budget is in the order of $8 million, and it is all of a sudden about to get $444 million.

Senator Cormann: I've been in this job now for 4½ years. In the 4½ years there have been commentators making comments about all sorts of things. In the context of the 2016-17 budget, do you know what commentators said and do you know what the Labor Party said? They said that our economic growth and employment growth assumptions were unrealistic, were overly optimistic and that eventually, when it was all said and done, the budget performance against estimates wouldn't stack up. You know what? We outperformed the estimates by more than $4 billion, when it was all said and done. And you know what the commentators then said? 'Oh well, that's what always was going to happen.' You know what? Commentators will commentate. The government makes decisions. We make decisions based on what we believe is in the public interest and we make decisions based on building a stronger economy, creating more jobs, making sure that the essential services Australians rely on can be fully funded and guaranteed within the budget, that government lives within its means and that we can afford to make these sorts of investments. If you look at the way we've been able to improve the budget bottom line in 2017-18 from the period since we came into government, particularly by controlling expenditure growth better, then it's obviously clear as to why we're in a position to do these sorts of things.

Senator McALLISTER: Specifically, allocate a grant without a competitive process—

Senator Cormann: Don't you support this measure?

Senator McALLISTER: I fully support environmental measures—

Senator Cormann: So what's the problem?

Senator McALLISTER: but this is chaotic. This is absolutely chaotic.

Senator Cormann: You know what was chaotic? Let me remind you what was chaotic.

Senator McALLISTER: This is a grant that's been provided without a competitive process.

Senator Cormann: Let me remind you what was chaotic.

Senator McALLISTER: It appears the department didn't even know about it.

Senator Cormann: The senator just referred to 'chaotic'.

Senator McALLISTER: Total chaos.

Senator Cormann: When I came into government in September 2013, do you know what we were looking at? Let me tell you. In the 11 weeks from Labor's last budget, in May 2013, to Mr Bowen's economic—

Senator KITCHING: Chair, a point of order—

Senator Cormann: I was asked a question.

Senator McALLISTER: You weren't actually. There wasn't a question.

Senator KITCHING: There wasn't a question. That's the point of order.

Senator Cormann: I haven't come to the end of my answer.

CHAIR: Thanks, Senator Kitching. That's not a point of order.

Senator Cormann: Let me explain what 'chaotic' is. In May 2013—

Senator McALLISTER: No, no. There wasn't a question.

Senator KITCHING: There was no question.

Senator McALLISTER: He's just talking.

CHAIR: Order, senators!

Senator Cormann: the then Labor government delivered a budget, and in the 11 weeks from the budget to Mr Bowen's economic statement before the 2013 election—

Senator McALLISTER: It's irrelevant to estimates.

Senator Cormann: the budget bottom line deteriorated by $33 billion—

Senator KITCHING: It's irrelevant.

Senator Cormann: or $3 billion a week over the forward estimates. That is chaos, and we turned that situation around. The economy today is stronger. Employment growth is stronger.

Senator Kitching interjecting

CHAIR: Order!

Senator Cormann: The budget is on track in terms of a return to surplus. We inherited a weakening economy, rising unemployment—

CHAIR: Order! Thank you, Senator Cormann.

Senator Cormann: and a rapidly deteriorating budget position.

CHAIR: Thank you, Senator Cormann.

Senator Kitching interjecting

Senator Cormann: I know that you don't want to hear this, but that was what was chaos. You know what chaos was? We had chaos at our borders. We had illegal boat arrivals as far south as Geraldton in Western Australia.

Senator Kitching interjecting

CHAIR: Order!

Senator Cormann: If you had stayed in government for longer, they would have arrived at the Swan River. They would have come up the Swan River in Perth.

CHAIR: Thank you, Minister.

Senator Cormann: That is chaos. That is what we inherited from the Labor Party.

CHAIR: Thank you, Minister.

Senator KITCHING: He keeps talking loudly, but, if you knew the standing orders—which one would assume that you might—then you would know that the procedural motion takes precedence. I am making a point of order. There is a lack of relevance to Senator Cormann's response because there was no question. Therefore there can be no relevance.

CHAIR: Senator Kitching, thank you for your point of order. I've heard your point of order. As you will have observed over the last few days, I've generally taken quite a hands-off approach to managing interactions between the minister and the officials and senators and allowed quite a wide degree of latitude. It has been very common for senators on the committee to make observations and for ministers to respond to them. Senator McAllister made an observation. The minister responded to it. There is no point of order.

Senator Cormann: If I can raise a point of order in relation to the same matter, and just to explain my approach to these things: I've sat back quietly when questions of fact and seeking information have been asked. But when political attacks and political observations with a partisan political edge are made, I'm not going to just let them stand; I will respond to them, and that is a prerogative that I exercise on behalf of the government.

CHAIR: Thank you, minister—not strictly a point of order either, but let's move on to some questions perhaps. Before I go to Senator Rice, I just have an update to share with the committee—not strictly related to outcome 1 of the Department of Finance but a matter that the committee showed great interest in yesterday. It's an article just published in the Courier-Mail by Anthony Galloway and it's titled 'Malcolm Turnbull: video shows he didn't cut line in Brisbane pub', and I quote—

Senator Cormann: I wonder whether Kyle and Jackie O are going to report on that tomorrow!

CHAIR: I hope they're listening. I quote:

Prime Minister Malcolm Turnbull did not cut into a line at a Brisbane pub to order a beer, with new footage appearing to contradict the claims of a man who gave him the finger at the bar.

Brisbane man Nick Gordon was slapped with a $756 fine after protesting against the Prime Minister at Carindale Hotel last Thursday. But exclusive video obtained by The Courier-Mail reveals Mr Turnbull casually walked up to the bar with no one in line before him. It is understood Mr Gordon was at the other side of the bar when Mr Turnbull ordered his drink, with the footage appearing to show Mr Turnbull did not cut the Brisbane landscaper off.

It goes on, but it's probably not necessary for me to—

Senator KITCHING: Was that sent to you from the rocket scientists in the Prime Minister's social media unit?

CHAIR: It's reported in the Courier-Mail, actually.

Senator RICE: Very believable!

CHAIR: That's a very kind observation, Senator Kitching, but I am able to do my media monitoring, thanks to the courtesy of technology and the service of Twitter.

Senator KITCHING: In fact, there might be more on this, because there's a suggestion from I think the KIIS FM station that their footage was doctored, but I can't comment on that.

CHAIR: Indeed.

Senator KITCHING: But that's the suggestion.

CHAIR: I just thought the committee would appreciate an update given the time we spent on that matter yesterday.

Senator KITCHING: And I'm updating the committee as well, that KIIS FM is saying that the footage was doctored, but I can't comment.

CHAIR: Senator Rice, over to you.

Senator RICE: On a more serious matter, I'd like to ask some questions about the department's implementation of the government's guidelines on the recognition of sex and gender. I'd like to know what progress the department's made with implementing these guidelines.

Ms Jones : As I think you would probably be aware, the Australian government guidelines on the recognition of sex and gender commenced on 1 July 2016 and the department—

Senator RICE: They had been implemented by 1 July 2016; they were introduced in 2013.

Ms Jones : Yes, 2013; that's right.

Senator RICE: It was a three-year time to implement them.

Ms Jones : Correct. And we went through a process in 2016 to update our policies and procedures so that by 1 July 2016 we were compliant with the guidelines.

Senator RICE: So you did the thorough policy review and you've changed all of your forms?

Ms Jones : We did have to change forms and change some of the information collected in our HR system that collects information around staff.

Senator RICE: And you've now got some clear and accessible information for people who want to change their gender on their personal records within the department as well?

Ms Jones : Sorry, I missed the very first part of that sentence.

Senator RICE: It was whether you have clear and accessible information for people within the department who wish to change the information that's on the record that the department keeps.

Ms Jones : I'd need to check where we provide that information on our intranet. I'd need to take that one on notice for you.

Senator RICE: Thank you. Do you have policies relating how staff should manage relationships within the organisation and how the organisation relates externally with intersex, transgender and gender diverse people?

Ms Jones : Is that in terms of specific policies around how people should engage?

Senator RICE: Yes, that's right—the terminology of engaging with people of diverse gender and with intersex people.

Ms Jones : Again, I'd need to take that on notice. I'm not sure that we currently have any specific guidance on giving advice about how to engage, but I may be able to—sorry, it's just been brought to my attention that we have training available called 'Pride in Diversity', which provides training to staff and managers. Part of that includes awareness of sex and gender diversity issues. That's available in our suite of training packages.

Senator RICE: Do you know how many people have accessed that training? Is it compulsory?

Ms Jones : It's not compulsory, but we could take that on notice.

Senator RICE: Are there agencies that fall within the department that would also have had to implement the guidelines?

Ms Jones : Is that in terms of portfolio agencies?

Senator RICE: Yes.

Ms Jones : I think they're applicable across-the-board, but we would have to take it on notice.

Senator RICE: Which agencies are connected to the department?

Ms Huxtable : We have a number of agencies in the portfolio, some of whom have appeared today—the Australian Electoral Commission, the Independent Parliamentary Expenses Authority, the Future Fund management agency and Commonwealth Superannuation Corporation—but each of those entities would themselves be responsible for ensuring their adherence to the guidelines. They operate independently of the department.

Senator RICE: So you don't have any responsibility to track or monitor whether the guidelines have been implemented.

Ms Huxtable : Not that I'm aware of.

Senator RICE: When I was first asking these questions of the Attorney-General's Department—in terms of getting information about each department—they effectively said that they do some collation but that I'd need to ask each department. It seems the answer that I'm getting from departments is that we need to track each agency independently.

Ms Huxtable : This very much predates my time, but I am aware that when the guidelines were first released in, I think, 2013 there was a process within the Department of Finance to map out our own processes of how we would adhere to the guidelines over time.

Senator RICE: From the questions I've asked of the A-G's, it's very clear that, although they were meant to be fully implemented by July 2016, that hasn't been the case and there has not been enough monitoring to see which agencies have and haven't implemented them in that time. Do you have activities where you are engaging with the public in terms of keeping information public and not just for your internal HR records?

Ms Huxtable : We're not generally an external facing organisation in the same way as the Department of Health or Department of Social Services. To be honest, the main external facing responsibilities we have are probably in administering the ministerial and parliamentary expenses arrangements, unless I'm forgetting something. Nothing immediately springs to mind where we're doing a lot of work with other external bodies.

Senator RICE: Maybe you could take on notice if there's anything else and whether those interactions are also compliant with the guidelines.

Ms Huxtable : Sure.

CHAIR: Thanks, Senator Rice. Senator Stoker.

Senator STOKER: I've got some questions about the budget repair measures, so it looks like a changeover of personnel is required.

Ms Huxtable : We'll get our budget people back.

Senator STOKER: Thank you. This question was asked last estimates, but I think it's an important one on which to get an update. What is the budget impact of the budget repair measures that have been legislated since the 2016 Pre-election Economic and Fiscal Outlook?

Mr Fredericks : Since the 2016 PEFO, the quantum of budget repair measures that have been legislated is now over $41 billion.

Senator STOKER: What's the estimated impact of budget repair measures that the government has implemented since the 2013 election?

Mr Fredericks : I'll come to that question next, but there's a logical path to that. To fill in a couple of gaps, the quantum of budget repair measures that have been implemented by way of legislation since the 2017-18 MYEFO, the most recent economic update, is $4 billion, and the quantum of budget repair measures that have been implemented by legislation since the 2017-18 budget is $16 billion. So, since the last economic update $4 billion worth of budget repair measures have been implemented, since the last budget $16 billion worth of budget repair measures have been implemented, and since the 2016 PEFO $41 billion worth of budget repair measures have been implemented.

The figure for the period since the 2013 election is also a figure that we've previously provided. I think what you're particularly interested in is the medium-term impact of those measures since the 2013 election?

Senator STOKER: Yes.

Mr Fredericks : That figure now is at around $400 billion worth of budget repair measures—that is, their medium-term impact—implemented since the 2013 election.

Senator STOKER: What are the key measures that have generated that result?

Mr Fredericks : To go back to your first question, the key measures that have been implemented since the 2017-18 MYEFO are measures such as improving access to cheaper medicines, which was a $1.3 billion budget repair measure; the tax integrity package, which is a $1.2 billion budget repair measure; and better targeting of assistance to support jobseekers, which was a $300 million budget repair measure. That's what's contributed to budget repair since the 2017-18 MYEFO.

If you'd like me to go back to the 2017-18 budget, that is $16 billion worth of budget repair measures. The key measures that have been implemented since the last budget are the major bank levy, which was a $5.5 billion budget repair; funding for the jobs for families packages, which was $1.9 billion; improving access to medicines, once again, which was $1.3 billion; and the tax integrity package.

Senator STOKER: Can you explain the relationship between the passage of all of these important budget repair measures and what we now see is the lowest average annual real growth in payments for some time?

Mr Fredericks : I can only reiterate what the minister said. He has previously, in these proceedings, drawn attention to the significant reduction in the ratio of payments to GDP, and in this budget, over the forward estimates, on average that's projected to be 1.6 per cent.

Senator Cormann: This is spending growth in real terms rather than spending as a share of GDP. This has triggered a memory for me, though. If you look at the report of the National Commission of Audit back in 2014, you'll see that it shows we were on a trajectory, within the medium-term, at that point—that is, from 2013-14 to 2023-24—for government expenditure as a share of the economy to increase to 26.5 per cent and to continue rising. That is important because, if you want to get into surplus with an increasing trajectory of a government, you have to chase that with ever-higher taxes, which hurts the economy, which hurts jobs and which hurts wages growth and a whole bunch of other factors.

What we've been able to do is reflected in this budget as a result of controlling expenditure growth better. Looking back to about 1.9 per cent in real terms on average per year and looking forward over the current forward estimates down to 1.6 per cent in real terms on average per year is less than half the expenditure growth in the Howard government. The position we are now getting into as a result of these sorts of efforts is that government expenditure as a share of the economy is projected to reduce to 24.7 per cent in the final two years of the forward estimates, which is below the 30-year long-term average of 24.8 per cent. This is just another indicator which demonstrates we have been able to get expenditure growth under control and get the budget back onto a more sustainable foundation trajectory for the future. Expenditure as a share of the economy is at a more sustainable level.

The final point is, that is also—being now on track to return to balance by 2019-20 and then have a growing surplus over the forwards, over the medium term—why we are able to pay down the government net debt. Government net debt is now projected to peak at 18.6 per cent, instead of the 19.2 per cent which we previously forecast in the year earlier. It is projected to reduce to 3.8 per cent over the medium term to 2028-29. Over the forward estimates we are projected to pay off about $30 billion worth of government net debt. Over the medium term, over the next decade, we are projected to pay off $232 billion worth of government net debt.

All of these indicators demonstrate that the budget now is in a much stronger position and on a much stronger and more sustainable trajectory. That is substantially because of the efforts that we've made to get expenditure growth under control, which has meant that the beneficial revenue impacts of increased employment growth, employment growth above expectations—which has driven up personal income tax revenues and which has helped to reduce welfare payments—all of that has contributed substantially to improving our bottom line trajectory moving forward. I hope that as your question.

Senator STOKER: It does. Thank you, Minister. There has been considerable focus on the impact of the improvement in tax receipts on the budget position. But isn't it also the case that the government's efforts in constraining payments growth has contributed to the improvement of the budget position?

Senator Cormann: Essentially, I think I've just answered that. People have said, 'This is all because you've got a revenue windfall.' Well, that is actually not right. Yes, commodity prices right now are higher than what we had forecast, and that has a beneficial impact in the short term on revenue collections. But we're not assuming in terms of our budget numbers that that will continue moving forward. By far, the largest contributing factor to increases in revenue is the fact that employment growth has been much stronger than had previously been anticipated, and that personal income tax is much higher than previously anticipated, not because of higher bracket creep, not because of new taxes or tax increases but because of stronger employment growth, employment growth that was stronger than what was previously factored into our economic forecasts and projections.

I think it is about $24.5 billion in additional revenue based on parameter variations. A substantial part of that is increased GST. About 18 per cent of that is increased GST payments, which essentially from a federal budget bottom line point of view is completely budget neutral. It's money in, money out. Fifty-one per cent of the total additional revenue is because of higher revenue from personal income tax collections. That is a direct result of the stronger economic and stronger employment growth performance than what was previously anticipated.

Senator STOKER: Thank you.

Senator McALLISTER: Can I ask some questions about the Pharmaceutical Benefits Scheme and the way those rebates work, Ms Huxtable?

Senator Cormann: You can.

Senator McALLISTER: Our understanding is that the gross cost of drugs is booked to the Health portfolio but the rebates come back through the Finance portfolio. Is that correct?

Ms Huxtable : Not through the Finance portfolio as such. The way it has worked is that—

Senator Cormann: You're very lucky; Ms Huxtable is a former senior official of the health department who was directly involved in very significant reforms—

Ms Huxtable : Ten years ago, I'll just add.

Senator Cormann: during the period of the Howard government, another great government. She's in a much better department now, of course!

Ms Huxtable : You're correct in respect of the payment side. In respect of the revenue side, where revenue is returned to government, it's returned to consolidated revenue, effectively. It doesn't return to the finance department as such; it returns to consolidated revenue.

Senator McALLISTER: How's that represented? From an accounting perspective, how is that dealt with?

Ms Huxtable : Just as a revenue inflow.

Senator McALLISTER: So the gross cost is shown is an expense—

Ms Huxtable : Yes.

Senator McALLISTER: and then the revenue shows up—

Ms Huxtable : Separately.

Senator McALLISTER: separately in the Health portfolio budget?

Ms Huxtable : No.

Senator McALLISTER: Where?

Ms Huxtable : It just flows into the CRF.

Senator Cormann: Consolidated Revenue Fund.

Ms Huxtable : Yes, into the Consolidated Revenue Fund.

Senator Cormann: I don't like TLAs!

Ms Huxtable : You don't like what?

Senator Cormann: Three-letter acronyms; I can't believe I was asked! I got you! There's nothing I dislike more in briefs I get from my wonderful department than TLAs.

Ms Huxtable : You should have told me that sooner.

Senator McALLISTER: This is an in-joke that we're just not in on, but that's fine. When proposals for new listings come through on the PBS—again, you may need to assist me, Ms Huxtable—my understanding is that the general principle is that, if new listings are proposed, savings need to be found to pay for them. Is that correct?

Ms Huxtable : Yes, that's correct.

Senator McALLISTER: And, in identifying the savings that are required, is that based on the gross cost or the net cost after the rebate has been provided?

Ms Huxtable : The way it has worked to date is that it's based on the net cost. So the amount that is then offset is the payments minus receipts.

Senator McALLISTER: At budget last year, there was an announcement that there'd been a five-year agreement with Medicines Australia, and $1.8 billion of savings were identified. In that same budget, some of that was directed towards new listings. Is it correct that the agreement with Medicines Australia required the remainder of those savings to be allocated towards future listings?

Senator Cormann: We've made a decision in this budget to allocate another $1 billion towards future listings.

Senator McALLISTER: I'm coming to that. I'm just trying to understand, Minister.

Senator Cormann: We have a very good record when it comes to investing in better access to high-quality health care for all Australians, in particular through the Pharmaceutical Benefit Scheme arrangements.

Senator McALLISTER: The agreement that was made with Medicines Australia was about reinvesting those savings back into new listings?

Ms Huxtable : Yes, that's correct.

Senator McALLISTER: There were some listings in 2017-18, and then at MYEFO $2.1 billion of new listings were announced. Then in this budget, as the minister has just observed, there was $1.4 billion of new listings announced.

Ms Huxtable : That's right.

Senator McALLISTER: Does that mean that the full amount of savings that had been identified in that agreement with Medicines Australia has now been exhausted?

Ms Huxtable : That's my understanding.

Senator McALLISTER: The measure in the 2018 budget, which is for improving access to medicines, additional funding for new medicines and improved payment administration, indicates an additional $1 billion for new listings.

Ms Huxtable : That is correct.

Senator McALLISTER: How is that being funded?

Ms Huxtable : That's a provision that's been made in the budget. Basically, that's a decision to provide $1 billion for new listings of medicines.

Senator McALLISTER: Right, so there are no offsets required for that? That is essentially a kind of augmentation of the—

Ms Huxtable : It was a decision taken by government as part of the budget process.

Senator McALLISTER: Okay. There are two elements to the measure: additional funding for new medicines and improved payment administration.

Ms Huxtable : That's correct.

Senator McALLISTER: What are the changes that are proposed to payment administration?

Ms Huxtable : I can go through this at one level, but it might be worth engaging with the health department if you want further detail.

Senator McALLISTER: That's fine.

Ms Huxtable : Basically, coming out of the independent Review of Pharmacy Remuneration and Regulation, there were some concerns raised about medicine access and pharmacy cashflow issues, in particular, and the way in which increasingly-high-cost listings had been listed on the PBS.

You've already gone into the arrangement, so, clearly, you understand it. But the arrangement which was becoming more common was that medicines were being listed with an agreement that revenues would flow back from the provider, sometimes when particular conditions were met. So, for example, if there were a certain expectation about volume of medicines at the time of listing and if the volumes were exceeded then there was an agreement on the part of the manufacturer to return an amount.

It would vary, depending on the listing, is my understanding. The impact of that was that the payment side was effectively greater than the net cost that the government was paying, due to the impact of revenue flowing back in. That had an impact on both pharmacy cashflow, because they were purchasing medicines at a higher price, and also on access, because they may not wish to hold a particular stock of medicines due to the cost of those medicines. Instead of that sort of arrangement, where a higher payment goes out and then revenue returns to government, there is a trial, basically, that's being conducted which will enable the medicine to be provided at the net price.

Senator Cormann: Which I would have thought makes sense. We want to have the best possible price rather than have some sort of non-transparent arrangement where you pay a higher price and then get revenue back. Obviously, from a health point of view, if you pay more than you should then you've got to find more savings than you should in order to pay for it, and that doesn't seem to be sensible.

Ms Huxtable : In fact, pursuant to that, there is a diagram in budget paper No. 6, I think—maybe it's not No. 6. Where's the diagram? Sorry, it's 6.21. It not only shows on a graph that there is no net impact of this but also explains the arrangements in more detail.

Senator McALLISTER: Okay. Thanks.

Ms Huxtable : You've probably seen that, but just in case you haven't.

Senator McALLISTER: I don't have budget paper No. 6 with me.

Ms Huxtable : Sorry, it's budget paper No. 1, statement 6.21.

Senator McALLISTER: Right—I thought you said in paper No. 6.

Ms Huxtable : But, as I said, the Department of Health has been actively negotiating with the sector in regard to these arrangements, so, despite the fact that 10 years ago I was involved in the PBS you might want to take the questions to them.

Senator McALLISTER: Right—we will. Can I ask you about bargaining? I understand that the Finance Enterprise Agreement concludes in 2018. It's dated 2015-18; when is the expiry date?

Ms Huxtable : No, it's 2019, I believe, senator.

