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Budget Review 2013-14



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Parliament of Australia Department of Parliamentary Services

RESEARCH PAPER NO. 3, 2012-13 May 2013

Budget Review 2013-14

The budgetary outlook is quite different to a year ago. Large write-downs in forecast tax receipts have significantly redrawn the starting point for 2013-14 and beyond. At the same time the Government has needed to find new savings to cover the cost of some large new commitments in the form of the Gonski reforms to education and the national disability insurance scheme.

In the Budget documents, the Government reports that its policy is to slow the pace of fiscal consolidation. With the economy forecast to run a little below trend over the next year or so and with the peak in resources sector investment approaching, the Government has decided that now is not the time to be making larger expenditure cuts. Accordingly, the Budget is now forecast to generate a small surplus at the end of the forward estimates period, which depends largely on government revenue recovering as economic conditions improve.

While the budgetary position may have changed, many of the longer-term economic, social and environmental challenges facing Australia remain. The role of the budget in meeting these challenges and the need to balance community expectations about what it wants government to deliver and how much it is prepared to pay will no doubt continue to be keenly debated both inside and outside Parliament. The Parliamentary Library hopes that this brief will help contribute to an informed debate.

The Parliamentary Library has produced its annual Budget Review to assist parliamentarians consider the key issues posed by the 2013-14 Budget. The first article, Budget 2013-14 - Overview and Commentary, steps readers through the context for this year’s Budget; the Government’s budget strategy; the fiscal outlook; and reactions from business and community groups. The other articles examine key measures that cover a wide range of areas across all portfolios.

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

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

Dr Dianne Heriot Parliamentary Librarian May 2013

ISSN 1834-9854

Contents

Budget overview

Budget 2013-14—Context and commentary .................................................................................... 1

Revenue adjustments ....................................................................................................................... 25

Revised revenue projections and associated expenditure for the Minerals Resource Rent Tax (MRRT)......................................................................................................................................... 30

Backgrounders

Australian Public Service .................................................................................................................. 36

Border security ................................................................................................................................. 40

National Broadband Network (NBN) ................................................................................................ 46

Official Development Assistance (ODA) since 2007-08 ................................................................... 50

Tracking climate change funding and staffing ................................................................................. 52

Trends in Defence expenditure since 1901 ...................................................................................... 55

Legal aid and legal assistance services ............................................................................................. 59

Federal courts funding ..................................................................................................................... 63

Budget briefs

Agriculture

Farm finance ..................................................................................................................................... 68

Arts and media and sport

Creative Australia ............................................................................................................................. 71

Broadcasting ..................................................................................................................................... 74

Sport ................................................................................................................................................. 77

Climate change, energy and the environment

Environment ..................................................................................................................................... 79

Water ................................................................................................................................................ 81

Climate action .................................................................................................................................. 84

Mining and resources changes ......................................................................................................... 88

Carbon scheme adjustments ............................................................................................................ 91

Commonwealth-State relations

Commonwealth payments to the states .......................................................................................... 94

Corporate governance

Financial regulation .......................................................................................................................... 97

Defence

Defence Budget overview ................................................................................................................ 99

Defence Capital Investment Program ............................................................................................ 101

Australian Defence Force (ADF) operations and regional engagement ......................................... 103

Defence personnel ......................................................................................................................... 105

Education

Early childhood education .............................................................................................................. 107

School education: expenditure ...................................................................................................... 109

School education: the National Plan for School Improvement ...................................................... 111

Indigenous education ..................................................................................................................... 114

Higher education ............................................................................................................................ 116

Vocational education and training ................................................................................................. 118

Foreign affairs

Department of Foreign Affairs and Trade—overview .................................................................... 120

Official Development Assistance: a commitment delayed further ................................................ 122

Health and ageing

Aged care workforce wage pressures ............................................................................................ 124

Cancer initiatives ............................................................................................................................ 126

Medicare ........................................................................................................................................ 128

Net medical expenses tax offset .................................................................................................... 130

Other health measures ................................................................................................................... 132

Immigration and border control

Migration and humanitarian programs .......................................................................................... 136

Responding to unauthorised arrivals ............................................................................................. 138

Industry policy

Industry and innovation package ................................................................................................... 141

Infrastructure

Roads and rails ............................................................................................................................... 143

Law, policing and national security

Funding for the Royal Commission into Institutional Responses to Child Sexual Abuse ............... 146

Legal aid .......................................................................................................................................... 147

Indigenous law and justice ............................................................................................................. 149

Independent Children’s Lawyers—exemption from payment of new court fees ......................... 150

Reduction of funding for international legal measures ................................................................. 151

Organised crime and crime prevention.......................................................................................... 153

Local government

Referendum on Local Government ................................................................................................ 155

Public sector

Public sector ................................................................................................................................... 157

Science and research

Science outlook .............................................................................................................................. 162

Social services and welfare

Abolishing the Baby Bonus ............................................................................................................. 164

Further savings from family assistance payments ......................................................................... 166

DisabilityCare Australia .................................................................................................................. 168

Indigenous affairs ........................................................................................................................... 171

Work and study incentives for the unemployed and single parents ............................................. 173

Housing help for age pensioners .................................................................................................... 175

Superannuation

No new major superannuation announcements ........................................................................... 177

Measures to minimise exploitation of franking credits by ‘dividend washing’ ............................. 179

Measures to protect the corporate tax base ................................................................................. 181

Further tax compliance measures .................................................................................................. 184

Taxation—reforms to work-related self-education expenses ....................................................... 186

Workplace relations

Workplace relations ....................................................................................................................... 188

Budget Review 2013-14

Budget 2013-14—Context and commentary

Robert Dolamore and Indra Kuruppu

The ‘headlines’ at a glance

The Budget is forecast to remain in deficit in 2013-14 and not break even until 2015-16. A small surplus forecast for 2016-17

Underlying Cash Balance Year $m % GDP

2011-12 -43,360 -2.9

2012-13 -19,377 -1.3

2013-14 -18,043 -1.1

2014-15 -10,888 -0.6

2015-16 849 0.0

2016-17 6,591 0.4

Underlying Cash Balance % GDP

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, Statement 10, Table 1, p. 10-7.

Achieving a surplus depends on closing the gap between payments and receipts

• Payments peaked at 26.1 per cent of GDP in 2009- 10 and are forecast to be 24.5 per cent of GDP in 2013-14 and decline to 23.8 per cent in 2016-17.

• Receipts bottomed at 21.5 per cent of GDP in 2010-11 and are forecast to be 23.5 per cent of GDP in 2013-14 and increase to 24.4 per cent of GDP in 2016-17.

• Looking at the out years the revenue side is going to be doing most of the heavy lifting to bring the Budget back into surplus.

Reciepts and Payments % GDP

Source: Australian Government, Budget Strategy and outlook: budget paper no. 1: 2013-14, Statement 10, Table 1, pp. 10-6 - 10-7.

Since MYEFO 2012-13 most of the change in the forecasts of the Underlying Cash Balance has been driven by parameter changes

• Weaker forecast nominal GDP growth has led to large write-downs in forecast tax receipts and increased the size of the Budget deficit.

• Policy measures to reduce the size of the Budget deficit come later in the forward estimates period.

Comparing Budget 2013-14 with MYEFO 2012-13

Source: National Australia Bank, 2013-14 Federal Budget, 14 May 2013, p. 2.

-5

-4

-3

-2

-1

0

1

2

2000-01 2003-04 2006-07 2009-10 2012-13 2015-16

% GDP

20

21

22

23

24

25

26

27

28

2000-01 2003-04 2006-07 2009-10 2012-13 2015-16

Receipts

Payments

1

Budget Review 2013-14

The ‘headlines’ at a glance (continued)

Savings measures in the Budget are designed to cover new spending

• The Budget bottom line will benefit from savings measures kicking-in before some of the big-ticket spending measures get going.

Source: Commonwealth Bank of Australia, The Budget we had to have: The 2013-14 Budget, May 2013, p. 24.

Net debt is forecast to peak in 2014-15

Net Debt

Year $m % GDP

2011-12 147,334 10.0

2012-13 161,603 10.6

2013-14 178,104 11.1

2014-15 191,552 11.4

2015-16 191,172 10.8

2016-17 185,662 10.0

Net Debt % GDP

Source: Australian Government, Budget Strategy and outlook: budget paper no. 1: 2013-14, Statement 10, Table 3, p. 10-9.

However, Australia’s level of net debt is very low by international standards ….

• The peak in the average net debt position of the G7 economies is expected to be 92.6 per cent of GDP in 2014.

Comparison of government net debt 2012-2018

Source: Australian Government, Budget Strategy and outlook: budget paper no. 1: 2013-14, Statement 7, Box 2, p. 7-7.

-6

-4

-2

0

2

4

6

8

10

12

14

2000-01 2003-04 2006-07 2009-10 2012-13 2015-16

% GDP

2

Budget Review 2013-14

Introduction

This overview looks at the international and domestic economic context for the Budget, factors that will affect the success or failure of the Government’s budget strategy, and how various groups have reacted to the Budget.

The 2013-14 Budget was introduced into Parliament on 14 May 2013. The context for this year’s budget is a domestic economy that is expected to run a little below trend for the next year or so. Resources sector investment which has been the key driver of growth over recent years is expected to peak as a share of GDP during 2013-14. As this peak passes, Australia will need to make the transition to another set of growth drivers. While there are signs this rebalancing is already underway there is quite a bit of uncertainty about how it will ultimately play out.

The fiscal outlook presented in the 2013-14 Budget is markedly different to the one presented in last year’s budget or even the 2012-13 Mid-Year Economic and Fiscal Outlook (MYEFO) in October 2012. The Budget is now not expected to return to surplus until 2016-17 and even then the surplus is relatively modest. Significant write-downs in expected tax receipts are largely but not totally to blame. Although the Government’s medium-term fiscal strategy is to return the budget to surplus it has decided to slow the pace of fiscal consolidation in order to support jobs and growth.

Despite the fiscal outlook having deteriorated over the last year, Australia’s overall budgetary position continues to compare favourably with most other advanced economies. The deficits over the next few years are relatively small and net debt is only forecast to peak at 11.4 per cent of GDP in 2014-15. Importantly, Australia’s strong budgetary position continues to provide scope to respond to any further global shocks.

The Budget context

International economic conditions

Treasury is forecasting global economic growth will strengthen slightly from 3.25 per cent in 2013 to 4 per cent in 2014 and 2015.1 Over the last six months some acute risks have eased such as a disorderly break-up of the Euro area, a sharp fiscal contraction in the United States and key emerging economies suffering a ‘hard landing’. Nevertheless, significant downside risks remain and the recovery remains fragile as governments in many advanced economies grapple with trying to repair public balance sheets without damaging demand in the short-term. Much will depend on governments, particularly in Europe, seeing through the types of structural reforms needed to achieve sustainable economic growth and putting uncertainty to rest.

In its latest World Economic Outlook report, the International Monetary Fund (IMF) argues that the world recovery has moved from a ‘two speed’ to a ‘three speed’ recovery.2

1. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, Commonwealth of Australia, Canberra, May 2013, p. 2-16, accessed 15 May 2013. 2. International Monetary Fund, World economic outlook April 2013: Hopes, realities, risks, IMF, Washington, April 2013, p. xiii, accessed 16 May 2013.

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Budget Review 2013-14

• Among advanced economies there appears to be a growing divergence between the performance and

prospects of the United States and those of Europe. The IMF is forecasting the United States to grow by 1.9 per cent in 2013 and 3 per cent in 2014. In contrast, the euro area economy is forecast to contract by -0.3 per cent in 2013 before growing by 1.1 per cent in 2014.

• The IMF is forecasting emerging market and developing economies to grow by 5.3 per cent in 2013

and 5.7 per cent in 2014.

Treasury’s forecasts are not significantly different to the IMF’s (see Table 1). If anything, the IMF forecasts are slightly more optimistic for 2014.

Table 1: Comparison of Treasury and IMF international growth forecasts

2012 2013 2014

United States

Treasury 2.2 2.0 2.5

IMF 2.2 1.9 3.0

Euro area

Treasury -0.6 -0.5 1.0

IMF -0.6 -0.3 1.1

China

Treasury 7.8 8.0 7.75

IMF 7.8 8.0 8.2

Japan

Treasury 2.0 1.25 1.0

IMF 2.0 1.6 1.4

India

Treasury 4.0 5.75 6.5

IMF 4.0 5.7 6.2

World

Treasury 3.2 3.25 4.0

IMF 3.2 3.3 4.0

Sources: Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, May 2013, p. 2-16, accessed 15 May 2013; International Monetary Fund World economic outlook April 2013: hopes, realities, risks, IMF, Washington, April 2013, p. 2, accessed 15 May 2013.

The United States

The US economy is growing at a moderate pace with activity being weighed down by sizeable fiscal consolidation (around 1.8 per cent of US GDP in 2013). Nonetheless there are promising signs that recovery is taking hold and the pace of growth is forecast to pick-up in 2014. The IMF notes that credit growth has increased, bank lending conditions are easing slowly from tight levels, construction activity has rebounded albeit from low levels; and job creation picked up in the second half of 2012.3 Underlying private demand is quite strong thanks to low interest rates and pent-up demand for housing and durables.

3. Ibid., p. 51.

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Budget Review 2013-14

The Euro area

Economic conditions in Europe remain weak and not just in the crisis economies. The euro area as a whole is in recession and the weakness is no longer just in the periphery. Germany’s growth is strengthening but is still expected to be only 0.6 per cent in 2013, while France’s growth is forecast to be slightly negative.4 The need for public and private balance sheet repair, banking systems which are still fragile and continued policy uncertainty appear to be weighing on a robust recovery in investment and consumption. Nevertheless, the IMF is forecasting growth to strengthen gradually over 2013 in the euro area, reaching 1 per cent by the fourth quarter.5

Asia

The IMF is forecasting the Asian economy will grow by 5.7 per cent in 2013 and 6 per cent in 2014 (figure 1).6 Although growth in the region slowed around the middle of 2012 it is expected to gradually pick up during 2013 thanks to stronger external demand and continued solid domestic demand. The advanced Asian economies are forecast by the IMF to grow by 2.2 per cent in 2013 and 2.6 per cent in 2014, while growth of developing Asian economies is forecast to be 7.1 and 7.3 per cent.7 Continued strong growth among developing countries in Asia is clearly advantageous for Australia. The Reserve Bank of Australia recently noted that:

Growth in developing economies is also expected to be stronger in 2014 and is forecast to remain considerably higher than in the advanced economies. Australia trades more with developing economies, which are currently experiencing better economic conditions. As a result, growth in Australia’s major trading partners is expected to be around its average pace and continue to exceed that for the world as a whole.

8

Growth in the Chinese economy slowed slightly in the first quarter of 2013 with the economy expanding by 7.7 per cent from a year ago, compared to 7.9 per cent (year on year growth) in the preceding quarter and 7.8 per cent for 2012.9 However, forecasts suggest that growth will strengthen over 2013 with stronger net exports and a recovery in private consumption helping to underpin growth. Both Treasury and the IMF are forecasting the Chinese economy will expand by 8 per cent in 2013. While Treasury is forecasting growth in the Chinese economy to slow slightly in 2014 to 7.75 per cent, the IMF is more optimistic, forecasting growth of 8.2 per cent.

Japan is forecast to grow by 1.25 per cent in 2013 by Treasury and 1.6 per cent by the IMF. This follows a sharp contraction in the second half of 2012. In part this improved outlook reflects the new Japanese government’s determination to end years of deflation and little or no growth by substantially easing monetary policy, adopting a new inflation target, funding a sizeable fiscal stimulus package and implementing structural reforms. While the IMF has welcomed these initiatives it notes that in the

4. Ibid., p. 48.

5. Ibid. p. 47.

6. Ibid., p. 56.

7. Ibid.

8. Reserve Bank of Australia, Statement on monetary policy: May 2013, RBA, Sydney, 10 May 2013, p. 5, accessed 16 May 2013. 9. Commonwealth Bank of Australia, International economics: selected issues China economic monthly: cold weather clips Q1 GDP growth, Global markets research, 15 April 2013, p. 1, accessed 16 May 2013.

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Budget Review 2013-14

absence of a medium-term fiscal consolidation plan, the increase in government expenditure comes with a large increase in fiscal risk.

Figure 1: IMF Asian growth forecasts for 2013

Source: International Monetary Fund, World economic outlook: April 2013: hopes, realities, risks, IMF, Washington, p. 54, accessed 16 May 2013.

Both Treasury and the IMF are forecasting India’s economic growth will pick-up in 2013 following a marked slowdown in 2012. This reflects improved external demand and the effects of recently implemented pro-growth measures. Nevertheless, India continues to face structural challenges that are likely to impede supply-side growth and Budget Strategy and Outlook: Budget Paper No. 1 notes that India’s current account deficit makes it vulnerable to capital outflows in response to unfavourable global or domestic circumstances.10

Risk assessment

Overall, Treasury considers risks on the international front are more balanced than they were a year ago but remain tilted to the downside.11 It identifies the euro sovereign debt crisis as the key risk to the global recovery. The IMF also considers the short-term risk picture has improved.12 The IMF estimates

10. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-19. 11. Ibid., p. 2-19. 12. International Monetary Fund, World economic outlook April 2013: Hopes, realities, risks, op. cit. p. 12.

6

Budget Review 2013-14

the probability of global growth falling below 2 per cent in 2013 has fallen to about 2 per cent from 17 per cent in October 2012.13

Nevertheless, the IMF argues that risks are still high in the medium-term and include:

• very low growth or stagnation in the euro area

• fiscal trouble in the US or Japan

• less excess supply than expected in advanced economies or a sudden burst of inflation

• risks related to unconventional monetary policy and

• lower potential output in key emerging market economies. 14

There is also a risk that optimism in global financial markets could get too far ahead of developments in real economic activity. Specifically, there is a risk that quantitative easing could fuel asset price bubbles as easy money chases higher returns. The OECD has observed that:

This shift in the balance of risks, together with abundant liquidity, was an important factor behind the marked strengthening of financial markets in recent months. Equity prices in OECD economies have surged, corporate bond spreads have narrowed and, despite a number of negative shocks, sovereign spreads in the Euro area periphery moved down substantially in the last quarter of 2012 and have declined further in 2013. Riskier assets have generally gained the most. However, real activity has yet to reflect fully the improvement in financial market sentiment, especially in the euro area. This highlights the risk of asset prices getting out of line with fundamentals, especially as regards corporate securities.

15

Having regard for the international outlook and associated risks, the Government cautions in Budget Paper No. 1 that:

The periodic bouts of financial market volatility since the global financial crisis … are a reminder that confidence remains fragile with significant downside risks to the global economic outlook. With many advanced economies under significant constraints, and policy actions by major advanced economy central banks already very accommodative and unconventional, there is very limited space to respond to any further negative shocks to the global economy.

16

Domestic economic conditions

While Australia’s real economic growth continues to compare favourably with other advanced economies, the outlook for the domestic economy is relatively subdued over the next couple of years. Treasury is forecasting Australia’s economic growth will be slightly below trend in 2013-14 at 2.75 per cent before picking up to 3 per cent in 2014-15 and the out years (table 2). Unemployment is forecast to remain relatively low and inflation is forecast to be comfortably in the RBA’s target range.

13. Ibid., pp. 12-13. 14. Ibid., p. 14. 15. P Padoan, What is the near-term global economic outlook? Interim assessment, OECD, Paris, 28 March 2013, p. 3, accessed 16 May 2013.

16. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-19.

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Budget Review 2013-14

Table 2: Treasury forecasts of major economic parameters

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Real GDP

Budget 2012-13 3.0 3.25 3.0 3.0 3.0

MYEFO 2012-13 3.4 3.0 3.0 3.0 3.0

Budget 2013-14 3.4 3.0 2.75 3.0 3.0 3.0

Employment

Budget 2012-13 0.5 1.25 1.5 1.5 1.5

MYEFO 2012-13 0.7 1.0 1.25 1.5 1.5

Budget 2013-14 1.2 1.25 1.25 1.5 1.5 1.5

Unemployment rate

Budget 2012-13 5.25 5.5 5.5 5.0 5.0

MYEFO 2012-13 5.1 5.5 5.5 5.0 5.0

Budget 2013-14 5.1 5.5 5.75 5.75 5.0 5.0

Consumer Price Index

Budget 2012-13 1.25 3.25 2.5 2.5 2.5

MYEFO 2012-13 1.2 3.0 2.25 2.5 2.5

Budget 2013-14 1.2 2.5 2.25 2.25 2.5 2.5

Nominal GDP

Budget 2012-13 5.5 5.0 5.25 5.25 5.25

MYEFO 2012-13 5.0 4.0 5.5 5.25 5.25

Budget 2013-14 5.0 3.25 5.0 5.0 5.25 5.25

Sources: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, May 2012, pp. 1-8 & 2-12; Australian Government, Mid-year economic and fiscal outlook, October 2012, pp. 5, 18, accessed 15 May 2013; Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, May 2013, p. 2-16, accessed 15 May 2013.

Treasury’s growth forecasts for the Australian economy are consistent with those of the RBA. The RBA is forecasting growth of 2-3 per cent for 2013-14 and 2.5-3.5 per cent for 2014-15.17

The need to transition to a different set of growth drivers

In the short-term, a key challenge facing the Australian economy is the need to transition from one set of growth drivers to another. Resources sector investment has been the main driver of growth in recent years and is expected by Treasury to peak in 2013-14.18 Even if resources sector investment plateaus rather than falls away precipitously, this investment will no longer be the driver of growth it has been. Achieving Treasury’s growth forecasts will depend on any shortfall being made up by some mix of stronger growth from exports, non-mining business investment and household spending. Considerable uncertainty remains about how smoothly this transition will occur.

17. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 62. 18. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-26.

8

Budget Review 2013-14

Two key factors shaping the outlook for the domestic economy over recent years have been the two or even three speed nature of the Australian economy and recognition that at some point in the near-term resources sector investment will peak. The high Australian dollar has put considerable pressure on non-mining trade exposed sectors of the economy (including manufacturing, tourism and education services). Moreover, since the onset of the global financial crisis the household savings ratio has been at around 10 per cent, which is similar to the rate of saving in the mid-1980s and well above the levels prevailing in the 1990s and early 2000s.19 More cautious consumer spending has put increased pressure on the retail and wholesale sectors. With some parts of the economy clearly doing it tougher than others, there have been concerns about how Australia’s growth will be sustained once the peak in resources sector investment passes.

Monetary policy has been playing a key role in supporting domestic demand in the face of these challenges. The RBA has lowered the cash rate by 200 basis points since October 2011. The initial cuts in late 2011 were intended to remove a mildly restrictive monetary policy stance as concerns about inflation picking up abated. During 2012 the RBA adopted a more accommodative position intended to support demand in response to concerns about the global economic outlook and softer domestic conditions in the second half of the year. In cutting the cash rate to 2.75 per cent in May this year, the RBA decided to use some of the scope afforded by the favourable outlook for inflation to further support domestic demand.20

There are signs this substantial easing of monetary policy is having an expansionary effect on the economy. The RBA has observed:

Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.

21

Treasury’s forecasts for the domestic economy suggest the expansionary effects of the interest rate cuts will continue to build momentum in the near-term.

• Treasury is forecasting household consumption to grow solidly over the forecast period and provide a

platform for recovery in some non-resources parts of the economy.22 This is consistent with the RBA’s latest assessment of the domestic economy. In its May Statement on Monetary Policy, the RBA revised up a little its forecasts for household consumption as the prospects for increased household demand appear to be slightly more positive.23 The RBA pointed to indications that household consumption strengthened in early 2013 after slowing considerably in late 2012. Importantly, the RBA’s liaison work suggests this improvement has been sustained. However, the RBA also noted that moderate employment growth in the near term and slower growth in wages than in recent years is

19. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 28. 20. G Stevens (Governor of the Reserve Bank of Australia), Statement by Glenn Stevens, Governor: Monetary Policy Decision, media release, 7 May 2013, accessed 17 May 2013.

21. Ibid.

22. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-5. 23. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 63.

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Budget Review 2013-14

expected to continue to restrain growth in labour income.24 Overall, the RBA is expecting household spending to grow at around its long-run average over the next couple of years and broadly in line with real income growth. This is consistent with Treasury’s forecasts for growth in household consumption of 2.5 per cent in 2012-13 and 3 per cent in 2013-14 and 2014-15.25

• Treasury is forecasting a very strong turn around in residential dwelling investment. It argues that low

interest rates, rising dwelling prices, favourable demographics and tight rental market conditions will support a pick-up in homebuyer demand.26 While residential dwelling demand is forecast to have grown by just 0.5 per cent in 2012-13, Treasury is expecting above-trend growth of 5 per cent in 2013-14 and 5.5 per cent in 2014-15. For its part, the RBA has noted that a number of forward-looking indicators point to a further recovery in residential dwelling investment over coming months.27 Further, its liaison work suggests demand for new housing is improving from low levels, with enquiries from prospective purchasers and visits to display homes increasing.

• Treasury is forecasting quite a mild slow down in the growth of business investment in view of the

approaching peak in resources sector investment. It is forecasting business investment to grow by 10.5 per cent in 2012-13, 4.5 per cent in 2013-14 and 1 per cent in 2014-15.28 Treasury is forecasting resources sector investment will peak at a record 8 per cent of GDP in 2013-14 and although it will subsequently soften it will remain at historically high levels to at least the middle of the decade.29 Crucially, Treasury is expecting non-resources sector investment will strengthen, stimulated by low interest rates and a broadening of economic growth. The RBA’s liaison work suggests that although mining companies have scaled back their investment intentions since the middle of 2012, it seems likely that mining investment in 2013-14 will be around current levels.30 The RBA notes that this reflects the large stock of resources projects already committed to, which is expected to keep mining investment at an elevated level for some time. The outlook for non-resources sector investment is mixed. Recent Australian Bureau of Statistics data suggests firms’ capital expenditure plans for 2013-14 are positive. Against this the RBA’s liaison work suggest some firms remain reluctant to invest because of concerns about the strength of demand, general uncertainty about the economic outlook and a focus on containing costs.31

As the peak in resources sector investment passes, some of the slack will be taken up by stronger export growth. Treasury is forecasting exports to grow by 7 per cent in 2012-13, 6.5 per cent in 2013-14 and 7 per cent in 2014-15.32 This strong growth is largely being driven by exports of non-rural bulk commodities as production in the resources sector ramps up considerably following a period of record investment. The RBA notes that this increase in exports is expected to be supported by continued demand from China and other developing countries.

24. Ibid.

25. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-14. 26. Ibid., p. 2-12. 27. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 31. 28. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-14. 29. Ibid., p. 2-26. 30. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 32. 31. Ibid., p. 31. 32. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-14.

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Budget Review 2013-14

With infrastructure needs in China remaining large - including to accommodate the growing high-density urban population - steel consumption is likely to continue to grow, albeit a good deal more slowly than in the past decade. However, given the substantial increase in the size of the Chinese economy, the lower growth rate of the economy (compared with the past) can still generate a large increase in the demand for steel.

33

Against this, Treasury is forecasting imports to grow by 5 per cent in 2012-13, 6 per cent in 2013-14 and 3 per cent in 2014-15.34 Treasury notes that capital goods imports associated with the expansion of the LNG sector are expected to be a significant driver of the increase in 2013-14. Growth in resources sector capital goods imports will slow once the peak in resources sector investment passes.

Given this picture of the external sector, Treasury is forecasting net exports will contribute 0.5 of a percentage point towards growth in 2012-13 and will make no contribution in 2013-14.35 After that net exports are forecast to begin to kick in, contributing 1 percentage point towards growth in 2014-15.

Overall, Treasury’s forecasts suggest Australia will make a relatively smooth transition to a new set of growth drivers in the near term. This appears to largely align with the RBA’s view of the outlook for the domestic economy.

Growth in nominal GDP

One factor that is central to understanding the impact of recent economic developments on the Budget and the expected outlook is somewhat counter-intuitive. While real economic growth-growth after taking account of inflation-has been quite robust, nominal growth-the apparent growth before taking account of inflation-has been weak by historical standards. Weak nominal growth tends to be correlated with lower growth in company profits, lower growth in wages and salaries, and hence lower growth in government revenues. It is one possible explanation for why over the last year or so people’s perceptions of the Australian economy have seemed at odds with the more positive headline indicators. At the end of the day, people’s perceptions are likely to be shaped by their experience of the nominal economy and how it has been changing.

There is a risk that nominal weakness can flow back into the real economy through sentiment and income channels. For example, households may defer spending and focus on balance sheet repair and the business sector may defer spending and labour hiring plans.

In Budget Paper No. 1 the Government notes that nominal GDP growth has historically exceeded real GDP growth by around 2.5 percentage points, but this relationship has recently reversed (chart 1).36 Nominal GDP grew by only 2 per cent through the year to the December quarter 2012, well below the rate of real GDP growth of 3.1 per cent. The Government notes that this was the third consecutive quarter where nominal GDP growth was outpaced by real GDP growth, the first time this has happened in at least the past half-century.

33. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 63. 34. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-14. 35. Ibid.

36. Ibid., p. 2-7.

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The fall in nominal GDP growth reflects the decline in Australia’s terms of trade (roughly the ratio of export prices to import prices). A fall in the terms of trade implies Australia can buy fewer imports from the same amount of exports. Australia’s terms of trade fell by 2.6 per cent in the December quarter 2012, the fifth consecutive fall in the terms of trade. Australia’s terms of trade are now 16.5 per cent below the third quarter peak in 2011.37 Generally, nominal GDP growth will grow faster than real GDP when the terms of trade are improving strongly, but nominal will grow more slowly than real GDP when the terms of trade fall sharply.

Importantly, profits represent around 40 per cent of nominal GDP.38 The Government notes in Budget Paper No. 1 that total gross operating surplus (the national accounts measure of profits) has fallen for the last five quarters, the first time this has occurred in the history of the National Accounts.39 This is attributed to the effects of falling commodity prices and the high Australian dollar on the profitability of resources companies and the effects of the high Australian dollar on the profitability of non-resources sector companies.

Chart 1: Difference between nominal and real GDP growth

Source: Australian Bureau of Statistics (ABS), Australian national accounts: national Income, expenditure and product, Dec 2012, cat. no. 5206.0, ABS, Canberra, 2013, accessed 17 May 2013.

Over the last year Treasury significantly revised its forecast for nominal GDP growth for 2012-13 from 5 per cent at the time of the 2012-13 Budget to 3.25 per cent in the current Budget. As discussed in the fiscal outlook section below, this has contributed to a large write-down in revenue forecasts for the current year.

37. Parliamentary Library, Monthly statistical bulletin - May 2013, Parliamentary Library, Canberra, p. 31, accessed 17 May 2013. 38. Budget Strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-44. 39. Ibid., p. 43.

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Dec-2000 Dec-2002 Dec-2004 Dec-2006 Dec-2008 Dec-2010 Dec-2012

Percentage points

Twenty year average

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Budget Review 2013-14

Treasury is forecasting nominal GDP growth of 5 per cent in both 2013-14 and 2014-15, which it notes is below the 20 year average of 6.5 per cent.40 The terms of trade are forecast to fall by 7.5 per cent in 2012-13, 0.75 per cent in 2013-14 and 1.75 per cent in 2014-15.41 Gross operating surplus (or profits) is forecast to decline by 0.75 in 2012-13 before recovering to grow by 4.75 per cent in 2013-14 and 5.5 per cent in 2014-15.42 Compensation for employees (mostly wages) is forecast to grow by 5.75 per cent in 2013-14 and 5 per cent in 2014-15, reflecting the slightly below-trend outlook for wage and employment growth.43

Treasury’s forecast of a recovery in nominal GDP growth is central to achieving its revenue projections and returning the budget to surplus (see the fiscal outlook section below).

Risk assessment

As noted above, Treasury’s forecasts suggest Australia will make a relatively smooth transition from one set of growth drivers to another. The RBA has recently said there are signs the rebalancing is beginning to occur but considerable uncertainty remains about how it will proceed.44

On the resources investment side there is uncertainty about the profile of new investment over the next few years. While it seems generally agreed the inevitable peak in investment is approaching, there is uncertainty about how fast investment will fall away after that. Treasury is forecasting resources sector investment will remain at historically high levels at least until the middle of the decade.45 This does not appear unreasonable given the complexity, scale and multi-year nature of large resources projects. However, if resources investment falls away more sharply it would leave a larger growth ‘pothole’ that would need to be filled from other sources.

Looking at alternative sources of growth there is little doubt that increasing non-rural commodity exports will help underpin strong export growth in coming years. This reflects the enormous expansion in the production capacity of the resources sector that is still unfolding. It also reflects the continued strong demand for these exports from developing countries in Asia.

However, there is less certainty about the outlook for non-resources sector business investment and household spending. On balance business investment in the non-resources sector still looks subdued. Trade exposed industries in this sector are continuing to feel the pressure of the high Australian dollar on their profitability and their investment has been squeezed in recent years by resources sector investment. Growth in business funding has been relatively subdued recently, consistent with the weakness in non-resources sector business investment.46 That said, the pre-conditions for a recovery in this type of investment would appear to be in place. The RBA has noted that businesses appear to be in a

40. Ibid., p. 2-41. 41. Ibid., p. 2-14. 42. Ibid., p. 2-41. 43. Ibid.

44. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 65. 45. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 2-26. 46. Reserve Bank of Australia, Statement on monetary policy: May 2013, op. cit., p. 32.

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position to fund additional investment, having large holdings of cash and other liquid assets on their balance sheets, and generally good access to external sources of funds.47

The outlook for residential dwelling investment is also uncertain. While a recovery in this type of investment appears to be underway there is nevertheless a question as to whether it will rebound by the extent forecast by Treasury in view of the still high household savings rate. The RBA has noted that while the preconditions for an ongoing recovery in residential dwelling investment are in place, there remains uncertainty about the breadth and strength of such a recovery.48

On balance the largest risk to the domestic economic outlook would appear to be non-resources sector business investment not picking up fast enough to offset any shortfall in growth as resources sector investment comes off its peak. Naturally, this would be exacerbated if resources sector investment falls away more precipitously than Treasury is currently forecasting.

Related to this, there is a risk that if the pick up in non-resource sector business investment significantly lags the softening in resources sector investment, it will have a negative impact on the labour market. This could then flow through into lower than expected household spending and residential investment. Further, it is important to bear in mind that the construction phase of resources projects tends to be more labour intensive than the production phase. As the resources sector moves more solidly into the production phase of the boom some labour will inevitably be freed up.

Moreover, the indirect effects on employment in other sectors of the economy may also be sizeable. In the 2012-13 Budget there was a box devoted to the direct spillovers from the resources boom (box 2, p. 2-18).49 It would appear reasonable to assume that, while the ramp up in production in the resources sector will also generate positive spillovers for other parts of the economy, they are likely to be smaller than during the construction phase. In part this reflects that fewer inputs are needed from other sectors to support the smaller production-phase workforce and the spillovers from manufacturing mining related equipment and specialised machinery have already been had during the construction phase.

More generally, work by Bob Gregory and Peter Sheehan suggests that as the resources investment boom unwinds over the next few years there will be a large deflationary shock on the Australian economy.50 Essentially the resources sector will move from being a stimulatory force to a contractionary one, although they acknowledge it is not clear how strong the negative forces will be:

As the resources boom unwinds over the next few years, Australia will experience a large deflationary impact, primarily driven by the fall in the terms of trade and in resource investment. The production and export of resource commodities will rise sharply as projects are completed, but this will generate little employment and limited domestic income to offset the terms of trade decline and the falls in mining investment. Whether the exchange rate remains high or falls sharply over this time period will mainly affect the form rather than the scale of this deflationary shock: a high $A will preserve real income gains through lower import prices for those who consume imports but at the cost of

47. Ibid.

48. Ibid., p. 65. 49. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, Commonwealth of Australia, Canberra, May 2012, p. 2-18. 50. P Sheehan and B Gregory, The resources boom and economic policy in the longer run, Paper prepared for the conference

‘Structural change and the rise of Asia’, Canberra, 19 September 2012, accessed 18 May 2013.

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continued pressure on trade exposed industries, while the effects will be reversed if the $A falls sharply. 51

There is a risk that Treasury’s forecast of Australia’s terms of trade only falling by 0.75 per cent in 2013-14 and 1.75 per cent in 2014-15 is on the optimistic side. There is a reasonable downside risk that commodity prices may have further to fall as new production capacity comes on line both in Australia and elsewhere.

On the face of it, this suggests Treasury’s forecasts of nominal GDP growth of 5 per cent in 2013-14 and 2014-15 may also be on the high side. In commenting on the Budget forecasts, the Commonwealth Bank of Australia observed:

Revenue forecasters have had a torrid time of late. And we had expected risk-averse forecasters to err on the conservative side as a result. This conservative bias is not apparent. In fact the implied revenue elasticities (i.e. what sort of rise in revenue do you get from a given increase in nominal GDP) are at the high end of the range of the past fifty years. The risks with current Budget projections may once again be that outcomes disappoint.

52

The Budget strategy

The Government had committed to return the budget to surplus in 2012-13. As late as the 2012-13 MYEFO statement in October 2012, the budget was forecast to record a small surplus of $1.1 billion in 2012-13.53 However, by December 2012 the Government had moved away from this commitment when it was clear that revenues for the year were going to be considerably below the 2012-13 Budget forecasts.54 At the time, the Treasurer said:

At this stage I don’t think it would be responsible to cut harder or further in 2012-13 to fill a hole in the tax system if that puts jobs or growth at risk. While the real economy does remain resilient, I think it now has reached a point where it would be difficult to responsibly offset dramatic revenue downgrades with substantial, short-term savings. I think that’s the bottom line here - it wouldn’t be responsible to continue to make up for the revenue hole if that endangered jobs and growth.

55

As the economy was showing signs of having slowed in the second half of 2012 and with concerns this would continue into early 2013, the Government’s decision was generally regarded as the appropriate course.

In the 2013-14 Budget the Government has reaffirmed its commitment to its medium-term fiscal strategy (see Box 1).

Although the Budget continues to be underpinned by the same fiscal strategy, arguably the earlier sense of urgency to return the budget to surplus as soon as possible appears to have waned. The budget is now

51. Ibid., p. 19. 52. Commonwealth Bank of Australia, Economics: perspective: 17 May 2013, Global markets research, pp. 4-5, accessed 18 May 2013.

53. Australian Government, Mid-year economic and fiscal outlook 2012-13, October 2012, p. 2, accessed 16 May 2013. 54. W Swan (Treasurer), Press conference, Transcript, 20 December 2012, accessed 16 May 2013. 55. Ibid., p. 2.

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forecast not to break even until 2015-16 and to record a small surplus in 2016-17 of $6,591 million (0.4 per cent of GDP).56

Box 1: The Government’s medium-term fiscal strategy

The Government’s fiscal strategy is designed to ensure fiscal sustainability, while providing the flexibility for the budget position to vary in line with economic conditions. According to Budget Paper No. 1, the Government’s fiscal strategy has remained unchanged since 2008-09 and is to:

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

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

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

To ensure a timely return to surplus and recovery in the fiscal position, since the beginning of the global financial crisis (GFC) the Government has further committed to:

• allow the level of tax receipts to recover naturally as the economy improves, while maintaining the

Government’s commitment to keep taxation as a share of GDP below the 2007-08 level on average and • build growing surpluses by holding real growth in spending to 2 per cent a year, on average, until the

budget surplus is at least 1 per cent of GDP, and while the economy is growing at or above trend.

Further, in his budget speech, the Treasurer noted that since mid-2009 the Government has fully offset all new spending with savings measures and this continues to be the case.

Sources: Australian Government, Budgets strategy and outlook: budget paper no. 1: 2013-14, May 2013, pp. 1-11 - 1-12, accessed 15 May 2013; W Swan (Treasurer), Budget speech 2013-14, p. 3, accessed 15 May 2013.

In his annual post-budget address to the Australian Business Economists last year, the Secretary to the Treasury observed that:

There are also those who argue that returning the budget to surplus in 2012-13 is a political gesture and there would be no great harm in delaying this by a year or so.

The problem with this argument is that if it’s not appropriate to restore the structural budget position when we have low unemployment and the economy is expected to grow at around trend, when will it be appropriate? 57

The Government did achieve significant fiscal consolidation in 2012-13 of $23,983.0 million (1.6 per cent of GDP), but this Budget is forecasting further consolidation over the next two years of just $1,334.0 million (0.1 per cent of GDP) in 2013-14 and $7,155.0 million (0.4 per cent of GDP) in 2014-15. This reduction in the rate of tightening is despite real GDP growth forecast to be close to trend at 2.75 per cent in 2013-14 and increasing to 3 per cent from 2014-15 onwards.58 Further, the

56. Budget Strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 10-7. 57. M Parkinson (Secretary to the Treasury), Macroeconomic policy for changing circumstances, Annual post-Budget address to the Australian Business Economists, Sydney, 15 May 2012, p. 22, accessed 16 May 2013.

58. Budget Strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 1-8.

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unemployment rate is forecast to remain relatively low at 5.75 per cent in 2013-14 and 2014-15. And, nominal GDP growth is forecast to be 5 per cent in 2013-14 and 2014-15 up from 3.25 per cent in 2012-13.59

According to Budget Paper No.1, the Government has decided to ‘recalibrate’ the pace of fiscal consolidation because it considers making significant cuts to offset revenue write downs in the near term would come at a significant cost to jobs and growth.60 As discussed above, Australia faces the challenge of needing to make the transition from one set of growth drivers to another and there remains considerable uncertainty about how this will ultimately play out. By slowing the pace of fiscal consolidation the Government is reducing the extent to which the public sector will have a contractionary effect on the economy. Other things being equal, it is likely growth would have been even more subdued over the next couple of years if the Government had decided to return the Budget to surplus more quickly.

Bob Gregory and Peter Sheehan argue that given the size of the deflationary shock Australia is facing, monetary policy can no longer be expected to play the central role in supporting domestic demand and as a consequence fiscal policy will need to be more expansionary.

Australia has a strong fiscal and public debt position, and is recognised as having extensive ‘fiscal space’ to address shocks such as those discussed here. But three factors qualify that assessment. First, government revenue as a share of GDP is currently at a historically low level, as a result of revenue of about 5% of GDP foregone in tax cuts in the first stage of the resources boom and of special factors since the GFC. Secondly, revenue is likely to grow only slowly over the medium term, because of slow growth in the non-resource sector and in tax payments from resources companies. Thirdly, the focus on the political debate remains firmly on deficit elimination and debt reduction, still reflecting earlier stages of the resources boom.

61

In the short-term the Government is trading-off providing some additional support to the economy by slowing the pace of fiscal consolidation against returning the budget to surplus. Given the economy is running a little below trend and the risks Gregory and Sheehan have identified, it can reasonably be argued that now is not the time to be taking large amounts of money out of the economy. Against this, the budget is not forecast to return to surplus until the end of the forward estimates period and even then the surplus is relatively modest. In the context of the Government’s stated medium-term fiscal strategy, the return to surplus at this stage looks more aspirational than ‘locked in’. The question is whether more should have been done in the 2013-14 Budget to make the return to surplus towards the end of the forward estimates period more secure.

The fiscal outlook

The budgetary outlook is quite different to what it was a year ago. The 2012-13 Budget forecast a return to a small surplus in 2012-13 following what would have been one of the sharpest fiscal consolidations since the 1950s at about 3 per cent of GDP. Instead, only around half of that fiscal consolidation was achieved in 2012-13. As a consequence, the underlying cash balance in 2012-13 is estimated to be a

59. Ibid.

60. Ibid., p. 1-11. 61. P Sheehan and B Gregory, The resources boom and economic policy in the longer run, op. cit., p. 20.