Senator McALLISTER: Right, okay.

Ms Jones : It's January 2019.

Senator McALLISTER: January 2019—okay. So have you initiated any informal discussions on bargaining?

Ms Jones : We haven't initiated any formal discussions yet but we will be initiating that in the very near future.

Senator McALLISTER: Have you had informal discussions?

Ms Jones : No. We've been working within the department. We have been waiting for guidance from the Australian Public Service Commission on the general bargaining policy to apply in these circumstances. We have been considering that. We expect to commence the formal process of engagement with staff in the very near future.

Senator McALLISTER: Have you established a time line for bargaining?

Ms Jones : We will be finalising that. I have been briefed in terms of the proposed time line for that, and we'll be settling that in the very near future. We are working on the basis that we will have negotiations undertaken and completed in time for when the current EA concludes.

Senator McALLISTER: You've been briefed and you said we will be making a decision about that. Who is the decision-maker?

Ms Huxtable : This is a matter that will be considered by the executive board. We are meeting very shortly and this is an item that's on the agenda. While I haven't as yet seen the paper on that I expect that it will include the anticipated time line and the process that we will embark on in that regard.

Senator McALLISTER: From a budget prospective, are wage increases factored into the forward budget?

Ms Jones : We're in the process of preparing our budget for next year. We will need to take a whole range of matters into account.

Ms Huxtable : We don't get supplementation for wage increases so there's no external supplementation. But, as Ms Jones said, in terms of our forward planning we take account of anticipated increases and a lot of the negotiations and discussions we will behaving is where there is potential for productivity improvements that we can bring to the table in terms of meeting the costs of the wage increase.

Senator McALLISTER: The expenses as set out in your portfolio budget statement incorporate any wage increases associated with that?

Ms Huxtable : Yes.

Senator McALLISTER: How does it interact with the progression system for staff? Aside from the questions of bargaining, there's existing potential for people to move to a higher pay point as part of their normal progression. How is that accommodated in factoring in costs with staff costs?

Mr Dilley : My apologies, can you repeat the question?

Senator McALLISTER: I'm trying to understand, from an estimates prospective, what methodology you use to factor in cost increases associated with staff progressing to different pay points as part of their normal conditions within the agreement.

Mr Dilley : That's included in our forward estimates, and, subject to meeting appropriate performance benchmarks, staff progress on a seniority on an annual basis. That's laid out in our current enterprise agreement.

Senator McALLISTER: I'm asking how that's handled in the estimates process.

Ms Huxtable : We would factor all the necessary considerations into our estimates. Based on past experience, we have an understanding of what our forecasts look like. We have to overlay that, in our consideration, with the profile of our workforce, that is the ratio of SES staff, EL staff and APS staff. There are some factors that we can actively control, manage and plan for. There are others that are less able to be controlled, managed and planned for. Our workforce planning process, which we're very much ramping up as part of this current phase of transformation that we're in, is looking at how we develop a workforce that can operate to achieve our priorities and objectives within the budget constraints in which we operate.

Senator McALLISTER: You mentioned productivity improvements and the potential to use those to offset any wage increase that might be provided through bargaining. Have you started considering what productivity improvements might be available?

Ms Huxtable : We're not at that stage of the process as yet. As I said, we're going to have our starting engagement meeting on this very shortly. We'll be looking at the approach, the consultation mechanisms and also really engaging with our own budget forecasts. I would say, and it's a related point, that we're putting a lot of effort into our integrated business planning and budgeting processes at the moment. We're doing a review. We've had all our senior team engaging with the executive around their priorities and their budgets, and their budgets going forward. That very much is a discussion around the highest priority work for the department and how we go about that work. Clearly, the capacity for us to drive more efficiency into our work practices is an important consideration in that regard. We have some very live examples of that. One of those which immediately come to mind is the shared budget workflow system, which we've been funded for as part of the modernisation fund, but it has the potential to enable us to be more efficient in the way in which we go about our work. All these things have to come together in terms of how we are managing the budget and the expectations going forward.

Ms Jones : We will be looking for staff to contribute ideas around productivity improvements—that will be part of the negotiation process—but we have been engaging with staff across the board in the department around productivity and innovation. It will be a bit of collaborative effort with staff to identify some areas where we can achieve some productivity outcomes.

Senator McALLISTER: Have you given consideration to reducing staffing to provide a pay rise within the current budget? Is that under consideration?

Ms Jones : No. In terms of specifically around staffing numbers, no.

Ms Huxtable : But one of the things we have considered, and I think I've spoken about before, is looking at our profiles—that is, our ratios of SES to EL staff to APS staff—to make sure that we've got the right mix of staff in the organisation. So while the overall staff number might not change, the mix of staff that makes up that number may change. We are an organisation that tends to have quite small branches and sections, which is not unusual in a central agency and not unusual in the nature of the work that we do, but we have a firm view at the executive board that there are many reasons to have larger sections and larger branches, and a lot of those go to giving people the opportunity to manage staff and the opportunity to show their skills at the level at which they're at, which means they can mobility options into other organisations more readily where there are much bigger teams. The feedback we have from staff is that having responsibility and meaningful work is critical, and part of that is having that capacity to manage, to take decisions, to take greater ownership, which goes with having a different profile.

Senator McALLISTER: Yes, okay. Understood.

Senator LINES: Ms Jones, when Senator McAllister was asking about the bargaining process you said you intended to include staff and ask for their ideas. Can you detail for the committee—I'm happy for you to take it on notice—what comments staff gave in the last round and which of those comments were picked up and we can see reflected in the current enterprise agreement?

Ms Jones : I'd have to take that on notice. It's before my time in the organisation, but I'm happy to look into that.

Senator LINES: Thanks.

Ms Huxtable: The other thing I would add to that is that outside the enterprise agreement framework we have been actively engaging with staff around their ideas. I firmly believe that the people who are doing the work at the coalface are the ones who can best advise about how to do the work most effectively, so we've been having those discussions in an ongoing way, including through opt in sessions. We're really reaching out to people and embracing innovation in that regard.

Senator LINES: Did the first bargain you put to staff in the last round get voted up or down?

Mr Dilley : It was voted up.

Ms Huxtable : Yes, I believe it was. It is a little bit before our time.

Senator LINES: So the first time you put it to vote, it got voted up?

Mr Dilley : That's correct.

Senator McALLISTER: I'd like to ask about the commemoration of James Cook's voyage. I really just want someone to just talk me through the finances. I'm just trying to reconcile the text. It's on page 78 of Budget Paper No. 2.

Senator Cormann: What would you like to know?

Senator McALLISTER: The text says the government will provide $48.7 million over four years. The amount shown in the table adds up to $7.9 million, and the text acknowledges that this measure has been partially provided for by the government.

Senator Cormann: That's right. There was a partial provision in the contingency reserve which was allocated to it. The funding that is reflected in this table is the additional funding that was required to get to the $48.7 million. What you will see in the table is it shows $7.9 million in new funding. That is because $40.8 million had been provisioned in the contingency reserve.

Senator McALLISTER: So that was one of the decisions taken, but not yet announced.

Senator Cormann: That's exactly right.

Senator McALLISTER: Can we have a breakdown of the $48.7 million? I note that $25 million is to go to the New South Wales government.

Senator Cormann: This is not in our portfolio; this is in the Communications and the Arts portfolio. If you want me to provide that information I'll have to take it on notice. Alternatively, you can just ask the question in the Communications and the Arts estimates.

Senator McALLISTER: Yes. I understand. On page 135 of Budget Paper No. 2 there is the WPIT.

Senator Cormann: Say that again.

Ms Huxtable : It's an FLA—a four-letter acronym.

Senator McALLISTER: Is that what's banned, the four-letter acronym? What about three-letter acronyms? Are they all right?

Senator Cormann: I don't like acronyms full stop.

Senator McALLISTER: All right, the welfare payment infrastructure transformation.

Senator Cormann: I like people to talk in plain—TLAs can be like a foreign language and can be quite exclusive. I think we should be inclusive in our language, so it's properly understood.

Senator McALLISTER: Okay, back to the welfare payment infrastructure transformation, rather than philosophies about plain English communication, which I share. There is an announcement of an additional $316 million for tranche 3 of the Welfare Payment Infrastructure Transformation Program. I don't know if that tells you very much. How many more tranches are there for the project? Is tranche 3 the final tranche?

Mr Bartlett : No. There's another tranche to come, tranche 4.

Senator McALLISTER: When is it expected to commence?

Mr Bartlett : I think we've got to take that on notice. I have a sense it's 18 months away, but I'd really like to check that, so we'll take that on notice if that's okay.

Senator McALLISTER: Has the project realised the efficiencies that were expected under tranche 1 and 2?

Mr Bartlett : It has. I'd be suggesting that, in terms of getting detail about what it's recognised and where, the Department of Human Services is obviously best positioned to tell you about what they've delivered.

Senator McALLISTER: I'm more interested in the financials around it. I have talked to them about its functions and performance. From a digital perspective, much of the digital investment has been premised on savings, and I'm interested to understand whether the savings have been realised in tranche 1 and tranche 2.

Mr Bartlett : Again, I'll take it on notice and come back to you with specific details, but the Department of Human Services has realised more savings than they expected and returned some funding in part of getting funding for tranche 3 as a result of savings realised from earlier tranches.

Senator McALLISTER: Thanks, chair.

Proceedings suspended from 15:45 to 16:03

CHAIR: The committee will now resume its examination of the Department of Finance, outcome 1.

Senator McALLISTER: Ms Huxtable, I was hoping that you could talk me through the practical application of the costings guidelines and, in particular, what the process is to cost a policy like, perhaps, the one for the National Health and Medical Industry Growth Plan on pages 119 to 120.

Ms Huxtable : I might get the relevant officers who were involved in the detailed costing process to work through that in both the general and the particular.

Ms Lee : In a general sense during the costing process Finance receives information from agencies that support a minister's NPP, new policy proposal, that is going to be considered as part of the budget process. They provide the supporting documentation that underpins all the policy elements of that new policy proposal. In partnership with the agencies Finance then works through what the costs are, looking at the costing assumptions and the number of participants whom the new policy proposal may affect in the context of what adjustment that would make to the already existing bottom-line impacts of the current program that it's impacting upon. We cost the adjustment to the existing bottom line for the relevant program. That's what we do in a broad sense.

Senator McALLISTER: When it has multiple components over different time periods, as does the initiative on page 119 of BP2, some of which span the entire medium term, others shorter term, how do you approach that?

Ms Lee : Because some NPPs affect more than one agency, we engage with all the different relevant agencies who are part of the policy proposal and we cost all the individual elements. Sometimes, in the way these measures are presented here in the book, related new policy proposals may be pulled together, but we would have costed the individual elements before they went to the Expenditure Review Committee for consideration.

Senator McALLISTER: So some of these dot points are in fact aggregates of multiple proposals?

Ms Lee : Yes.

Senator McALLISTER: They are then costed in a work breakdown?

Ms Lee : Yes, they are, each component, and the ones that affect individual agencies as well.

Ms Huxtable : Sometimes you will find that, while the original costing is based upon individual components, when a decision is made, depending on what that decision is, there might be interactive effects, so then there will at times be a sort of—I wouldn't say recosting—reconciliation process at the end to ensure the cost is still accurate when taken across a number of integrated measures.

Senator McALLISTER: Right, because one initiative might reduce demand for another one and so the cost—

Ms Lee : Might have an impact upon another.

Ms Huxtable : Yes. It can be very simple or it can be very complex.

Senator McALLISTER: The fundamentals are that you start with building blocks and work up from there?

Ms Huxtable : That's right, yes.

Senator McALLISTER: When some part of it starts outside of the forward estimates and runs over a long time, how does that work?

Ms Huxtable : As a reminder: Finance are responsible for costing payment measures, and Treasury does the revenue measures. Generally we cost over the forward estimates; however in some instances we provide costings over a longer period. I think we provided a question on notice, perhaps from MYEFO, giving some examples where we've costed over a longer period. That might be appropriate where there's a material difference between the conduct of a program within the forward estimates and outside the forward estimates program. Something might start quite light in the forwards, ramp up and then continue, so the costs you're seeing are the costs beyond the forwards. If you go through the measures, you'll find ones talking about a four-year or six-year cost, and setting out the costs in the years outside the forward estimates.

Senator McALLISTER: I think what you're saying is that it is significant if there is variability in the cost over time; if it is ramping up or trailing off, it doesn't make sense to rely only on the forwards as a measure of the cost of—

Ms Huxtable : In the vast majority of cases, we're costing the forward estimates period, which is what's published in the budget. The way that that's then dealt with, as budget years roll forward, is that, in the creation of the third forward estimates year—every budget process has a process of creating the year that is coming into the forward estimates—that basically sweeps up all the existing base funding of government. It's dealt with in that way rather than through individual costings.

Senator Cormann: Which is consistent with the Charter of Budget Honesty, which in section 12, 'Contents of budget economic and fiscal outlook report', makes the point:

A budget economic and fiscal outlook report is to contain the following information:

(a) Commonwealth budget sector and Commonwealth general government sector fiscal estimates for the budget year and the following 3 financial years …

Going to the second part of that particular section, it says:

The information in the report is to take into account, to the fullest extent possible, all Government decisions and all other circumstances that may have a material effect on the fiscal and economic outlook—

which is precisely what we are doing in our budget papers.

Senator McALLISTER: Okay. In an instance like the one you described earlier, Ms Huxtable, where the cost over the medium term is quite variable, how do you establish the cumulative cost over that 10-year period?

Senator Cormann: Over the medium term? That is actually not a matter for Finance. We've had this conversation many times—

Senator McALLISTER: Or for expense?

Senator Cormann: Including for expense. Medium-term projections are a matter for Treasury. We've had that conversation many times over. The responsibility for medium-term projections that are reflected in the budget are part of the Treasury portfolio, and they are provided by Treasury for the purposes of the budget.

Senator McALLISTER: Can I clarify that—even in the case of an individual expense measure like the one on page 119?

Ms Huxtable : As I said earlier, there are instances where there will be measures that are costed over the medium term, but they are very few. In fact, we set out in response to QON No. 12—

Mr Fredericks : Back at supplementary budget estimates.

Ms Huxtable : Yes. So, in October last year, we set out examples from the 2017-18 budget where there were costs that went beyond the forward estimates. But, as I said, generally these are a few years beyond the forward estimates. The medium-term projections are done quite differently and are done in the Treasury, and we don't get involved in that and the way that they do those. And I'm not fully across their methodology. They use more of a top-down approach, whereas everything we do tends to be more bottom-up, going to individual programs.

Senator McALLISTER: Okay. Noting the distinction that I think you and the minister are keen to draw, that you have a different role from Treasury and you have a different methodological approach from Treasury, your method for medium-term costings is to use that building-block approach but to consider it each year, to derive a cost over the relevant period.

Ms Huxtable : Yes. I'm making the distinction because, when you talk about medium term generally, people think that is a 10-year period.

Senator McALLISTER: Yes, but in some instances it's only six.

Ms Huxtable : But I would say, when I'm talking about medium term from a costing perspective, I'm generally not talking about a 10-year period; I'm talking about a measure that maybe goes for six years—four years in the forwards and two years outside. When you go through the measure, and I haven't done this, but I'm sure you could find examples in Budget Paper No. 2, where there are measures that have costs outside the forward estimates that are named in the measure. So I'm talking about that, not producing a medium-term cost in the 10-year sense.

Senator McALLISTER: I understand—because the medium-term costs are more than the sum of the individual measures described in Budget Paper No. 2, amongst other things.

Ms Huxtable : Exactly. And the medium-term projections that you see in Budget Paper No.1 are prepared by the Treasury, using that different methodology that they use.

Senator McALLISTER: Okay. But, in the case of the example I've chosen, the National Health and Medical Industry Growth Plan, it does have some initiatives which go over, for example, nine and 10 years. On page 120, they're listed—there are a series of dot points.

Ms Huxtable : I think you'll find in relation to that particular proposal—and I'll get Mr Bartlett to go to this issue—that quite a large degree of funding for this has come from the Medical Research Future Fund, which is a fund that is separately reported in the budget papers; it's in the Finance PBS, and it sets that out. In this instance, it's drawing down from the fund; that's correct. It's a little bit different to where we have a new policy that creates new spending. These are a range of initiatives, many of which are funded through an existing fund that's been set aside, the Medical Research Future Fund, and has its own trajectory of funding.

Mr Bartlett : All of the amounts provided out of the Medical Research Future Fund are the dot points above the line, 'The Government will also provide'. The amounts below that line are the amounts reflected in the expenses table.

Ms Huxtable : The table above, on page 119.

Senator McALLISTER: So what you're saying is that the second half of the text describes those things that are shown in the forward estimates and the first half of the text describes things that are provided by the Medical Research—

Ms Huxtable : Which are being drawn from the fund. Page 32 of our yellow book sets out the fund over the forwards and provides commentary in that regard—sorry; the Health PBS on page 47 actually sets out all the drawdowns from the fund.

Senator McALLISTER: That's okay. I'm actually not—

Ms Huxtable : I'm learning things myself here!

Senator McALLISTER: I obviously chose a more-than-usually-complex example! I'm just trying to understand what you do in terms of building up a costing for a measure which runs over the forwards. Acknowledging all of the things that have been said about the differences between the way you might do it and the way Treasury might do it—

Senator Cormann: Because they are different purposes—

Senator McALLISTER: because they are different purposes and they have a different methodology, you are building from the bottom up to establish a cost beyond the forwards and it's a year-by-year cost?

Senator Cormann: In the instances where that is appropriate.

Senator McALLISTER: Where necessary and appropriate. But it's a year-by-year cost beyond the forwards?

Mr Fredericks : Where it's relevant to the measure that the measure needs to be costed beyond the forward estimates, then we do.

Senator McALLISTER: And it's done by producing an annualised cost for the measure in those years beyond the forwards and summing them to produce the total cost for the measure, as represented here?

Mr Fredericks : Correct.

Ms Huxtable : And taking note of interactions where required.

Senator McALLISTER: Thank you. In terms of the costing process, you are able to cost the policies of non-government parties at their request—

Ms Huxtable : Hang on; this relates to the election policy costing guidelines—

Senator McALLISTER: Yes.

Ms Huxtable : which we do publish. At the time an election is called, we put on our website information in respect of the costing process. Ms Lee can take you through the process, having done it many times!

Ms Lee : The political parties can have their costings costed by the Department of Finance for expenditure, the Treasury for revenue items or the PBO. They can't have their costings undertaken by everybody. The smaller parties can also have their costings undertaken by the PBO, but not by the Department of Finance or the Department of the Treasury. This is in the election period only. We don't have any role outside the election period in costing non-government costings.

Senator McALLISTER: In fact, you're not permitted to cost the policies of a non-government party. It wouldn't be proper to use—

Ms Huxtable : If there was a request from a non-government party to cost a policy, we would advise them of the guidelines and of our role.

Senator McALLISTER: If you were asked by the government to cost a Labor Party policy, you wouldn't be allowed to do that either, would you?

Ms Huxtable : We wouldn't be asked to cost a Labor Party policy.

Senator McALLISTER: So the government is not allowed to ask you to do that?

Ms Huxtable : Our role is to cost policies that are being considered by the government; so at the request of the government.

Senator McALLISTER: Have you been asked to cost any Labor Party policies in the last two years?

Ms Huxtable : Not that I'm aware of, no.

Senator McALLISTER: I'm just confirming that that's the case.

Ms Huxtable : No.

Senator McALLISTER: And not policies that look a lot like Labor Party policies, which, of course, in the context of—

Ms Huxtable : At the end of the day, we cost a variety of policies. I don't monitor Labor Party policies, sorry. We undertake a range of activities and we cost a range of policies. Some of those policies result in decisions that appear in the budget and some of them don't. It's our role to undertake costings, and generally those costings are going to come to us through new policy proposals that come from agencies.

Senator McALLISTER: Turning to page 1-7 of Budget Paper No. 1, there's very specific language used in the second last paragraph:

The Budget is then forecast to return to balance in 2019-20, before increasing to a surplus in 2020-21 …

Ms Huxtable : The second last paragraph?

Senator McALLISTER: The second sentence in the second last paragraph, yes. Minister, it's very precise. It's balance in 2019-20—

Senator Cormann: Indeed.

Senator McALLISTER: and then surplus in 2020-21.

Senator Cormann: The numbers are, of course, also there. The 2019-20 number is $2.2 billion and 0.1 per cent as a share of GDP—that's what we would consider balanced. We are on track to return to a surplus of half a per cent as a share of GDP by 2020-21. I hasten to add: we've been projecting a return to surplus by 2020-21 since the Mid-Year Economic and Fiscal Outlook delivered in December 2015 for the 2015-16 financial year.

Senator McALLISTER: Are you confident that that same language that's used in the budget has been used in public commentary by government ministers? The point I'm making is that you're very clear in the budget papers that there is in fact not a surplus until 2020-21.

Senator Cormann: We're not saying there's not a surplus until 2020-21. We are describing it in the budget papers as returning to balance. Self-evidently, if there is no minus in front of the number—and there isn't; it's a positive number in 2019-20—it is not inaccurate to say that it is in surplus. But the Treasurer and I, and the government, have made a deliberate decision that, given it is a very small surplus in 2019-20, in particular as a share of GDP, we would frame it as 'returning to balance'—that was our decision—and we, of course, are pointing out that the size of the surplus will grow over time, or is projected to grow over time.

Senator McALLISTER: I don't think that answers my question. Are there government ministers out there saying that you're returning to surplus in 2019-20?

Senator Cormann: It does answer your question. I've got to tell you, I've been somewhat busy in recent weeks. We've delivered a budget; we've had parliament sitting; I've been on a post-budget roadshow. I'm sure that every Labor shadow minister reads every single one of my transcripts that I continue to provide on a regular basis, but, I've got to tell you, I'm not reading the transcripts of every single one of my colleagues, because I just haven't had the time to do that. If you want me to take a question on notice, where I task somebody to review every transcript of every one of my colleagues, I'm happy to do it, but the point I'm making is: it would not be inaccurate to describe the forecast for 2019-20 as a surplus, but the Treasurer and I, and the government, have decided to describe it in the way as is reflected in the budget papers. That is the judgement that we've made.

Senator McALLISTER: At 3-21 in Budget Paper No. 1, there's the reconciliation of the underlying cash balance estimates. For the effect of policy decisions on payments, there's a saving of $404 million. I assume that that is the basis on which you say you've met the budget repair strategy, by offsetting all decisions.

Senator Cormann: The reason we're saying that we have met the relevant fiscal rule of more than offsetting any spending increases with spending reductions in other parts of the budget—that is, as a result of policy decisions—is that, if you look at the payments line on table 5, you will see that the net effect of policy decisions on payments is a reduction in expenditure to the tune of $404 million, and the numbers are there for all to see.

Senator McALLISTER: So your interpretation of the rule is, essentially, that the effect of policy decisions made in this budget need to offset the policy decisions on receipts and need to offset the policy decisions made on payments—is that right?