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deficit of $19,377 million (1.3 per cent of GDP) (table 2). The Budget is forecast to continue to generate relatively small deficits until breaking even in 2015-16 and returning to a small surplus in 2016-17.

Whereas the 2012-13 Budget was forecasting accumulated surpluses of $16,367.0 million over the period 2012-13 to 2015-16, the latest forecasts suggest an accumulated deficit of $47,459.0 million. This implies the fiscal outlook has deteriorated over this period by around $63,826.0 million.

Table 3: Treasury forecasts of major economic parameters

Actual Estimates Projections

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Underlying cash balance ($b)(a) -43.4 -19.4 -18.0 -10.9 0.8 6.6

Per cent of GDP -2.9 -1.3 -1.1 -0.6 0.0 0.4

Fiscal balance ($b) -44.5 -20.3 -13.5 -6.3 6.0 10.8

Per cent of GDP -3.0 -1.3 -0.8 -0.4 0.3 0.6

(a) Excludes net Future Fund earnings. Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, May 2012, p. 3-6; Australian Government.

Most of the forecast adjustment to bring the Budget into balance by 2015-16 is on the revenue side. Expenditure as a share of GDP is only forecast to fall slightly from 24.2 per cent of GDP in 2012-13 to 24.0 per cent of GDP in 2015-16. Over the same period revenue is forecast to increase from 23 per cent of GDP to 24.3 per cent of GDP. The Government observes in Budget Paper No. 1 that:

The Government’s approach is to let the automatic stabilisers on the revenue side of the budget operate in the near term. This means not offsetting substantial near term revenue downgrades by making large spending cuts, which would come at a significant cost to jobs and growth. 62

Achieving a balanced budget in 2015-16 would appear to depend on higher nominal GDP growth supporting a recovery in tax receipts. If nominal GDP growth does not bounce back as Treasury is forecasting, the improvement on the revenue side of the Budget may disappoint.

Nevertheless, as the Government argues in Budget Paper No. 1, overall Australia remains in a relatively strong fiscal position compared to other advanced economies.63 Despite the deterioration in the fiscal outlook since the 2012-13 Budget, Australia’s net debt to GDP ratio is expected to peak at only 11.4 per cent of GDP in 2014-15. In comparison, the peak in the average net debt position of the G7 economies is expected to be 92.6 per cent of GDP in 2014.64 Overall, the budget continues to have a high degree of resilience, affording Australia more space to respond to any further global shocks than many other advanced economies.

Reconciling the changes since the 2012-13 Budget

Looking across the period 2012-13 to 2015-16 most of the deterioration in the fiscal outlook has been due to ‘parameter variations’ (table 4). Parameter changes are changes in receipts and payments due to

62. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., p. 3-6. 63. Ibid., p. 4-28. 64. Ibid., p.

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economic conditions being different to Treasury’s forecasts. For example, since the 2012-13 Budget, the forecast bottom line for 2012-13 has deteriorated by $20,913.0 million, of which $18,096.0 is accounted for by parameter variations.

Overwhelmingly these parameter variations consist of significant write-downs in revenue forecasts. Tax receipts have been revised down by $12.9 billion in 2012-13, $16.6 billion in 2013-14 and $61.0 billion over the four years to 2015-16.65

It is important to understand the write-down of tax receipts in 2012-13 does not mean the Government collected less tax in 2012-13 than it did in the previous year. Tax receipts actually grew by 5.3 per cent in 2012-13.66 Further, tax receipts as a share of GDP increased to 21.5 per cent of GDP in 2012-13 up from 21 per cent in 2011-12.67 The revenue write-downs simply mean that the amount of tax collected was significantly less than forecast at the time of the last budget.

As discussed earlier, nominal GDP grew by much less than forecast in 2012-13. The combined effects of the decline in the terms of trade and the high Australian dollar squeezed the profitability of Australian companies, which flowed through into lower company tax receipts. Indeed, company tax receipts is the single largest contributor to the write-downs in tax receipts, accounting for $5.2 billion in 2012-13, $7.2 billion in 2013-14 and $24.3 billion over the four years to 2015-16.68

Other significant tax write-downs include:

• resource rent taxes (minerals resource rent taxes and petroleum resource rent taxes) are expected to

be $3.6 billion lower in 2012-13 and $3.2 billion lower in 2013-14 and

• capital gains tax receipts are expected to be lower by $1.8 billion in 2012-13 and$2.9 billion in

2013-14.69

There is a separate brief on the revenue side of the Budget explaining in more detail the tax write-downs that have occurred since the 2012-13 Budget.

65. Ibid., p. 3-17. 66. Ibid., p. 5-5. 67. Ibid.

68. Ibid., p. 3-17. 69. Ibid., pp. 3-17 -3-18

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Budget Review 2013-14

Table 4: Reconciliation of underlying cash balance estimates

Estimates Projections

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

$m $m $m $m

2012-13 Budget underlying cash balance(a) 1,536 2,044 5,318 7,469

Per cent of GDP 0.1 0.1 0.3 0.4

Changes from 2012-13 Budget to 2012-13 MYEFO

Effect of policy decisions(b) 1,411 5,121 1,917 1,897

Effect of parameter and other variations -1,869 -5,000 -3,910 -2,958

Total variations -458 121 -1,993 -1,061

2012-13 MYEFO underlying cash balance(a) 1,077 2,165 3,325 6,408

Per cent of GDP 0.1 0.1 0.2 0.4

Changes from 2012-13 MYEFO to 2013-14 Budget

Effect of policy decisions(b)(c)

Receipts -56 255 5,603 9,521

Payments 2,302 975 -584 -2,803

Total policy decisions impact on underlying cash balance -2,358 -720 6,188 12,324

Effect of parameter and other variations(c)

Receipts(d) -16,358 -17,024 -14,557 -15,306

Payments 1,738 2,464 5,843 2,576

Total parameter and other variations impact on

underlying cash balance -18,096 -19,488 -20,400 -17,882

2012-13 Budget underlying cash balance(a) -19,377 -18,043 -10,888 849

Per cent of GDP -1.3 -1.1 -0.6 0.0

(a) 2012-13 MYEFO and 2013-14 Budget figures exclude expected net Future Fund earnings, whereas 2012-13 Budget figures exclude expected gross Future Fund earnings. (b) Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken. (c) A positive number for revenue indicates an increase in the fiscal balance, while a positive number for expenses and net capital investment indicates a decrease in the fiscal balance. (d) Receipts will differ from the cash receipts reconciliation published in Budget Statement 5 as they exclude Future Fund earnings. Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, May 2012, p. 3-17.

Revenue measures

Since the 2012-13 MYEFO a number of policy decisions have been taken, which are expected to increase receipts by $255.0 million in 2013-14, $5.6 billion in 2014-15, $9.5 billion in 2015-16 and $10.1 billion in 2016-17.70 These measures include increasing the Medicare levy to help pay for the Government’s DisabilityCare Australia initiative, measures to protect the income tax base, changes to the superannuation system and restricting some tax expenditures.

The main revenue measures are listed in Statement 3 of Budget Paper No. 1 and include the following:

70. Ibid., p. 5-17.

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Budget Review 2013-14

• a series of measures intended to protect the corporate tax base by addressing current abuses, which

is expected to increase tax receipts by $4.1 billion over the forward estimates period

• the Australian Tax Office (ATO) is to be provided with additional resources to expand data matching

with third party information, which is expected to increase tax receipts by $432.0 million over the forward estimates period

• the ATO is also to be provided with additional resources to address risks to the tax system from

exploitation of trust structures. This is expected to increase tax receipts by $217 million over the forward estimates period

• the Clean Energy Future personal income tax cuts that were to commence on 1 July 2015 have been

deferred, which is expected to increased tax receipts by $1.5 billion over the forward estimates period and

• access to the R&D tax incentive will be limited to those companies with annual aggregate Australian

turnover of less than $20.0 billion from 1 July 2013, which is expected to increase tax receipts by $1.1 billion over the forward estimates period.

Expenditure measures

Since the 2012-13 MYEFO, total cash payments for 2013-14 have increased by $3.4 billion, comprising new policy decisions which have increased payments by $975.0 million and parameter and other variations which have increased payments by $2.5 billion.71

The main expenditure measures are listed in Statement 3 of Budget Paper No. 1 and include the following:

• additional funding of $9.8 billion over six years from 2014-15 has been provided to implement a new

needs-based funding model for schools, as part of the Government’s Better Schools: A National Plan for School Improvement package

• additional funding of $14.3 billion over the seven years from 2012-13 has been provided to fully

implement DisabilityCare Australia (the national disability insurance scheme) by 1 July 2019 and

• additional funding of $682.0 million over the five years to 2016-17 to cover the cost of a number of

new and amended listings on the Pharmaceutical Benefits Scheme and the Repatriation Pharmaceutical Benefits Scheme.

The funding commitments for the education and national disability insurance scheme reform extend beyond the forward estimated period. However, the impact of these decisions up until 2016-17 has been more than offset by a number of savings measures. These savings measures are also listed in Statement 3 of Budget Paper No. 1 and include:

• a range of changes to Family Tax Benefit payments including: not proceeding with the 2012-13

Budget measure Spreading the Benefits of the Boom; abolishing the Baby Bonus; and continuing the

71. Ibid., p. 3-24.

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current indexation pauses on upper income thresholds and supplements. These are expected to decrease payments by $349.0 million in 2013-14 ($4.3 billion over the five years to 2016-17)

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

Assistance by one year to 2017-18, decreasing payments by $1.9 billion over the five years to 2016-17

• offering Student Start-up Scholarships as income contingent loans rather than as grants to all new

full-time higher education students in receipt of Youth Allowance, Austudy or ABSTUDY from 1 January 2014, decreasing payments by $35.0 million in 2013-14 ($1.2 billion over the five years to 2016-17) and

• applying an efficiency dividend of 2 per cent in 2014 and 1.25 per cent in 2015 to most grants

provided un the Higher Education Support Act 2003, decreasing payments by $85.0 million in 2013-14 ($903.0 million over the five years to 2016-17).

New infrastructure funding

The Government announced in the Budget additional investment in infrastructure worth $24 billion. Some of the big ticket items being funded include:

• $3.0 billion for the Melbourne Metro

• $715.0 million for the Brisbane Cross River Rail

• $1.8 billion for Sydney motorway projects (the M4 extension and M5 duplication) and

• $718.0 million towards the Gateway North upgrade in Brisbane.

Reactions from business associations and community groups

Australian Chamber of Commerce and Industry

The Chief Executive of the Australian Chamber of Commerce and Industry, Peter Anderson, has criticised the federal budget as doing little to take cost pressures off the private sector, particularly small businesses, and failing to wind back government spending to avoid future deficits and allow future investment in the economy.72 Mr Anderson stated that the lack of company tax relief, lack of capital gains tax relief, higher personal income tax through the Medicare levy, lack of cost offset to fund the increase in the superannuation levy, failure to restore incentives to hire new apprentices and the lack of reduction in tax compliance and red tape had failed to support the ‘nation’s economic engine room’ of two million small businesses with seven million employees. Mr Anderson claimed that an increased tax burden will erode Australia’s productive capacity and make Australia less competitive.

Australian Council of Social Services

The Australian Council of Social Service (ACOSS) has welcomed measures in the federal budget to secure disability care, dental and schools reform and strengthening of public service revenue to secure funding

72. P Anderson (Chief Executive, Australian Chamber of Commerce and Industry), Budget ignores small business and hard savings choices, media release, 14 May 2013, accessed 17 May 2013.

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for these and other services, but expressed concern at the lack of income relief for the ‘people who are the poorest’.73 ACOSS CEO, Dr Cassandra Goldie, supported changes to the income test but was disappointed that there was no change in the Newstart rate failing to reduce the rate of poverty in Australia. Dr Goldie supported the increase in the Medicare levy to fund DisabilityCare Australia, measures to close tax loopholes and other inefficient tax arrangements, investment in reducing tax evasion through trusts and better targeting by integrating the baby bonus into the family payments system.

Australian Council of Trade Unions

The President of the Australian Council of Trade Unions, Ged Kearney, has labelled the Budget a success.74 Ms Kearney welcomed investment in areas that will encourage job creation and indicated the union’s strong support of closing company tax loopholes which allow multinational companies to pay less than their fair share in tax. Ms Kearney stated that the schools improvement plan and disability funding are historic reforms and that those who require welfare the most will be better targeted through the Paid Parental Leave scheme than the baby bonus.

Australian Industry Group

The Chief Executive of the Australian Industry Group, Innes Willox, stated that the Budget confirms industry concerns about a slowing economy, and while it does little immediate harm, the Budget does not provide confidence in the medium-term path back to surplus.75 Mr Willox expressed concerns that the Budget is based on forecasts that are too optimistic, and fails to introduce measures to boost investment, innovation, competitiveness and productivity. Mr Willox welcomed budget measures that will assist industry in the current economic climate, such as infrastructure investments, flexibility of apprenticeships, Skills Connect, maintaining the immigration intake and bringing forward expenditure in the Clean Technology Investment Fund. However, measures such as increased charges for 457 Visa applications and import processing and more frequent and earlier tax payments for medium size businesses will increase the cost of doing business.

Business Council of Australia

The Chief Executive of the Business Council of Australia, Jennifer Westacott, has criticised the failure of the Budget to provide a credible path back to surplus.76 Ms Westacott stated that the Budget does not address the lack of confidence in the economy nor the fiscal fundamentals to create an environment that drives investment and supports competitive business. She supported the focus on growth and jobs but criticised the business tax changes. Ms Westacott welcomed the 10-year forecasts for funding the National Disability Insurance Scheme, Gonski reforms and measures around infrastructure and skills training.

73. C Goldie (Chief Executive Officer, Australian Council of Social Service), Budget secures landmark disability and education reforms, but gaping hole for poorest on allowances, media release, 14 May 2013, accessed 17 May 2013. 74. G Kearney (President, Australian Council of Trade Unions), Budget 2013: ACTU welcomes focus on jobs and infrastructure and a closing of company tax loopholes, media release, 14 May 2013, accessed 17 May 2013. 75. I Willox (Chief Executive, Australian Industry Group), Ai Group budget comment- tough calls avoided as reality bites, media

release, 14 May 2013, accessed 17 May 2013. 76. J Westacott (Chief Executive, Business Council of Australia), Business Council of Australia response to the 2013-14 federal budget, media release 14 May 2013, accessed 17 May 2013.

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Budget Review 2013-14

National Farmers’ Federation

The National Farmers’ Federation is disappointed that the Budget does not take a long term strategic view and invest in the future of the agriculture sector.77 Although the Budget has spared the agriculture sector from major cuts, the Government has allocated funds to new initiatives (drought policy assistance package) from funds already committed to agriculture (Caring for our Country project). The Federation welcomed the flow on effects of the Budget’s investment in road and rail, but also stated that cuts in other areas, such as a reduction in assistance to industries affected by the carbon tax, may have a flow on effect to farmers through increased costs being passed on. Changes to the PAYG system will also impose increased regulatory burdens on farmers.

77. D Fraser (President, National Farmers’ Federation), Not much in it for farmers: food & fibre forgotten in budget, media release 15 May 2013, accessed 17 May 2013.

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Budget Review 2013-14

Revenue adjustments

Daniel Weight

The Government has stated that there have been significant reductions, or ‘writedowns’, in Commonwealth revenues, particularly from profits based taxes.78 However, others have asserted that revenues have, in fact, increased.79 Depending upon how revenue is measured, both of these assertions may be correct.

The briefing entitled Revised revenue projections and associated expenditure for the Minerals Resource Rent Tax (MRRT) specifically discusses revenues from that tax.

Measures of revenues

The Government, Opposition, and other commentators all tend to use differing bases for their assertions, making direct comparisons difficult. There are several areas where ambiguity can arise.

‘Tax’ revenue or ‘total’ revenue

Differing pictures of the revenue available to the Government can emerge depending upon whether tax revenue or total revenue is being discussed. The majority of revenue received by the Government is classified as taxation. Taxation cash receipts are estimated to be $354.9 billion in 2013-14.80 However, the Government also receives certain other revenues from the provision of goods and services, dividends, and interest. Other cash receipts are expected to be $21.1 billion in 2013-14.81 Total cash revenue includes both taxation revenue and other revenue, and is estimated to be $376.0 billion in 2013-14.

‘Nominal’ versus ‘real’ growth in receipts

Due to the tendency of prices to increase due to inflation, the nominal value of revenue receipts can be misleading as it is not adjusted for the effects of inflation. Therefore, the annual increase (or decrease) in revenue receipts is sometimes adjusted for inflation to arrive at a ‘real’ rate of increase (or decrease) in revenue.

Focusing on the real rate of revenue growth may provide a better picture of the true level of revenues to Government. An assertion that revenue is down in real terms may be difficult to reconcile with nominal figures that show a simple arithmetic increase. Since the 2008-09 Budget, the Government has used the Consumer Price Index (CPI) to adjust nominal budget figures to arrive at real figures.82

78. W Swan (Deputy Prime Minister and Treasurer), Interview with Fran Kelly, Radio National Breakfast, Budget 2013-14, transcript, 15 May 2013, accessed 24 May 2012. 79. J Hockey (Shadow Treasurer), Interview with Fran Kelly, Radio National, Budget 2013-14, transcript, 15 May 2013, accessed 24 May 2013. 80. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 5-30, 14 May 2013, accessed 24

May 2013. 81. Ibid.

82. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 10-5, 14 May 2013, accessed 24 May 2013.

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Budget Review 2013-14

Receipts as a per cent of Gross Domestic Product

Another measure of revenue receipts that has been cited is taxation receipts as a percentage of gross domestic product (GDP). On the assumption that the Government’s revenue receipts will generally remain a constant proportion of the economic activity occurring within Australia, this measure can provide a useful insight into whether or not taxation receipts are higher or lower than could otherwise be expected.

Revenue ‘write-ups’ and ‘write-downs’

Another measure of how revenue has moved is how the most recent forecasts of revenue receipts have varied from prior estimates. This complication arises from the Government’s annual budgeting process, which assumes a certain level of growth in receipts from factors including general price inflation and increased economic activity. Variations in these two factors, in particular, can mean that a forecast for certain types of revenue vary as the estimates evolve throughout the four year budget period.

It is entirely reasonable in most circumstances for Governments to anticipate increases in revenues in future years when formulating their annual budget and making spending decisions. However, such an approach relies heavily upon the robustness of underlying economic and other forecasts.

Is revenue ‘up’ or ‘down’?

Given that there are various differing measures of revenue receipts, it is worthwhile determining whether revenues have risen, or are expected to rise, according to the various measures presented.

Nominal revenue growth

Table 1 shows the actual and estimated total revenue and taxation revenue receipts between 2004-05 and 2015-16 on a cash basis and the percentage change.

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Budget Review 2013-14

Table 1: Nominal total and tax revenues (2004-05 to 2015-16)

04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

Total revenue

($b) 236.0 255.9 272.6 294.9 292.6 284.7 302.0 329.9 350.4 376.0 401.2 428.9

Change (%) 8.4 8.5 6.5 8.2 -0.8 -2.7 6.1 9.2 6.2 7.3 6.7 6.9

Tax revenue

($b) 223.3 241.2 257.4 278.4 272.6 261.0 280.8 309.9 326.3 354.9 377.8 405.8

Change (%) 8.4 8.0 6.7 8.2 -2.1 -4.3 7.6 10.4 5.3 8.8 6.5 7.4

Note: 2012-13 to 2015-16 are estimates. Source: Australian Government, 2013-14 Budget papers: budget paper no. 1: budget strategy and outlook, p. 10-6 and 10-7, 14 May 2013, accessed 24 May 2013.

On these measures, both total and tax revenues decreased during the height of the global financial crisis in 2008-09 and 2009-10. However, both total revenues and tax revenues rebounded strongly in 2011- 12. The forecasts for both total revenues and tax revenues show continued growth to 2015-16, albeit at generally lower rates than prior to the global financial crisis (GFC).

Real revenue growth

When the expected increase in revenues is adjusted for general price inflation (as measured by the CPI), the general picture that emerges from the outcome and estimates of nominal revenues remains the same (see Table 2). That is, Government revenues—whether total or only tax—only declined in 2008-09 and 2009-10.

Table 2: Real change in total and tax revenues (2004-05 to 2015-16)

04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

Total revenue

Change (%) 5.7 5.8 2.4 6.0 -5.0 -4.1 2.9 5.5 5.0 4.7 4.4 4.7

Tax revenue

Change (%) 5.7 5.4 2.6 5.9 -6.2 -5.6 4.4 6.6 4.0 6.1 4.2 5.2

Note: 2012-13 to 2015-16 are estimates. Source: Australian Government, 2013-14 Budget papers: budget paper no. 1: budget strategy and outlook, p. 10-6 and 10-7, 14 May 2013, accessed 24 May 2013; ABS, Consumer price index, cat. no. 6401.0, accessed 24 May 2013.

Receipts as a percentage of GDP

When we look at revenues as a proportion of GDP, the effect of the GFC becomes more pronounced (see Table 3). At the height of the GFC, both total revenues and tax revenues declined from their most recent highs in 2004-05 by 3.2 per cent and 4.2 and of GDP respectively. As shown in Table 3, both total revenues and tax revenues as a percentage of GDP are not forecast to exceed their pre-GFC highs at any point to 2015-16.