Senator Cormann: This is not something that is new in this budget. We've always separated the effect of policy decisions on the revenue side from the effect of policy decisions on the spending side. I guess, because we have made a decision in this budget to provide income tax relief to encourage and reward working families around Australia by prioritising low- and middle-income earners in the first instance, providing relief for cost-of-living pressures but also addressing bracket creep and simplifying the tax system, you will see that the net effect of policy decisions on the revenue side is actually a reduction of tax revenue in net terms. So we are in fact reducing the tax burden in the economy as a result of policy decisions, and that is what that shows. We have never said that we wanted to increase the overall tax burden in the economy. In fact, what we are setting out to do is to reduce the overall tax burden in the economy as a result of the effect of policy decisions, but we are also making sure that we keep the discipline that, wherever we are increasing expenditure on higher priorities, we are more than paying for that by decisions to reduce expenditure in other areas.

Senator McALLISTER: The 'Effect of parameter and other variations' on the payments is quite significant.

Senator Cormann: That's right.

Senator McALLISTER: In 2021-22 there is a $6.8 billion reduction in payments.

Senator Cormann: If I can make a general point here: on the revenue side and on the expenditure side of the budget, one of the very significant drivers of improved performance—that is, higher revenue and lower expenditure—is the fact that employment growth has been stronger than what had previously been anticipated. That has resulted in a material increase in income tax collections. I talked about that earlier, overwhelmingly.

The biggest factor in the increased revenue, compared to what was previously anticipated, is increases in income tax collections on the back of stronger employment growth. But the other side of the coin is that when more people end up in work, when you create in the economy 415,000 new jobs, then there are fewer people receiving welfare payments to provide transitional assistance while they are unemployed. That is why stronger growth creating more jobs is beneficial for the budget bottom line, not just in terms of the beneficial effect on the revenue side of the budget but also the beneficial effect on the expenditure side of the budget. That is a very large factor that you can see at work here, which is why we're saying that the good economic and fiscal management of the government is helping to get us back into a position where we are not only delivering stronger growth and more jobs, we are also able to ensure that funding for the essential services that Australians rely on can be guaranteed within the budget on a sustainable and affordable trajectory into the future and that government is getting back into a position where government lives within its means.

The final point I should make is that, as of this financial year, the 2017-18 financial year, we are no longer borrowing to fund the recurrent expenditure of government, and that is a very important milestone in all of the circumstances.

Senator McALLISTER: However, can we just go through what is happening in terms of the parameter variations for payments?

Senator Cormann: It is, of course, spelled out.

Senator McALLISTER: It is spelled out on 3-24. I really do want to talk about those, because they're all bundled up in four-year bundles. I'm just trying to understand—

Senator Cormann: No, they're not all bundled up in four-year bundles. Take the first one. I expect Income Support for People with Disability to decrease by $428 million in 2018-19 and then $4½ billion over the four years to 2021. So you've got the information for the budget year, which is a one-year figure, and then you've got the information for the forward estimates period, which is entirely appropriate. This leads me to make another observation: one of the achievements that we're particularly proud of as a government is that since we—

Senator McALLISTER: Minister, can we just do this piece of work?

Senator Cormann: You might smirk, but listen to this—

Senator McALLISTER: I'm not smirking! I have listened, but I've been—

Senator Cormann: because you should care about this.

Senator McALLISTER: I would just like to get some answers to my questions.

Senator Cormann: One of the achievements we're very proud of, which directly relates to the question that you've asked, is that since we came into government we have been able to help 140,000 Australians off welfare and into a job. That is part of the reason why the proportion of Australians of working age on welfare is the lowest it has been in 25 years. At 15.1 per cent, it is the lowest percentage in 25 years. When you are able to shift people and to support people from welfare into work, that is when you get the sorts of payment reductions that are reflected here in that section that you're asking questions about.

Senator McALLISTER: I am, and I'm asking in particular about what is going on in 2021-22, where there is a 6.8 billion reduction in payments. So there's something—

Senator Cormann: Not in that year; it's in the four years to 2021-22. If you're suggesting that is a one-year number, then that's not quite right. The way the numbers are presented is you've got the number of the 2018-19 year, the budget year, and then you've got that followed by a four-year number—that is, a number in aggregate over the four years. It would be wrong to suggest that the $4.5 billion number, for example, in the Income Support for People with Disability program would be a reflection of a single year. It is the number over four years.

Senator McALLISTER: I'm trying to understand what is specifically happening in 2021-22 though, because if you look at the parameter and other variations in payments in that line you get that, in the coming year, it's actually an increase in payments.

Senator Cormann: What is this for?

Senator McALLISTER: I'm back on page 3-21: statement 3, page 21. I'm looking at the line where there is a discussion about the effect of parameter and other variations on receipts and payments, and I'm particularly looking at the payments.

Senator Cormann: But that is a consolidated number in aggregate across the whole of the government, which is fleshed out on page 3-24. There is a whole range of ups and downs.

Senator McALLISTER: Could I ask a question?

Senator Cormann: Sure.

Senator McALLISTER: There is a whole range of ups and downs, and that's really what I'm trying to understand. So in 2021-22 you see this reasonably dramatic downward push on payments.

Senator Cormann: Hang on, when you say 'dramatic'—

Senator McALLISTER: You get a big drop in that single year of 6.8 billion. It drops off as a result of parameter variations. That is quite big, and I'm trying to understand what it is that's driving it in that year that sees it change so much.

Senator Cormann: If you want to get specific details and if you want us to disaggregate individual years to that level of detail, I will have to take that on notice. I don't necessarily agree with your characterisation. A beneficial trajectory does compound as it moves forward over a four-year period, and so if you look at where you start, you go from a positive three billion in 2018-19 to payment reductions of 1.4 billion in 2020-21. That is also quite a turnaround that is projected, and it goes further by another 5.5 billion between 2020-21 and 2021-22. But if you want us to disaggregate the specific factors in that, we'll have to take that on notice.

Senator McALLISTER: Perhaps to explain what I'm trying to understand, Minister—I would appreciate it if you could provide the advice. You know the reason that it's important is because it's in the final year of the forwards. The fact that payments drop so significantly there presumably shapes, very significantly, the medium-term projections. It is important to understand what it is that sees them drop off so much in that year.

Senator Cormann: That is your assertion. Parameter variations are what they are.

Senator McALLISTER: I'm trying to explain to you why I'm interested. Disabuse me.

Senator Cormann: Sure. The medium-term projections, just to make that clear right up-front, is Treasury. The government has got control over the policy decisions we make, and we reflect the fiscal impact of policy decisions on the payment side and on the receipt side of the ledger. When it comes to parameter and other variations, they are what they are and they are assessed consistent with the same methodology that has previously applied. It's not as if the methodology fundamentally changes, unless there are ways to more accurately predict, forecast and project the future because of improvements in models and methodology. We've talked about some of those in the past, in relation to child care and the like. But, essentially, what is reflected there is a reflection of what comes out of the model.

Senator McALLISTER: Yes, I know.

Senator Cormann: But if you want us to disaggregate it, I'm happy to be helpful. On notice, we'll disaggregate that for you.

Senator McALLISTER: Thanks. Specifically, on a very particular question, the Income Support for People with Disability program has been written down pretty significantly in each of the last three budget updates. I'm wondering what's driving that? Is it an effect of a policy change, or is it anything about the policy costing model that sees the expected expenditure around that program drop off the way that it has? It went from $1.4 billion in the 2017-18 budget; $1.5 billion was dropped; and then $4.5 billion in the current budget.

Ms Huxtable : That basically reflects a recalibration of the Department of Social Services DSP estimates model to better reflect the ongoing impact of measures which actually go back over quite a long period of time. You may recall that there was a Parliamentary Budget Office report which came out on 20 February 2018 called Disability support pension: historical and projected trends, which also went through the methodological settings and came up with a broadly similar trajectory in terms of the forecast spending across this program.

Senator Cormann: I should also point out, in response to your previous question on the $6.8 billion, it has been drawn to my attention, quite accurately, that it is not actually that significant when you consider it in the context of overall government expenditure. It is $6.8 billion on total payments estimated at $537.3 billion. It is a 1.1 per cent change in payments. Just looking at that variation in nominal terms in isolation, you might draw that conclusion, but if you look at it in the context of the overall level of expenditure in that financial year, it is actually a very, very small percentage.

Senator McALLISTER: Given that that surplus is going to be $8.6 billion—

Senator Cormann: No, it is going to be $16.6 billion in 2021-22.

Senator McALLISTER: I'm just saying that you've picked 2019-20 to highlight a surplus of $8.6 billion. I think that these numbers are significant when it suits you.

Senator Cormann: In 2020-21 it is $11 billion and in 2021-22 it is projected to be $16.6 billion. That is actually not material. The implication of your observation just now is that you're suggesting that we have somehow—

Senator McALLISTER: I'm not. You're suggesting that. I'm saying that these numbers are big enough to care about in certain kinds of conversation, but not when I'm asking the questions.

Senator Cormann: But we don't influence them in political terms the way you're implying.

Senator McALLISTER: I'm not implying anything.

Senator Cormann: Parameter variations are parameter variations.

Senator McALLISTER: I'm just saying that $6.8 billion sounds like a lot of money to me.

Senator Cormann: You're under a misapprehension if you think it is a massive change. It is 1.1 per cent change in payments, given that it is out of $537.3 billion worth of payments.

Senator KITCHING: Can I go to page 117 of budget paper 2, which is More Choices for a Longer Life, healthy ageing and high quality care. That includes quite a lot of different measures. Is this the full list? In the financial box, is that everything? Is anything missing from that box?

Ms Huxtable : Not in respect of this package of measures. That reflects the financials associated with this package of measures.

Senator BARTLETT: When we say 'the measures attached to the package', this is the full lot for ageing and high quality care.

Ms Huxtable : As announced.

Senator KITCHING: Is there a net impact in the table?

Ms Huxtable : No. The tables don't have net impacts.

Senator KITCHING: Sorry, I mean the measures.

Ms Huxtable : I think you'll find that the measures refer to what's in each of the measures.

Senator KITCHING: So there is no not net impact in those measures?

Ms Huxtable : Sorry, I'm not quite sure what you mean. The tables are always like this. This one is a little bit more complex because it has so many agencies in it.

Senator KITCHING: Just on that, can we get a breakdown of this measure? Is it easier to go through the dot points? Do you think that's the best way to do that?

Ms Huxtable : It depends on what you are looking for.

Senator KITCHING: I'm trying to work out—

Ms Huxtable : To be honest with you, it is easier to go to Health, because Health is the agency responsible for this. I think it's predominantly Health. As you can see, there are a large number of measures. So, depending on where you're wanting to go, I would encourage you to go to them because they will have much more information than we have.

Senator KITCHING: Sorry—'health'?

Ms Huxtable : The Department of Health, yes.

Senator Cormann: The costings are initially prepared by the relevant department. Then Finance agrees the costings through the Finance process.

Ms Huxtable : I wasn't sure exactly where Senator Kitching was looking to take the questions—

Senator KITCHING: Can we go through a breakdown? As you say, Ms Huxtable, there are a lot of different agencies in this area. So can we go to a breakdown of this measure?

Ms Huxtable : We could take that on notice. We don't have that available at that level of detail.

Senator KITCHING: I think you have done this for a range of other measures previously.

Senator Cormann: No. I have taken a similar question on notice before when I was asked for a breakdown on, for example, the Captain Cook measure. If you want to ask us questions that are not on our portfolio then we're happy to assist but will have to do that on notice.

Senator KITCHING: Can you explain the process of costing such a large measure as this More Choices for a Longer Life package.

Ms Huxtable : As we discussed on the medical health and research fund measure, we would cost the individual elements of a package in the course of that package being developed for consideration by government. Obviously when you start with that you may have more measures than the government decides to advance. Then, depending on the decisions that are taken, you may need to do a reconciliation at the end. When I say that we cost it, as the minister said, we receive new policy proposals from the agency. They follow a particular template and provide information in respect of the costs of the measure. Then we engage with the agency, basically agreeing that the cost is appropriate.

Senator KITCHING: At what stage did you combine these measures?

Ms Huxtable : The presentation of measures in the budget papers is a matter for the government. How they are presented in the budget papers is as presented. We prepared information for the government on the structure of the payments elements of Budget Paper No. 2 and, in that process, the measure was presented in this way in the final text.

Senator KITCHING: In relation to the measure descriptions, some of these look to be combined. When was that done?

Senator Cormann: These documents you can see at the front of Budget Paper No. 2 and most other budget papers are circulated by the Treasurer in the name of the Treasurer and myself. The Budget Paper No. 2 spending measures are something that I've got prime responsibility for and I'm supported by the department in the appropriate way. Essentially the way to think about the budget process is that you start off by asking for proposals to come forward. You then make a decision on which proposals you will actually consider further. Then those proposals are worked up. The government will make decisions on whether or not to proceed with a particular proposal. You go through the budget process and pretty well towards the end of it you then start putting the measures together into this very interesting book, also referred to as BP2.

Senator KITCHING: Thank you, Minister. That actually confirms my existing knowledge, so thank you.

Senator Cormann: I'm pleased that I could assist in that way.

Senator KITCHING: It appears that you're transferring the DVA measure to Health; is that right? You've got an output-to-capital switch in 2018-19—

Ms Huxtable : No, sorry. If you look at the table that prefaces the measure, you will see that there is a Department of Veterans' Affairs element to that.

Senator KITCHING: Yes, that's what I'm referring to.

Ms Huxtable : I said that this is predominantly a Health measure; it's not entirely a Health measure. But you'll find that—

Senator Cormann: A lot is also Treasury.

Ms Huxtable : a lot of it is Health.

Senator Cormann: The Finance component is $200,000 over 2018-19 and 2019-20, which I assume is the—

Senator KITCHING: Can I just ask a question of fact. Are you switching from an output to a capital measure?

Ms Huxtable : Sorry?

Senator KITCHING: Are you switching from an output to a capital measure—DVA to Health—in 2018-19?

Senator Cormann: Capital measures are in part 3.

Senator KITCHING: I know, but I'm asking you: is that's what's going on here?

Senator McALLISTER: Yes, there's just a negative—

Senator Cormann: To be frank, you're getting so far into the weeds now that it's very much a question for Health.

Senator KITCHING: Isn't this estimates?

Senator Cormann: It's in relation to the Health portfolio. It's not a question for us. That is the point.

Senator KITCHING: Okay. It looks to me like Treasury is getting a saving. There is a saving measure of about $10 million; is that right?

Senator Cormann: This is a $2.4 billion—

Ms Huxtable : It's a spend.

Senator Cormann: It's a spend. Overall the aged-care package is a $2.4 billion package.

Senator KITCHING: Can we go back to confirm whether it is an output-to-capital switch, firstly.

Senator Cormann: As I have indicated, if you want us to answer it, we'll take it on notice. If you want to get an appropriately expert answer on something at this level of detail in the Health portfolio, you will have to ask for it at the Health estimates.

Senator KITCHING: Okay. Are you using the component parts to build up the combined cost of this measure?

Senator Cormann: Are we using 'component' parts to make up the combined—

Senator KITCHING: Sorry, that's the word I'm using; you might have a different word. You can use dot points or components—I'm not fussed.

Senator Cormann: There are obviously different parts that make up the package as a whole—

Senator KITCHING: I'm happy to use the word 'parts'.

Senator Cormann: and you end up with an overall package. The net impact on the budget bottom line is what is reflected. The table reflects the net additional impact on the budget bottom line.

Senator KITCHING: I asked before about a net impact and I was told that there wasn't a net impact. But there is a net impact; is that right?

Senator Cormann: No. As we have said in relation to previous measures, on occasions there are already provisions made and so on. Then what is in the table is not necessarily the cost of the measure. That's consistent with what we've previously said.

Senator KITCHING: So what's in the table might not be the cost of the measure?

Senator Cormann: It depends on what has previously been provisioned for. What is in the table is the additional cost of this measure in this budget.

Senator KITCHING: Okay.

Ms Huxtable : You might also want to look at this publication which was published with the budget papers. It has a little bit more—

Senator KITCHING: I don't think I've got anything that size. What's that document there?

Ms Huxtable : It is the guaranteeing essential services Australians rely on. These papers were released at the same time as the budget and they provide, from page 4 to page 7, a bit more information on the package.

Senator KITCHING: I will just see if there is another copy of that.

Ms Huxtable : You can probably find it online too.

Senator KITCHING: Sorry, what was that document again, Ms Huxtable?

Ms Huxtable : These are the papers that were released at the same time as the budget papers so you can find them on budget.gov.au, and it is called 'Guaranteeing the essential services Australians rely on'. It is another presentation of information. And the next pages, pages 6 and 7, have got a bit more in it.

Senator KITCHING: So you're pointing page 4 out to me because it has some of the finances for a longer life.

Ms Huxtable : It has got some additional information. But as I said—

Senator KITCHING: Not the actual full measure?

Ms Huxtable : No. But as I said, individual portfolios could definitely help you, I'm sure, in terms of their component parts.

Senator KITCHING: Have you used those parts or components to build up the combined cost of the measure?

Senator Cormann: There is a policy measure which has a fiscal impact across a number of agencies because a number of agencies contribute to its implementation. The additional cost of this measure across all of the different agencies that are fiscally impacted and contributed to the implementation of it is reflected in that table, and that's the additional cost in this budget. If you want to go into further detail in relation to specific components, as the secretary has indicated, it is best to ask that question of the relevant agencies concerned.

Senator KITCHING: I'll just stick with, I guess, the procedure of how the costing is done and then I might go to the individual—

Ms Huxtable : Sorry, just to clarify—and this is obvious now when I think about it a bit more—the measure we have been talking about is health; it is in the health portfolio.

Senator Cormann: That is right.

Ms Huxtable : But the larger package, the More Choices for a Longer Life package also has elements that are in the jobs portfolio and in the Treasury portfolio and there are separate measures in the book that are in the jobs portfolio and the Treasury portfolio and education and training.

Senator KITCHING: But every department is where that might have measures that relate to More Choices for a Healthy Life. They are reflected in this table; is that correct?

Senator Cormann: No. I actually made that point even before the secretary made it. This is a measure and it is a measure that's part of a package.

Senator KITCHING: I think that's three times.

Senator Cormann: You're going back as if the answer hadn't been provided. There ae different levels here. Different agencies are impacted by the package. This is a health measure, but the fiscal impact of the health measure and the fiscal contribution towards the health measure relate to a number of individual agencies other than health and that's reflected in this table to the extent that there is an additional fiscal impact in this budget.

Senator KITCHING: I'm just asking just so that we are all on the same page. For example, on page 6 of the guaranteeing the essential services that Australians rely on document, where it says 'access to the restart wage subsidy', that might be a measure—

Senator Cormann: The Restart subsidy would be Jobs and Innovation.

Senator KITCHING: So that would be from that department—is that correct?

Senator Cormann: That's right.

Senator KITCHING: So we are all on the same page. I want to ask about the process. I'm asking about the parts. Is there a combined cost for this measure?

Senator Cormann: The short answer is that there is, of course, a combined cost. There's a combined cost of the package. There's a combined cost of the budget as a whole, which is reflected in the budget papers. Each individual measure is separately costed, and then you bring it all together. Then you've got the combined fiscal impact of policy decisions, underspending and the revenue side of the budget, and of parameter and other variations and so on, and that's what's reflected in the budget paper. Is there a combined costing? Yes, of course. You can go to as high a level or as low a level as you like, but—

Senator KITCHING: Is that how most of the costings have been undertaken?

Senator Cormann: It depends. Some measures are very distinct, quarantined measures in their own right. Others are contributing to an overall policy priority that is pursued across different portfolios. Depending on what policy objectives and policy priorities the government is pursuing, you will tailor your approach accordingly. If there is a policy priority that involves substantial effort by a number of portfolios, a number of agencies, then you will bring that together in the way that that is developed and the decision-making through the budget process, but ultimately individual measures are presented in the way they are in the budget papers.

Senator KITCHING: Is that the common approach to costings more generally?

Senator Cormann: It is common to the extent that it is 100 per cent consistent with the requirements of the Charter of Budget Honesty. Every government will make their own decisions as to how they take a strategic approach across broader policy areas rather than be constrained by what the traditional jurisdictional boundaries are of individual portfolio agencies.

Senator KITCHING: Would that be the approach that's taken for Revenue?

Senator Cormann: It depends. If you talk about, for example, a tobacco excise related measure—I'm talking conceptually—it could well be that there are different agencies involved in that, whether that relates to law enforcement making sure that appropriate excise is paid, and different agencies might have a role in that, or health-related aspects. It really depends. Changes to income tax or business tax will be Treasury and the ATO, if and as appropriate. Other things might have implications across a number of agencies. It really depends, but the broad principle is the same.

Senator KITCHING: Is More Choices for a Longer Life a significant measure?

Senator Cormann: It's a very significant package, absolutely.

Senator KITCHING: On the homecare and residential care packages, how did you model the change?

Senator Cormann: The modelling would have been done by the lead department, which is the health department, and costings would have been agreed with Finance in the usual way.

Senator KITCHING: They would have taken into account demographics—an aging population, for example—as part of the modelling, is that right?

Senator Cormann: If you want to ask questions about health department modelling, you really have to address them to the health department.

Senator KITCHING: Ms Huxtable?

Senator Cormann: No. I've answered the question on behalf of the government.

Senator KITCHING: In the first dot point, for example—

Senator Cormann: Which measure?

Senator KITCHING: I'm looking at:

the Government will deliver an additional 14,000 new high level home care packages over four years from 2018-19 in addition to the 6,000 high level packages delivered in the 2017-18 MYEFO;

Are you going to be able to deliver all of those? Is there going to be a waiting list for homecare packages?

Senator Cormann: Let me make a couple of observations. Will we be able to deliver this? That is what we're planning to do, which is why it is reflected in the budget papers in the way it is. That is a generic statement. As I've indicated before, these are our best available estimates based on our plans. When we deliver the final budget outcome for 2018-19, which will be by the end of September 2019, you will be able to ask us at the October 2019 estimates how we have performed against estimates.

Senator KITCHING: If you're on that side of the table.

Senator Cormann: I will be able to tell you at that time that, yes, we have performed either according to expectations or exceeded expectations. That is what we would like to think that we'll be able to achieve. This is a reflection of our plan; this is a reflection of our intentions. You ask about waiting lists. I can tell you that, as at 31 December 2017, as has been reported in the media, there was a demand for about 104,000. There are currently 87,590 packages funded. The government has now funded 20,000 extra places, high-level home-care packages, since the last budget. That's 6,000 in MYEFO, before Christmas, and then another 14,000 in this budget.

Senator KITCHING: You haven't delivered those yet.

Senator Cormann: We have provided funding for another 20,000 places since MYEFO, before Christmas, and it is estimated that on average—I was about to get to this point—1,850 home-care packages will be made available each week. As at—

Senator KITCHING: Sorry—how much?