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Budget Review 2013-14

Table 3: Revenue as a percentage of GDP (2004-05 to 2015-16)

04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

Total revenue

% GDP 25.6 25.7 25.2 25.1 23.3 22.0 21.5 22.4 23.0 23.5 23.9 24.3

Tax revenue

% GDP 24.2 24.2 23.8 23.7 21.7 20.2 20.0 21.0 21.5 22.2 22.5 23.0

Note: 2012-13 to 2015-16 are estimates. Source: Australian Government, 2013-14 Budget papers: budget paper no. 1: budget strategy and outlook, p. 10-8, 14 May 2013, accessed 24 May 2013; ABS, Consumer Price Index, cat. no. 6401.0, accessed 24 May 2013.

On this measure, the Government has faced a significant fall in both tax and total revenue receipts.

Write-downs to revenue

In the 2013-14 Budget, total revenue (on a cash basis) in 2013-14 is forecast to be $16.6 billion less than was forecast at the time of the 2012-13 MYEFO in October 2012. 83 Of this reduction, $14.9 billion is attributable to downward revisions to tax receipts.84 To the extent that this represents a variation from a prior estimate, it is a ‘loss’ to the revenue that was anticipated to be received by the Government, but not a loss of any revenues ever actually received. The Government has stated that the most significant write-down to revenue relates to company tax.85

Estimates of revenues start out as projections four years ahead, but as subsequent budgets and other updates to the forecasts are issued, a clearer picture of the likely final outcome for a given year emerges. As an example, Chart 1 shows the evolution of the figure for company tax cash receipts for the years 2010-11 to 2012-13 with selected forecasting points highlighted.

83. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 5-30, 14 May 2013, accessed 24 May 2013. 84. Ibid.

85. W Swan (Deputy Prime Minister and Treasurer), 2013-14 Budget: budget speech, p. 5, 14 May 2013, accessed 24 May 2013.

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Budget Review 2013-14

Chart 1: Evolution of company tax forecasts 2010-11 to 2012-13 (selected forecasting points)

Note: Abridged scale.

Source: Australian Government, Budget paper no. 1: budget strategy and outlook (various years) accessed 24 May 2013;

Australian Government, Mid year economic and fiscal outlook (various years), accessed 24 May 2013.

At the height of the GFC in 2009-10, the Government’s projections of company tax revenues for the relevant years were lower than any other point. However, the next set of estimates made as part of the 2010-11 Budget forecast a significant upward revision to company tax receipts. In the three subsequent budgets to 2013-14, company tax receipts were revised down in all years considered above.

To the extent that the Government may have relied upon receiving levels of company tax revenues forecast in the 2010-11 Budget, it has ‘lost’ revenue. Given that company tax receipts for 2010-11 exceed the estimate made during the height of the GFC only one year before, adopting optimistic estimates in the 2010-11 Budget may have been reasonable. However, the subsequent write-downs of revenues for the 2011-12 and 201-13 years tend to suggest that the forecasts of company tax receipts made for the out years in the 2010-11 Budget were too optimistic.

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Budget Review 2013-14

Revised revenue projections and associated expenditure for the Minerals Resource Rent Tax (MRRT)

Kai Swoboda

Background

When it announced the introduction of a Resource Super Profits Tax (RSPT) in May 2010, the Government directly linked the revenue from the tax to a number of expense measures including funding the income tax forgone from lifting the superannuation guarantee from 9 per cent to 12 per cent and the introduction of a $500 low income superannuation contribution (LISC) for those earning $37,000 or less to compensate for the 15 per cent superannuation contributions tax paid.86

Following a period of consultation in the second half of 2010 and negotiations in early 2011 between the Government and some mining companies the proposed RSPT was modified to what became the Minerals Resource Rent Tax (MRRT), with the linked measures retained. Of course there is no practical hypothecation of MRRT revenue to linked measures.87 While legislation that has been passed by the Parliament to implement some measures was dependent on the passage of the MRRT legislation, future revenues and expenses are simply put through the Consolidated Fund.

As part of the 2012-13 Budget, the Government revised its revenue estimates for the MRRT and announced that several linked measures would be deferred or abandoned. The Parliamentary Library estimated that the combined impact of these revised revenue estimates and changes to measures notionally funded by the MRRT were an overall impact on the budget of - $43 million in 2011-12, +$2,068 million in 2012-13 and - $619 million in 2013-14.88

The 2013-14 Budget has also seen further revisions to MRRT revenue and some changes to linked expenditures. So what is the overall impact taking into account further revisions to revenue estimates and 2013-14 Budget announcements relating to measures linked to the MRRT?

MRRT revenues

Estimates of revenue raised by the MRRT have been revised down several times since the introduction of the MRRT-related Bills in Parliament in November 2011. The Treasurer revealed on 8 February 2013 that revenue from the MRRT was only $126 million over the first two quarters of 2012-13,89 so it is perhaps no surprise that revenue for the full 2012-13 financial year is only expected to be $200 million, $1.8 billion less than at October 2012 (Table 1).

86. W Swan (Treasurer) and C Bowen (Minister for Financial Services, Superannuation and Corporate Law), Stronger, fairer, simpler superannuation banking the benefits of the boom, joint media release, 2 May 2010, accessed 16 May 2013; W Swan (Treasurer) and K Rudd (Prime Minister), Stronger, fairer, simpler: a tax plan for our future, joint media release, 2 May 2010, accessed 16 May 2013.

87. Measures can be linked to the MRRT through a number of mechanisms, including the packaging of measures in the initial announcement of the RSPT and by subsequent announcements by Government members. Measures may also be linked to the MRRT if they were part of negotiations with non-Government parties and members in finalising the MRRT Bills for passage through the House of Representatives. 88. K Swoboda, Minerals Resource Rent Tax: changes to revenue and expenditure estimates, Budget Review 2012-13,

Research Paper, 9, 2011-12, Parliamentary Library, Canberra, 11 May 2012, accessed 14 May 2013. 89. W Swan (Treasurer), Minerals Resource Rent Tax revenue, media release, 8 February 2013, accessed 15 May 2013.

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Budget Review 2013-14

Table 1: Changes in Minerals Resource Rent tax revenue projections ($ billion)

2012-13 2013-14 2014-15 2015-16 2016-17

May 2010 announcement of Resource Super Profits Tax

3.0 9.0 Not available Not available Not available

November 2011 introduction of MRRT Bills

3.7 4.0 3.4 Not available Not available

November 2011 MYEFO 3.7 3.8 3.1 Not available Not available

2012-13 Budget 3.0 3.5 3.2 3.7 Not available

October 2012 MYEFO 2.0 2.4 2.1 2.6 Not available

2013-14 Budget 0.2 0.7 1.0 1.4 2.2

Sources: Australian Government, Budget measures: budget paper no. 2: 2010-11, p. 45, accessed 9 May 2013; Revised Explanatory Memorandum, Minerals Resource Rent Tax Bill 2011, p. 4, accessed 15 May 2013; Australian Government, Mid-year economic and fiscal outlook 2011-12, p. 264, accessed 9 May 2013; Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, p. 5-20, accessed 9 May 2013; Australian Government, Mid-year economic and fiscal outlook 2012-13, p. 357, accessed 15 May 2013; Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, 2013, pp. 3-18 and 9-21, accessed 14 May 2013.

Changes to MRRT-related expenses in the 2013-14 Budget

There were four changes announced in the 2013-14 Budget to measures that were linked to MRRT revenue:

• the abandonment of a proposed increase to Family Tax Benefit Part A (FTB-A) from 1 July 2013

• an increase in the concessional superannuation contributions cap from $25,000 per year to $35,000

per year for those aged 50 and over from 1 July 2014 with a start date of 1 July 2013 for those aged 60 and over90

• a minor change to the LISC so that those with an entitlement below the $20 minimum receive at least

$10 and

• reduced funding for stream 2 of the Regional Infrastructure Fund (RIF) of $2 billion (with $1 billion of

this relating to 2018-19 and 2019-20).91

Of these measures, the Government attributed the reduced allocation for the RIF to the change in revenue estimates for the MRRT, while the Government’s reasons for abandoning the increase in FTB-A referred to broader revenue write downs.92 The combined net gain to the budget as a result of these changes is almost $2.9 billion over the forward estimates (table 2):

90. The impact of increasing the concessional contributions cap to $35,000 for those aged 50 and over reflects the incremental adjustments from previous budget announcements rather than the full cost of this policy. The higher cap was originally included in the 2010-11 Budget for those aged 50 or more with a superannuation balance of less than $500,000 from 1 July 2012. This measure was then deferred two years in the 2012-13 Budget. As a result, the 2013-14 Budget impact reflects the change in timing for those aged 60 or more (July 2013 rather than July 2014), change to the cap ($50,00 down to $35,000) and the broadening of the measure (all persons aged 50 or more regardless of accumulated superannuation account balance). 91. Australian Government, Budget measures: budget paper no. 2, 2013-14, pp. 40, 150, 225-227 and 266, accessed 15 May

2013.

92. Budget measures: budget paper no. 2, 2013-14, op. cit., p. 150 and 227.

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Budget Review 2013-14

Table 2: 2013-14 Budget MRRT-related revenue and expense measures 2012-13 to 2016-17 ($ million)

Measure 2012-13

($ million)

2013-14 ($ million)

2014-15 ($ million)

2015-16 ($ million)

2016-17 ($ million)

Abandon increasing rate of FTB-A 615.8 623.3 632.0 646.4

Concessional contributions cap increase for over 50s -0.2 -195.3 104.9 230.8 225.9

Technical change to low income superannuation contribution

-3.0 -3.0 -3.0 -3.0 -3.0

Reduced funding for Regional Infrastructure Fund 150 50 678

Total net impact -3.2 567.5 775.2 859.8 1547.3

Source: Australian Government, Budget measures: budget paper no. 2, 2013-14, p. 41, 150, 225-227 and 266, accessed 15 May 2013.

Net impact of MRRT revenue and linked expenses

Taken as a package, the net cost of the MRRT and associated measures can be calculated for three financial years, 2011-12, 2012-13 and 2013-14. In these years, based on the latest revenue forecasts and the cost of associated measures, the net cost of the package is $43 million in 2011-12, $560 million in 2012-13 and $3,471 million in 2013-14 (table 3).

Table 3: Net MRRT package cost 2011-12 to 2016-17 ($ million)

Measure 2011-12

($ million)

2012-13 ($ million)

2013-14 ($ million)

2014-15 ($ million)

2015-16 ($ million)

2016-17 ($ million)

Revised MRRT revenue 0 200 700 1 000 1 400 2 200

Revised MRRT-related expenditures

-43 -760 -4 4171 Not available Not available Not available

Net cost of MRRT package -43 -560 -3 471 Not available Not available Not available

Source: Table 1 for revenue and Parliamentary Library analysis of Table 4.

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Budget Review 2013-14

Table 4: Impact of 2013-14 Budget and intervening policy announcements on Minerals Resource Rent Tax-linked expenditures

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

Company tax rate cut to 28 per cent and then revised to 29 per cent

Original cost adjusted for (a) 300 1400 Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil Reduced to nil Reduced to nil Reduced to nil Reduced to nil

Early company tax rate cut for small business

Original cost (b) 50 100 50 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil Reduced to nil Reduced to nil Reduced to nil Reduced to nil

Superannuation guarantee increase from 9 per cent to 12 per cent

Original cost (c) 240 500 Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated - no

impact

Legislated - no impact Legislated - no impact

Raising the superannuation guarantee age limit from 70 to 75

Original cost (d) -22 27 Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated - no

impact

Legislated - no impact Legislated - no impact

Low income government superannuation contribution

Original cost (e) 1 20 892 976 Not available

Impact of 2012-13 Budget and intervening policy announcements

-25.6 -26.6 -25.6 Not available

Impact of 2013-14 Budget 3 3 3 3

Higher superannuation caps for people aged 50 or more with a superannuation balance of less than $500 000

Original cost (f) 545 785 Not available Not available

Impact of 2012-13 Budget -580 -730 -130 -10

Impact of 2013-14 Budget 0.2 195.3 -104.9 -230.8

Instant asset write-off for small business ($5000 threshold)

Original cost (g) 1030 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Legislated - no

impact

Legislated - no impact Legislated - no impact

Standard work-related deduction

Original cost (h) 410 Not available Not available

Impact of 2012-13 Budget and Reduced to nil Reduced to nil Reduced to nil

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Budget Review 2013-14

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

intervening policy announcements Phasing down interest withholding tax on financial institutions

Original cost (i) 70 Not available

Impact of 2012-13 Budget and intervening policy announcements

-70 -70 Not yet

legislated - no impact

50 per cent refund on tax paid on savings

Original cost (j) 470 480 Not available Not available

Impact of 2012-13 Budget and intervening policy announcements

Reduced to nil Reduced to nil Reduced to nil Reduced to nil

Regional Infrastructure Fund

Original cost 42 794 867 665

Impact of 2013-14 Budget and intervening policy announcements

No impact No impact -150 -50 No impact

Expanding the definition of exploration to include geothermal energy

Original cost 5 5

Impact of 2012-13 Budget and intervening policy announcements

No impact No impact No impact No impact No impact

Supplementary income support for low income earners

Original cost Not applicable Not applicable Not applicable Not applicable Not applicable

Impact of 2012-13 Budget and intervening policy announcements

153 299 306 313

Increase in the rate of Family Tax Benefit A

Original cost (k) Not applicable Not applicable Not applicable Not applicable Not applicable

Impact of 2012-13 Budget 603 615 626

Impact of 2013-14 Budget -615.8 -623.3 -632

Tax loss carry-back

Original cost Not applicable Not applicable Not applicable Not applicable Not applicable

Impact of 2012-13 Budget and intervening policy announcements

150 250 300

Notes: Measures can be linked to the MRRT through a number of mechanisms, including the packaging of measures in the initial announcement of the RSPT and by subsequent announcements by Government members. Measures can also be linked to the MRRT if they were part of negotiations with non-Government parties and members in finalising the MRRT Bills for passage through the House of Representatives. The cost of measures does not include associated administrative costs that were allocated to agencies (a) Original cost as presented in the 2010-11 Budget and subsequently changed by the announcement on 2 July 2010 which changed the proposed cut to 29 per cent; (b) The early start for the small business company tax rate reduction to 28 per cent was amended to 29 per cent in the 2 July announcement. (c) Original estimates updated were updated in the Supplementary Explanatory Memorandum for the Bill to introduce the measure; (d) Original cost for this measure was to include increasing the age limit to 75. This was amended during the Bill’s passage through Parliament. Original costs were updated by Supplementary Explanatory Memorandum for the Bill and amended by the Revised Explanatory Memorandum; (e) Cost estimates as provided in the Explanatory Memorandum. The measure was refined in the November 2011 MYEFO to include

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Budget Review 2013-14

additional income eligibility tests and a minimum $20 payment requirement. This was further modified in the 2013-14 Budget so as to introduce a $10 minimum payment requirement even where contributions are less than this amount. (f); This measure was deferred in the 2012-13 Budget by two years to commence from 1 July 2014. The measure was then revised in the 2013-14 Budget for a higher cap of $35,000 but without reference to total superannuation account balance (g) Cost of original proposal excluding the further increase to $6500 under the Clean Energy Future package; (h) Original cost amended in the November 2011 MYEFO by being deferred by 1 year; (i) Original proposal to commence from 2013-14 but deferred in November 2011 MYEFO to commence in 2014-15; (j) Original estimates updated by three subsequent policy changes until decision to abandon the proposal in the 2012-13 Budget; (k) Original cost for this measure as announced in the 2012-13 Budget. The measure was abandoned in the 2013-14 Budget.

Source: Parliamentary Library estimates based on Australian Government, Budget measures: budget paper no. 2: 2010-11, accessed 16 May 2013; Supplementary Explanatory Memorandum; Superannuation Guarantee (Administration) Amendment Bill 2011, accessed 16 May 2013; Revised Explanatory Memorandum, Superannuation Guarantee (Administration) Amendment Bill 2011, accessed 16 May 2013; B Shorten (Minister for Financial Services and Superannuation), One-year deferral of interest withholding tax phase down, media release, 23 November 2011, accessed 16 May 2013; Australian Government, Economic statement July 2010, accessed 16 May 2013; Australian Government, Mid-Year Economic and Fiscal Outlook: 2011-12, pp. 167, 319, accessed 16 May 2013; Australia Government, Budget strategy and outlook: budget paper no. 1: 2012-13, pp. 1-18, accessed 16 May 2013; Revised Explanatory Memorandum, Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011, p. 5, accessed 16 May 2013; Australian Government, Budget measures: budget paper no. 2: 2013-14, pp. 150 and 266, accessed 16 May 2013.

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Budget Review 2013-14

Australian Public Service

Dr Nicholas Horne

Portfolio responsibility

The Prime Minister and Cabinet portfolio has primary responsibility for Australian Public Service (APS) matters. The Portfolio, which includes the Department of the Prime Minister and Cabinet and the Australian Public Service Commission (APSC), has responsibility for a range of APS-related matters including:

• administration of the central item of APS legislation, the Public Service Act 1999 (Cth)

• coordination of ‘workplace relations for Australian Government employment’ and administration of

‘enterprise bargaining agreements’

• ‘co-ordination of government administration’, and

• the APS reform process as set out in the 2010 Blueprint for the Reform of Government

Administration.93

The statutory financial framework under which APS agencies operate is administered by the Finance and Deregulation portfolio; this portfolio also deals with government financial accountability and governance.94 Under the financial framework APS agencies are generally responsible for managing their own operating resources.

Australian Public Service staffing 2007-12

The table and figure below give annual figures for total APS staffing (ongoing and non-ongoing staff) over the five-year period between June 2007 and June 2012 as well as at December 2012 (the most recent data).

The figures include staff employed under the Public Service Act 1999 but do not include staff employed in Commonwealth-owned companies, statutory authorities, the Australian Defence Force, or staff in government business enterprises who are not employed under the Public Service Act 1999.

93. See Australian Government, Portfolio Budget Statements 2013-14: budget related paper no. 1.14: Prime Minister and Cabinet Portfolio, 2012, pp. 3, 5, 85, accessed 16 May 2013; Australian Government, Administrative Arrangements Order, Commonwealth of Australia, Canberra, 9 February 2013, pp. 20-21, 34-35, accessed 16 May 2013.

94. A chart showing all agencies and bodies within the statutory financial framework is available from the Department of Finance and Deregulation (DoFD) website.

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Budget Review 2013-14

Table 1: Total Australian Public Service staff, 2007-12

As at Total APS staff (ongoing + non-ongoing) Approx. percentage change over the period 31 Dec 2012 165,598 - 1.6%

30 June 2012 168,206 + 1.2%

30 June 2011 166,252 + 1.1%

30 June 2010 164,378 + 1.6%

30 June 2009 161,773 + 1.3%

30 June 2008 159,740 + 2.8%

30 June 2007 155,424 -

Sources: Australian Public Service Commission (APSC), Australian Public Service Statistical Bulletin 2011-12, APSC, Canberra, 2012, p. 12; APSC, SnAPShots December 2012, APSC, Canberra, 2013.

Figure 1: Total Australian Public Service staff, 2007-12

Over the five-year period between June 2007 and June 2012 the APS experienced modest growth, with an overall increase of 12,782 staff (approx. 8.2 per cent). In the six months between June and December 2012 APS staffing declined by 2,608 staff (approx. 1.6 per cent). As at December 2012 total APS staff

constituted approx. 1.4 per cent of the workforce.95

Current issues

Efficiency dividend

The efficiency dividend is an annual funding reduction for Australian government agencies and has been in place for 25 years. The dividend is not only applied to APS agencies (such as the main Departments of

95. Australian Bureau of Statistics (ABS), 6202.0—Labour Force, Australia, ABS, May 2013, p. 12, accessed 16 May 2013.

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Budget Review 2013-14

State) but also to non-APS agencies within the General Government Sector such as the Australian Federal Police and the parliamentary departments.96

The 2012-13 Budget imposed a 2.5 per cent one-off increase in the efficiency dividend for the 2012-13 financial year (the increase had previously been announced in the November 2011 Mid-Year Economic and Fiscal Outlook).97 The increase, which raised the overall efficiency dividend rate for 2012-13 from 1.5 per cent to 4.0 per cent, was estimated to result in savings of $1.5 billion over 2012-15.98 A number of agencies were exempted from the increase.

The underlying efficiency dividend annual rate of 1.5 per cent was itself an increase from the base annual rate of 1.25 per cent; this increase was announced in April 2011 and is intended to apply over 2011-13 before returning to 1.25 per cent.99

Review of the Commonwealth financial framework

In 2010 the government commenced a review of the existing financial framework governing the financial activities of Commonwealth entities including APS agencies.100 The review has progressed to the stage where legislation intended to replace the current statutory regime is scheduled for introduction in the 2013 winter sittings.101

Enterprise agreements

In 2011 the government introduced a new employment bargaining framework to be applied by APS agencies in regard to employees engaged under the Public Service Act 1999. One element of the new framework was a recommended nominal expiry date for all APS enterprise agreements of 30 June 2014.102 The negotiation of new agency enterprise agreements will be a significant feature of the APS budgetary landscape in the 2013-14 financial year.

Bullying and harassment

In its most recent State of the Service report the APSC noted that ‘[f]or most of the last decade, between 15% and 19% of APS employees in each year have reported experiencing harassment and/or bullying in

96. For a discussion of the efficiency dividend see N Horne, The Commonwealth efficiency dividend: an overview, Background Note, 13 December 2012, Parliamentary Library, Canberra, 2012, accessed 16 May 2013. The General Government Sector ‘comprises all government departments, offices and some other bodies’ and ‘provides public services that are mainly non-market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income’: Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2013-14, 2012, p. 9-16, accessed 16 May 2013.

97. Ibid., p. 1-13; Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, 2011, accessed 16 May 2013, p. 216. 98. Australian Government, Mid-Year Economic and Fiscal Outlook 2011-12, ibid. 99. P Wong (Minister for Finance and Deregulation), Driving efficiencies in government, media release, 21 April 2011, p. 1,

accessed 16 May 2013. 100. DoFD, ‘Commonwealth Financial Accountability Review‘, DoFD website, accessed 16 May 2013. 101. The Public Governance, Performance and Accountability Bill; see Department of the Prime Minister and Cabinet (DPMC),

Legislation proposed for introduction in the 2013 winter sittings, DPMC, Canberra, 2013, p. 4, accessed 16 May 2013. 102. Australian Public Service Commission (APSC), Australian Public Service bargaining framework: supporting guidance, APSC, Canberra, 2011, p. 8, accessed 16 May 2013.

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the workplace’, and noted that ‘[t]he reported level of bullying and harassment in the APS remains worryingly high’.103

In 2012 the House of Representatives Standing Committee on Education and Employment conducted an inquiry into workplace bullying. In regard to the public sector, the Committee stated that ‘[t]he reported prevalence of workplace bullying within the public sector is particularly concerning’.104 The Committee focused on the potential for public sector fitness for duty mental health assessments to be used as a form of bullying.105

The APSC has stated that it will study the Committee’s report ‘for identified risk factors and recommendations for strategies that may assist APS workplaces to reduce harassment and bullying’.106

103. APSC, State of the Service Report 2011-12, APSC, Canberra, 2012, p. 12, accessed 16 May 2013. The percentage figures refer to respondents to the APSC’s annual State of the Service employee survey. 104. House of Representatives Standing Committee on Education and Employment (HRSCEE), Workplace bullying: we just want it to stop, The House of Representatives, Canberra, 2012, p. 99, accessed 16 May 2013. 105. Ibid., pp. 98-101. The Committee recommended a number of actions including a review of how fitness for duty

assessments are used in response to bullying and ensuring adequate safeguards for appropriate use. 106. APSC, State of the Service Report 2011-12, op. cit., p. 63.

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Budget Review 2013-14

Border security

Cat Barker

Border security is a core responsibility of the Commonwealth, resting on specific powers under section 51 of the Constitution, including trade and commerce, defence, quarantine, fisheries in Australian waters beyond territorial limits, immigration and emigration, and foreign affairs.107 It comprises a number of core functions for which responsibility is spread across several portfolios and agencies along a ‘border continuum’ spanning from offshore, through Australia’s maritime zones and the border, to domestic enforcement activity.

Key agency responsibilities

The Australian Customs and Border Protection Service’s (Customs) functions include management of border controls at air and sea ports; land-based surveillance of Australia’s coastline, seaports and waterfront; and surveillance, patrol and response in Australia’s maritime domain (through Border Protection Command (BPC)).108

The Australian Federal Police (AFP) investigates suspected Commonwealth offences including smuggling of drugs, tobacco, firearms and people, trafficking in persons and illegal fishing. The AFP is also responsible for operational policing at ten major Australian airports.109

The Department of Immigration and Citizenship manages Australia’s migration and humanitarian programs and visa system, administers travel alert lists, and is involved in domestic, regional and international efforts to prevent irregular migration including people smuggling and trafficking in persons.110

The Australian Defence Force (Defence) contributes ships, aircraft and officers for maritime surveillance, patrol and response in Australia’s maritime domain through Operation RESOLUTE.111

The Department of Agriculture, Fisheries and Forestry (DAFF) Biosecurity manages quarantine controls at Australia’s borders and inspects and certifies imports and exports.112

Border Protection Command is a multi-agency taskforce that is staffed by officers from Customs, Defence, Australian Fisheries Management Authority and DAFF Biosecurity, and uses Customs and Defence assets.113 It coordinates the Australian Government’s response to eight key maritime threats, specifically illegal exploitation of natural resources, illegal activity in protected areas, unauthorised

107. The Constitution, accessed 15 May 2013. 108. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.2: Attorney-General’s Portfolio, Commonwealth of Australia, Canberra, 2012, pp. 103-125, accessed 8 May 2013. 109. Ibid., pp. 151-163; Australian Federal Police (AFP), ‘Aviation‘, AFP website, accessed 8 May 2013. 110. A series of factsheets is available detailing specific functions: Department of Immigration and Citizenship (DIAC), ‘Fact

sheet index‘, DIAC website, accessed 8 May 2013; see also DIAC, ‘Combating people smuggling and unauthorised arrivals‘, DIAC website, accessed 8 May 2013. 111. Department of Defence (Defence), ‘Border protection‘, Defence website, accessed 8 May 2013. 112. Department of Agriculture, Fisheries and Forestry (DAFF), ‘About DAFF Biosecurity‘, DAFF website, accessed 8 May 2013. 113. Border Protection Command (BPC), ‘Homepage’, BPC website, accessed 8 May 2013; BPC, ‘Organisational structure‘, BPC website, accessed 8 May 2013.

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maritime arrivals, prohibited imports and exports, maritime terrorism, piracy, robbery and violence at sea, compromise to biosecurity and marine pollution.114

Key budgetary pressures

Scope of border security tasks

Australia faces substantial border security challenges.

Geographically, the area of interest includes the Australian coastline, Australia’s offshore territories, the Australian Fishing Zone, the Australian Exclusive Economic Zone (AEEZ) and adjacent areas. This amounts to over 36,000 kilometres of coastline and an offshore maritime area of 15 million square kilometres.115

Both the number of international passengers and the volume of cargo and mail coming through Australia’s air and sea ports have been increasing for a number of years. These trends are expected to continue, with the number of international passengers expected to increase from around 30 million to 40 million between 2013 and 2020 and the number air cargo consignments expected to double from around 11 million to 22 million over the same period.116 Customs also stated that ‘complexity is increasing in supply chains and travel routes, making the task of assessing threats and risks at the border more sophisticated’.117 The number of international passengers and number of air cargo consignments for the years 2007-08 to 2011-12 are shown in Graphs 1 and 2.

Graph 1: Number of international passengers (arrivals and departures)

Source: Customs annual reports 2007-08, 2008-09 and 2011-12. 118

114. BPC, ‘Maritime security threats‘, BPC website, accessed 8 May 2013. 115. BPC, ‘Protecting Australia’s offshore maritime areas‘, BPC website, accessed 17 May 2013. 116. J Gillard (Prime Minister) and J Clare (Minister for Home Affairs), National Border Targeting Centre to target organised crime, media release, 3 March 2013, accessed 15 May 2013.

117. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., p. 103. 118. There was a change in methodology in 2011-12: Customs, Annual report 2011-12, Commonwealth of Australia, Canberra, 2012, p. 20, accessed 9 May 2013.

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Graph 2: Number of air cargo consignments

Source: Customs annual reports 2007-08, 2010-11 and 2011-12.

Funding for passenger facilitation at international airports was reduced by $34 million over four years in the 2011-12 Budget and redirected to support other Government priorities.119 While still a good result, the proportion of international passengers processed by Customs within 30 minutes of joining the inwards queue dropped from 96.8 per cent in 2010-11 to 93.4 per cent in 2011-12.120 Increased use of automated SmartGate kiosks for passport processing may go some way to easing pressure on this function.121

Irregular maritime arrivals

The number of vessels bringing asylum seekers to Australia has increased significantly between 2007-08 and 2012-2013 (see Graph 3), placing pressure on border security agencies, including Customs. The increase in arrivals has meant that resources allocated for patrol and surveillance activities have been diverted to transportation of asylum seekers. For example, in 2010-11, ACV (Australian Customs Vessel) Triton and ACV Ocean Protector each undertook five per cent more patrol days than their targets (240 and 200 days respectively) in order to ‘facilitate the long haul transportation of passengers and crew from intercepted SIEVs [suspected irregular entry vessels]’.122 In 2011-12, ACV Triton undertook 30 per cent more patrol days than its target of 240 days; ACV Ocean Protector undertook only one additional patrol day, but 75 of its 121 patrol days (approximately 62 per cent) were spent in northern waters, where it was diverted to transport irregular maritime arrivals, instead of the Southern Ocean, to which it is nominally allocated.123

119. Australian Government, Budget measures: budget paper no. 2: 2011-12, Commonwealth of Australia, Canberra, 2011, p. 98, accessed 10 May 2013. 120. Australian Customs and Border Protection Service (Customs), Annual report 2010-11, Commonwealth of Australia, Canberra, 2011, p. 61, accessed 8 May 2013; Customs, Annual report 2011-12, op. cit., p. 21. 121. Use has increased over the last two years: Customs, Annual report 2010-11, op. cit., p. 64; Customs, Annual report 2011-

12, op. cit., pp. 21-22. 122. Australian Customs and Border Protection Service (Customs), Annual report 2010-11, op. cit., p. 99. 123. Customs, Annual report 2011-12, op. cit., pp. 61-63. For further detail on spending across portfolios see H Spinks, E

Karlsen, N Brew, M Harris and D Watt, Australian Government spending on irregular maritime arrivals and counter-people smuggling activity, Background note, Parliamentary Library, Canberra, 6 December 2011, accessed 15 May 2013.

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Graph 3: Number of vessels by financial year

Note: 2012-13 figure is up to 31 March 2013 only.

Sources: Figures up to and including 2011-12 were taken from J Phillips and H Spinks, Boat arrivals in Australia since 1976, Background note, Parliamentary Library, Canberra, updated 29 January 2013. The 2012-13 total was compiled by the Parliamentary Library based on media releases from the Minister for Home Affairs.

Maritime enforcement

Customs’ Bay Class patrol boats are reaching the end of their operational life, and in the 2010-11 Budget, funding was approved to replace them with larger and more capable ships—to be known as Cape Class.124 The first of the Cape Class boats was launched in January 2013, with the full fleet of eight expected to be operational by late 2015 at a total cost of $350 million.125 As at February 2013, the project was reported to be on schedule and budget.126

In the Defence White Paper 2013, the Government announced plans to bring forward the replacement of the Navy’s fleet of Armidale Class patrol boats.127 The fleet has faced a number of challenges with manufacturing defects, higher than expected workloads resulting in structural fatigue, and difficulties with maintenance.128 The White Paper also refers to the need for ‘ongoing sustainment of the frequently

124. Australian Government, Budget measures: budget paper no. 2: 2010-11, Commonwealth of Australia, Canberra, 2010, p. 97, accessed 9 May 2013; B O’Connor (Minister for Home Affairs), Austal announced as Cape Class patrol boat preferred tenderer, media release, 13 June 2011, accessed 9 May 2013.

125. J Clare (Minister for Home Affairs), New Customs and Border Protection patrol boat launched, media release, 16 January 2013, accessed 9 May 2013. 126. N Perry (National Director Marine Operations Support, Customs), Senate Legal and Constitutional Affairs Committee, Attorney-General’s Portfolio, Additional Budget Estimates, 2012-13, 12 February 2013, pp. 50-51, accessed 9 May 2013. 127. Defence, Defence White Paper 2013, Commonwealth of Australia, 2013, p. 123, accessed 9 May 2013. 128. C Stewart, ‘Fewer navy patrol boats‘, Weekend Australian, 24 March 2012, p. 4, accessed 9 May 2013; C Stewart, ‘Patrol

boats crack up: asylum demands breaking navy fleet’, The Australian, 10 August 2012, p. 1, accessed 9 May 2013; Royal Australian Navy, On The Record: Chief of Navy’s letter to News Limited regarding Patrol Boats article, media release, 16 August 2012, accessed 9 May 2013.

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used but ageing AP-3C Orion fleet, along with the timely acquisition of a replacement capability’.129 The AP-3C Orion fleet of surveillance aircraft were introduced into service in the Royal Australian Air Force in 2002.130

Integrity and reform

Customs officers operate in areas of high risk of corruption, as has been demonstrated by the recent results of taskforces into organised crime groups operating at the Sydney waterfront. A number of Customs and DAFF Biosecurity officers are alleged to have been involved in corrupt and criminal behaviour.131

The government has responded to these challenges through a number of measures including bringing Customs, DAFF Biosecurity and other additional agencies under the jurisdiction of the Australian Commission for Law Enforcement Integrity, and the announcement of a ‘major program of structural and cultural reform’ for Customs led by a board reporting to the Minister for Home Affairs.132

Customs budget and staffing

Graphs 4 and 5 illustrate changes in the proportion of funding allocated to different Customs programs and average staffing levels for the agency for the most recent five years for which figures are available.133

129. Defence, Defence White Paper 2013, op. cit., p. 88. 130. Royal Australian Air Force (RAAF), ‘AP-3C Orion‘, RAAF website, accessed 17 May 2013. 131. See for example J Clare (Minister for Home Affairs), Press conference, transcript, 20 December 2012, accessed 17 May 2013.

132. J Clare (Minister for Home Affairs), Next stage of reforms to crackdown on organised crime - Making Commonwealth law enforcement more corruption resistant, media release, 28 April 2012, accessed 17 May 2013; J Clare (Minister for Home Affairs), Customs Reform Board, media release, 20 December 2012, accessed 16 May 2013.

133. There are currently five departmental programs; funding for trade facilitation and revenue collection has been combined as they were covered under a single program until 2009-10.

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Graph 4: Proportion of program funding allocated by Customs departmental program

Sources: Customs annual reports 2008-09 to 2011-12; Attorney-General’s Portfolio additional estimates statements 2012-13.

Graph 5: Customs average staffing levels

Source: Attorney-General’s Portfolio budget statements 2008-09 to 2012-13.

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Budget Review 2013-14

National Broadband Network (NBN)

Matthew L James

The broadband system

The NBN is one of Australia’s most significant infrastructure projects, and its initial establishment is a major source of government expenditure. It is an investment in infrastructure to provide high capacity data communications across the nation, serving both individuals and organisations alike.

Just as the old but long-serving copper wire telephone network represented the technology of its day, so too do today’s digital systems. They offer the opportunity to greatly increase data transmission rates, providing what is termed a high capacity broadband service. The NBN aims to enable more online connectivity and interactivity, and to improve the productivity of the growing ‘digital economy.’ However, rapidly changing technologies require a careful initial selection.

The NBN system consists of the provision of broadband services over a mix of three technologies: optic fibre, fixed wireless, and next-generation satellite. Some 93 per cent of Australian homes, schools and businesses will have access to the NBN through optic fibre to premises, perhaps initially capable of providing broadband speeds of up to 100 mega bit per second (100 Mbps or one hundred million data units per second).134 Speeds of one gigabit (1000 Mbps) per second may later become available135. Such capacity allows simultaneous multiple speech, video, audio and data transmissions to users. The remaining group of premises will access the wireless and satellite networks at up to 12 to 25 Mbps (12 to 25 million data units per second).

The NBN is being developed as a wholesale service which in turn is accessed through retailers. NBN users will subscribe to the system through broadband retail service providers, in much the same way that computer users currently use an internet service provider to access the Internet. A feature of the system is that the wholesale access price of NBN services is to be the same across all three technologies, being set at $24 a month per user for a basic service, with speeds of 12 Mbps download and one Mbps upload. As well, there is no NBN fee for a new standard connection or line rental charge.

Administration

The project is managed by the NBN Co Limited (NBN Co), a government-owned entity which is classed as a government business enterprise (GBE). The Commonwealth established NBN Co to design, build and operate the network. The company sits in the Broadband, Communications and the Digital Economy portfolio, reporting to the Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, along with the Minister for Finance and Deregulation, Senator Penny Wong. An NBN legislative framework sets out the structure:

The regulatory framework for the National Broadband Network (NBN) is established through the National Broadband Network Companies Act 2011 (NBN Companies Act) and the Telecommunications Legislation Amendment (National Broadband Network Measures—Access Arrangements) Act 2011 (NBN Access Act) which add to the existing generic telecommunications regulatory framework. The Acts were passed by the

134. NBN Co, ‘NBN for home‘, NBN Co website, accessed 16 May 2013. 135. NBN Co, ‘New development process‘, NBN Co website, accessed 16 May 2013.

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parliament on 28 March 2011 and received royal assent on 12 April 2011. All of the provisions are now operational. 136

These provisions allow for the company structure and ownership, competitive access arrangements, industry codes and standards. The NBN Companies Act provides that the Australian Government will retain full ownership of NBN Co until the national broadband network rollout is complete.137 These arrangements are further elaborated upon in the NBN Co’s Statement of Corporate Intent, which was tabled in Parliament on 9 October 2012.138

NBN Co is expected to generate money for the government in the future, so the funds given to it now are viewed as an investment in terms of the Budget, and the money spent does not fall within the budget accounts. Rather, as a GBE, the NBN Co produces its own annual reports in much the same way as Australia Post.139

Funding

The initial expected NBN funding arrangements were outlined in a Statement of Expectations, dated 17 December 2010, provided to NBN by the two responsible ministers:

The Government will enter into an equity agreement with NBN Co for the rollout period with equity funding based on the expected $27.5 billion funding requirement advised by NBN Co. This agreement will be reviewed annually. The Government envisages that this will provide NBN Co and the market with the certainty required to enter into the long term commercial contracts needed to deliver the Government’s NBN policy objectives. The Government envisages that any equity agreement entered into with NBN Co will be linked to the performance and coverage objectives agreed as part of the NBN Co Corporate Plan. Any variance to equity requirements will require Government approval.

140

The expenditure figure of $27.5 billion has now risen to an expected investment of $30.4 billion by the Commonwealth Government, for the total $37.4 billion investment, as recorded in the current 2013-14 Budget: $21.4 billion in equity funding to the NBN Co over the Budget and forward years. These are further instalments of the $30.4 billion equity commitment of the Australian Government, starting at $5.1

billion in 2013-14, peaking at $6.3 billion in 2014-15, before reducing to $5.3 billion in 2015-16, then $4.7 billion in 2016-17. 141

These amounts represent a deferment of some initial expenditure, as compared to the same statement made a year ago in the Department’s Portfolio Budget Statements 2012-13, which said:

$20.1 billion in equity funding to the NBN Co over the Budget and forward years. These are further instalments of the Australian Government’s equity commitment to the NBN Co, starting at $5.8 billion

136. Department of Broadband Communications and the Digital Economy (DBCDE), NBN legislative framework, DBCDE website, accessed 16 May 2013. 137. Ibid. 138. NBN Co, Statement of Corporate Intent: 2012-2015, NBN Co Limited, 2012, accessed 8 May 2013. 139. Australian Government, Portfolio budget statements 2013-14: budget related paper no.1.3: Broadband Communications

and the Digital Economy Portfolio, (Overview version), Commonwealth of Australia, Canberra, 2013, p. 3, accessed 15 May 2013. 140. P Wong (Minister for Finance and Deregulation) and S Conroy (Minister for Broadband Communications and the Digital Economy), Statement of expectations, Commonwealth of Australia, Canberra, 17 December 2010, accessed 8 May 2013. 141. Portfolio budget statements 2013-14: Broadband Communications and the Digital Economy Portfolio, op. cit., p. 6; NBN

Co, Corporate Plan 2012-2015, 6 August 2012, accessed 16 May 2013.

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in 2012-13, peaking at $6.6 billion in 2013-14, falling to $4.1 billion in 2014-15 and $3.6 billion in 2015-16. 142

Over the past year, the equity allowed was $2.6 billion, rather than the previous estimate of $5.8 billion.143 For the year ahead, the equity is $5.1 billion rather than $6.6 billion. The current statement explains that:

Administered funds can be provided for a specified period, for example under annual Appropriation Acts. Funds not used in the specified period with the agreement of the Finance Minister may be moved to a future year. 144

The Minister attributes the lower equity expenditure to a slower network rollout than expected:

The facts are NBN Co’s equity is appropriated each year and then drawn down as required. In the current financial year, equity requirements were less than anticipated, reflecting the reforecast rollout schedule. The Budget reconfirms the total government equity contributions to NBN Co will be up to $30.4 billion.

145

However, the Opposition maintains that equity deferments give rise to increased interest expenditures as the government still pays interest on the funds injected into NBN.146

Rollout

The network is to be constructed over a decade and construction began with a trial rollout in Tasmania in July 2010. The NBN Co website provides an interactive rollout webpage map that states ‘the NBN is planned to reach all Australians by 2021’.147

As the election approaches, a key difference between the parties appears to be their preferred approach to the rollout of the NBN.

While the Government prefers the provision of Fibre-To-The-Premises/Home (FTTP/H) to apply to 93 per cent of suitable household and businesses in Australia, the Opposition proposes instead that services are enabled by Fibre-To-The-Node (FTTN) in the vicinity of household and premises, which would also involve lower capacities from 25 to 50 Mbps:

Families and businesses will enjoy significant increases in bandwidth given that download rates in Australia currently average less than 5 megabits per second. Under the Coalition’s NBN all premises

142. Portfolio Budget Statements 2012-13: Broadband Communications and the Digital Economy Portfolio, op. cit., p. 6 143. Ibid; on p. 25 the PBS section: ‘Program 1.1 Broadband and Communications Infrastructure’, contribution notes that equity funding of only $2.6 billion was given to NBN Co in 2012-13. 144. Portfolio budget statements 2013-14: Broadband Communications and the Digital Economy Portfolio, p. 37; accessed 16

May 2013.

145. S Conroy (Minister for Broadband Communications and the Digital Economy), Turnbull tells more lies about the NBN, media release, Canberra, 16 May 2013, accessed 16 May 2013. 146. J McDuling, ‘Conroy rejects NBN cutback claims‘, Australian Financial Review, 16 May 2013, accessed 16 May 2013. 147. NBN Co, ‘When do I get it?‘, NBN Co website, accessed 16 May 2013.

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will have access to download speeds 25mbps to 100mbps by the end of 2016. The minimum speed will rise to 50mbps by the end of 2019 for 90 per cent of fixed line users. 148

Over the near future, a keen watch will be kept on progress with deployment of the NBN and actual take-up rates by new customers. Once the NBN is fully operational, it can be sold and the government could recoup some or all of its costs:

NBN Co must remain in full Commonwealth ownership until the Communications Minister declares that the National Broadband Network is built and fully operational. A sale of NBN Co can only occur after a Productivity Commission inquiry into the NBN regulatory framework has been considered by a Parliamentary Joint Committee.