Senator Cormann: That 1,850 home-care packages will be made available each week. I can also tell you that, as at 31 December 2017, there were about 48,000 people on the national prioritisation queue who were either in or assigned an interim-level home-care package. Some of these individuals who have been assessed for a package and are awaiting a package or have decided to wait for a higher level package may already be receiving services under the Commonwealth Home Support Program, which provides assistance to 900,000 older Australians. By June 2020, according to our plans—and, yes, with the proviso that, between now and June 2022, we have to continue to work to implement our plan—there will be more than 150,000 home-care packages in the overall system.

Senator KITCHING: Senator Cormann, are you reading from something that's publicly available?

Senator Cormann: I'm just providing information that has been helpfully provided to me by one of the hardworking advisers in my office, given the interest that you—

Senator KITCHING: I've been an adviser to a Treasurer, so I know they do work hard.

Senator Cormann: Which one? Surely not that one from Queensland?

Senator KITCHING: No, Victoria.

Senator Cormann: At the state level—okay.

Senator KITCHING: I think I'll leave it there on aged care, Chair.

Senator McALLISTER: I want to ask a question about Budget Paper No. 3.

Senator Cormann: Budget Paper No. 3 is not us as Treasury. That's federal-state financial relations. That is core Treasury.

Senator McALLISTER: It's an expense measure around a government commitment for expenditure in Victoria. I'm just trying to understand what the accounting treatment is for the commitment to the Melbourne rail link.

Senator Cormann: I've just seen a press release from Mr Albanese, so I'm pretty certain that this was addressed with the appropriate agency, which is the Infrastructure portfolio. Beyond that, everything that is in the federal-state financial relations document is a matter for Treasury.

Senator McALLISTER: It does seem to be an expense measure. It's a commitment of expenditure and it goes to—

Senator Cormann: If it was an expense measure, it would be reflected in budget paper 2, and please point us to it.

Senator McALLISTER: I suppose that's my point. Can I confirm that it is not in budget paper 2?

Senator Cormann: Refer me to what you want to ask a question about in budget paper 2.

Senator McALLISTER: Budget paper 2 is supposed to contain all of the expense measures and it also contains—

Senator Cormann: It does contain all of the expense measures.

Senator McALLISTER: at item 6, on page 652, a summary of the expenses associated with rail transport.

Senator Cormann: I don't know why you asked us about budget paper 3, which is of course the responsibility of the Treasury portfolio. I'll refer you to the right page. It's budget paper 2. At the top of the page, you will see Infrastructure, Regional Development and Cities. It's alphabetical so you can go through the expense measures—Health—and you end up, after Health, eventually, at Infrastructure. After Home Affairs, you will get to Infrastructure. Then, on page 143, you will see that the government will provide $7.8 billion for priority regional and urban infrastructure in Victoria, including up to $5 billion for the Melbourne airport rail link with specific funding arrangements, including an option for equity investment to be settled at a later date, and with an equivalent contribution to be provided by the Victorian government. That is very openly and transparently presented there. As I've indicated—and I'm aware that this has actually been done—the specifics in relation to this are really a matter for the Infrastructure, Regional Development and Cities portfolio. I'm aware that these questions have been appropriately pursued in that committee.

Senator McALLISTER: I actually think that questions of accounting treatment are the responsibility of the Department of Finance. If you'd let me ask my question, perhaps you can make an evaluation then about whether or not it is in scope. In budget paper 3, in the footnote to the National Rail Program—that appears on page 48 of budget paper 3—it says:

The Commonwealth’s $5 billion investment in the Melbourne Airport Rail Link will be provided as equity or otherwise as agreed, but consistent with the principles of conservative Budget management, this investment has initially been reported as grant funding.

Senator Cormann: Yes. That's right. I mean that is—

Senator McALLISTER: Okay. I don't need a defence of it. I just want an explanation of it, and it's far less threatening than you seem to imagine.

Senator Cormann: Well, I've seen the very partisan statement that was released by—

Senator McALLISTER: I haven't seen it.

Senator Cormann: I have seen the partisan statement that was released, disappointingly, by Anthony Albanese, who I think should be much more supportive of what we're trying to do there—

Senator McALLISTER: I'm sure it's a very accurate statement, rather than—

Senator Cormann: in providing increased infrastructure investment to the great state of Victoria. This is a measure that's been extremely well received by the great people in the great state of Victoria. I'm sure the chair, Senator Paterson, would agree with me. What this footnote shows, which is 100 consistent with what is reflected on page 143 of budget paper 2, is that we have made provision in the budget for a $5 billion investment as a grant; however, as is appropriate and as is prudent, we will explore other potential funding options, including an option for equity investment and, of course, we will be looking for a contribution from the Victorian state government towards this project as well. So, as is absolutely appropriate and as is good fiscal management, we will continue to refine this project as it is further developed, and as adjustments should be made to the fiscal treatment and the fiscal impact of this measure in the budget, that will be reflected in future budget updates as appropriate.

Senator McALLISTER: Right. So is it correct to say that the fiscal impact of these expenses associated with this grant, as it is presently described, noting the situation may evolve, are not presently reflected in the table at statement 652?

Senator Cormann: What I have to tell you is that the $5 billion in grants funding has been fully reflected. If you're suggesting it hasn't—

Senator McALLISTER: No, I'm not. I'm asking. You just tell me.

Senator Cormann: No, but you're just—

Senator McALLISTER: Tell me the answer.

Senator Cormann: But you just told me something that is inconsistent with what you yourself read out to me. As is written in the footnote that you yourself read out to me, the answer is this: the Commonwealth's $5 billion investment in the Melbourne airport rail link will be provided as equity or otherwise as agreed. But, consistent with the principles of conservative budget management, this investment has initially been reported as grant funding.

Senator McALLISTER: Right. So should I understand that, in that table that's shown above that footnote, that $5 billion is included—in that table there?

Senator Cormann: Which table are you talking about now?

Senator McALLISTER: The footnote is in budget paper 3, and it has a table above it which shows the amount provided to states and territories under the national rail program. Is the $5 billion included in that table?

Senator Cormann: You are asking me a question that is now a question for the infrastructure department, because they would be aware of the expected cash flow projections and the expected timetable for implementation of this measure is going to be. All I can say to you, and what is openly and transparently declared here, is that this $5 billion investment has been reported as grant funding, though, we are also openly and transparently indicating to you that the intention is to explore funding arrangements, including an option for equity investment. We are also openly and transparently declaring in budget paper 2 that this is to be settled at a later date with an equivalent contribution to be provided by the Victorian government. We couldn't be any clearer or more transparent if we tried. But, if you want to—

Senator McALLISTER: You can't tell me whether or not that $5 billion is actually reflected in that table?

Senator Cormann: That is a question for either the Infrastructure department or for Treasury. Federal state financial relations are a matter for Treasury and the specific profile of specific infrastructure projects is a matter for the infrastructure portfolio.

Senator McALLISTER: Is any of it in the forward estimates or is it all in the never-never?

Senator Cormann: Again, if you want to ask questions about funding profiles for individual infrastructure projects, you have to ask the infrastructure department. I'm led to believe, looking at the propaganda that's been circulated by Anthony Albanese, that that has indeed occurred.

Senator KITCHING: Even the Liberal opposition leader wouldn't go out to the presser with the Prime Minister because no-one was very sure about the money and because it was only for a business—

Senator Cormann: This is just another one of your typical mischaracterisations, like your mischaracterisation yesterday which you should apologise to the Prime Minister about.

Senator KITCHING: Actually—Chair, with your indulgence—

CHAIR: No, you don't have my indulgence, Senator Kitching. You do not have me or my indulgence.

Senator KITCHING: I think you'll find that the Queensland Police have actually put out a statement saying the man 'was abusive towards a group at the bar due to the group being served before him'. That's from the Queensland Police. So, if we want to have that argument—

Senator Cormann: That doesn't mean that the Prime Minister has pushed in.

Senator KITCHING: It was the Prime Minister. I think you'll find that that was the Prime Minister.

Senator Cormann: It's now been exposed as an untruth.

Senator KITCHING: It is not an untruth. And the video was doctored apparently.

Senator Cormann: You are unbelievable.

Senator KITCHING: Can I just ask a question, Chair—

CHAIR: Order. Outcome 1 of the Department of Finance is not the place for wild conspiracy theories about video editing.

Senator KITCHING: You read the Courier-Mail article so all's fair. Don't try to—

Senator Cormann: All is fair in what?

CHAIR: Observations made in fact are more appropriate. Let's get back to questions for Outcome 1.

Senator KITCHING: Can I ask a question about the Melbourne Airport measure. I understand there's money in the budget. But I thought there was a business case being done and that in fact the money was, obviously—well, hopefully—going to be dependent on that business case being finalised. In fact, it is so unsure that even the line on which it was going to be built or the line that was going to be extended—none of that had been decided and in fact no-one really knows how much it's going to cost at all.

Senator Cormann: You're being very unkind to the state Labor government in Western Australia. Let me tell you—

Senator KITCHING: I'm not asking about Western Australia. I'm asking about—

Senator Cormann: I will explain why it is relevant.

Senator KITCHING: I'm asking about Victoria.

CHAIR: You asked the question. Allow the minister to answer.

Senator Cormann: No, you've asked the question. If your suggestion is that we should not be working with state governments in relation to projects because business cases haven't been finally settled or haven't been developed yet to the extent that would enable a final funding expense to be made, then you are arguing against the federal government supporting the state Labor government in Western Australia in relation to Metronet. We have agreed at the request of the state Labor government in Western Australia, with Premier McGowan, with WA Treasurer Wyatt and with the WA transport minister, Rita Saffioti, to provide substantial support towards Metronet, including for the extension of the Metronet line from Morley to Ellenbrook and including for the extension of the Metronet line from Armadale to Byford, without the business cases having been finally settled, but, of course, subject to business cases being finally settled, and that is entirely appropriate.

As we've said here, our plan is to provide up to $5 billion for the Melbourne Airport rail link. It's being reported for the time being as grant funding, although we are openly and transparently making clear that we intend to pursue funding arrangements, including an option for equity investment. That is also what is reflected in footnote (b) on page 48 of budget paper No. 3, and it is consistent with what is reported on page 143 of budget paper No. 2, in the second paragraph, first dot point.

Senator KITCHING: Was any of that answer relating to—

Senator Cormann: Yes.

Senator KITCHING: the Melbourne Airport rail link?

Senator Cormann: It all was. I've just referred you to page 143 of budget paper No. 2, dot point 1—

Senator KITCHING: I thought that a lot of that was about what's in Australia—

Senator Cormann: and footnote (b) of—

Senator McALLISTER: I think, Minister, that the challenge we're having—and it is why I'm asking the question; it's not about being tricky or difficult—is that it's simply really unclear in budget paper No. 3 whether the $5 billion grant that's described there is, in fact, included in the table.

Senator Cormann: Well—

Senator McALLISTER: And the challenge that produces is that you can't tell whether the money is included in the period covered by the forward estimates, so we can't tell when the money is coming.

Senator Cormann: It depends on a range of factors, including how quickly the state Labor government in Victoria joins with the Turnbull government to make sure it happens as swiftly as possible.

Senator McALLISTER: The money is either represented—

Senator Cormann: What I would say to you—

Senator McALLISTER: in the budget or it's not.

Senator Cormann: What I would say to you is—

Senator KITCHING: Aren't you doing a business case?

Senator Cormann: There is no business case yet in relation to a number of projects—

Senator KITCHING: Thank you; there is no business case yet.

Senator Cormann: There is no business case yet in relation to a number of projects in Western Australia that we are working on with the state Labor government in Western Australia; that's my point. This is entirely consistent with the way infrastructure projects are handled. I don't have visibility on an ongoing basis as to what the funding profiles are of individual projects, depending on the level of interaction between the federal and the state government. There is a key component here that depends on how swiftly a relevant state government progresses with the things that are part of their area of responsibility. If you are genuinely interested in the funding profile, the department with the appropriate level of visibility in relation to these things is the Department of Infrastructure and Regional Development. That is where this question should be addressed and it is where I believe it has been addressed, which is what I have been at pains to say now for some time. We would have been able to deal with this much more quickly if you had accepted that as an appropriate and accurate answer.

Senator McALLISTER: Just to go back to the accounting treatment, though, which is core business for finance—

Senator Cormann: Yes.

Senator McALLISTER: I just want to confirm that, given the conservative approach taken in the budget papers, the impact on the underlying cash balance of the current budget funding arrangements for Melbourne rail is $5 billion?

Senator Cormann: As I've now said several times also, consistent with the principles of conservative budget management, this investment—that is, this $5 billion investment—has initially been reported as grant funding, which does mean that it's reflected in the underlying cash balance, that's right.

Senator McALLISTER: Thank you. I note that the Minister for Indigenous Affairs put out a media release on 27 April, and he announced $250 million of funding for Indigenous rangers to 2021. Can you take me to the budget measure for that?

Senator Cormann: Can you point us to the budget measure that you want to ask a question about? I don't have in front of me all of the press releases and transcripts of all of my colleagues. I'm happy to answer questions about the budget papers, but I can't answer questions about every press release of every one of my colleagues. If you want me to take a question on notice, I'm happy to do it.

Senator McALLISTER: Why don't I come back to it with the press release?

Senator Cormann: Thank you.

Senator McALLISTER: Can we go to budget paper No. 2, page 68. That's 'Expense measures since the 2017-18 MYEFO'. You can see that, in the column for 2020-21 under 'Decisions taken but not yet announced', there is a very significant number—it's over a billion dollars—which is obviously much larger than any of the other numbers in that category for any other year.

Senator Cormann: Just to put that into context: in the 2012-13 MYEFO, so that was under your period in government, it was $1.7 billion; in the 2010-11 budget, it was $1.3 billion, so obviously from time to time—

Senator McALLISTER: I'm not casting a moral judgement. I'm just saying it is of significance and interest because it is large. Is that driven by just one measure, or is it that there's an accumulation of measures?

Senator Cormann: I can tell you what the value of the contingency reserve is made up of. Items are provided for in the contingency reserve, as I previously indicated, for a variety of reasons including commercial-in-confidence and national-security-in-confidence items that cannot be disclosed separately; programs that are yet to be negotiated with state and territory governments; decisions made too late for inclusion against individual entity estimates; the impact of economic parameter revisions received too late in the process to be allocated to individual programs and entities; and estimates provisions included to improve the overall accuracy of budget estimates, such as the conservative bias allowance and underspends provision. As I've also previously indicated, the detailed composition of the contingency reserve is not disclosed, which is consistent with what has been the case under previous governments as well.

Senator McALLISTER: So you're not telling me what it is; you've just given me a policy for what's allowed to be included in there.

Senator Cormann: I have told you what it is, but—

Senator McALLISTER: In question on notice F016, you provided a list of the MYEFO measures that were decisions taken but not yet announced that had since been announced.

Senator Cormann: Yes.

Senator McALLISTER: Can we get an update on that?

Senator Cormann: I'll have to take that on notice. I'm happy to provide you an update, but I'll have to take that on notice.

Senator McALLISTER: I think it would be good first to update the MYEFO one and also to get a list of any budget decisions taken that have since been announced.

Senator Cormann: Sorry, can you say that again?

Senator McALLISTER: Also a list of items that were included in the budget as decisions taken but have since been announced.

Senator Cormann: Done.

Senator McALLISTER: Thank you. You've previously told us that you've had KPMG providing accounting and financial management services since 2006. I think that you were going to tender for accounting services. How close are you to selecting the successful tenderer?

Ms Huxtable : I might just need to get Dr Helgeby and Mr Greenslade or someone. Mr Greenslade can address that.

Mr Greenslade : The accounting and financial management services contract has been finalised, and KPMG was the successful tenderer.

Ms Huxtable : That answered your question, did it not? I thought that was all you asked: had it been finalised?

Senator McALLISTER: Yes, that is my question. It has been finalised and KPMG have been successful, so KPMG have now been working with the department for 14 years or so. Just remind me how long the contract will run.

Mr Greenslade : Four years.

Senator McALLISTER: Another four years, so from 2018 to 2022.

Ms Huxtable : Yes, just noting, Senator, that there was an open approach to the market for the supply of these services—I think we did talk about that last time—and then KPMG was successful, following, obviously, an assessment process against the selection criteria amongst those who responded.

Senator McALLISTER: Do you think, Ms Huxtable, that the strength of their bid—and I've no doubt that you went through an entirely proper process—was supported by their very extensive experience with you and knowledge of your operations?

Ms Huxtable : Well, I personally didn't evaluate the tenders that were received. I'm not sure if Mr Greenslade was part of that evaluation process.

Mr Greenslade : Yes. First off, the responses we had—not just KPMG—actually did demonstrate a very good understanding of the task, and we made sure in the evaluation that it wasn't weighted by particular inside knowledge, as it were. We compared like with like.

Senator McALLISTER: It's quite difficult to do though, isn't it, Mr Greenslade? I'm not particularly critical. This is a challenge in most organisations. But a company that's worked with you for such a long time just inevitably arrives at the process with deep and sometimes intangible knowledge about what matters to your organisation, just because it knows you so well.

Ms Huxtable : The services that we are seeking to access are a range of accounting and accounting related services. They're not unique to one accounting firm. When we went about doing the negotiation, we were also very interested in the capacity for these resources to be available when they're required, for resources to be applied rapidly for urgent and unpredicted needs and for them to have a proposal around supporting and transferring knowledge and capability across the organisation. So there were a range of criteria and requirements that were made available. In the tender documentation that was provided, the statement of requirements set out the outlined requirements so it was very clear to anyone wishing to come forward with a proposal what the core services that were required were. I really just want to make the point that they're not necessarily services that are unique or unusual for accounting firms to hold. We needed to assess the information that was put before us, as Mr Greenslade has reflected, and that's the process that occurred.

Senator McALLISTER: Have you given any thought to other models? Audit firms are often rotated in other sectors. Is that something Finance has considered?

Mr Greenslade : That audit firms rotate, I think, is a matter of the principles of audit independence, and that goes to independence of opinions—

Senator McALLISTER: Correct.

Mr Greenslade : and whether the auditor may be seen to be getting too close to management over time. This isn't that relationship. This is a relationship where they're doing tasks for us. So I don't think that comes into it. There certainly isn't complacency in the relationship. We went out to tender, and it was competitive. As Ms Huxtable has said, essentially what we went to market for was not something where somebody needed an innate understanding of our systems and detailed processes, the principles around how you do things. We were looking for some innovation on some things. The other thing we wanted out of this was some ability to be flexible over time, to be able to bring some of that work in house, and we've got that in the contract, with requirements on KPMG to start facilitating that. So I think it's not an arrangement where we're vulnerable because we've used the same person that we've used before, if that's what you're driving at.

Senator McALLISTER: Mr Greenslade, you answered a slightly different question to the one I asked. I asked: have you considered a rotational arrangement? I think you answered a different question, which was to explain why there was no need to do so. But has this been actively considered by the department?

Ms Huxtable : We certainly considered that when the preceding contract was concluding—what options we had going forward—and our considered—

Senator McALLISTER: And that was at executive level?

Ms Huxtable : Well, I was certainly involved in that consideration. I don't know that the executive board as such was, but I certainly had discussions with Dr Helgeby about it, and our view was that we did continue to need this supplementation sort of arrangement and that it was very appropriate that we go through a process to seek interest in the market. As part of that, we were very keen to include some of those factors that I discussed before—the readiness, the capacity to respond urgently and, very importantly, the knowledge transfer and training of Finance staff and to incorporate into core services as much as possible so we're not looking to require additional ad hoc requirements at peak times. When we went out to market we considered all those features. They were part of the statement of requirements, and the evaluation was conducted on that basis.

Dr Helgeby : I might just add to it a little bit, if that's all right.

Senator McALLISTER: Please do.

Dr Helgeby : Audit rotation is there to really ensure that there's not capture between an individual auditor and an auditee. This is quite a different arrangement. This is really working under instruction, and therefore the key issue is value for money. That was what we went to the market for, on the basis of what both Mr Greenslade and Ms Huxtable talked about: a range of services. In this particular contract, it is really important to have the ability to stand up teams at short notice or bring in people at very short notice and bring particular skill sets at very short notice. And, as Mr Greenslade said, we were looking for some innovation and also some different kinds of relationships between our people and the people who would be provided by a tenderer. We were very conscious that it had been a long time for the current tenderer, so we ensured that the process was run in such a way as to optimise the opportunity for new entrants, because, in pursuing value for money in this particular case, we would not have achieved that if we did not facilitate new entry. The process was designed to allow new entry, as in a new entrant to the market.

Senator McALLISTER: Yes, I know. But it didn't.

Dr Helgeby : Well, it was a competitive process. At the end of the day, you still then go for a value-for-money proposition.

Senator McALLISTER: It's a devilish conundrum, but I do think organisations that are very familiar with you are very well placed to bid in those environments however well they're designed. Fair enough; you have thought about it. On this question of the announcement around Indigenous rangers—I have the media release that I can circulate.

Senator Cormann: Are you tabling it?

Senator McALLISTER: I can table it.

Senator Cormann: Sure. But you'll still have to point me to somewhere in the budget, because I'm not going to be able to provide a commentary on the press releases of colleagues. By definition, Indigenous affairs appears in the Prime Minister's portfolio on Friday. I am initially advised that you are looking at a 2017-18 budget measure—

Senator McALLISTER: It is 27 April 2018.

Senator Cormann: If it's not about this budget but about a previous budget in somebody else's portfolio—I hesitate to say it—that's very much a matter for Minister Scullion and the Indigenous estimates.

Senator McALLISTER: The question is about uncertainty. The suggestion is that it's an initiative that runs through to 2021.

Senator Cormann: That is precisely the sort of question that would be appropriately directed to Minister Scullion, who will be in attendance himself, personally—

CHAIR: on Friday.

Senator Cormann: on Friday.

Senator McALLISTER: Right. But you can't tell me whether this was previously a decision taken and not yet announced or some other measure? I'm trying to understand how an announcement of this scale can come out just days before the budget, and it's not in the budget.

Senator Cormann: It is in the budget, because it was a decision made in a previous budget. I've just received advice that this is a measure in the 2017-18 budget, which was—you're right—announced on 27 April. The funding is available. But if you want to ask any specific questions about this particular initiative then that is a matter for Minister Scullion, who has got direct responsibility for this.

Senator McALLISTER: It's just that it says that the coalition is investing 'an additional $250 million' in funding.

Senator Cormann: Which is true. As you say, this was announced before the most recent budget. By definition, if there is a decision taken but not yet announced, when it is announced it's a newly announced measure providing additional funding.

Senator McALLISTER: So that's your explanation of what has happened: it's a decision taken but not yet announced—and it's allowed to be described as 'additional'?

Senator Cormann: I'm surmising. As I've indicated—

Senator McALLISTER: I haven't finished asking my question.

Senator Cormann: I know, but I'm—

CHAIR: Order! Minister, just allow Senator McAllister to ask her question and then have your answer.