149

148. Liberal Party of Australia (LPA), ‘Fast. Affordable. Sooner. The Coalition’s plan for a better NBN‘, LPA website, accessed 16 May 2013. 149. NBN Co, ‘Regulation and legislation‘, NBN Co website, accessed 16 May 2013.

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Official Development Assistance (ODA) since 2007-08

Dr Ravi Tomar

Australia’s ODA has witnessed a consistent increase over the past few years, increasing from 0.27 per cent of Gross National Income (GNI) in 2007-08 to an estimated 0.35 per cent of GNI in 2011-12. It is expected to remain the same in 2012-13, but increase in subsequent years:

The Government has committed to increase Australia’s ODA/GNI ratio to 0.5 per cent by 2016-17. To reach this target, the Government expects to increase Australian aid to around 0.37 per cent of GNI in 2013-14, 0.41 per cent in 2014-15 and 0.45 in 2015-16. 150

In 2012-13, Australia’s ODA is expected to be $5,154 million in current prices ($4.9 million in constant 2010-11 prices), a sharp increase from an outlay of $3,173.7 million in 2007-08 ($3,575 million in constant 2010-11 prices). The graph below illustrates this trend.

Source: Parliamentary Library 151

On 17 December 2012, the Government announced that it would ‘reprioritise’ $375.1 million in aid this financial year to support asylum seekers waiting to have their claims heard in Australia. This has had no impact on the overall aid budget.

The Australian Agency for International Development (AusAID) is an Executive Agency within the Foreign Affairs and Trade portfolio responsible for managing Australia’s overseas aid program. In order to ensure that the increase in ODA is utilised efficiently and effectively, AusAID has undergone a thorough review and substantial organisational change over the past few years, as the table below indicates.

150. B Carr (Minister for Foreign Affairs), Budget: Australia’s International Development Assistance Program, p. 13, accessed 8 May 2013. 151. Based on data provided in ibid., p. 140.

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Figure 1: Key developments in Australia’s development co-operation system: 2008-2012

Source: OECD Development Cooperation, Peer Review: Australia 2013, p. 14.

In its latest peer review of Australia’s development cooperation program, the Organisation for Economic Co-operation and Development (OECD) has commented favourably on Australia’s management of change:

Australia has managed its organisational change strategically. The integration of development objectives and corporate systems provides incentives to implement the reform and achieve development objectives. Other donors can learn from AusAID’s experience. 152

Besides organisational change, AusAID has had a substantial increase in staffing levels, also subject to positive comment by the OECD:

Australia has made impressive progress in managing human resources effectively to respond to field imperatives and new ways of working …

AusAID’s workforce has grown by 66 per cent since 2008 to reach a total of 2124 Australian public service (APS) and locally-recruited staff (referred to as Overseas Based, or O-based, staff). The bulk of new staff were recruited in 2011-12, reflecting a strategic move to frontload staffing in time for the real increase in the aid budget in 2011 and planned increases up to 2016.153

152. OECD Development Cooperation, Peer Review: Australia 2013, p. 68, accessed 8 May 2013. 153. ibid., p. 69.

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Tracking climate change funding and staffing

Anita Talberg

The government’s strategy for climate change can be divided into four distinct themes. The first is reducing emissions; the second is improving energy efficiency; the third is adapting to the unavoidable impacts of a changing climate; and the fourth is playing an active role in developing an international strategy.

Tracking government spending on climate change across these four streams is difficult. It involves several departments, and often more than one program within each. Climate change adaptation measures are taken by the climate change portfolio, of course, but also by the environment and agriculture portfolios. Shaping a global solution is in the remit of both the Minister for Climate Change and the Minister for Foreign Affairs, for example in relation to overseas climate change aid. (However AusAID does not disaggregate its expenditure to a level fine enough to track climate change funding.)

Emissions reduction measures also cross departments, involving the climate change portfolio, as well as the innovation, environment and agriculture portfolios. To complicate things further, the four streams listed above have each been moved between portfolios—twice in the case of energy efficiency. Most recently, and since the last Budget, the Department of Climate Change and Energy Efficiency (DCCEE) has been disbanded and merged into two other departments:

the Department of Resources Energy and Tourism (RET) has adopted the energy efficiency program,

the renamed Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) has been expanded to take on all the other ex-DCCEE programs.

As a result of these movements, and the interdisciplinary and amorphous nature of climate change policies, tracking actual spend on climate change is challenging. Nonetheless, we have attempted to do so (Figure 1) but the result is indicative only.

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Figure 1: Climate change expenses154

Source: Parliamentary Library estimates.

From Figure 1, it is clear that spending on climate change adaptation and international relations is low relative to expenditure on emissions-reduction programs. Programs aimed at improving energy efficiency have had a varying degree of importance within the climate change budget. Energy efficiency expenses were high in 2009-10 with the roll-out of the Energy Efficiency Homes Package (EEHP). However, elements of the EEHP—such as the Home Insulation Program—were discontinued because of safety and compliance concerns. Remediation measures were needed and led to programs becoming overly costly.155 Perhaps as a result of criticism over these outcomes, the government has reduced expenditure on energy efficiency measures. Also, the EEHP roll-out coincided with the government’s first attempt to legislate an emissions trading scheme (ETS). This is relevant because, in introducing the ETS, the government ended a number of other climate policies that were subsequently considered redundant. As such, spending on energy efficiency measures at that time outweighs spending on other climate change actions.

154. Figures are from ‘estimated actual expenses’ in ‘budgeted expense’ tables in Portfolio Budget Statements (PBS) of the following year; the category ‘Shaping a global solution’ incorporates figures from the relevant outcome in the climate change department PBS; the category ‘Adapting to climate change’ incorporates figures from the relevant outcome in the climate change department and the Department of Agriculture, Fisheries and Forestry (DAFF); the category ‘Emissions reduction - Energy efficiency’ incorporates figures from the relevant outcome in the climate change department and the relevant outcome in the Department of the Environment, Water, Heritage and the Arts previous to that; the category ‘Emissions reduction - other’ incorporates figures from the relevant outcome in the climate change department, the relevant program in the Department of the Environment, Water, Population and Communities, the relevant expenses of programs in the Department of Resources Energy and Tourism (RET), all expenses from Office of the Renewable Energy Regulator (ORER), all expenses from the Australia Solar Institute (ASI), and all expenses from the Clean Energy Regulator (CER); not included are expenses from other portfolios for which either the level of expenses detail is insufficient, the amounts involved are too small, or disaggregating figures would prove too time-consuming. 155. Australian National Audit Office, Home Insulation Program, Audit Report No.12 2010-11, accessed 16 May 2013.

0% 10%

20% 30%

40% 50%

60% 70%

80% 90%

100%

Emissions reduction -Energy efficiency

Emissions reduction -Other

Adapting to climate change

Shaping a global solution

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The Department and its staff

The Department of Climate Change was first created in December 2007 as part of the Prime Minister and Cabinet portfolio. In March 2010, the department was renamed DCCEE and functions relating to energy efficiency were moved from the Department of the Environment, Water, Heritage and the Arts. Three years later, DCCEE was itself abolished with functions transferred to RET and DIICCSRTE as described earlier. Other agencies related to climate change have also been subject to movement and merging. Figure 2 attempts to track average staffing levels across the climate change department and these related agencies. It shows staff increases until 2012, then a decrease that may be offset somewhat by the recent creation of the non-government Clean Energy Finance Corporation.

Figure 2: Average staff levels across the consecutive climate change departments and their agencies156

Source: Parliamentary Library estimates.

156. Average staff levels (ASLs) are from Budget Papers no. 1 and Portfolio Budget Statements from 2009-10 through to 2013- 14; DCCEE represents the Department of Climate Change and Energy Efficiency; DIICCSRTE represents the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education; RET represents the Department of Resources Energy and Tourism; ARENA represents the Australian Renewable Energy Agency; the figures for 2008-09 are ASLs from the Department of Climate Change and ORER; the figures for 2009-10 are ASLs from DCCEE and, ORER and ASI; the figures for 2010-11 are ASLs from DCCEE, ORER, ASI and Low Carbon Australia Ltd (LCAL); the figures for 2011-12 are ASLs from DCCEE, the CER, the Climate Change Authority (CCA), LCAL, ARENA and ASI; the figures for 2012-13 are ASLs from DCCEE, the CER, the CCA, ARENA, LCAL and Outcome 4 of DIICCSRTE; the figures for 2013-14 are budgeted ASLs from the annual increase in RET, Outcome 4 of DIICCSRTE, the CER, the CCA, LCAL and ARENA.

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Budget Review 2013-14

Trends in Defence expenditure since 1901

David Watt and Alan Payne

This Budget Background Brief provides a historical perspective in which to view the 2013-14 Defence budget by setting out some long-term trends in the funding of defence in Australia and highlighting some key factors underlying these trends.

The 2012-13 Budget saw Defence funding cut by $5.5 billion across the forward estimates. These cuts and the continued deferral of expenditure to fulfil the 2009 Defence White Paper’s ambitious capability program prompted a great deal of commentary which, amongst other things, stated that Australia’s defence spending, expressed as a percentage of GDP, was at its lowest point since 1938.157 A good deal of this commentary was critical of the Government:

When the Labor government was elected in 2007 it did so on a platform of maintaining the Coalition’s long-running trajectory of 3 per cent real growth in defence spending a year. Then in the 2009 Defence White Paper the government committed itself to 3 per cent real growth to 2017-18 and 2.2 per cent real growth from then until 2030. However, the reality is that since the government was elected it has delivered 3 per cent real growth in only three of the six defence budgets it has brought down. What is worse is that in 2010-11 it cut the defence budget by almost 5 per cent and then in the recent budget it cut defence spending again by 10.47 per cent. This reduces Australian defence spending to 1.56 per cent of GDP, the lowest it has been since 1938. By contrast the US is spending 4.7 per cent of GDP on defence, Britain 2.6 per cent, South Korea 2.5 per cent and Singapore 3.6 per cent.

158

In light of this sort of commentary, it is useful to look at some of the longer term historical trends in defence spending. As Graphs 1 and 2 indicate, Australia spends more on defence during times of war, most strikingly during the two World Wars, but also to some extent during the Korean War and the Vietnam War. Defence spending also increased during the conflicts in Iraq and Afghanistan but because GDP and total government expenditure rose over the same period this increase does not show as a bump in the graph. It is also striking how quickly expenditure falls at the end of both the World Wars as the large numbers of people serving are discharged from the services.

Another notable trend is that defence spending has been in gentle decline since around 1988. The 2013 Defence White Paper states that the Government’s ‘long term objective’ is to move defence funding towards a target of 2 per cent of GDP.159 This would imply, based on 2011-12 funding, an increase of $7.8 billion. It is notable that the last time the defence budget was at 2 per cent of GDP was in June 1995. The 2010 Intergenerational Report stated that, based on the funding model contained in the 2009 Defence White Paper, spending on defence was expected to be 1.8 per cent of GDP by 2029-30.160

157. M Thomson, The cost of Defence ASPI Defence Budget brief 2012-13, Australian Strategic Policy Institute (ASPI), Barton, 2012, pp. vi-vii. ASPI states that $10.6 billion in expenditure had been deferred at May 2012. 158. R Babbage, ‘Little security in defence budget’, The Australian, 17 July 2012, p. 14, accessed 10 May 2013. 159. Department of Defence, Defence White Paper 2013, Commonwealth of Australia, 2013, p. 72, accessed 10 May 2013. 160. Commonwealth of Australia, Australia to 2050: future challenges, Treasury, Canberra, 2010, p. 68, accessed 13 May 2013.

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Graph 1: Defence expenditure as a proportion of GDP and total expenditure

Source: Parliamentary Library 161

Graph 2: Defence expenditure 1901-2015 expressed in real terms

Source: Parliamentary Library 162

161. Total budgetary expenditure is funds used from ordinary consolidated revenues. Since this does not include extraordinary defence expenditure such as that from war loans the effect has been to make defence expenditure as a proportion of total expenditure look greater in some years (most notably during the First and Second World Wars) than it actually was. Sources for GDP: 1901-1949: W Vamplew, Australian historical statistics GF8-14 (public debt series), p. 257 multiplied by 0.002 to convert from thousands of Australian pounds into millions of Australian dollars; 1901-1959: W Vamplew, Australian historical statistics ANA 119-129 (GDP, current prices series), p.139; 1960-2012: ABS, Annual National Accounts, cat.no. 5204.0 Table 2; 2013-2016: MYEFO—Commonwealth Government Securities on Issue (estimated/projected nominal GDP growth rates applied). 162. Reference year for real terms is 2011-12. Defence expenditure includes monies taken from consolidated revue, trust

accounts and loan accounts. Expenditure from 1965 onwards does not include repatriation expenditure. Prior to 1966-67 pounds have been converted using 1 pound = 2 AUD. Sources for expenditure: Australian Bureau of Statistics Year Books from 1908; selected commonwealth budget papers.

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Budget Review 2013-14

Spending on defence has risen in dollar terms since 1995 (when it was $9.7 billion), but as the Australian Strategic Policy Institute (ASPI) points out:

… the observed growth in defence spending largely reflects the rising intrinsic cost of delivering modern military capability. 163

ASPI has in the past estimated that real growth of around 2.65 per cent in the defence budget was necessary in order to maintain capability levels.164 This estimate was obtained by extrapolating from historical trends, a method which ASPI acknowledges cannot claim to be definitive and ‘is at best indicative of the likely cost of maintaining a force of the sort we have today’.165 In 2010, ASPI estimated that in order for Australia to substantially improve its defence capabilities, a minimum of 3.1 per cent annual growth in the Defence budget would be required.166

Graph 3: Budget expenditure for selected functions as a percentage of total outlays

Source: Parliamentary Library

Spending on defence tends to fall when economic conditions are less good, such as in the 1930s, the late 1980s-early 1990s, and since the Global Financial Crisis (GFC). Graph 3 above contrasts defence expenditure against other major areas of government expenditure, illustrating that spending on defence declined somewhat while at the same time expenditure on welfare increased during the economic recession of the early 1990s, and then again in 2008-09 in response to the impact of the GFC.

163. M Thomson, op. cit., p. 164. 164. M Thomson, A trillion dollars and counting; paying for defence to 2050, ASPI, Canberra, 2003; M Thomson and A Davies, Strategic choices: defending Australia in the 21st century, ASPI, 2008, accessed 13 May 2013.

165. M Thomson and A Davies, ibid., p. 7. 166. See M Thomson, Trends in US defence spending: implications for Australia, ASPI, 2010, accessed 13 May 2013.

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White Paper funding models

The change in the funding models between the 2009 and 2013 Defence White Papers reflects the Government’s concerns about the current fiscal environment.

The funding for the 2009 Defence White Paper was to be derived from three elements:

• 3 per cent real growth in the Defence budget to 2017-18

• 2.2 per cent real growth in the Defence budget from 2018-19 to 2030

• 2.5 per cent fixed indexation to the Defence budget from 2009-10 to 2030 (instead of continuing to

use the non-farm GDP implicit price deflator) and

• reinvested savings from the Strategic Reform Program. 167

In contrast, the 2013 White Paper makes no such commitments. It simply states that Defence funding will be based on the standard four-year Forward Estimates Budget cycle and will be determined on an annual basis. The target of 2 per cent of GDP is described as ‘a long-term objective that will be implemented in an economically responsible manner as and when fiscal circumstances allow’.168

167. Commonwealth of Australia, Defending Australia in the Asia Pacific century: force 2030, Department of Defence, Canberra, 2009, p. 137, accessed 13 May 2013 168. Defence White Paper 2013, op. cit.

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Budget Review 2013-14

Legal aid and legal assistance services

Jaan Murphy

Over time, the Commonwealth’s overall legal expenditure has, in actual terms, fluctuated. However, legal aid expenditure has been expanding for the last four years, due mainly to the provision of additional funding since the 2011-2012 Budget to make available legal aid for ‘people smuggling, national security and drug-related cases’.169 However, as a proportion of total national legal aid funding, the Commonwealth’s contribution has decreased overtime from over 60% in 1994 to as low as 32% in 2010, while increasing slightly in the 2013-2014 budget to approximately 35% of total funding.170

Constitutional basis for legal aid funding to states and territories

Section 96 of the Australian Constitution provides that the Commonwealth may ‘grant financial assistance to any State on such terms and conditions as Parliament thinks fit’. These are known as ‘Specific-Purpose Payments’ (SPPs).171 Legal aid funding is currently provided through SPPs to state and territory governments on the terms contained in the National Partnership Agreement on Legal Assistance Services (National Partnership).172

Why the Commonwealth funds legal aid

The Commonwealth’s involvement in legal aid funding has expanded over time, in part as a result of the obligations under international law, including:

• the International Covenant on Civil and Political Rights (ICCPR)

• the International Covenant on Economic, Social and Cultural Rights (ICESCR) and

• the Universal Declaration of Human Rights (UDHR). 173

Successive Australian governments entered into those commitments on the understanding that democratic societies are underpinned by legally enforceable rights. 174 Access to justice is crucial in

169. Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.2: Attorney-General’s Portfolio, pp. 30-31, viewed 15 May 2013; Senate Legal and Constitutional Affairs Committee, Attorney-General’s portfolio, Additional Estimates, 22 February 2011, pp. 74-82, viewed 15 May 2013.

170. 1994 figures from Law Council of Australia (LCA), Erosion of legal representation in the Australian justice system, report prepared for the Australian Institute of Judicial Administration, National Legal Aid and Aboriginal and Torres Strait Island Legal Services, LCA, February 2004, p. 24, access 21 May 2013; 2010 figures from PricewaterhouseCoopers (PWC), Legal aid funding, Current challenges and the opportunities of cooperative federalism, Report prepared for the Australian Bar Association, Law Council of Australia, Law Institute of Victoria and Victorian Bar Council, PWC, December 2009, p. 52, accessed 17 May 2013; 2013-14 figures from LCA, Law Council says legal assistance sector funding falls short, media release, 14 May 2013, accessed 15 May 2013.

171. Scott Bennett and Richard Webb, Specific purpose payments and the Australian federal system, Research paper, 17 2007- 08, Parliamentary Library, Canberra, 14 January 2008, p. 1. 172. Australian Government, National partnership agreement on legal assistance services, Commonwealth of Australia, Canberra 2010, accessed 8 May 2013. 173. Richard Coates, ‘A history of legal aid in Australia‘, Papers Presented at the Fourth Annual Colloquium of the Judicial

Conference of Australia Inc., Melbourne, 12-14 November 1999. 174. PWC, Legal aid funding, Current challenges and the opportunities of cooperative federalism, op. cit., p. 12.

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making these rights and duties a reality.175 A legal aid framework exists to allow all Australians an elementary right of access to legal advice and services, so as to satisfy the premise that all are equal before the law:

The mission of legal aid commissions is to provide access to justice to marginalised and economically disadvantaged Australians. 176 (emphasis added).

Arguably, it can be considered the responsibility of governments to provide legal aid services on the basis of numerous moral, political, social justice and legal terms (and especially to marginalised and economically disadvantaged persons).177

How the Commonwealth provides legal aid funding

Since 1997, Commonwealth funding for legal aid has been provided through SPPs, which has allowed the Commonwealth to specify the priorities to which legal aid funding should be made available.178

This approach to legal aid funding has continued, with the National Partnership established to support the delivery of legal assistance services by legal aid commissions, community legal centres, Aboriginal and Torres Strait Islander Legal Services and family violence prevention legal services.179

The National Partnership defines legal assistance services as encompassing all of the sector-wide legal service providers referred to above.180 In contrast, legal aid services are defined as Commonwealth funded legal aid services delivered by legal aid commissions.181

What does the Commonwealth pay for?

In 1996-1997, the Australian Government moved to a purchaser-provider model that makes a clear distinction between the responsibilities the state and territory governments and those of the Commonwealth. 182 As a result, Commonwealth funding for legal aid services is today only provided for Commonwealth law matters except for:

the provision of early intervention legal education, information, advice, assistance and advocacy services and

legal representation of individuals whose legal problems involve a mixture of Commonwealth family law and state or territory law family violence and/or child protection issues (as described in the Commonwealth legal aid services ).183

175. Hillary Sommerlad, ‘Some Reflections on the Relationship between Citizenship, Access to Justice, and the Reform of Legal Aid’, Journal of Law and Society, 31(3), September 2004, pp. 345, 346-348. 176. Victoria Legal Aid, ‘Legal aid in Australia‘, Victoria Legal Aid website, accessed 8 May 2013. 177. E Skinnider, The responsibility of states to provide legal aid, The International Centre for Criminal Law Reform and Criminal

Justice Policy, Canada, March 1999, pp. 2, 10, accessed 17 May 2013. 178. PWC, Legal aid funding, current challenges and the opportunities of cooperative federalism, op. cit., p. 19. 179. Australian Government, ‘National partnership agreement on legal assistance services‘, op. cit., p. 2. 180. Ibid., p. 3. 181. Ibid. 182. Ibid., p. 16. 183. Australian Government, ‘National partnership agreement on legal assistance services‘, op. cit., p. 10 and Schedule A.

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Budget Review 2013-14

Figure 1 below shows actual payments for the provision of legal aid services to states and territories between 1994-1995 and 2013-2014.184 Funding has fluctuated overtime, increasing by $17.2 million in 2010-2011, with smaller increases from 2011-2012 onwards.