Senator McALLISTER: So, your evidence is that this funding was included in the 2017-18 budget and was only just announced prior to—

Senator Cormann: That's not my evidence. My evidence—

Senator McALLISTER: Could I just finish?

Senator Cormann: That's not what happens—

Senator McALLISTER: I'm asking the question, and you can answer it and tell me I'm wrong. Your evidence is that this money was first provided in the 2017-18 budget as a decision taken but not yet announced and publicly announced for the first time on 27 April 2018.

Senator Cormann: No. My evidence is that I've been advised that this is a measure out of the 2017-18 budget. As I said, I'm speculating, because this is not in my area of responsibility. I then indicated to you that the appropriate person to ask further questions in relation to this, as the minister who has made this announcement, is the Minister for Indigenous Affairs, Minister Scullion. You indicated that there was some uncertainty in relation to funding. I've said that's not right, because the funding is available in the budget, but it's not a budget measure in this budget; it's a budget measure out of a previous budget. One of the possible options to, I guess, speculate about why something would play out the way you're indicating to me it has played out—although I'm not across all of the detail here—is that it may have been a decision taken but not yet announced and that it was subsequently announced once the Minister for Indigenous Affairs was in a position to announce it. But the person who will be able to shed light on this for you, beyond any doubt, is the excellent Minister for Indigenous Affairs, the highly energetic and highly committed Minister for Indigenous Affairs, the Hon. Nigel Scullion, who will be appearing on Friday.

Senator McALLISTER: Can I ask you to take on notice—since you seem determined to refer me to Minister Scullion—the profiling for this measure, which appears to run to 2021. There is very little detail in the media release, there is no information in the present budget papers and, as you've confirmed, I don't think there was any information about it in the 2017-18 budget papers either. Can I ask for the profile?

Senator Cormann: Hang on, I have not confirmed that. You're verballing me. I've got to tell you: I'm not prepared to take this on notice, because the appropriate way to get precisely the information that you are seeking is by asking the minister who issued the press release. I do not have responsibility for the press releases issued by Senator Scullion. I have, of course, responsibility in relation to the budget that is this front of us—

Senator McALLISTER: Are you concerned that your information doesn't match the information provided by Minister Scullion?

Senator Cormann: That is just completely disingenuous. That is entirely and utterly disingenuous.

Senator McALLISTER: I wouldn't be surprised if you were.

Senator Cormann: Sorry?

Senator McALLISTER: I wouldn't be surprised if you were.

Senator Cormann: If I was what?

Senator McALLISTER: Concerned.

Senator Cormann: I'm not concerned at all. No, I completely and utterly reject that assertion. That is completely and utterly inaccurate and not consistent with what I've said or what my feelings about the matter are. What I'm saying to you, and what is entirely reasonable for me to say, is: if you want to ask questions about a press release issued by Senator the Hon. Nigel Scullion then the appropriate person to ask about an announcement that was made by him is the minister himself, who is appearing here in front of this committee on Friday. I mean, I don't know why that is so complicated.

Senator McALLISTER: Because we're here to discuss Budget Paper No. 2.

Senator Cormann: But we've already established that this is not part of —

Senator McALLISTER: But it is. It's in the forward estimates.

Senator Cormann: It's not a measure in Budget Paper No. 2 in the 2018-19 budget. I've already, in an abundance of helpfulness, pointed out that my advice is that this is a measure out of the 2017-18 budget. But, in terms of the specifics—and you've asked about cash flows and funding profiles, or whatever—the minister that has that information at his fingertips is the responsible minister, the minister who's issued the press release, the minister who is responsible for Indigenous affairs and who has announced this exciting initiative of the coalition, delivering over $250 million for Indigenous ranger jobs to 2021.

Senator McALLISTER: But isn't it ordinarily the case that, if something is provisioned for and not announced, that at a subsequent update, whether it's MYEFO or a new budget, a measure is included which describes the measure having been announced and includes a zero impact because it was already provisioned for? Why is there no budget measure around this?

Senator Cormann: This is what I'm saying to you—I'm at a disadvantage, because this is not in my portfolio. I'm surmising. I'm advised that it's part—

Senator McALLISTER: But you are the finance minister.

Senator Cormann: Let me finish. You've asked a question; let me finish. I'm advised that it is a measure out of the 2017-18 budget. Again, I'm speculating some more. There has been a half-yearly budget update in the intervening period. The most straightforward way to get 100 per cent of the information you're after is by asking the right minister. You're not addressing your questions to the right minister, because I do not have responsibility for this particular program and I did not issue the press release. The minister that issued the press release and who is directly responsible for the program appears in front of this committee on Friday. So, I don't understand why we need to spend a lot of time going around and around in circles in relation to a program for which I do not have direct responsibility.

Senator McALLISTER: I think it's because we've been spending a lot of time talking about the measures in Budget Paper No. 2 and the accounting treatment of them, and I'm genuinely confused by an announcement days before the 2018-19 budget.

Senator Cormann: There's nothing confusing about it. It is entirely consistent with usual practice. As you have already indicated, there is no measure in Budget Paper No. 2 for 2018-19, which is why it is not something I can help you with.

Senator McALLISTER: Why isn't there an update provided in a subsequent paper, like MYEFO or this budget, with a zero financial impact?

Senator Cormann: If you want me to take on notice—

Senator McALLISTER: I do.

Senator Cormann: where this is reflected in terms of updates provided, I'm happy to do that. But, in terms of the detail, the funding profiles and all of these sorts of matters, there is one minister—that is, the minister who is responsible for this.

Senator McALLISTER: That's why we have budget updates, actually—so that information is consolidated in a single place. And that is what the budget papers are for—for new measures to be clearly set out, including the profiling.

Senator Cormann: And that's what we do.

Senator McALLISTER: That is what the budget estimates process is about. It's about scrutinising those measures.

Senator Cormann: We do provide these updates in the appropriate way, consistent with all of the requirements, including—and in particular—the requirements in the Charter of Budget Honesty.

Senator McALLISTER: Chair, may we suspend for a minute or two while we identify whether we're ready to move on?

CHAIR: We certainly can. The committee will now suspend.

Pr oceedings suspended from 17:50 to 17:51

CHAIR: The committee will now resume. Senator McAllister?

Senator McALLISTER: I understand that Mr Albanese has been seeking information about the accounting treatment for Inland Rail and, in particular, the advice that's been provided, if any, by the Department of Finance. I'm wondering if anyone can provide some indication of how that's being approached by the department.

Senator Cormann: You have asked me questions about this before, I should say. Senator Kitching has asked me about this before. If you're saying that Mr Albanese is asking these questions, I would refer you to page 80 of the Senate estimates transcript for Tuesday, 27 February 2018. I'm just telling you what I said then:

From the Commonwealth's perspective, the returns from the shareholding, dividends and the enterprise value of the company, inclusive of the Inland Rail project, will drive the positive return for the Commonwealth.

It's important that I put on the record here that the equity contribution that the government committed to in the 2017-18 budget was to be provided over a seven-year period. It's projected to continue to generate a real return sufficient for the investment to be classified as equity. It's an approach that's entirely consistent with the relevant provisions in the Charter of Budget Honesty policy-costing guidelines. For convenience, the relevant part of the Charter of Budget Honesty actually provides:

An investment would be regarded as an equity injection if the Government exercises control over the investment, such as being able to sell its investment without unreasonable impediments and there is reasonable expectation of recovery of the investment.

Which there is on this occasion. The Charter of Budget Honesty continues:

Therefore, the entity must be able to generate a revenue stream that at least covers its costs and generates a positive rate of return.

As I indicated then—

We believe that all of those factors are satisfied—

and I remain of that view.

Senator McALLISTER: Mr Albanese has been asking, through freedom-of-information requests, about the work undertaken within Finance to inform the government's view. The reference is FOI 18-39.

Senator Cormann: The government's view was formed in the context of the 2017-18 budget process. I think we've also covered that on previous occasions. In the 2017-18 budget, the government announced that it would provide an additional equity investment of up to $8.4 billion over seven years to ARTC to deliver Inland Rail. The accounting classification of capital contributions as equity is on the basis that the Commonwealth expects, as I've just outlined, to earn a real return from the ARTC over the life of the investment. There was a 2015 business case which also informed the considerations by the Expenditure Review Committee of cabinet at the time. We sought some specialist advice at the time as well. There is also, of course, a broader economic benefit from pursuing this investment. The 2015 business case found that the project has a benefit-cost ratio of 2.81, with a discount rate of four per cent, and 1.08, with a discount rate of seven per cent. The business case includes substantial contingency provisions, and the government is getting on with delivering the project.

Senator McALLISTER: Has the accounting policy area provided advice on the accounting treatment of this?

Senator Cormann: The relevant areas of Finance provided advice to the government through the deliberative processes of cabinet, yes. The accounting treatment is not a political decision, I've got to tell you. It's based on an independent ABS classification, and it's based, under the Charter of Budget Honesty, on the framework that I've outlined.

Senator McALLISTER: You're very keen not to let anyone answer. I'm just asking whether the accounting policy area provided advice on this.

Senator Cormann: All of the relevant parts of the finance department provided advice.

Senator McALLISTER: So you're not going to tell me?

Senator Cormann: All relevant areas of the department provided advice as appropriate to support the consideration by the cabinet of this very important initiative. It went through a very thorough process. We also sought and received—and this is a matter of public record—expert external advice from a relevant investment bank at the time.

Senator McALLISTER: Did Finance involve themselves in testing the assumptions of the project?

Senator Cormann: The short answer is yes, of course.

Mr Edge : As the minister said, the short answer is yes, we did look at the assumptions. There was a lot of work done through the scoping study process that the minister's just talked about, to look at that and to make the assessments that fed into the decision.

Senator McALLISTER: Were the assumptions that were contained in the business case accepted? There's a public business case and it, appropriately, assesses the investment against a range of discount rates. Is that business case the government's view about the economics of this project or has additional work been done to supplement it since the business case was received in 2015?

Senator Cormann: We received advice as a government at the time. We made judgements, and nothing has happened to change our view about the fact that this investment through the ARTC will provide an appropriate return from the shareholding dividends and enterprise value of the company.

Senator McALLISTER: Does that extend to accepting all of the assumptions in the business case?

Senator Cormann: We went through a very thorough process at the time when we made the initial decision, which is, of course, a decision in the 2017-18 budget. We very carefully scrutinized all of the assumptions that were part of the project proposal that was put forward. We sought expert external advice as well as advice from our own officials. The government considered all of the information in front of us and we made a decision to proceed and to provide additional equity investment of up to $8.4 billion over seven years to the ARTC to deliver Inland Rail. The accounting classification of capital contributions as equity, as I've said, is on the basis that the Commonwealth expects to earn a real return from ARTC over the life of the investment. That was our expectation last year, and that continues to be our expectation.

Senator McALLISTER: When will returns be expected from the project? What's the year when it becomes cash flow positive?

Senator Cormann: Apparently, ARTC appeared in the infrastructure portfolio. Nobody asked those questions to the organisation that is actually responsible.

Senator McALLISTER: I'm interested.

Senator Cormann: It would have been good to direct those questions at ARTC because that is the body that is managing this project and is able to give you a real-time assessment. The same as you would ask questions about the performance of NBN to NBN, you would ask questions of the performance of ARTC to ARTC. If you want to put questions on notice, I'm happy to provide the appropriate answers to you on notice.

Senator McALLISTER: Okay. The reason I'm asking here is because there's a direct relationship between the decision around the accounting treatment of the project and its performance, and that nexus is in the financial returns expected from the project. That's why I'm asking.

Senator Cormann: The mistake that you're making—I think I went through this precise argument with Senator Kitching.

Senator McALLISTER: We talked about it before.

Senator Cormann: We went through precisely the same argument and around in circles. The return doesn't just come from the dividends; it also comes from the impact on the capital value of the business as a result of making a substantial investment.

Senator McALLISTER: Sure, I understand that.

Senator Cormann: Of course, should this government or a future government at the right time decide to recover the investment by selling the investment, obviously there is a value attached to it at that point in time. In relation to the Inland Rail project, the first thing that's got to happen is it has to be built, so it is not going to generate cash flows until we've made—

Senator McALLISTER: Not for a long time.

Senator Cormann: If I would use that interjection as a basis for not investing in an infrastructure project, we would never invest in an infrastructure project.

Senator McALLISTER: I understand. I'm just trying to understand how it works. I'm trying to understand how the financing of these things work. They are long-term projects.

Senator Cormann: The way the financing works is that we make an assumption of the return that this investment will generate. What I'm very keen to ensure I get across is that the return is not just driven by the dividends but also by the capital value of the investment.

Senator McALLISTER: I understand. However, the cash flow profile of the project does matter for a number of reasons. It matters as a component of the net value over time, and it matters because of the interaction with the cost of finance. I would expect that you consider and review those things each time you prepare the budget and you put this project in as an equity stake rather than on any other basis. I'm asking whether that's happened from a process perspective.

Senator Cormann: We always monitor all projects that are underway, of course. What I'm saying to you is that, since we made the decision and since we made the assessment, there's no information in front of me, or in front of us, that changes our assessment when we made the original decision that this investment will deliver an appropriate return on the investment for it to be treated an equity investment.

Senator McALLISTER: This is something that the accounting policy team's provided advice on?

Senator Cormann: I always get advice in relation to these matters out of the Commercial and Government Services division, from Mr Edge, Mr Jaggers and others—and the secretary, of course. I always get advice in relation to all relevant projects to the extent that there are things that are at variance with what we might previously have assumed. But what I'm saying to you is that there's nothing in front of the government that would change our assessment at the time of making the decision that the additional equity investment of up to $8.4 billion over seven years that was made in the 2017-18 budget should be changed in terms of accounting classifications of that investment, in terms of those capital contributions as equity, given the Commonwealth expected then and continues to expect to earn a real return from ARTC over the life of the investment.

Senator McALLISTER: Where do the accounting policy team sit? Do they sit in your team, Mr Edge?

Mr Edge : No, they sit in a different part of the department, in the governance and transformation area.

Senator McALLISTER: Okay. So who's responsible for them?

Ms Huxtable : I would say, though, that we have people throughout the organisation who have the appropriate accounting skills.

Senator McALLISTER: Of course.

Ms Huxtable : Yes, when advice is being brought forward, there's consultation that occurs across the department to make sure that the appropriate areas have input to that advice, and this was certainly the case, and I would expect it would always be the case.

Senator McALLISTER: You're now just making me terribly curious. I've asked about three times.

Ms Huxtable : No, I think the idea is that there is an accounting policy unit. I'm not sure I would frame it like that. Dr Helgeby's group—in particular in Mr Greenslade's area, finance and reporting management—tends to be a place where there is a hub of accounting skills, but it's not the only place in the organisation that has accounting skills. In fact, quite widely throughout the organisation we have people with accounting skills.

Senator Cormann: I would make one very important point. It's not as if we make some decisions in isolation on a discretionary political basis. We comply with all of the relevant accounting standards, which are set independently, and we are audited, and the Auditor-General signs off on the government's financial statements, including the treatment of equity and loans. Unless, Senator McAllister, you have a view that is at variance with the view of the Auditor-General, and is less partisan than the view of the Auditor General, that somehow the judgements that we've made and that have been ticked off by the Auditor General shouldn't be ticked off, I really wonder why you are so intent on questioning the judgement that we made and that we maintain and that the Auditor General has ticked off on, that this $8.4 billion contribution to the ARTC to deliver inland rail should be treated as equity investment. What information have you got in front of you to suggest that our judgement is inappropriate when we, of course, comply with all of the relevant accounting standards?

Senator McALLISTER: You and I have different jobs, Minister. I am in the opposition, and it's my job to scrutinise, and that is why I'm asking these questions. But I've done asking those questions.

Senator KITCHING: Could I go to BP2, page 79. It's: 'Funding for Australian Film and Television Content and the National Broadcasters'—down in the second paragraph that starts with, 'The Australian Broadcasting Corporation,' it says that:

This will result in savings to the Budget of $83.7 million over three years from 2019-20 to 2021-22.

But, it's not reflected in the table immediately above.

Senator Cormann: What do you mean it's not reflected in the table?

Senator KITCHING: It's not. On page 79—

Senator Cormann: That is essentially a reflection in the other direction of the same thing that we've discussed in relation to other measures. The table is the net additional fiscal impact in this budget compared to what was provisioned at the previous update.

Senator KITCHING: Okay. So, was this a MYEFO decision taken but not yet announced?

Senator Cormann: I suspect that that's right—yes, that's right. I would also just point out on this measure that, over the three years from 2019-20 to the end of the 2021-22 financial year, the taxpayer will provide about $3.2 billion worth of funding to the ABC. The ABC is one of only a handful of taxpayer-funded organisations that for most of the last few decades has been fully exempt from the efficiency dividend and that the saving of the efficiency that is applied across the next three-year funding agreement is essentially equivalent to what the value of the efficiency dividend would be over that same period. We work in an environment where nearly all other taxpayer-funded organisations are subject to an ongoing efficiency dividend. They were so under your government; they are under our government. The ABC has been exempt for most of that period. We live in an environment where some media organisations, of course, are subject to very drastic efficiency drives—cost-reduction measures. We don't think it is unreasonable for the ABC to be subject to an efficiency dividend for a limited period of three years when they've been fully exempted for most of the last few decades.

Senator KITCHING: Where would I find the funding for the ABC, if it's not included in this measure?

Senator Cormann: What do you mean? The measure only presents the variation to the baseline. So the baseline was already reflected in our budget bottom line, and the baseline assumed, of course, the full three-year funding without the efficiency dividend. But, we've applied the efficiency dividend, so Budget Paper No. 2 is a reflection of the variation compared to what was previously in the bottom line.

Senator McALLISTER: I want to ask about this, though.

Senator Cormann: The specifics are in the communications before the budget statement, if you want to go beyond that.

Senator KITCHING: No, that's good. Thank you.

Senator McALLISTER: But, Minister, the implication of this is that an $83.7 million cut has been hidden for six months.

Senator Cormann: No, it hasn't; I reject that.

Senator McALLISTER: It was a decision taken and not yet announced. Why not? Why wasn't it announced at the time it was taken?

Senator Cormann: It's been announced in the budget. Obviously, there was some more work to be done.

Senator McALLISTER: Right, so you took it six months ago, and then you let it—

Senator Cormann: As I've indicated before, there are a range of reasons why measures are included in the contingency reserve, and one of them is that some more work needs to be done before the measure is ready for announcement, and that would have been the case here. Again, this is not rocket science. This is 100 per cent consistent with what your government did and what governments before that did. There are a range of reasons why.

Senator McALLISTER: I tell you what—

Senator Cormann: You openly and transparently provide the update when you're ready, and that's what we're doing in this budget. That is the reason why you're asking me questions now.

Senator McALLISTER: It's just that over the period where this decision's been taken, but not in the public domain, the government has repeatedly placed pressure on the ABC around its reporting, around its editorial standards. And I'm interested that for six months there was a decision of government to cut the funding of the ABC, not made known to the public. Was it known to the ABC that you were planning to cut their funds?

Senator Cormann: I would characterise it differently. There was a decision to apply the same efficiency dividend for a time-limited period of three years to the ABC as has applied on an ongoing basis to nearly every other taxpayer-funded organisation.

Senator McALLISTER: But to hide it for six months?

Senator Cormann: No, it's an efficiency—I reject that characterisation. It is, clearly, openly and transparently published. It is entirely appropriate. I'm very comfortable that this is an appropriate measure, because I believe that an organisation that receives $3.2 billion worth of funding should be able to find $84 million of efficiencies as nearly all other taxpayer-funded organisations have to provide at the same proportion on an ongoing basis, under your government, under our government. Nearly every other taxpayer-funded organisation has to find these efficiencies. The ABC has been protected from those efficiency dividends and requirement for productivity improvements for most of the last few decades. We don't think that it is appropriate for that to be a permanent arrangement. We think it's appropriate on a time-limited basis of three years for the ABC, like nearly every other taxpayer-funded organisation, to make an effort to find efficiencies, to find productivity improvements.

If you look at the media industry more broadly, if you look at the free-to-air television stations, if you look at the newspapers—those that are represented here in the press gallery—you'll find that most of those private-sector, non-public media organisations have all been subject to very substantial efficiency dividends. The proposition that the taxpayer-funded organisation should not be required to find efficiencies just because they are funded by taxpayers, as opposed to private means, is just not appropriate in our judgement. By the way, it doesn't start till 2019-20. The proposition that we're somehow hiding something—this does not start until 1 July 2019.

Senator McALLISTER: I note that the Prime Minister and indeed the communications minister appear to have lodged a second round of complaints to the ABC about their chief economics correspondent Emma Alberici. Is there a connection?

Senator Cormann: That is not a matter for me.

Senator McALLISTER: Is there a connection between these things?

Senator Cormann: No, there is absolutely no connection. The only purpose here—there is an ongoing efficiency dividend that has applied for decades under governments of your political persuasion, and under governments of our political persuasion, that varies from time to time. Sometimes governments increase the size of the efficiency dividend for a period, and then it goes back to the longer-term arrangement in terms of the efficiency dividend. The ABC, for most of the last few decades, has been fully exempted from the efficiency dividend that applies to nearly every other taxpayer-funded organisation. We don't think it is good practice to say to an organisation that receives $3.2 billion worth of taxpayers money over a three-year period, 'You have a free pass You don't have to find the efficiency dividends that nearly every other taxpayer-funded organisation has to find'—particularly in the context where that organisation has been fully exempted for most of the last few decades. In particular, the funding arrangements for the ABC, without an efficiency dividend, are completely out of step with what applies in the media sector more generally.

CHAIR: The ABC is actually appearing a few doors down quite shortly in the environment and communications committee as I understand it, so that is probably the best place to pursue questions about Emma Alberici.

Senator McALLISTER: I am interested to know whether the prospect of this decision taken but not yet announced has ever been used to place pressure on the ABC about editorial standards?

Senator Cormann: I reject that completely. This is a very sensible housekeeping measure. It is a housekeeping measure that has applied under governments of both political persuasions to taxpayer-funded organisations across the board; nearly all the taxpayer-funded organisations are subject to an ongoing efficiency dividend. We don't think that there is anything inappropriate about applying effectively the value of the efficiency dividend over a time-limited period of three years to the ABC when the ABC has been fully exempt for most of the last few decades, which is out of step with either what applies across taxpayer-funded organisations generally or what happens in the media sector generally.

Senator McALLISTER: Was the ABC CEO aware of the decision ahead of the announcement in the budget?

Senator Cormann: I don't have a direct line of communication with the CEO of the ABC. That would be a matter for the Minister for Communications. As the chair helpfully—

Senator McALLISTER: And the Prime Minister by the sounds of it, because he's lodging complaints today—

Senator Cormann: Sorry, as the chair helpfully pointed out, the ABC is about to appear alongside the Minister for Communications, and these questions could be asked there. And I'm sure that, if the answer had been that, yes, I had spoken to the CEO of the ABC in relation to these matters, I would have been accused of taking undue influence. I don't think there is a reasonable expectation that I would have that sort of line of communication with the CEO of the ABC in relation to decisions of this nature.

Senator McALLISTER: My question wasn't about your communication.

Senator Cormann: This is directly the responsibility of the Minister for Communications.

Senator McALLISTER: I was asking whether the ABC CEO was aware. I take it that you think that ought to be asked elsewhere, but it was a more general question about whether they have been aware of this cut hanging over their heads for six months.

Senator Cormann: I can't answer the question of what they were or were not aware of because I'm not the Minister for Communications. I don't talk directly about budget matters with the CEO of the ABC. I don't think that people would expect me to talk directly to the CEO of the ABC about budget-related matters. There is a Minister for Communications who, of course, has direct portfolio responsibility for these matters.

Senator McALLISTER: And he appears to spend a great deal of time issuing complaints to them about their editorial approach and their political approach.

Senator Cormann: There is a charter, of course, that applies to the ABC that the ABC is meant to comply with.

Senator McALLISTER: Because you don't like the coverage.

Senator Cormann: Obviously, the Minister for Communications appropriately ensures that the ABC complies with the relevant provisions in its charter.

Senator KITCHING: Is Finance responsible for non-tax revenue?

Ms Huxtable : Yes. If you asked a question—

Senator KITCHING: Who endorses the estimates of non-tax revenue?

Ms Huxtable : It probably depends on what in particular you're referring to. It's a bit hard to generalise on it.

Senator KITCHING: Who signs off on the estimates of dividends? Is that Finance or Treasury?

Ms Huxtable : Dividends from whom? There are a number of instances where dividends are received from government business enterprises, and the Minister for Finance will generally be a shareholder in a government business enterprise, so we would have an awareness of dividends. I'm not sure if 'signing off' on dividends is quite the right word because dividends actually come from enterprises that are independent.

Senator KITCHING: I'll go to the NBN loan as a particular example. There are some large jumps in interest that's been received. Is that being driven by the NBN loan?

Ms Huxtable : Have you got a particular place you're looking at there? If you go to the NBN loan measure, which was in the 2016-17 MYEFO, there's the profile of the interest payments, and they're billed. We can provide some information on notice if you wish, but they're published in the 2016-17 MYEFO document.

Senator KITCHING: Was that 2016-17?

Ms Huxtable : The 2016-17 MYEFO.

Senator KITCHING: I've got 2017-18.

Ms Huxtable : It was the previous MYEFO. They will be aggregated somewhere in the budget, but I don't know exactly where or whether they're in that form. They will certainly be in the Communications portfolio budget statement, I expect.

Senator KITCHING: Let me have a look.

Senator McALLISTER: While you're doing that, I want to come back to your response, Minister, about the need to direct these questions to Minister Fifield. Can I conclude from that that Minister Fifield was aware of the decision taken but not yet announced in relation to the ABC?

Senator Cormann: Well, he was aware of the budget measure.

Senator McALLISTER: At the time it was included as a decision taken but not yet announced?

Senator Cormann: You're now going through the deliberative processes of government and the cabinet process. I described it in a general sense. In a general sense, the portfolio minister of course is part of the decision-making process. I will take it on notice to see whether I can add in any way to the answer in the context of this specific circumstance. All decisions are made through the usual deliberative process of cabinet. Through the ERC, the general practice is that portfolio ministers submit various proposals and suggestions to the ERC and the ERC ministers probe, scrutinise and ask questions and, ultimately, decisions are made which then go to cabinet and cabinet ticks off on them if cabinet is satisfied that those decisions are appropriate.

Senator McALLISTER: I appreciate the approach you've taken, given some of the constraints, but the ordinary practice is that, if an important decision was to be made about a minister's portfolio, they would be involved in the budget processes associated with that.

Senator Cormann: The ordinary practice is that the portfolio minister is involved in the consideration of potential budget measures—that is right. I will take it on notice to see whether there's anything else I can add to that, given that this is part of the confidential deliberative processes of the cabinet.

Senator McALLISTER: Thank you.

Senator KITCHING: Maybe I'll ask a more general question about dividends. What changes were there to dividends in 2018-19? Were there any significant drops in comparison to other years?

Senator Cormann: We'll have to take that on notice.

Senator KITCHING: Okay. Is it possible to provide a breakdown of dividends by agency?

Senator Cormann: On notice we can.

Senator KITCHING: Yes, by payee or, in the case of the Future Fund, the aggregate over the forward estimates. Does that make sense?

Ms Huxtable : Yes, we'll collate it.

Senator KITCHING: Other non-taxation receipts also sort of jump around—there's some variation in 2020-21. What's driving that?

Ms Huxtable : Have you got a table that you're referring to? That would help a lot.

Senator KITCHING: I'm trying to find what I was reading, but it'll be—

Ms Huxtable : If we respond to the question you've just asked, will that respond to this question?

Senator KITCHING: Yes, it will.

Ms Huxtable : I was getting a bit confused. We started talking about loans and now we're talking a dividends, and they're two different things.

Senator KITCHING: Yes.

Ms Huxtable : The NBN loan—that's repayments. They were interest payments.

Senator KITCHING: I'm interested in variation in interest received and I was trying to use the NBN loan, but I don't have the MYEFO from 2016-17. But I'm also interested in variations in dividend.

Ms Huxtable : There is a table in the budget, in statement 7, which breaks out some of this detail and lists some individual elements. Given the time, we can take it on notice and present it back to you.

Senator KITCHING: That would be great.

Ms Huxtable : We'll go through the Hansard to make sure we get the various elements of that correct, if that's okay.

Senator KITCHING: Thank you, Ms Huxtable. Can I ask very quickly, Chair, about the Northern Australia Infrastructure Facility loan?

CHAIR: You may.

Senator KITCHING: I did have a reference. In the MYEFO—

Ms Huxtable : Which one?

Senator KITCHING: I think it might have appeared in the statement of risks in the last MYEFO. Maybe you can take it on notice, given the chair is going to—

CHAIR: Let's put the question on notice.

Senator KITCHING: Is this a particular loan—is it an estimate? On the NAIF loans, I want to know if they're estimates. There was a five per cent and a 30-year estimate, so I'm wondering how they were arrived at, and, also, 30 years is quite a long time frame.

Ms Huxtable : We can take that on notice.

Senator KITCHING: Is a 30-year time-frame being used because it's going to take some time for them to be paid back?

Ms Huxtable : I note that the table says that's the estimated time frame, but we'll provide more information on notice.

Senator KITCHING: Thank you.

Sitting suspended from 18:31 to 20:00

CHAIR: The committee will continue its examination of the Department of Finance. We're moving on to outcome 2, and, as far as possible, we will try and read through the program sequentially. As with previous practice, no officials will be dismissed except by the agreement of the committee that that area needs no further examination.

Senator McALLISTER: You've provided answers to some questions that I asked in February about the NBN, and that was reference No. F013—they're from the February estimates. In February, what I was looking for was some understanding about the process that the NBN went through in changing their pricing structure and the impact that that might have had on their rate of return, and a number of those questions were taken on notice. The answer that was provided essentially says that the information will be provided in a corporate plan, which will be published in August 2018. The fact that this information isn't going to be published until August 2018, I assume that doesn't suggest that you had no information about the impact of the pricing structure on the rate of return for this investment at the time when the decision was made?

Senator Cormann: We've went through that conversation during the last estimates. At every point when there is a material development I get advice from the department as appropriate, and others if required, and I did on that occasion. As part of good, proper governance and good, proper management there is a structured annual process through the corporate planning process, and that's appropriate. This process is underway for 2018, as is indicated in this answer, with the corporate plan to be published by the end of August 2018.

Senator McALLISTER: I think your evidence back in February, minister, was that you did assess, at the time that the change was being contemplated by NBN, that you would nonetheless expect a sufficiently positive rate of return for the equity investment in the NBN to continue to be classified as an equity injection.

Senator Cormann: That's right. In fact, in the most recent corporate plan the rate of return is higher than what it has been in previous corporate plans. There's going to be an update in next corporate plan, in the ordinary course of events. We did receive advice in the context of the decisions you are asking about and I can confirm that the government remains satisfied, based on all of the best available advice, that NBN will continue to provide a sufficiently positive rate of return for the equity investment in NBN to continue to be classified as an equity injection.

Senator McALLISTER: I suppose I am not so much interested in the accuracy of that assessment—you have that information; I don't—but am asking about the process. I am particularly keen to understand whether or not you had that information at the time the board was making the decision.

Senator Cormann: The NBN notified the two shareholder ministers, consistent with the requirements in the PGPA Act. At the time I sought advice from my department, and Minister Fifield would have sought advice from his department. What I can also tell you—as I told you back in October—about the general process is that the Auditor-General signs off on our financial statements, which includes of course the accounting treatment of relevant equity investments consistent with accounting standards. The valuation of NBN and the financial reporting of the government are all done consistent with relevant accounting standards and are all subject to appropriate auditing by the Auditor-General.

Senator McALLISTER: The NBN changed their pricing structure and then terminated the HFC rollout basically immediately after the corporate plan was published last year.

Senator Cormann: Yes, that's right.

Senator McALLISTER: So you have this situation where there are quite significant changes to the operation of the company and none of that is going to be publicly explained until August this year.

Senator Cormann: Well, I disagree with that, because I have been answering questions at previous estimates in relation to these matters. Annual budgets are on an annual basis. Annual half-yearly budget updates are on an annual basis. Annual corporate plans are on an annual basis. When something happens once every year, you can't prevent events happening in between those annual processes, but some events that happen in between annual processes are less significant and some are more significant. I can assure you that we seek advice on all relevant occasions in the appropriate way about the implications of things that are material in between regular annual processes and we make judgements as appropriate along the way. Of course there is the rigour and the discipline of going through a more comprehensive process once a year. I can confirm that there are events that have a bearing on the financial performance and the delivery performance of businesses like NBN in between annual corporate planning processes—that is true—but I'm saying to you that, having been notified in the appropriate way by NBN—and the NBN board, of course, is responsible for the NBN business—about the decisions that they made and having sought advice about the implications of those decisions, I remain satisfied that the $29.5 billion equity injection into NBN continues to be classified appropriately as an equity injection. Again, this is not a political discretionary decision; this is a decision that is based on the proper application of independently determined accounting standards, subject to independent audit by the Auditor-General.

The parliament and the Australian people can take great comfort from the fact that there are appropriate checks and balances in the system to ensure that the judgements that are made and the reporting and the information provided in the public domain about financial performance and other relevant information in relation to the performance of NBN are subject to appropriately rigorous scrutiny at the appropriate standard.

Senator McALLISTER: You said that, when the NBN advised you and Minister Fifield of the changes, you sought advice from the Department of Finance about the financial impacts. Did the NBN provide to you or to your departmental officers any analysis of the impact their changes might have on the rate of return for the business?

Senator Cormann: NBN provided all of the appropriate information in the circumstances, consistent with the requirements of section 91 of the PGPA Act. Under section 91 of the PGPA Act, as I said to you on 27 February 2018—and it was to you:

… the NBN board was required to notify the responsible ministers.

It was obviously a significant decision. I agreed with you on that back in February. I then said:

It was made independently by the board of NBN, given that NBN is a separate commercial business.

I told you that in February. I said then:

But nevertheless—

and I stand by this too—

my overall point stands: that is, in any year, and between updates in terms of financial performance, there are a range of things that happen in the business in both directions, up and down. It is a very important discipline for the updates to be provided in a consolidated fashion at the appropriate times. To provide a running commentary on the overall performance of the business on the basis of one specific decision is not good practice.

That is precisely, without having read that before I answered your previous questions, what I've sought to convey on this occasion.

Senator McALLISTER: I'm asking a process question, which I'd like an answer to: did the NBN undertake any analysis about whether the changes they made, including changing their pricing structure and halting the HFC rollout, impacted on the rate of return? I understand that you've already provided me advice that you sought assurance about that from the Department of Finance. I'm trying to understand whether you had any separate advice from NBN itself.

Senator Cormann: I had the appropriate advice from the NBN, and NBN is appearing separately—

Senator McALLISTER: Why can't you just tell me?

Senator Cormann: I'm just answering the question. NBN is appearing in front of the Senate estimates hearing of the Environment and Communications Legislation Committee on other matters, not very far away from here. Any questions about the work that NBN did independently are of course a matter for NBN. In terms of my responsibilities as shareholder minister, I can confirm that I was notified in the appropriate fashion, in a lawful fashion, in the fashion as required under section 91 of the PGPA Act—

Senator McALLISTER: I'm not asking that. That's not my question.

Senator Cormann: Yes, but I can't speak—

Senator McALLISTER: You can provide that answer but I'm not asking that; I'm asking whether they shared with you any analysis about the impact on the rate of return.

Senator Cormann: No, no; you actually asked me whether NBN conducted certain analysis.

Senator McALLISTER: Conducted and shared with you.

Senator Cormann: What NBN did is a matter that needs to be directed at NBN.

Senator McALLISTER: No. I'm asking whether they shared it with you.

Senator Cormann: They shared with me all of the information I required and all of the information that NBN was required to provide me under section 91 of the PGPA Act.

Senator McALLISTER: That's a pretty narrow reading down of their responsibilities.

Senator Cormann: It's not narrow at all.

Senator McALLISTER: You weren't interested in other things?

Senator Cormann: I'm always interested.

Senator McALLISTER: I'm just fascinated that you won't tell me.

Senator Cormann: You know what? My No. 1 focus with all of these things is to make sure that I act as part of the executive government and that I act consistently with the requirements in the legislation as set out by the parliament.

Senator McALLISTER: Yes. I think that's the minimum benchmark. That's the minimum.

Senator Cormann: Let me tell you that, in relation to these matters, that is obviously what I'm required to do in administering relevant legislation. I have confirmed on a number of occasions now that I've received the appropriate notification under section 91 of the PGPA Act. I sought the appropriate advice from my department in relation to this matter. In fact, on the record, if not at the time of the last estimates, I think I actually informed you that on two occasions I sought advice in the relevant period—

Ms Huxtable : That's right.

Senator Cormann: in relation to the financial and other implications of the decision that was made. I'm satisfied that I had in front of me all of the information I required in order to remain satisfied that this was an appropriate decision in the circumstances and did not impact on our judgement that the equity investment into NBN should continue to be treated as an equity investment in NBN.

Senator McALLISTER: As part of the information they were legally required to provide you, Minister, did the NBN share with you any analysis they'd undertaken on the impact of the changes on the rate of return?

Senator Cormann: NBN provided all the appropriate information to me as the shareholder minister and they provided all the appropriate information to Senator Fifield as the shareholder minister. And based on the information, based on the advice—

Senator McALLISTER: I'm going to assume it's no—

Senator Cormann: from my department I remain—

Senator McALLISTER: since you won't answer the question.

Senator Cormann: Well, you are wanting me to share information that I'm not prepared to share in isolation out of the context of regular updates. If you were to ask me to give a running commentary about budget parameters in between budgets and budget updates I would tell you: wait for the next budget update—appropriately. And do you know what? That is what Senator Wong used to tell me when I was asking questions from over there. It is good practice, good governance, not to provide a running commentary. In the context of developments in between updates that are going in both directions, there's always a plethora of things that go on in between updates, and it's a very good discipline to take all that information together to consolidate it, to ensure that you have a very good understanding of the impact of all the movements up and down to make sure that you can provide as accurate an update as possible at the appropriate time for the update. Whether it's the Labor government or a Liberal-Nationals government, an annual corporate plan is conducted annually. It is updated annually. And whether it's Labor or the coalition, things happen in between annual updates.

Senator McALLISTER: They do.

Senator Cormann: And they are reflected in the subsequent update. That is appropriate. That is government process 101, and I'm not proposing to deviate from it for no reason at all.

Senator McALLISTER: I'm not actually even asking you to divulge what was in the advice. I'm just asking whether or not it exists.

Senator Cormann: Well, I've told you that I've received all the appropriate advice that I required in order to make a decision that there was no reason to vary the government's assessment that the equity investment into NBN should continue to appropriately be classified as an equity investment in NBN. That's my response. Now, you can ask me the same question over and over in several different ways. That is my response.

Senator McALLISTER: And you cannot answer my question over and over again in many different ways.

Senator Cormann: I have answered your question. I don't know what it is that you're seeking, beyond me telling you that I have received the appropriate advice. I've received the appropriate notification from NBN. I've received the appropriate advice from my department.

Senator McALLISTER: I'm just trying to understand what information they provide you and—

Senator Cormann: Well, they provided me with the notification required under section 91 of the PGPA Act.

Senator McALLISTER: The advice required under the statute, yes, you explained that. But that doesn't tell me very much about it.

Senator Cormann: So, you're telling me that what is required under legislation is completely irrelevant.

Senator McALLISTER: No, I'm not saying that it's irrelevant—

Senator Cormann: Well, thank God for that!

Senator McALLISTER: I just think it's not particularly informative in terms of understanding the particular ways in which you as the minister and the entity in question interpret the legislation. As you know, there are different ways that organisations might interpret legislative requirements, and I'm interested to know how that—

Senator Cormann: No, look: honestly, you're clutching at straws. Given that you keep asking me about and suggesting that this is sort of like this absolute minimum requirement, well, let me tell you. Section 91 of the PGPA Act, which relates to the duty to keep the responsible minister and the finance minister informed:

(1) The directors of a wholly-owned Commonwealth company must do the following:

(a) keep the responsible Minister informed of the activities of the company and any subsidiaries of the company;

(b) give the responsible Minister or the Finance Minister any reports, documents and information in relation to those activities as that Minister requires;

(c) notify the responsible Minister as soon as practicable after the directors make a significant decision in relation to the company or any of its subsidiaries;—

which is relevant here—

(d) give the responsible Minister reasonable notice if the directors become aware of any significant issue that may affect the company or any of its subsidiaries;

(e) notify the responsible Minister as soon as practicable after the directors become aware of any significant issue that has affected the company or any of its subsidiaries.

(2) Without limiting subsection (1), the rules may prescribe:

(a) matters to be taken into account in deciding whether a decision or issue is significant; and

(b) matters relating to discharging duties under subsection (1).

(3) The directors must comply with a requirement under paragraph (1)(b) within the time limits set by the Minister concerned.

(4) This section does not limit any other power that a Minister has to require information from a Commonwealth company.

Let me tell you that the NBN complied with these requirements. I'm satisfied that they complied with these requirements. I, and my fellow shareholder minister, have all of the information that we require. This is a comprehensive section that ensures Commonwealth companies provide responsible ministers and the finance minister with the appropriate level of detail on information in relation to the financial performance and the activities of government business enterprises. Having received all of that information, all of the relevant advice, I remained satisfied that the $29.5 billion equity investment into NBN by the Commonwealth continues to be appropriately treated as an equity investment. As always, these matters are reflected in our financial statements as appropriate and are audited independently by the Auditor-General as appropriate. I don't really know what else I can add to that.

Senator McALLISTER: You could tell me what documents the minister required as part of that process, or what kind of analysis you sought from them?

Senator Cormann: All of the documents and analysis is consistent with the requirements of section—

Senator McALLISTER: None of those things go to any detail about the operation of the NBN, because that paragraph is designed to apply to all of these entities, not the specifics of the NBN, a very specific business operating in a specific market. I'm interested in understanding what kind of information you sought from that business operating in that market making this specific change, which was a change to their pricing structure and a halt to the HFC roll-out. I am interested in understanding what you needed to know from them to assess the impact of that change?

Senator Cormann: This provision, section 91 of the PGPA Act, appropriately covers the relevant specific circumstances of NBN. It is deliberately general to cut short the specific requirements in relation to NBN, which is the same in relation to the specific circumstances of any other government business enterprise, because the requirements for information to be provided to relevant ministers and the finance minister in relation to the performance of a government business enterprise are actually similar. In terms of the substance of the information provided, they might be different, but the methodology and the principles are pretty well the same.

Senator McALLISTER: They may or may not include—

Senator Cormann: You say that government business enterprises don't all have annual reports? You're saying that government business enterprises shouldn't go through a regular planning exercise? How can you say that the NBN circumstance is fundamentally different from any other business enterprise?

Senator McALLISTER: I'm not saying it's different. I'm simply saying that in the same way that the content of the annual report from the NBN is different to the content in the annual report from Australia Post, the information provided to you under that provision of the act in relation to a particular change taking place at the NBN is likely to have really specific characteristics. The specific characteristic I'm asking about is the assessment on rate for return. But you don't want to tell me. You've made it clear.

Senator Cormann: No. The content of the annual report is published in relation to all these government business enterprises. The statement of corporate intent is published and—

Senator McALLISTER: And they are different.

Senator Cormann: Sure they are different, but they provide the appropriate levels of public information in relation to these matters. Again, what I'm saying to you is that I'm satisfied, as the minister, that I have the appropriate information. I'm satisfied that NBN complied with the requirements under section 91 of the PGPA Act. Ultimately, it doesn't just come down to my judgement. In relation to all of these matters that are relevant to accounting treatment and accounting standards and compliance with accounting standards, companies like NBN are subject to independent audit by the Auditor-General. That is the rigorous, independent process of scrutiny that should give the Senate and the Australian people confidence that there is appropriate integrity in the financial reporting of all matters impacting on the financial performance and other performance of NBN. Again, as I thought, the NBN corporate plan is public. I am just confirming that my original answer was right that the NBN corporate plan is public.

Senator KITCHING: Can I ask some questions about consultants and contractors. Last estimates, in February, we asked some questions about spending on contractors and consultants, and there was really no way to track that in a whole-of-government way. Does that remain the case?

Ms Huxtable : Yes, that's correct.

Senator KITCHING: Given the considerable public interest in the amount of money that is spent on contractors, consultants and hire labour, has Finance looked at away to track that spending?

Senator Cormann: Let me make the very important point that spending on government administration as a proportion of overall government expenditure continues to trend down. That includes the cost of the Public Service itself as well as the cost of contractors, including consultants. The government is focused on making sure that government administration is as efficient and effective as possible and that the cost of government administration as an overall proportion of government expenditure is as efficient as possible. I am pleased to reconfirm for you that it is. Let me give you some specifics. The overall cost of the federal government's administration as a proportion of overall expenditure, including spending on consultants and other contractors for goods of services supporting government administration, has fallen from 8.5 per cent in 2007-08 to 6.8 per cent in 2017-18 and is projected to continue to fall, to 5.6 per cent, by 2021-22. You can see that in the graph on Budget Paper No. 4. That is a graph I would refer you to.

I would also make the point, which I have made on previous occasions, that the use of contractors where appropriate is an efficient way to keep the overall cost of government administration low when the business need to access relevant skills and expertise is temporary or the expertise and skills are more efficiently obtained and maintained in the private sector. The bottom line is, as I have indicated, that the overall cost of government administration as a proportion of overall government expenditure, which includes the cost of consultants, under the coalition is continuing to fall. That is a major coalition government achievement and, really, the only relevant indicator when assessing the overall efficiency of government administration.