Figure 1: payments for the provision of legal aid services to states and territories

Source: Parliamentary Library estimates

The Commonwealth maintains separate agreements in relation to legal assistance services (that is, not delivered by state and territory legal aid commissions). This includes funding for community legal centres, Aboriginal and Torres Strait Islander legal services and family violence prevention legal services.185

Spending on legal assistance services (as defined in the National Partnership) has increased steadily over the past five years, from $140.8 million in 2009-2010 to $167.4 million in the 2013-2014 budget. 186

184. The figures presented are actual, not adjusted expenditure. For consistency, figures for 1994-1995 through to 2007-2008 were drawn from the relevant Portfolio Budget Statements, e.g. the 1994-1995 figures were drawn from: Australian Government, Portfolio budget statements 1995-1996: budget related paper no. 4.1: Attorney-General’s Portfolio, p. 75. The figures for 2008-2009 through to 2011-2012 were drawn from the respective Final Budget Outcome papers, e.g. the figures for 2008-2009 were drawn from: Australian Government, Final Budget Outcome 2008-2009, p. 81. Figures for 2012-2013 and 2013-2014 were drawn from the respective Budget Measures paper, e.g. the figures for 2013-2014 were drawn from: Australian Government, Budget Measures: budget paper no. 3: 2013-14, p. 106, accessed 15 May 2013. Other sources provide figures that can differ substantially. For example, PWC state that in 1996/1997 the Commonwealth’s contribution to legal aid funding was $126.6 million, whilst the Law Council of Australia state that for the same period funding was $159.2 million: PWC, Legal aid funding, current challenges and the opportunities of cooperative federalism, op. cit., p. 26, LCA, Erosion of legal representation in the Australian justice system, op. cit., p. 86. 185. Australian Government, ‘National partnership agreement on legal assistance services‘, op. cit., p. 2. 186. These figures do not include funding provided to state and territory legal aid commissions. Expenditure was calculated by

adding a consistent set of budget items listed in Programs 1.3 and 1.5 of the Attorneys-General’s Portfolio Budget Statements and Annual Reports that fall under the category of legal assistance services (that is, they are not delivered by state and territory legal aid commissions). As a number of programs have changed over time, developing accurate comparisons prior to 2009-2010 is problematic, and hence have not been not included.

$90

$110

$130

$150

$170

$190

$210

Millions

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Budget Review 2013-14

What do the states and territories pay for?

Since the 1996-1997 reforms, states and territories maintain responsibility for funding matters arising under their laws, except where the individual’s legal problems involve a mixture of Commonwealth family law and state or territory family violence and/or child protection issues.187

In contrast to the pattern of rising spending shown above, the proportion of overall legal aid funding provided by the Commonwealth has decreased from 51 per cent in 1997 to between 32 per cent (2010) and 35 per cent in the current Budget.188

Peopling smuggling cases and legal aid

As at 30 June 2012, there were 152 people smuggling cases, many of which were being prosecuted in state and territory courts.189 In response, some state and territory governments have called for increased funding for their courts, jails and legal aid programs to cope with the increased demand on those services.190

Whilst this has been formally discussed at the Standing Council on Law and Justice (without agreement), the Government has indicated that it considers funding for people smuggling prosecutions no different from funding for other types of Commonwealth offences.191

187. PWC, Legal aid funding, current challenges and the opportunities of cooperative federalism, op. cit., p. 16; Australian Government, ‘National partnership agreement on legal assistance services‘, op. cit., p. 10 and Schedule A. 188. PWC, Legal aid funding, current challenges and the opportunities of cooperative federalism, op. cit., p. 19; LCA, Law Council says legal assistance sector funding falls short, op. cit. 189. Commonwealth Director of Public Prosecutions (CDPP), Annual report 2011-2012, CDPP, Canberra, 2012, pp. 76-87. 190. Alex Boxell, ‘States rock boat on smugglers‘, Australian Financial Review, 13 April 2012, p. 41, accessed 21 May 2013. 191. Standing Council on Law and Justice (SCLJ), ‘Communiqué April 2012‘, SCLJ website, p. 4, accessed 21 May 2013; Nicola

Roxon (Attorney General), quoted in Alex Boxell, ‘States rock boat on smugglers‘, op. cit.

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Budget Review 2013-14

Federal courts funding

Tyler Fox

Introduction

This Budget Review Backgrounder reviews Commonwealth funding of courts and tribunals over the 2008-2009 to 2013-2014 financial years. It is confined to funding provided through the Attorney-General’s portfolio of: the Administrative Appeals Tribunal (AAT), the Family Court of Australia, the Family Court of Western Australia, the Federal Court of Australia, the Federal Magistrates Court of Australia (now known as the Federal Circuit Court of Australia), the High Court of Australia and the National Native Title Tribunal.

In the latter part of the period under consideration, a review was conducted into the federal courts and tribunals (the Skehill Review).192 For the courts and tribunals listed above, excluding the High Court, the review considered ‘options for improving efficiency and flexibility in court and tribunal administration …’193 For all courts and tribunals, the review also considered the ‘potential for shared services and administration arrangements between the tribunals within the Attorney-General’s portfolio and administrative review bodies in other portfolios’.194

The review report said:

… the data provided to the Review by the Courts suggests, on the face of it, that there are questions to be addressed in relation to the ongoing financial viability of the Courts at current activity levels and on the basis of current spending levels and practices. 195

One outcome of the review was the passage of the Courts and Tribunals Legislation Amendment (Administration) Act 2013 (the Courts Act 2013) that facilitates the transfer of appropriations, staff and some administrative functions of the Native Title Tribunal to the Federal Court and enables the merging of the administrative functions of the Federal Magistrates Court with those of the Family Court.196 The judicial functions of the courts remain separate with the Family Court hearing the more complex family law matters and the Federal Circuit Court hearing the remainder as well as matters in other federal

192 Department of Finance and Deregulation, Strategic review of small and medium agencies in the Attorney-General’s portfolio: report to the Australian Government, (Skehill Review), Commonwealth of Australia, January 2012, Terms of Reference, accessed 21 May 2012.

193 Ibid., para. 4, p. vii; So far as is relevant to the courts and tribunals, other than the High Court, the relevant term of reference in full is “With regard to the federal courts and tribunals in the Attorney-General’s portfolio, the review will consider options for improving efficiency and flexibility in court and tribunal administration, including service delivery, whether the courts and tribunals are financially viable in their current form, including options for improving shared services and administration arrangements.” 194 Ibid., para. 5, p. vii. 195. Ibid., p. 27. 196. Courts and Tribunal Legislation Amendment (Administration) Act 2013 (Cth), accessed 21 May 2013.

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jurisdictions.197 Further information on the Skehill Review and related developments can be found in the bills digest for the Courts Act 2013.198

These changes should be borne in mind when comparing funding for these courts and tribunals before and after the changes were effected.

Funding

In a 2009 speech, the Chief Justice of the High Court, Robert French, said of court funding:

…The provision of public moneys to the courts is necessarily founded upon value judgments about their functions in the maintenance of constitutional arrangements, the rule of law and the provision of access to justice for individuals, organisations and governments.

If these larger considerations are not taken seriously a reductionist approach characterised by a kind of simplistic economic rationalism may cause inappropriate funding decisions to be made or inappropriate conditions to be attached to funding. Any model which treats the courts as competitors in a market for the provision of dispute resolution services requires particularly close scrutiny. That having been said, the community, through its elected representatives, has every right to require that measures are in place to ensure that public resources allocated to the courts are used efficiently and that their use is capable of intelligible explanation and justification.

199

High Court

In 2008-09, the High Court’s funding was $17.8 million rising to $19.4 million in 2011-12.200 The 2013-14 Budget provides funding of $20.4 million.201

In 2010-11, in addition to its normal funding, the High Court received an equity injection of $8.4 million, which included $4.3 million to fix safety and structural issues around the building, which had been the subject of some criticisms.202

Federal Court

In 2008-09, the Federal Court’s funding was $107.3 million and $108.4 million in 2011-12 with little movement in the intervening years.203 The 2013-14 Budget provides for funding of $128.5 million.204

197. Australian Government, Portfolio budget statements 2013-2014: budget related paper no. 1.2: Attorney-General’s Portfolio, pp. 283-4, accessed 15 May 2013. 198 M Coombs, Courts and Tribunals Legislation Amendment (Administration) Bill 2012, Bills digest, 62, 2012-2013, Parliamentary Library, Canberra, 1 February 2013, accessed 17 May 2013. 199. RS French, Chief Justice, High Court of Australia, Boundary conditions - the funding of courts within a constitutional

framework, speech, Australian Institute of Judicial Administration, Australian Court Administrators’ Group Conference, Melbourne, 15 May 2009, pp. 2-3, accessed 15 May 2013. 200. Australian Government, Portfolio budget statements 2009-10: budget related paper no. 1.2: Attorney-General’s Portfolio, p. 369, accessed 20 May 2013; Australian Government, Portfolio budget statements 2012-13: budget related paper no.

1.2: Attorney-General’s Portfolio, p. 348, accessed 10 May 2013. 201. Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op. cit., p. 334, accessed 15 May 2013. 202. High Court of Australia, Annual report 2010-2011, Commonwealth of Australia, p. 37, accessed 10 May 2013; Ibid., pp. 39-

42; N Berkovic, ‘Razor gang’s High Court caveat’, The Australian, 5 January 2009, p. 2, accessed 10 May 2013; J Eyers, ‘Building in disrepair, warns Chief Justice’, Australian Financial Review, 19 December 2008, p. 18, accessed 10 May 2013.

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Budget Review 2013-14

However, following the Skehill Review, many of the functions of the Native Title Tribunal have been transferred to the Federal Court, such as the mediation of native title claims.205

The 2013-14 Budget provides $10.8 million over four years for the appointment of three additional judges, and support staff, to the Federal Court to ‘reduce waiting times and improve access to justice’.206

Family Court

The funding for the Family Court was $139.8 million in 2008-09 and $164.1 million in 2010-11.207 The 2012-13 Budget provided funding of $121.4 million.208

In support of their contribution to the Skehill Review, the Family Court and Federal Magistrates Courts commissioned a ‘financial health check’ by Oakton Consulting. Subsequently, the Family Court annual report records that ‘the courts [sic] resources were optimally deployed and that there were no obvious areas from which to achieve further savings without significant reductions in services to clients’.209

Federal Circuit Court

In 2008-09 funding for the Federal Magistrates Court, as it was then called, was $80.6 million rising to $95.9 million in 2010-11.210 The 2012-13 Budget made provision of $101.4 million.211 In its annual report, the Federal Circuit Court makes the same point as the Family Court, following the Oakton financial health check.212 The Australian Government has indicated it will work with the court to address these pressures.213

Merger of functions of Family Court of Australia and Federal Circuit Court

Following the merger of some functions of the Family Court and Federal Circuit Court after the Skehill Review, the funding for the two courts in the 2013-14 Budget has combined into a single agency under the Financial Management and Accountability Act 1997 (Cth).214

203. Portfolio budget statements 2009-10: Attorney-General’s Portfolio, op. cit., p. 341; Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.2: Attorney-General’s Portfolio, op. cit., p. 311, accessed 17 May 2013.

204. Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op, cit., p. 317; Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., p. 9. 205. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., pp. 307, 309-11, 385-90; M Coombs, ‘Court reforms’, in Budget review 2012-13, Parliamentary Library, Canberra, May 2010, pp. 94-95, accessed 10 May 2013. 206. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 90, accessed 15 May 2013. 207. Family Court of Australia, Annual report 2008-2009, Commonwealth of Australia, p. 29, accessed 17 May 2013; Family

Court of Australia, Annual report 2010-2011, Commonwealth of Australia, p. 218, accessed 17 May 2013. 208. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., p. 293, accessed 17 May 2013. 209. Family Court of Australia, Annual report 2011-2012, Commonwealth of Australia, p. 122, accessed 17 May 2013. 210. Portfolio budget statements 2009-10: Attorney-General’s Portfolio, op. cit., p. 354; Federal Magistrates Court of Australia,

Annual report 2010-2011, Commonwealth of Australia, p. 128, accessed 17 May 2013. 211. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., p. 331. 212. Federal Magistrates Court of Australia, Annual report 2011-12, p. 90, Commonwealth of Australia, accessed 16 May 2013. 213. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., pp. 327-28, 330. 214. Courts and Tribunal Legislation Amendment (Administration) Act 2013 (Cth), accessed 17 May 2013.

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Budget Review 2013-14

The 2013-14 Budget provides $200.2 million in funding for the combined Family Court and the Federal Circuit Court.215

Family Court of Western Australia

Funding for the Family Court of Western Australia increased from $13.5 million in 2008-09 to $20.7 million in 2010-11, but fell to $12.6 million in 2012-13.216 As for the Family Court, the change from 2011-12 to 2012-13 is due to changes in the arrangements for funding and management of the Commonwealth Law Courts buildings, including the transfer of certain functions to the Department of Finance and Deregulation.217

The Chief Judge of the Family Court of Western Australia stated in the 2010-2011 Annual Review that the court ‘continues to struggle to maintain an acceptable level of service in the absence of an acceptable level of funding’, where the revised funding for that period was $20.7 million for that Budget year.218 The $12.9 million funding in the 2013-14 Budget is set at a similar level to that in the previous year—$12.5 million—despite these criticisms (these figures exclude expenses not appropriated in the respective Budget years).219

Administrative Appeals Tribunal (AAT)

In 2008-09, the AAT’s funding was $34.3 million.220 The 2013-14 Budget provides funding of $39.1 million.221

In the 2013-14 Budget, funding of $3.8 million is provided in forward estimates to support the AAT function of reviewing certain decisions of the NDIS Launch Transition Agency under the National Disability Insurance Scheme Act 2013 (Cth).222

National Native Title Tribunal (see also section on Federal Court)

In 2008-09, funding for the National Native Title Tribunal was $32.2 million.223 In 2011-12, it was $26.5 million.224 Its funding in the 2012-13 Budget was transferred to the Federal Court from 1 July 2012.225 Its functions for 2012-13 were allocated $12.3 million, a significant drop from previous years that should be considered in the context of the Federal Court absorbing many of the functions of the tribunal.226

215. Portfolio budget statements 2013-14: budget related paper no. 1.2: Attorney-General’s Portfolio, op. cit., p. 292. 216. Portfolio budget statements 2009-10: Attorney-General’s Portfolio, op. cit., p. 29; Portfolio budget statements 2011-12: Attorney-General’s Portfolio, op. cit., p. 31; Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op. cit., p. 28.

217. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., pp. 30, 290, 293. 218. Family Court of Western Australia, Annual review 2010-11, p. 4, accessed 10 May 2013; Portfolio budget statements 2011-12: Attorney-General’s Portfolio, op. cit., p. 31. 219. Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op. cit., p. 28. 220. Portfolio budget statements 2009-10: Attorney-General’s Portfolio, op. cit., p. 73. 221. Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op. cit., p. 9. 222. Ibid., p. 51. 223. National Native Title Tribunal, Annual report 2008-2009, Commonwealth of Australia, p. 44, accessed 16 May 2013. 224. National Native Title Tribunal, Annual report 2011-2012, Commonwealth of Australia, p. 44, accessed 20 May 2013. 225. Portfolio budget statements 2012-13: Attorney-General’s Portfolio, op. cit., pp. 307, 310-11, 385-90. 226. Ibid., p. 386; M Coombs, Courts and Tribunals Legislation Amendment (Administration) Bill 2012, op. cit., pp. 5-6.

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Budget Review 2013-14

In the 2013-14 Budget, the Federal Court has received $13.6 million as an unspent prior year appropriation transferred from the tribunal.227

Figure 1: Funding to courts and tribunals by contribution to their Budget Outcomes

Note: The graph includes non-appropriated expenses, and the figures have been adjusted for CPI increases with 2012-13 as the base year. Source: Parliamentary Library estimates (derived from various annual reports and portfolio budget statements)

227. Portfolio budget statements 2013-14: Attorney-General’s Portfolio, op. cit., pp. 314, 319-20.

0

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100000 120000

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$ ‘000 2008-09

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Budget Review 2013-14

Farm finance

Robert Dossor

The Budget included a package of measures which are designed to support and assist farmers with high levels of debt and help improve their ongoing financial resilience. The Farm Finance measures will provide up to $420.0 million over two years in concessional loans to eligible primary production businesses.228

The concessional loans program will make available up to $30.0 million per annum for two years to each state and the Northern Territory (NT) for the provision of concessional loans to eligible primary production businesses. These loans will be administered by the relevant state or territory delivery agency. This amount of $30.0 million is half what was initially announced in April 2013.229

The problem

The Australian Bureau of Agricultural Research Economics and Science (ABARES) estimates that total farm debt (for broad-acre only farms - farms with paddocks larger than 4,000 square metres - not including dairy) as at 30 June 2013 averages $476,000.230 For the dairy industry ABARES estimates that average farm debt as of 30 June 2012 is $701,500.231

Data from the Australian Bureau of Statistics (ABS) demonstrates that during the 2010-11 financial year (the most recent available), approximately 33 per cent of all agricultural businesses (as well as forestry and fishing) received either debt or equity finance.232 Of these businesses, the bulk sought debt financing (31.6 per cent from a total of 33.2 per cent), while only 6.1 per cent sought equity financing (these two types of financing are not mutually exclusive - that is, businesses can have both debt and equity financing).233 This proportion of businesses seeking finance is significantly above the average for industry sectors: in 2010-11 it was 16.6 per cent for all industries; the agricultural industry was the highest at 31.6 per cent.234

According to the ABS, farms mostly sought finance to maintain short-term cash flow or liquidity or ensure the survival of the business (51.5 per cent and 34.3 per cent respectively).235 However, it is worth noting that farmers already had high levels of debt, as a result of the low interest rates of the 2000s

228. Australian Government, Budget measures: budget paper no. 2, 2013-14, pp. 76-7, accessed 21 May 2013. 229. W Swan (Deputy Prime Minster and Treasurer) and J Ludwig (Minister for Agriculture, Fisheries and Forestry, Minister assisting on Queensland floods recovery), Fairer finance for Aussie farmers, media release 27 April 2013, accessed 23 May 2013.

230. While the Australian Bureau of Agriculture, Resource Economics and Science (ABARES) does not define the exact meaning of a ‘broad-acre farm’ it does explain what constitutes the broad-acre only sector. For this explanation see ABARES, Agricultural commodities: March quarter 2013, p. 156, accessed 22 May 2013 and Ibid., p. 169.

231. Ibid., p. 196. 232. Australian Bureau of Statistics (ABS), Selected characteristics of Australian businesses, 2010-11: business finance, cat. No. 8167.0, 2012, accessed 22 May 2013. Equity financing involves the issuing of shares, or the issuing additional shares of common stock to an investor while debt financing refers to borrowing money and not giving up ownership.

233. Ibid. 234. Ibid. 235. Ibid.

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which encouraged them to buy more (possibly unsustainable) land and scale up their operations.236 Since then the high Australian dollar, softening commodity prices and pockets of drought have made lowering this debt difficult and significantly impacted farm profits and values.

The measures

The measures included in the Farm Finance package include a number of programs and schemes, the most significant of which is the provision of up to $420.0 million over two years in concessional loans.237 These loans will be available to eligible primary production businesses for the purpose of productivity enhancement or debt refinancing from 1 July 2013. The loans will be for a maximum of $650,000 per business and available for a period of up to 20 years. The interest-only concessional loan component will be available for only five years, the remainder reverting to a market rate and requiring recipients to commence repaying the principal.238

The Budget does not specify what the concessional rate is or how the loan will otherwise operate, including what the market rate will be.

The Farm Finance package also includes:

• changes to the Farm Management Deposit (FMD) scheme 239

• $6.3 million over three years to expand the Rural Financial Counselling Service by an additional

17 full-time equivalent counsellors from July 2013

• $0.9 million over three years for a communication campaign to increase awareness of the assistance

package and

• the development of a nationally consistent approach to farm debt mediation process across all

jurisdictions.240

Concern has been raised as to whether states and the NT will sign up to the measures.241 States and the NT will have to administer the loans and so must sign on before their farmers can become eligible.

Reactions

Reactions to the initial announcements were moderately favourable. Brett Finlay, policy director at the National Farmers Federation said that the package was vital and ‘much needed’ to secure the future of an essential industry.242

236. J Barrett and J-A Sprague, Farmers hit by debt, dollar, costs, Australian Financial Review, 27 April 2013, accessed 22 May 2013. 237. Budget measures: budget paper no. 2, 2013-14, op. cit., pp. 76-7. 238. Ibid. 239. For details of this change see the Department of Agriculture, Fisheries and Forestry, Farm finance: enhancing the farm

management deposits scheme, Factsheet, May 2013, accessed 22 May 2013. 240. Budget measures: budget paper no. 2, 2013-14, op. cit., pp. 76-7. 241. Ibid. 242. S Neales, Farmers urge states to act on drought aid, The Australian, 6 May 2013, accessed 22 May 2013.