Senator KITCHING: Thank you, Senator Cormann. You have just repeated almost entirely verbatim what you said last time. So I am very impressed that you are so—

Senator Cormann: You asked me the same question. If you ask me the same question I'm going to give you the same answer.

Senator KITCHING: I'm actually not asking that. I am impressed by your consistency. What I am asking is: has Finance looked at a way to track this spend?

Senator Cormann: People value consistency!

Senator KITCHING: I really am impressed. I like message discipline. You are very 'message disciplined'. It is an admirable trait, especially in politics.

Senator Cormann: The main point is that we are tracking the spend the matters. If I have to repeat it again I will repeat it again.

Senator KITCHING: No, please! We want to try to finish early.

Senator Cormann: We'll continue, of course, into tomorrow. We are going to have a whole day tomorrow. So I think we'll have lots of opportunity to keep talking! I know why unions and some others want to focus on one aspect of government administration. Our focus as a government—and I say this unashamedly and with great confidence—is to ensure that the cost of government administration is as high as necessary but as low as possible as a proportion of overall government expenditure. I have already indicated to you that the overall level of government expenditure is now growing much less than what it was. So the fact that government administration as a proportion of overall government expenditure continues to fall at a time when the expenditure growth in government overall is reducing is an amazing achievement. People should be walking in the streets congratulating us for this achievement. The fact that we are able to achieve this by keeping the size of the public sector as low as we are should be a cause for celebration. The fact that we are engaging the private sector, where appropriate, in supporting services provided to the Australian people should be a cause of great celebration.

The truth is that business, as well as the public sector, accesses certain skills that are much more efficient to develop and to maintain at an appropriate level of currency in a dedicated business. Now there are some roles, whether it is a public sector corporation, a public sector agency or a public sector organisation or whether it's a private sector organisation, where it is not efficient for those businesses to develop and maintain the appropriate level of currency themselves, and it is entirely appropriate to access contractors in those circumstances. This obsession in some quarters—and I'm not referring to you here, Senator Kitching—that contractor equals bad is wrong. If we were to subscribe to this, we would be selling the Australian taxpayers short, because it is helping us to achieve an ongoing improvement in efficiency and productivity; it is helping us to achieve an ongoing reduction in the proportion of government expenditure on administration as a proportion of overall government expenditure, which is a very good thing and one of the things that I'm very proud of as an achievement of the Turnbull government.

Senator KITCHING: So, given that you say that it is an achievement, have you looked at ways of tracking whole-of-government expenditure on consultants and contractors, because you kind of indicate that maybe—

Senator Cormann: You are literally ignoring everything I've just said.

Senator KITCHING: No, I haven't; I'm just asking you: given that you say it's an achievement, wouldn't you want to track it?

Senator Cormann: We are tracking the achievement, and proud of it.

Senator KITCHING: In February you were asked: is there a way to track whole-of-government spending on consultants and contractors? Apparently, there was no way to track that. I paraphrase here, Chair, but I think Ms Huxtable just said, 'No, there's not.' I think that's correct. And now I'm asking you: given that you say it's an achievement, why has it not been tracked?

Senator Cormann: You're not listening to what I'm saying, with the greatest of respect. You are not focusing on the appropriate indicator. You are looking at a subindicator, and, if the subindicator was what we focused on, we would sell the Australian taxpayers short. What matters to the Australian taxpayer is the—

Senator KITCHING: But wouldn't it be good to tell the Australian taxpayer—

Senator Cormann: Please, let me finish. What matters to the Australian taxpayer is the overall cost of government administration, which covers both the cost of the Public Service itself—the combined cost of the Public Service—and the cost of the privately contracted services. If we—

Senator KITCHING: So wouldn't you want to disaggregate those costs?

Senator Cormann: No; I want to make sure that we continue to reduce the combined costs of government administration as a proportion of overall government expenditure. That's what I'm interested in, and for very good reason, because that is what matters to the Australian taxpayer. What matters to the Australian taxpayer is: how much do I have to spend out of my taxes to pay for the cost of administering the services, programs and benefits provided by government? That is what matters to them as a proportion of overall government expenditure. The lower that proportion the better; that is what matters. Now you're saying, 'We want to look at private contractors in isolation,' because you, as a Labor person, don't like private contractors. If we looked at that as a separate indicator, we would lose sight of the indicator that matters, and the indicator that matters is the overall cost of government administration as a proportion of overall government expenditure.

Senator KITCHING: I think the quality of government administration also matters to people, Minister, and there is an interplay between the cost and quality.

Senator Cormann: No, there's not. You see, this is my point. If you look at the graph on page 4 of Budget Paper No. 4, what you can see there is departmental expenses as a percentage of total government expenses and also public sector ASL as a proportion of the Australian population, which is essentially tracking the growth or reduction in the size of the Public Service in real terms, for want of a better word. Now, as you can see, it is tracking down.

Senator KITCHING: So you don't want to disaggregate. You don't want to be able to—

Senator Cormann: There is no easy way to do it.

Senator KITCHING: So is the problem that there is no easy way to do it to get us expenditure on the Public Service and expenditure on consultants and contractors?

Senator Cormann: It would not add value. If we did it, we would spend a lot of money. We would increase the costs of administration for no good purpose. Yes, it would given some unions something that they would, on a regular basis, jump up and down about, but it wouldn't actually add value in terms of the public interest.

The public interest, the interest of taxpayers, is to keep the cost of government administration, as a proportion of overall government expenditure, as low as possible and, therefore, to continue to bring it down over time, if we can. What I'm telling you is that that's what we are achieving—

Senator McALLISTER: Well, you can do that by reducing quality. This is my point—

Senator Cormann: But we're not. I completely reject that we—

Senator McALLISTER: No, you can. Theoretically, you can.

Senator Cormann: But that's not what we're doing.

Senator McALLISTER: Okay, well I just think you ought to qualify—

Senator Cormann: I would like Secretary Huxtable to talk about the measures that we are taking in this space to continue to lift the quality in the outstanding federal Public Service that we have here in Australia, and what we're doing to continue to lift the quality of government administration overall—the combined quality in the Public Service and, of course, in the contracting of services as appropriate. There is an important—

Senator McALLISTER: Chair, the minister may like to ask Ms Huxtable that question. I actually do have questions about some of that work.

Senator Cormann: You said you were interested in quality—

Senator McALLISTER: But I don't think that is actually an answer to any question asked by anybody. So can we just let—

Senator Cormann: You said that I was reducing quality. I wanted to respond to that assertion.

CHAIR: Thank you, Minister. I think that in the interests of time we'll proceed to further questions.

Senator KITCHING: Could I take your proposition—

Senator Cormann: This is all for the record: Senator McAllister is not interested in what we're doing to improve the quality of the Public Service.

Senator KITCHING: Can I perhaps take your proposition to its logical end? Let's say you get an incredibly efficient Public Service that is comprised of the Australian Public Service and contractors and consultants, and you think: 'Maybe there's nothing more for us to do now. So I actually want to disaggregate the costs of the Australian Public Service in order to see if there are any further savings that I can make.' At that point, does one start to think, 'Well, I will actually need to do a cost-benefit analysis?'

Senator Cormann: Well, if you're the government, down the track—

Senator KITCHING: No, I'm not talking about the government. I'm talking about someone looking at that kind of measure of efficiency, let's say.

Senator Cormann: Well, I'm talking on behalf of the government. What I was about to say is that we are the government at the moment, and the judgement that we've made—and I'm happy to be accountable and responsible to the Australian community about this judgement—is that the most important indicator is to ensure that the cost of administration as a proportion of overall government expenditure is as low as it can responsibly be and that the services provided by government through the combination of a high-quality Public Service and the use of contractors as appropriate, is as efficient and as effective as possible. That's what we're focused on, and I believe that we're delivering on that particular objective.

Now, when you're the government, you might decide that you don't want to source skills that are better obtained and maintained in a private sector business that is dedicated to those skills—that you would like to bring all of that in-house as public sector positions, and that you will increase the size of the Public Service by 20,000, 30,000 or 40,000 ASOs. That is going to be your call, and you will be able to explain to the Australian people whether that is better value for the Australian people. Our judgement is that our approach is the right approach. I'm happy for us to have that conversation with the Australian community. I'm telling you that from our point of view we think it is appropriate for us, that where it makes sense to to contract for skills out of appropriate private sector businesses in the appropriate—

Senator KITCHING: That wasn't the question I asked, though. What I asked was not whether you were happy to have the discussion with the Australian people, but rather how you—

Senator Cormann: I like having a conversation with the Australian people!

Senator KITCHING: I know, because I get your transcripts!

Senator Cormann: You see? At least we can agree on that!

Senator KITCHING: But what I'm really asking is when you get to, let's say—and I won't even say it's logical positivism—a point where you may actually need to do really granulated analysis of where efficiency is, do you start needing to disaggregate the cost of the APS versus contractors and consultants in order to give the greatest efficiency? Is that at 5.6 per cent in 2021-22, for example? And at 5.6 per cent, does one start to look at that and say: 'Well, actually, we're tracking these consultants and contractors in different agencies and departments, and what they do in those departments. We're actually not sure whether we've got that 5.6 per cent. Maybe that 5.6 per cent could be five per cent.' Don't you need to start disaggregating at that point?

Senator Cormann: No, you see—

Senator KITCHING: You don't ever need to disaggregate?

Senator Cormann: Not in our view. But if you were the government you'd be entitled to measure yourself against other key performance indicators. In our view, what matters is the overall cost of government administration as a proportion of the overall level of government expenditure. What is important to us is that we continue to work to bring that down as low as is sensible. We believe that doing it your way would actually drive the overall cost of administration up.

Senator McALLISTER: Just doing some measuring?

Senator KITCHING: What about in dollar terms?

Senator Cormann: We quite openly and transparently say, in our judgement as the responsible and accountable government, this is the objective that we think is in the public interest, and we're measuring against that objective. You, as Labor senators, are completely entitled to have different priorities in terms of the objectives that you think you would want to pursue. You might want to pursue an objective of a bigger public service, of bigger government. You might think that that is a sensible thing to pursue, and then you will measure your performance against that objective, based on different indicators and different methodologies. You're entitled to do that; we're not doing it that way.

Senator KITCHING: I'm using your own indicator and asking you why you would not track the whole-of-government cost of contractors and consultants, given the very test you yourself say is relevant?

Senator Cormann: No, what I say is relevant and you keep ignoring it wilfully.

Senator KITCHING: The only answer you've given today is that it's too hard.

Senator Cormann: What I said is relevant. Let me say it again. What I think and what the government thinks is relevant is the overall cost of government administration as a proportion of overall government expenditure, and we are tracking how we are performing against that. What I'm saying to you—

Senator KITCHING: But how are you tracking this?

Senator Cormann: Let me finish. You've asked a question; let me finish, because you never let me get to the end. We don't believe that there is value, in terms of what we're trying to achieve, to incur the substantial additional cost that would be incurred in order to track the information on the basis that you're suggesting we should track it. We don't see how tracking that information separately in a disaggregated fashion actually adds to the achievement of the policy objective of the government, which is to bring down the cost of overall government administration including the cost of the public sector and the cost of contractors and the procurement of goods and services to support government administration. We don't think that the additional costs would be justified in the context of the information that it would supply.

Senator KITCHING: What about in dollar terms? Do you track it in dollar terms?

Senator Cormann: I've just told you that what we focus on in aggregate is the cost of government—

Senator KITCHING: Should I go to AusTender and add it all up?

Senator Cormann: No. If you do that, as some journalists have sought to do, you come up with very wrong information. For example, there was a journalist—

Senator KITCHING: Of course it can't be accurate, because you're not—

Senator Cormann: A journalist from The Australian

Senator KITCHING: Which journalist?

Senator Cormann: between Christmas and New Year decided to do what you've just suggested to do. From memory, they took a defence contract of about $1.8 billion that was entered into by the Gillard government and a private sector contract. I'm not criticising the contract—it was an appropriate contract to enter into—but AusTender reported the total contract value for the whole ten years of the contract. They allocated in the 2016-17 financial year the total value of a contract that was entered into some years earlier by the Gillard government.

Senator KITCHING: It sounds like the public need some accurate data created by the people who possess it. Oh, my god! That could be you!

Senator Cormann: AusTender is about providing transparency in relation to the contracting activities of—

Senator KITCHING: Isn't this about transparency as well?

Senator Cormann: This is about financial reporting. AusTender is not about—

Senator KITCHING: Financial reporting does incorporate accountability.

Senator Cormann: AusTender is not about financial reporting. AusTender is about providing transparency to Australians to enable them to scrutinise the contracting activities of government to ensure that they are conducted with the appropriate integrity and appropriate governance safeguards. Financial reporting is very different to providing information about contracting activities of the Commonwealth in order to ensure that contracting is conducted with integrity.

Senator KITCHING: Well, the only answer I've really got is that it's difficult to do.

Senator Cormann: No, that is not the only answer you got. That is completely and utterly false. I reject it.

Senator KITCHING: I've asked, and you said—

Senator McALLISTER: He gave another answer, Senator Kitching; he did say that it was also costly.

Senator Cormann: Consultancies are reported, but they're not reported in the way that you want. For the purposes that you're looking for, what matters is the overall cost of government administration as a proportion of overall government expenditure. We are reporting on it, we are tracking it and the performance of the government continues to improve.

Senator KITCHING: Could I give you an example from the ABS? The ABS has said, in a parliamentary committee in the JCPAA contracting inquiry:

... contracted ICT staff cost approximately double that of internal staff. For non ICT staff, the cost is approximately 125-150% of internal staff, this excludes recruitment fees.

The ABS went on to say:

This higher human capital cost therefore has a significant impact on ABS costs and budgets.

Could I take that one department and use that as a rule of thumb across the whole of government?

Senator Cormann: What I take you back to is what I said earlier: the use of contractors for skills that are required over a temporary period can be entirely appropriate. You don't hire somebody in the Public Service on an ongoing basis if the need for the particular skills is temporary, in the same way as you don't incur the significantly higher expense of getting somebody up to the right skill level and maintain their skills at the appropriate level of currency in a rapidly changing area of expertise when the need to access those skills is temporary or intermittent. That is the reason why private sector organisations, large private sector organisations or smaller private sector organisations, access specialised services from consultants and other contractors, and that is why public sector organisations do the same. I understand Labor, ideologically, is opposed to private sector contracting. That's fine. You're entitled to go to the next election and say you want to increase the cost of government administration by increasing the costs of government administration as a proportion of overall government expenditure. That is not what we're wanting to do.

Senator KITCHING: Chair, with respect, verballing what the Labor Party is or is not about is not the most helpful way to answer questions.

Senator Cormann: You asked about the ABS. This is directly relevant. I think you are selectively quoting here.

Senator KITCHING: No, I'm quoting—

Senator Cormann: Let me quote to you the relevant bit from the ABS. The ABS notes that 'the main driver of the ABS's use of consultancy and contract services is the five-year census cycle and the increased activity in the lead-up to the census, and the second relates to the statistical business transformation program to modernise statistical infrastructure and business processes. The nature of this work has necessitated the ABS to work closely with the ICT industry and utilise specialist skills to deliver this transformation.' It's obvious that this is a temporary need for peak demand for additional support and, in relation to the ICT side, the requirement to access specialised skills that would not be required on an ongoing basis. This is precisely the sort of reason why.

Senator KITCHING: I'm quoting from their submission.

Senator Cormann: I'm quoting from the same submission.

Senator KITCHING: Are you quoting from the Joint Committee of Public Accounts and Audit?

Senator Cormann: Precisely. But you are selectively quoting from it by missing that bit.

Senator KITCHING: It says:

Recent benchmarking noted that contracted ICT staff cost approximately double that of internal staff.

Senator CORMANN: They provide a different service.

Senator KITCHING: And:

For non ICT staff—

that is, not rapidly changing skill sets in a changing economy, as I think you said before—

the cost is approximately 125-150% of internal staff, this excludes recruitment fees. This higher human capital cost therefore has a significant impact on ABS costs and budgets.

Senator Cormann: Are you suggesting that, in the context of the census, the ABS should hire the temporary staff required for the census on an ongoing basis and keep them on their books as permanent staff on an ongoing basis? That is the implication of your question.

Senator KITCHING: What other measure should I use, Senator Cormann? You can't give us one.

Senator Cormann: I'll tell you the measure that matters. I've given it to you several times.

Senator KITCHING: I understand you've given me a proportional cost of whole-of-government administration. I would like the whole-of-government cost for contractors and consultants versus APS.

Senator Cormann: We report the overall cost of government administration, which includes the cost of the APS and the cost of consultants and contractors. As I've indicated to you on several occasions now—

Senator KITCHING: Where?

Senator Cormann: a very significant achievement of our government is the fact that the overall cost of government administration, including APS and contractors and consultants, as a proportion of overall government expenditure continues to reduce, which is very good news for taxpayers indeed. The example that you've just mentioned is the perfect example of why the use of contractors can be an entirely appropriate way of minimising costs, because it would be completely inefficient for the ABS to hire on a permanent ongoing basis the level of additional staff required to deliver the census when the need is temporary. It would be entirely inefficient for the ABS to hire on a permanent ongoing basis the specialist staff required to put in place updated ICT infrastructure when the skills required are expert skills that are better obtained and maintained at the appropriate level of currency in a dedicated business and when that need is also temporary. So the proposition by some that somehow government should increase the level of permanent public servants on an ongoing basis to deal with requirements that are temporary or specialist in nature is not a proposition that I subscribe to. It's not a proposition that the government subscribes to. But you are free in government to say that it's a better use of taxpayers money to in-house all these services, to increase the size of government and to increase the size of the Public Service as a proportion of overall government expenditure. You are entirely free to go to the next election on that platform, and we will continue to go on a platform that we want the Public Service to be as efficient, as effective and as high quality as possible.

Senator McALLISTER: There's a flip side. I don't think anyone disputes the idea that both methods of acquiring personnel to do tasks can be useful at the right time, and it's really just about understanding when you use certain methods to achieve the outcomes that you're trying to achieve in the Public Service. The critique that is specifically levelled is that you say, 'We're not interested at all in tracking use of consultants and contractors.'

Senator Cormann: I didn't use the words 'we're not interested at all'. I said the cost of it does not warrant—

Senator McALLISTER: Okay, the cost doesn't warrant the outcome.

Senator Cormann: It is too expensive for not delivering value to the taxpayer.

Senator McALLISTER: So the cost of tracking it is too high and not worth it. But are you aware that, at the same time, the government does centrally impose limits on headcount, and the advice that comes back fairly regularly to this committee during some references we've done is that that is in itself also creating artificial constraints on employing staff that are needed? For example, we've had evidence from a number of agencies that they have eventually got around to employing full-time ICT personnel and it's radically lowered the cost associated with ICT expenditure, because the use of consultants really was a very inefficient way to do that job, which was permanent and ongoing. So I suppose what we're really trying to understand is whether the government is actually looking at these questions at all and at opportunities to save money by using fewer consultants, because you must concede that there are times when the use of consultants rather than staff is inefficient.

Senator Cormann: No, I don't concede that.

Senator McALLISTER: It's not possible?

Senator Cormann: It's conceptually possible, but the efficiency dividend and the way we provide funding to individual government departments obviously provides the incentive to departments to use taxpayer resources efficiently and effectively on government administration. That's No. 1. We do have an ASL cap in place and we do have an ASL offset rule in place, because let me tell you what the situation was when we came into government. When we came into government, every new policy proposal, as a matter of complete automaticity, automatically included a provision for additional ASL—additional Public Service positions. No matter what the policy proposal and no matter what the additional service or additional program that was provided to the community, for every policy proposal there was a number of additional ASL attached.

Now, my core proposition is that when you spend money on higher-priority areas and you pay for that on the basis of reducing expenditure in other parts of the budget it is not inappropriate to also reassess whether the pre-existing use of Public Service resources, ASL resources, is still appropriately prioritised and still appropriately aligns with the revised priorities of government. And what can happen in government—and this is not a partisan comment in any way, shape or form; it's not a reflection on anyone—is that as you go on over a period and you come up with new policy initiatives you add to the body of people that is there, without ever submitting yourself to the discipline to reassess whether all the things you have done in the past are still appropriately reflective of the appropriate prioritisation of the public sector resources at your disposal.

The ASL offset rule has stopped the automaticity. It has asked public sector agencies to identify, when they come up with a new public sector proposal that requires ASL, which ASL inside your existing allocations you would be able to reallocate or reprioritise in order to do the work that's required to be done. This is not a blanket rule, incidentally. If a portfolio or agency comes to us and says there are specific circumstances or specific requirements that mean that we should be exempted from the ASL offset rule then that is something that we'd consider. But there is no longer the automaticity, and we do provide exemptions from the ASL offset rule. But in the context where we're in deficit, in the context where we're asking the Australian community to accept savings, in the context where we're trying to get back into surplus by controlling expenditure growth, we don't believe it's inappropriate to control the size of the Public Service at the same time. We think that was an important part of our budget repair approach.

Now we are forecast to return to a balance of $2.2—0.1 per cent as a percentage of GDP—by 2019-20 and then into surplus moving forward. And as I indicated in my preface, which I hope you have read—

Senator McALLISTER: You are allowed to breathe, every now and then.

Senator Cormann: This was part of—and I'm trying to find the relevant bit—

In addition, as part of its commitment to budget repair while in a deficit, the Government has maintained the size of staffing in the General Government Sector at sustainable levels — excluding military and reserves, the workforce remains at around or below 2006-07 levels.

So, when we came into government we brought it down to 2006-07 levels. We've maintained it at that level while we're in deficit. When we get back into surplus then of course it's going to be a different circumstance. But, in the context of budget repair, while we have tried to get the budget back into surplus by controlling expenditure growth onto services into the community by imposing a strict offset rule in terms of new expenditure on programs and services and the like, we made the judgement that it was not inappropriate to apply a certain discipline in terms of the size of the Public Service. And yes, the ASL offset rule has been very effective. And if I can make a recommendation, I think future governments should consider maintaining it, because as an incumbent government it gives you visibility. It doesn't stop you making decisions to provide additional ASL, but it gives you better visibility and better decision points to make sure that the allocation of additional ASL is warranted and is appropriate. It is an important tool of controlling expenditure—

Senator McALLISTER: Well, why wouldn't you seek the same visibility in relation to consultants?

Senator Cormann: Well, we do.

Senator McALLISTER: How can you argue for visibility in one sphere and not in the other? It's weird, and inconsistent.

Senator Cormann: It's not weird at all. We directly employ permanent public servants, and permanent public servants are, self-evidently, an ongoing—I hesitate to use the word 'liability', but that is the financial term, in terms of the Commonwealth budget. So of course you track your direct expenditure that way, as we track the overall expenditure on government administration in the appropriate way. And we do provide relevant reports on the costs of consultants and contractors and various other things, but just not in the way that you think we should.

Senator KITCHING: Perhaps we can sort of cut this another way. Are you able to say how much full-time public servant numbers have decreased or increased in proportion to the number of consultants or contractors?

Senator Cormann: The overall cost of government administration as a proportion of overall government expenditure is reducing. And I will take on notice to see whether we can add to that answer in the context of the question that you've asked.

Senator KITCHING: I will leave it there. I'll go to the ANAO report of 28 September 2017 about Australia Post. They made two recommendations in that report that impact on the Department of Finance recommendations three and four.I have a copy of those recommendations. It's about the GDE guidelines.

Ms Huxtable : We don't have that report with us.

Senator Cormann: Maybe we can come back to you tomorrow, if it assists, given that we are continuing into tomorrow with these matters anyway. We will make sure that we bring the report back, and you might be able to get back to these questions tomorrow. I'm trying to be helpful.

Senator KITCHING: That's fine. I will move to GBE remuneration. Should taxpayers have the right to know how much executives at Commonwealth entities are paid?

Ms Huxtable : Are you talking about government business enterprises?

Senator KITCHING: Yes, I am.

Ms Huxtable : There is a history to this, which I'm sure Dr Helgeby can take you through. Last year, the minister wrote to the government business enterprises seeking that they publish executive remuneration in respect of their key management personnel along the lines of what is available for ASX listed companies. My recollection is that all GBEs complied with that request so that information is available.

Senator KITCHING: Would that now be in their annual reports, for example, or their financial statements?

Mr Edge : I understand that the information about remuneration is also published on the various GBE websites.

Senator KITCHING: I think the Auditor-General had some views about this. Given that that's happened, is there a need to have it legislated as well? Does that help? Does that ensure that there are no loopholes?

Ms Huxtable : We've looked at the GBE guidelines in this respect. This has been incorporated into the GBE guidelines, is that correct, Mr Edge?

Mr Edge : Yes, it has.

Ms Huxtable : That's correct, yes.

Senator KITCHING: How do you ensure that the loophole that allowed Mr Fahour's salary at Australia Post not to be transparent is closed? How do we ensure that that lack of transparency isn't repeated? I know you've said it's in the guidelines but are you able to give me the relevant part of the guidelines?

Ms Huxtable : If we haven't got it, we can take it on notice and provide it for you.

Senator KITCHING: Thank you.

Ms Huxtable : I think the long and the short of the response is that the arrangements have changed. They changed last year, commencing with a letter from the minister to the GBEs, and have since been incorporated into the GBE guidelines. We can come back on notice with the actual detail.

Senator KITCHING: I think the government requested—it wasn't mandatory, it seemed, but there was a request—that Commonwealth entities revert back to the previous reporting regime, but the Auditor-General found in an audit report, published on 20 December last year, that 23 of 157 entities didn't publish the requested information.

Ms Huxtable : I think there are two issues that you're talking about here. On the one hand it's the government business enterprises and on the other hand it's the non-corporate Commonwealth entities, which are effectively departments and other entities. With regard to that, there is a history of the circumstances by which the requirements changed, and Dr Helgeby can take you through the history of that, but there is currently an independent review of the Public Governance, Performance and Accountability Act which is underway. That's being conducted by David Thodey and Elizabeth Alexander. It's getting close to the end of its period, so we expect that report to be finalised very soon. One of the issues that has been referred to the independent review is that issue of executive remuneration reporting in respect of non-corporate Commonwealth entities. There's a process by which that is being reviewed. If you're interested, we can go through it. There is also quite a strong level of compliance with that request for entities to report executive remuneration in the same way that it was reported prior to the PGPA Act being enacted.

Senator KITCHING: Will you, in October estimates, come back and talk to us about how that's going with the non-corporate government entities?

Ms Huxtable : Certainly we can. Of course, by then the independent review of the PGPA Act would have reported. They have been asked to review this issue also.

Senator SMITH: The review that Mr Thodey is doing is yet to be completed?

Ms Huxtable : That's correct.

Senator SMITH: So it's not yet been handed to government?

Ms Huxtable : It's in the process of being finalised but it's not yet finalised.

Senator SMITH: And it's not yet formally come to government?

Ms Huxtable : No. It has not been finalised and reported.

Senator KITCHING: I might go to Australia Post. There's been a recent appointment to the Australia Post board. Senator Cormann, you issued a media release—I do like to look at your media portal, which you very helpfully—

Senator Cormann: Are you talking about the media release of 23 February 2017?

Senator KITCHING: No. I was talking about the media release of 9 March—

Senator Cormann: Oh, this year.

Senator KITCHING: about Tony Nutt. He's been appointed as a non-executive director to Australia Post for three years.

Senator Cormann: Indeed he has.

Senator KITCHING: What was involved in the process to determine Mr Nutt's appointment?

Senator Cormann: I think we've gone through this sort of process on several occasions. It's the same process as always. There is a recommendation that goes to the cabinet, and the cabinet makes a decision. That is of course the same process as occurred under the previous Labor government, when these sorts of announcements were handled the same way.

Senator KITCHING: Who had a say in his appointment? Did you have a say?

Senator Cormann: Yes.

Senator KITCHING: Did Finance have a say?

Senator Cormann: It is my recommendation to cabinet, but always on these matters I rely on advice, and of course the department assists me in making sure that all of the appropriate due diligence is undertaken prior to me making a recommendation to the cabinet. When you say 'have a say', I personally take responsibility, alongside Minister Fifield, for having made the recommendation to cabinet, and I'm very grateful to my cabinet colleagues that they've seen fit to endorse the recommendation that Minister Fifield and I made on this occasion. The appointment was announced accordingly.

Senator KITCHING: What did you do to satisfy yourself that it wasn't a purely political appointment?

Senator Cormann: Appointments are made to ensure we have an appropriate mix of skills on relevant boards. We believe, as I said in this statement alongside my good friend and valued colleague, Minister Fifield, that Minister Nutt—

Senator KITCHING: You've promoted him.

Senator Cormann: Mr Nutt—you might say demoted him, perhaps—will bring a depth of knowledge and a range of skills to the board, which he since has, including public policy and budget expertise, strategy development and implementation, and stakeholder relations. As the accountable minister I'm very comfortable in taking responsibility for this recommendation in the same way as previous governments have taken responsibility for similar recommendations in relation to a number of government business enterprise boards. I remember in my portfolio I inherited a number of former state and federal Labor members on various boards—and that's fine; I didn't complain or quibble about that. I think it is appropriately the responsibility of the elected government to make these judgements. I'm quite comfortable in taking responsibility for the judgements we are making. In the end, people can form their own judgements.

Senator KITCHING: Is there a reason the release was issued on a Friday afternoon before the long weekend?

Senator Cormann: If you want me to investigate the circumstances of the release, given that was now two-and-a-bit months ago, I'll check what my diary arrangements were at the time and get back to you if I can provide any insight as to whether my movements may have had a bearing on the timing of the statement.

Senator KITCHING: Mr Nutt is a former party director, but he has been appointed to two roles, at Australia Post and the National Museum. I think they equate to over $100,000 per annum. Is that a good look?

Senator Cormann: Mr Nutt is an appropriately qualified, distinguished Australian who, we believe, will provide good service in the same way as, if you want to go there, the previous government decided former premier Ms Anna Bligh could provide good service on the board of Medibank Private, which was then in government hands, as could former Queensland treasurer Mr Fraser at Moorebank Intermodal Company, and various other former—if you want me to go through the list, I'm happy to. I happen to subscribe to the view that members of state or federal parliaments, some of whom have served in executive roles, acquire a set of skills and experiences that are relevant in their post-political period of service. That is an entirely nonpartisan statement. I think that proposition applies to representatives of all parties as to the opportunity to provide further public or other service in the appropriate way, subject to having the skills, experience, temperament and so on, after they have retired from their previous roles. In relation to Mr Nutt, as I've indicated to you, I'm very comfortable that this is an appropriate appointment. It is the prerogative of the government of the day, as it was for the previous Labor government, to make these sorts of appointments. That is the way it is.

Senator KITCHING: I might turn to another board appointment, to the Australian Rail Track Corporation. Former deputy prime minister Mr Truss has been—

Senator Cormann: Given you have the release in front of you, can you give me the date?

Senator KITCHING: Your press release is dated 20 April. He was selected as chair of the ARTC. Is the process the same as that which you've described for Mr Nutt?

Senator Cormann: It's the same process, except that the people making the recommendation are 50 per cent different; instead of it being Minister Fifield and me it's the Deputy Prime Minister and me. And, yes, the Deputy Prime Minister, Minister McCormack, and I made the relevant recommendation to the cabinet, and the cabinet was good enough to endorse the recommendation that we made. I would just share with you that, of course, Mr Truss has a distinguished record as a great Australian, including, in more recent times, as a senior minister in the Australian government. Previously he was the Deputy Chair of Bulk Grains Queensland, between 1985 and 1990 he was the Chairman of Sugar Coast Burnett Regional Tourism Board, prior to that he was involved with the Queensland Graingrowers' Association, he was the President of the Australian Council of Rural Youth, and he was on the Kingaroy District Development Board. He held many positions, and, as a former Deputy Prime Minister and a former minister for infrastructure he was a driving force—in the period of the Abbott government in particular—in getting Australian government infrastructure investment and the early funding for the Inland Rail approved. I could not think of a better person to lead the ARTC as an organisation into the next phase of delivering this very important project. Of course, prior to this, the chair was Dr Helen Nugent AO, who provided magnificent service in the period from 3 August 2015 to 20 April 2018. But we made a decision that for the next phase of the work of the ARTC—in particular the next phase of the delivery of the Inland Rail project, which involves a lot of interaction with state governments and so on that former Minister Truss is very experienced in—he is an appropriately qualified person to lead the ARTC in that context as chairman of the board.

Senator KITCHING: I agree that both sides of politics appoint people. Do you think that when the press releases come out they should contain the per annum payment?

Senator Cormann: The releases are consistent with releases that would have been provided by—

Senator KITCHING: No, I'm not saying—

Senator Cormann: The information is public.

Senator KITCHING: I understand that. If I went to the ARTC annual report, it would be there.

Senator Cormann: No, not just there. You can go to the Remuneration Tribunal and they provide, essentially, a table with all of the relevant positions.

Senator KITCHING: How much does the chair of the ARTC—

Senator Cormann: It's $114,540 per annum.

Senator KITCHING: I will now go to some questions around the APS review. That's due to report in the first half of next year?

Ms Huxtable : Yes, that's correct.

Senator KITCHING: Senator Cormann, what was your role in putting together the review and its terms of reference?

Senator Cormann: I think these questions are best covered by Ms Huxtable.

Senator KITCHING: Sure. I was going to ask what role Finance played.

Ms Huxtable : The terms of reference were agreed by the Prime Minister. I think I heard Prime Minister and Cabinet giving evidence on Tuesday around the way in which the review terms of reference were developed. So that was a matter for the Prime Minister to determine. But I would say that I've had a number of discussions with Dr Parkinson in respect of the review. I think Mr Williamson from PM&C gave evidence yesterday that Dr Parkinson had taken a personal interest and had discussions with the Prime Minister on a number of occasions on the review. I very much welcome the review as a secretary, and the Secretaries Board very much welcomes it. In fact, we provided a letter that was circulated widely across the Public Service welcoming the review. The work that we have been doing in Finance under APS reform and through the Secretaries Board has been focused on the short- and medium-term opportunities for public sector modernisation and reform. I see the review as very much focused on a longer term horizon but on the continuum of the work that we've done. I'm quite confident that we've made a very positive start in terms of what we've been doing. It is discussed in the preface to Budget Paper No. 4 in some detail in terms of bringing together a range of activities under the stewardship banner of public sector reform. I also welcome very much the appointment of David Thodey as the person who will be chairing the review panel. I've been chairing a subcommittee of the secretary's board called the APS Reform Committee. Mr Thodey has been kind enough to provide us with advice and support on that committee, bringing a private sector perspective which has been very informative and valuable. I'm very confident that he is bringing to the review that sort of continuity from the work that we've already been doing.

Senator KITCHING: Mr Thodey and Ms Alexander—they're doing another independent review, are they?

Ms Huxtable : They're doing the independent review of the Public Governance, Performance and Accountability Act, which is a legislated review.

Senator KITCHING: So Mr Thodey's doing both?

Ms Huxtable : These are quite different things. The independent review of the PGPA Act has been on foot now since round September/October last year. It is required in the legislation that the Act be reviewed after a period, and Mr Thodey and Ms Alexander have been working on that. That is in its concluding stages. They've provided a draft report for consideration.

Senator KITCHING: So he's ready to move on to this one?

Ms Huxtable : It's a constrained piece of work that is close to being finalised. The APS review is a much broader piece of work that is looking at enabling the public sector to embrace the future. They have a sense of what the future looks like and how we really modernise to take advantage of that. There is a panel of reviewers. I know that that was discussed yesterday. They will come to their own view about how the review will be conducted. I'm anticipating there will be quite a degree of consultation in that regard. It will be quite an open process, from my preliminary discussions.

Senator KITCHING: Do you mean consultation with member of the APS, or generally—with citizens?

Ms Huxtable : At the end of the day it will be a matter for the reviewers to determine the most appropriate way to conduct the review. But certainly in my discussions to date with Mr Thodey he has indicated to me interest in having a quite open and consultative approach to doing the work.

Senator KITCHING: I'm looking at the terms of reference. Given our previous discussion on consultants and contractors, the review's terms of reference talk about:

driving innovation and productivity in the economy

delivering high quality policy advice, regulatory oversight, programs and services

tackling complex, multi-sectoral challenges in collaboration with the community, business and citizens

ensuring our domestic, foreign, trade and security interests are coordinated and well managed

improving citizens’ experience of government and delivering fair outcomes for them

acquiring and maintaining the necessary skills and expertise to fulfil its responsibilities.

Ms Huxtable : I think the key sentence there is that the review will examine the capability, culture and operating model of the APS. Those things are describing what the future may look like and how to ensure the APS is ready to embrace that future.

Senator KITCHING: That's very important for any organisation, I think. Senator Cormann, what happens if the review, which is reporting next year, says, 'Actually, the APS should not be 5.6 per cent as a proportion of whole-of-government cost of administration and should actually be larger'? Are you going to maintain the budget measure?

Senator Cormann: I don't anticipate that that is what it will say at all. You are saying—

Senator KITCHING: What if it suggests fewer contractors and more—

Senator Cormann: We are going back to where we started. Okay, so you are quite entitled to go to the next election arguing for bigger government?

Senator KITCHING: No, it is not about that. I am asking—

Senator Cormann: You are quite entitled to argue that taxpayers should pay more to administer the services—

Senator KITCHING: I'm asking whether you are flexible enough.

Senator Cormann: The reason we have conducted this review is that we are committed to continuing to support the public service to be the most outstanding public service it possibly can be. We have a world-class federal public service in Australia. There are always things that we can do better. It's always important to look at ways that we can improve what is already a very high standard. But let me tell you that overall, as part of our fiscal discipline, as we control the growth in federal government expenditure on the community, it is of course appropriate that we also seek to control the growth and level of expenditure on public sector administration, both through the public service itself as well as through the use of privately contracted services.

I know that you don't like this. I know that you prefer a bigger public service. We prefer a better public service. The reason we're conducting this review is that we think a very good public service could be even better if we properly explore and address some of the issues that we are looking at. We don't look at it by way of how much more in dollar terms and bodies we put in. We look at how much we deliver by way of outcomes and how we can achieve those outcomes in the most efficient and most effective way at the lowest possible cost to the taxpayer—as high a cost as necessary and as low a cost as possible. That is the way we look at the way in which government funds programs and services into the community. It is incumbent on us to look at how we provide and fund the cost of administration itself. You are entitled to pursue a different approach. I'm being entirely accountable in saying that is our approach.

Senator KITCHING: I'm not asking about that. Who knows—

Senator Cormann: You're speculating. You're speculating that the review will find that Labor—

Senator KITCHING: If the review comes out one way or the other, would you be flexible in order to change that, to change what you've said in response to the previous answer? It also says the APS, like any organisation, must adapt to change and strive for improvement. This review provides the opportunity for a thorough assessment of our long-term needs.

Senator Cormann: The only thing you are interested in is the size of the public service.

Senator KITCHING: No.

Senator Cormann: We are interested in the capability, culture and operating model.

Senator KITCHING: I'm asking whether—

Senator Cormann: If you're interested in the science—

Senator KITCHING: I'm asking whether you are able to be flexible enough if the review comes back with recommendations, for example—what I'm really asking is: is this review already hamstrung by the forward estimates?

Senator Cormann: This review is not hamstrung. This review is focused on what we believe is important, and that is the capability, culture and operating model of the APS. I understand what is important to you, on behalf of the people you represent, is the size of the public service, and the size only. What is important to us is the capability, culture and operating model.

Senator McALLISTER: I understand that the minister is answering the questions the way he likes, but he really is being quite gratuitous in asserting a whole range of things about what Senator Kitching and I believe, or what the Labor Party believes.

Senator Cormann: Senator Kitching is asking a question purely in terms of 'Are you flexible enough to increase the size of the public service?', if that is recommended.

Senator McALLISTER: Yes or no? A yes or no answer.

Senator KITCHING: Would you disaggregate the APS and the cost for consultants and contractors?

Senator Cormann: I have answered that question.

Senator KITCHING: Is this review going to give us at least half of that answer, because it might actually give us the cost of the APS and whether there's value for money in having the APS or having consultants and contractors.

Senator Cormann: You are asking an ideological Labor question.

Senator KITCHING: No, I'm not.

Senator Cormann: We are interested in what delivers the best possible outcomes for the Australian people at the lowest possible cost in the most effective way. That is what we are focused on—

Senator KITCHING: No, this review does not say that—

Senator Cormann: You are focused on size and how much money is spent on the public sector, as opposed to private contractors. I'm interested in how we can ensure—

Senator KITCHING: It doesn't say anything about cost in the terms of reference. You have inferred that.

Senator Cormann: That is the implication of your question.

Senator KITCHING: You have said this is about getting it at the lowest cost—I am paraphrasing you. This review does not say anything like that. What I am asking is that if this review came up with recommendations that were not consistent with what you have in the forward estimates, would you change the forward estimates?

Do you want a public service that is able to respond to future needs?

Senator Cormann: The answer to that question is: yes, that's why we're looking at it. The reason I'm answering your initial question the way I am is because you're not asking about the review; you're asking about your ideological obsession about a bigger public service. I've already extensively answered what the government's approach is to this. We want to keep the overall cost of government administration, including the combined cost of the Public Service and contractors, as a proportion of overall government expenditure as low as possible. We want to continue to bring that down. We are projected to continue to bring that down. We've already brought it down a fair degree. We are on track to bring it down further. That is what we will continue to do. You are entitled to go to the election saying, 'We want a bigger public service,' and—

Senator KITCHING: No, I'm not.

Senator Cormann: I'm sure that this will get you a lot of votes in some quarters. We stand with taxpayers. We stand with the Australian community. We say to them: 'We want you to have the best, most effective and most capable public service possible. We want the cost of government administration to be as low as possible and as high as necessary. We want government administration to be as effective and efficient as possible.' That is what we stand for. This review is focused specifically on examining the capability, culture and operating model of the APS and will make practical recommendations to ensure the APS is ready over the coming decades to best serve Australia in a number of ways, which are listed in the terms of reference that Ms Huxtable read out before.

Senator KITCHING: There is a newspaper article saying, I think, 'Don't be afraid, participate.' I can give you the exact—

Senator Cormann: We want everyone to participate. I'm looking forward to the submission on behalf of the CPSU!

Senator KITCHING: The article was 'Don't worry, participate: the message on the APS review.' If there is a high level of participation—I certainly hope there is from all quarters—and that comes to an overwhelming view that the policies that you have pursued while in government have actually not been the best for the APS, will you take those into account—and not just take them into account but actually act on them?

Senator Cormann: Let me tell you what we'll do. As we do with all reviews, we'll consider the outcomes, findings and recommendations of the review when it is received by the government. We, as the government of the day, will make judgements on what we believe is in the best interest of the Australian people. That's what we will do. We will not make decisions to implement Labor Party policy of a bigger, less efficient, less effective government. We will continue to focus on delivering more efficient, more effective government.

Senator KITCHING: Didn't you say before something like, 'When the budget goes back into surplus in 2022, then that's a different case, it's a different scenario, and who knows things might change'? What you're really saying is that if you waited until then, hoping that the budget comes back into surplus—

Senator Cormann: No, we're working to ensure that.

Senator KITCHING: despite debt having doubled under this government—

Senator Cormann: You're clearly not reading the budget papers. Debt is reducing by $2 billion over the medium term.

Senator McALLISTER: I don't think that's the trend.

Senator KITCHING: Yes, but the debt is more than half a trillion dollars.

Senator Cormann: That is because we inherited your trajectory.

Senator McALLISTER: Five years in, with a very big and climbing—

Senator KITCHING: So you're saying you might actually address some of the problems in the Public Service but at a time that suits you, not at a time when the review comes out or when it's delivered, which is mid-2019, I think. Ms Huxtable will be able to tell us when.

Ms Huxtable : It's the first half of 2019.

Senator Cormann: I would like to again refer you to page 4 of budget paper 4. It's graph 1, departmental expenditure. The table on page 17 shows you that, in nominal terms, ASL, excluding military and reserves, continues to track below the level of 2006-07, but the graph on page 4 shows you that, as a proportion of the size of the Australian population, which is growing, the Public Service is reducing. We are delivering high-quality service in a more productive, more efficient way. I'm saying that, obviously, you can't continue to reduce the size of the Public Service as a proportion of population on an unlimited basis.

Senator KITCHING: I thought there was the public service—I don't want to keep you, if we're going to finish.

Senator Cormann: There will come a time when this graph will bottom up.

Senator KITCHING: But I thought you said that the size of the public service was decreasing against the cost of whole-of-government administration—

Senator Cormann: What I've indicated to you is that, of course, as we were in deficit—

Senator KITCHING: not against the size of the population; that's a different measure.

Senator Cormann: as part of our commitment to budget repair, the government has maintained the size of staffing in the general government sector at sustainable levels, and that's resulted in an ongoing and continued reduction, which is projected to continue, in the size of the public service as a proportion of the Australian population. However, I would anticipate that that downward trajectory will not continue indefinitely; that is right.

Senator KITCHING: Okay. I think we can pick this up tomorrow, but before you said—

Senator Cormann: I'm looking forward to it. I can't wait! I love estimates!

Senator KITCHING: I love estimates too. I think you've given a different measure there—the public service against the size of the population. Before I think you said we would—

Senator Cormann: That is the measure on the graph on page 4. Let's get back to it tomorrow.

CHAIR: Indeed, we will. Thank you, Minister. That concludes the committee's examination for today. Hearings for the Finance portfolio will recommence tomorrow. I'd like to thank the minister and officers who've given evidence today. I'd also like to thank Hansard, broadcasting and the secretariat for their assistance. I now declare this meeting of the Finance and Public Administration Legislation Committee adjourned until tomorrow.

Committee adjourned at 21:36