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The ABC reported one farmer as saying ‘… the Federal Government’s farm finance package could be extremely beneficial for farmers, particularly when paying overdrafts.’243

On the other hand, Queensland’s Agforce president Ian Burnett warned that ‘the farm finance package, while welcome, would not fix the crisis gripping much of rural Australia as drought widens and beef, fruit, vegetable and milk prices hit new lows.’244

243. L Barbour, NSW farmers react to farm finance package, ABC Rural, 30 April 2013, accessed 21 May 2013. 244. Ibid.

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Creative Australia

Dr John Gardiner-Garden

The 2013-14 Budget furthers commitments made by the Government in its Creative Australia national cultural policy launched in March 2012.245 The development of this policy began in 2009 with the setting up of a steering committee, and continued in the following years with the issuing of a discussion paper, commencement of consultations and receipt of hundreds of submissions. Concurrent with this process was the commissioning of a review, chaired by Harold Mitchell, of government support for philanthropy; and a review, led by Gabrielle Trainor and Angus James, of the Australia Council for the Arts.246 The Government’s policy was launched on 13 March 2013 and included the Government’s response to the philanthropy and Australia Council reviews.247

The legislative changes recommended in the Australia Council review were set in motion on 20 March 2013 with the introduction of the Australia Council Bill 2013 and the Australia Council (Consequential and Transitional Provisions) Bill 2013 and on 9 May the Senate inquiry into these Bills reported, recommending only minor changes.248

The Creative Australia measures add up to over $200 million of new expenditure.249 Most of these measures fall within the Regional Australia, Local Government, Arts and Sport portfolio:

• $75.3 million over four years from 2013-14 to the Australia Council, with $15.0 million per annum for

arts organisations to address the demand for high quality creative content, $1.25 million per annum to establish a $2.5 million funding pool for major performing arts organisations to access on a competitive basis, subject to matched funding from State and Territory Governments, $1.0 million per annum to help the Council develop formal programs of professional development for arts sector, and $1.0 million per annum for the Council to develop a data collection system and produce an annual publication on the arts sector

• $20.8 million over four years in additional funding to six elite arts training organisations — the

Australian Ballet School, the Australian Youth Orchestra, the Flying Fruit Fly Circus, the National Aboriginal Islander Skills Development Association Dance College, the National Institute of Circus Arts and the National Institute of Dramatic Arts

• $20.0 million over three years from 2012-13 to Screen Australia to establish and administer an

Australian Interactive Games Fund to support the development of the interactive video gaming industry

245. Australian Government, Creative Australia: national cultural policy, Commonwealth of Australia, Canberra, March 2013, accessed 15 May 2013 246. See the Australian Government’s Building support: report of the review of private sector support for the arts in Australia, October 2011, accessed 15 May 2013, Australian Government, and Review of The Australia Council, May 2012, accessed

15 May 2013. 247. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts) A national cultural policy for a creative Australia, media release, 13 March 2013, accessed 16 May 2013. 248. Senate Rural and Regional Affairs and Transport Legislation Committee Report, Australia Council Bill 2013 [Provisions];

Australia Council (Consequential and Transitional Provisions) Bill 2013 [Provisions], 9 May 2013, accessed 15 May 2013. 249. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, accessed 15 May 2013.

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• $20.0 million in 2014-15 for location incentives (beside Location tax offset) to help attract

international film and television productions. Given the high Australian dollar and the incentives offered by other countries, the film industry had been seeking an increase in the Location tax offset from 16.5 per cent to 30 per cent, but in its national cultural policy the Government favoured, for the time being, offering incentives only on a case-by-case basis250

• $11.3 million over four years ($5.7 million new funding, $5.6 million from existing Department of

Families, Housing, Community Services and Indigenous Affairs’ (FaHCSIA) resources) for additional funding to continue the ‘Closing the Gap’ component of the Indigenous Visual Arts Industry Support program which provides operational funding for Indigenous art centres and will support a range of new training and governance initiatives

• $10.0 million over four years to Screen Australia to support the Australian screen production industry

across a range of digital platforms, including television

• $9.7 million over four years to the Australia Council to continue the ArtStart program which provides

start-up financial assistance to recent art graduates

• $9.3 million over four years to the Australia Council to provide additional base funding to six state

based Major Performing Arts companies—the Bangarra Dance Theatre, Belvoir—Company B, Black Swan State Theatre Company, Malthouse Theatre, Circus Oz and the West Australian Ballet

• $8.6 million over two years to Creative Partnerships Australia (formed in late 2012 from the merger of

Australia Business Arts Foundation and Australia Council’s Artsupport Australia program in response to the Mitchell review251) to provide additional funding to support a matched funding initiative ($7.1 million over two years), a crowd sourcing initiative ($1.0 million over two years), a micro loans scheme for the arts sector ($0.5 million over two years) and for the implementation of some new donation-related programs

• $14.0 million over four years ($7.4 million new, $6.6 million from existing FaHCSIA resources) as

additional funding to expand the Indigenous Languages Support program (recommended in the Our Land, Our Languages report) and to enable applications for funding for Torres Strait Island projects252 and

• $3.4 million over four years from 2013-14 to establish the ArtsReady program to support skills

development in secondary schools and the arts industry

Other Creative Australia measures were:

• $5.4 million over five years in the Broadband, Communications and the Digital Economy Portfolio for

community radio (see the ‘Broadcasting‘ brief elsewhere in this Budget Review) and

250. P Bulbeck ‘Australian Government adds $19.6 million to location Incentives’, The Hollywood Reporter, 13 March 2013, accessed 16 May 2013. 251. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts) New institution to promote private support for the arts, media release, 1 August 2012, accessed 16 May 2013. 252. House of Representatives Committee on Aboriginal and Torres Strait Islander Affairs’ Inquiry into language learning in

Indigenous communities Our Land Our Languages, September 2012, accessed 16 May 2013.

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• $8.0 million over two years in the Education, Employment and Workplace Relations Portfolio to

provide financial assistance to young people up to 25 years of age to put toward the cost of representing their community in training, cultural, artistic, academic or community based activities and events, with 23 individual grants and four group grants awarded each year in each federal electorate.

The Budget also provided $21.6 million in 2016-17 (in addition to the Location tax offsets) to attract production of the feature film 20,000 Leagues Under the Sea: Captain Nemo on the expectation that the measure would ‘provide a boost to the film production industry in Australia, creating an estimated 2,000 jobs in the screen production sector…[and] create further jobs and economic activity by engaging more than 1,000 suppliers that provide services such as transport, catering and hospitality’. 253 There has previously been some public debate about the use of existing film-support mechanisms for major overseas productions and the ‘out-of-channel’ funding of Melba Records.254 However the allocation in the 2012-13 Budget of $12.8 million as a location incentive (over and above the Location tax offset) for The Wolverine255 did not create much public debate, so this allocation, along with the Creative Australia $20.0 million allocation for incentives in 2014-15, may also attract little debate.

253. Australian Government, Budget measures: budget paper no.2: 2012-13, Commonwealth of Australia, Canberra, 2012, accessed 10 May 2013, p. 241. 254. For example G Jenning-Edquist, First Gatsby, now Miller... how American stories win Aussie film funds, crikey web-site, 15 March 2011, viewed 16 May 2013, and Ben Eltham, Millions for a tiny record label with powerful players, Crikey website, 5

April 2012, accessed 16 May 2013. 255. S Crean (Minister for Regional Australia, Regional Development and Local Government, Minister for the Arts), and J Gillard (Prime Minister), The Wolverine to film in Australia, media release, 20 April 2012, accessed 20 May 2013.

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Broadcasting

Dr Rhonda Jolly

This Budget has delivered substantial funding for the national broadcasters, the Australian Broadcasting Corporation (ABC) and the Special Broadcasting Service (SBS). The ABC will receive base funding of $2.5 billion over three years from 2013-14. SBS base funding will be $568.7 million over the same three year period.256

Additional funding has been provided to assist in maintaining and improving online services—$30.0 million over three years for the ABC and $20.0 million for SBS. The ABC has also benefitted from additional funding to enhance its news delivery services ($69.4 million over four years) and SBS from funding to assist it to meet the cost of supporting the production of, and acquiring, local content ($10.0 million over five years). Both broadcasters will be assisted to increase the terrestrial coverage of digital television to an extra 39 areas in regional Australia and to convert and take over the management of a number of self-help television transmission services.257 The funding package also includes a $90.0 million loan to assist the ABC to construct a new facility which will house ABC Melbourne’s radio, television and online operations.258

The level of funding for the national broadcasters was welcomed by the ABC’s Managing Director Mark Scott and SBS’s Michael Ebeid, both of whom noted that it would assist the broadcasters to fulfil the obligations of their charters—for the ABC to inform, educate and entertain Australians and SBS to deliver services which celebrate Australia’s multicultural environment—in the digital environment.259 There has been little other mention of the additional funding to the public broadcasters in Budget analysis, although one commentator, Andrew Bolt, claimed in relation to ABC funding that it represented a ‘bribe’ to remind the broadcaster who its friends were.260

One commentary also suggested that the funding boost was not as good as it appeared. ABC television and radio would actually face ‘funding pain’ under projections in the Budget papers—$10 million for television in 2016-17 and $5 million for radio for the same year.261 Treasury officials argued in response that the apparent anomaly is because the broadcaster is funded on a triennial basis and this means that future budget years are recoded in financial statements as a base figure.262

256. Australian Government, ‘Part 2: Expense measures‘ Budget measures: budget paper no. 2: 2013-14, pp. 98-106, accessed 15 May 2013. 257. Ibid. 258. S Conroy (Minister for Broadband, Communications and the Digital Economy), Gillard Government boosts support for our

national broadcasters, media release, 14 May 2013, accessed 15 May 2013. 259. Australian Broadcasting Corporation, Audiences to benefit from ABC digital future, media release, 14 May 2013, accessed 15 May 2013 and Special Broadcasting Service (SBS) SBS welcomes Federal Budget funding boost, media release, 14 May

2013, accessed 15 May 2013. 260. A Bolt, ‘Labor hands ABC another $30 million biscuit’, Andrew Bolt weblog, Herald Sun website, 15 May 2013, accessed 16 May 2013. 261. Australian Government, ‘Statement 6: Expenses and net capital investment‘ Budget measures: budget paper no. 1: 2013-

14, p. 39, accessed 15 May 2013 262. J Ferguson, ‘Television, radio divisions tipped to face the funding pain at the ABC‘, The Australian, 15 May 2013, accessed 15 May 2013.

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Mark Scott also referred to the base funding equation, arguing that it could be problematic in the future as it is below inflation. 263 In addition, Scott noted that new funding is ‘tied to specific areas’. He warned against too much celebration, as the ABC budget will continue to be ‘tight’ and the broadcaster will still be required to save money. This will mean ‘standing still in many areas’;264 in other words Scott implied that there may be areas in which the ABC will not have the money to embrace new technologies or continue services.

According to the Minister for Broadband, Communications and the Digital Economy, Stephen Conroy, however, the funding boost signifies clearly that the Government will support the national broadcasters into the future; under its auspices there will be no fund cutting or moves toward privatisation.265 This remark appears to be partly in response to comments from Opposition spokesperson on communications, Malcolm Turnbull, who prior to the Budget, noted that while he was a passionate supporter of public broadcasters, he could not guarantee that they would not be subject to cuts if the Coalition was elected to government.266

While not in direct response to these comments, Mark Scott’s direction to ABC staff following the Budget announcements addresses a fundamental issue in relation to future funding for the public broadcasters from any government—they must ‘demonstrate strong returns to audiences’, in order to justify funding for news and digital media beyond 2015-16, the last year of this triennial funding package.267

Community radio

The Budget provides $5.4 million over five years ‘to assist the production and transmission of community radio’ as part of the Creative Australia initiative.268 This includes $2.7 million over four years to help communities in regional and remote Australia to upgrade satellite reception equipment to enable them to access more radio services on the Viewer Access Satellite Television (VAST) service. There is also $2.7 million to continue operation of the Australian Music Radio Airplay Project (AMRAP). AMRAP has been funded since 1998 to promote contemporary Australian music through the community broadcasting sector. Community broadcasters nationally play an average of 37 per cent Australian music of all genres and make a significant contribution to supporting Australian music, arts and media diversity.269

This funding does not mean that the community radio sector is happy with budget outcomes. The Community Broadcasting Association of Australia has expressed its disappointment that a ‘mere $1.4 million’ needed for the ‘survival’ of digital community radio services was not included in the Budget.270 The Government previously provided funding to the community sector to enable it to plan, design, implement and operate infrastructure for digital radio. The sector believes that the funding delivered in

263. M Knott, ‘Broadcasting and arts: boost for ABC, SBS and Conversation‘, Crikey, 15 May 2013, accessed 15 May 2013. 264. Ibid. 265. S Conroy, Gillard Government boosts support, op. cit. 266. M Bingeman, ‘Coalition’s Malcolm Turnbull says he can make no promises on ABC, SBS funding‘, The Australian, (online

edition), 6 May 2013 accessed 16 May 2013. 267. N Leys, ‘We must show returns: Scott‘, The Australian, (online edition), May 16, accessed May 16. 268. Australian Government, ‘Part 2: Expense measures‘ Budget measures: budget paper no. 2: 2013-14, p. 101, accessed 15 May 2013 269. Community Broadcasting Association of Australia, (CBAA) Community broadcasters call on the Federal Government to

restore funding, media release, CBAA, 23 November 2012, accessed 16 May2013. 270. Community Broadcasting Association of Australia (CBAA), Community digital radio services face the axe following budget failure, media release, 14 May 2013, accessed 15 May 2013.

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2012 to continue to maintain stations now established as a result of that funding is insufficient. It has expressed ongoing concern since its funding expectations were unmet in the 2012 Budget and has argued that a number of digital stations would be forced to reduce services substantially or to close unless additional funding in this Budget was forthcoming.

Moreover, it believes that it is a government responsibility to support community radio transition to digital services. It considers there are a number of reasons for this including the popularity of the services—one quarter of radio audiences listen to community radio. A further reason is that these services are provided on a not-for-profit basis and crucially, the existence of radio community radio stations help to deliver media diversity.271

The online news source Crikey reports, however, that the Government is not sympathetic to community radio’s argument for digital funding. It considers that the sector should be able to find funding from other sources to make up the digital shortfall.272 There is some justification in the Government adopting this approach given that the majority of funding for community radio is derived from sponsorship.273 On the other hand, as the Greens communications spokesperson Scott Ludlam points out, $1.4 million is a relatively small amount of money to ensure that all community broadcasters remain on the air.274 Community radio has not given up on gaining further funding to secure its digital future however, and is currently seeking further discussion with the Minister.275

271. Information gathered from various pages on the CBAA website. 272. A Crook, ‘Community broadcasting: no cash for digital radio stations’, Crikey, 15 May 2013, accessed 15 May 2013. 273. The most recently available Community Broadcasting Database survey of community radio stations (for the 2009-10 financial year) estimated that Australian Government funding to permanently licensed community radio stations was 8.5

per cent of total revenue. Total grant income from all government formed 25 per cent of total revenue. By comparison, local sponsorship and subscriptions and donations provided 45.6 per cent of revenue, Community Broadcasting Association of Australia submission to the 2010-11 Budget, not available online. 274. S Ludlam (Greens spokesperson on communications), Budget win for public broadcasters, communication breakdown for community radio, media release, 16 May 2013, accessed 15 May 2013. 275. M Bodey, ‘Community radio seeks talks with Conroy‘, The Australian, (online edition), 15 May 2013, accessed 16 May 2013.

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Sport

Dr Rhonda Jolly

This Government has been generous in funding sport. Not long after it came to power it declared that Australia’s sports system needed to take new directions to meet emerging challenges and to maintain Australia’s status as one of the world’s great sporting nations.276 It commissioned the Independent Sports Panel (ISP) to identify the types of reforms required for the system to prepare for and meet the future.277

In 2009 the ISP recommended reforms intended to ensure elite athletes could continue to enjoy international success and which would also improve the health and well-being of the Australian population in general.278 The Government pledged support for the majority of the ISP’s recommendations, responding with a 2010-11 Budget commitment for elite and community sport of $1.2 billion.279 It proclaimed this funding to be part of what it called an ‘integrated whole-of-sport approach to the Australian sport system’.280 It promoted this sports funding windfall as one which would put Australia on the pathway to success at community and elite levels.281

However, since certain commentators questioned the performances of Australian athletes at the London Olympics, the Government appears to have reassessed the existing funding formula for elite sport.282 Hence, its Winning Edge strategy, announced in November 2012, stressed the need for more responsible use of taxpayers’ dollars by national sporting organisations and more efficient allocation and use of government funding by the Australian Sports Commission (ASC) and the Australian Institute of Sport (AIS). This change in funding emphasis away from elite sport foreshadowed that there would be no substantial new funding for elite sports in this Budget. This is the case; no extra funding has been provided in the lead up to the 2014 Commonwealth Games and the ASC and the AIS are clearly on notice that they will need to operate more efficiently within their Budget allocation of approximately $170 million for elite programs.283

The only elite sports item noted in this Budget is the modest allocation of $14.5 million over five years offset against a Contingency Reserve previously included in the 2012-13 Budget. This is to assist with the staging of the 2015 Cricket World Cup and follows significant cricket infrastructure commitments made in the 2011-12 Budget.284 In addition, extra funding of $3.0 million over three years also included in the Contingency Reserve will assist a Major Sporting Events Taskforce in the Department of Regional Australia, Local Government, Arts and Sport to contribute to the staging of the World Cup.

276. Australian Government, Australian sport: emerging challenges, new directions, August 2008, accessed 14 May 2013. 277. Independent Sport Panel (ISP), The future of sport in Australia, (the Crawford Report), Commonwealth of Australia, Canberra, 2009, accessed 14 May 2013. 278. Ibid. 279. K Ellis (Minister for Sport), $325 Million boost to sport and getting more Australians active, media release, 11 May 2010,

accessed 15 May 2013. 280. Australian Government, Portfolio budget statements 2010-11: budget related paper no.1.11: Health and Ageing Portfolio, p. 377, accessed 15 May 2013. 281. Australian Government, Australian sport: the pathway to success, 2010, accessed 15 May 2013. 282. M Attard, ‘London Olympics: where is Australia?‘, CNN Asia, 7 August 2012, accessed 15 May 2013. 283. Australian Government, Portfolio budget statements 2013-14: budget related paper no.1.15: Regional Australia, Local

Government, Arts and Sport Portfolio, p. 151, accessed 15 May 2013. 284. Contributions to Adelaide Oval redevelopment ($30 million) and Sydney Cricket Ground redevelopment ($50 million).

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There is also no additional funding for grassroots sport in this Budget, despite previous rhetoric about the importance of funding sports and recreation for the masses and the acknowledged importance of sport and physical activity in delivering health and other social and economic benefits. Funding of $39.4 million has been provided, however, to extend the successful Active After-School Communities (AASC) program in which over 2,000 schools and 1,200 out-of-school care centres participate, for a further two years. Continuing with AASC appears to be sensible given that is has been evaluated in the past as fulfilling an essential objective of government since the 1970s to improve community participation in recreation by providing access to activities that are safe, fun and inclusive.285

Integrity in sport

The Australian Crime Commission (ACC) announced in February 2013 the results of a year-long investigation into drug taking and possible criminal connections in Australian sport.286 The investigation exposed possible corruption in a number of football clubs that are currently under Australian Sports Anti-Doping Authority (ASADA) scrutiny. This Budget responds to the ACC concerns by including an extra $1.8 million in funding for ASADA over three years. This funding is to assist the anti-doping agency with its current investigations and to help individual sports strengthen their integrity systems.287

The Budget provides a further $1.7 million over two years for the National Integrity of Sport Unit, established by the Government in 2012, to assist it to deal with unethical conduct in non-doping matters by employing specialist intelligence officers and assisting individual sports to establish and enforce integrity policies.288

In previewing the funding for these measures the Minister was convinced they would ensure that sport meets the highest expectations of integrity, both at home and abroad. 289 It could be argued, however,

that if drug taking in sport is as pervasive as the ACC and ASADA implied in the ACC’s report then a more substantial increase in funding would be required if any resolution of the problems associated with drug taking and the infiltration of organised crime into sport is to be achieved.

285. Australian Sports Commission (ASC), Helping kids and communities get active: an interim evaluation of the Australian Sports Commission’s Active After-school Communities program 2005-2007, ASC, 2008, accessed 15 May 2013. 286. Australian Crime Commission (ACC), Organised crime and drugs in sport, ACC, Canberra, February 2013, accessed 14 May 2013. 287. Australian Government, ‘Part 2: Expense measures‘ Budget measures: budget paper no. 2: 2013-14, accessed 15 May

2013.

288. K Lundy (Minister for Sport), Anti-doping and sports integrity funding boost, media release, 4 May 2013, accessed 14 May 2013. 289. ‘ASDA funding‘, Sunday Canberra Times, 5 May 2013, p. 4, accessed 14 May 2013.

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Environment

Bill McCormick

There has been a significant redirection of money from the Biodiversity Fund ($32.3 million) and from Caring for our Country ($141.5 million) to fund the implementation of the Tasmanian Forests Agreement, drought reform and other Government priorities.

Tasmanian Forests Agreement

The 2011 Tasmanian Forests Intergovernmental Agreement290 committed the Australian and Tasmanian Governments to provide $277 million over 15 years to support the reservation of substantial areas of native forests and restructure the Tasmanian forest industry to cope with a significant reduction of sawlog production.291 Following the passage of the Tasmanian Forests Agreement Bill 2012, the Prime Minister and Premier signed a revised Tasmanian Forests Intergovernmental Agreement292 on 2 May 2013 which will result in the inclusion of 504,012 hectares of native forest in reserves with a minimum of 137,000 cubic metres of high quality sawlogs annually being made available from state forests. It commits $209.4 million in joint Australian and Tasmanian Government funding, with $178 million already having been provided under the 2011 Intergovernmental Agreement.293

The Agreement has split the Australian Greens, who oppose it, from their Tasmanian Greens colleagues, the Wilderness Society, the Australian Conservation Society (ACF) and Environment Tasmania, all of whom have given their support.294

The budget provides for an additional $94.5 million for 2012-13 through 2016-17 to implement the Agreement, including $60 million over three years for structural adjustment payments and $8 million to study the potential uses of residues (timber left over after the high quality sawlogs are produced).295 Funding will also continue for counselling services for forestry workers, to support the Forest Stewardship Council certification process for native forest, for management of the new reserves and to encourage innovation in forest plantations.

Biodiversity Fund

The ongoing Biodiversity Fund296 is part of the Land Sector package under the Clean Energy Plan. The Fund was provided with $946 million in 2011 for its first six years. It aims to ‘improve the resilience of

290. Tasmanian Forests Intergovernmental Agreement between the Commonwealth of Australia and the State of Tasmania, 2011, accessed 24 May 2013. 291. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘Tasmanian Forests‘, SEWPaC website, accessed 15 May 2013. 292. Council of Australian Governments (COAG), Tasmanian Forests Intergovernmental Agreement: an agreement between the

Commonwealth of Australia and the State of Tasmania, COAG, 2013, accessed 24 May 2013. 293. J Gillard (Prime Minister), New Tasmanian Forest Pact Protects Jobs and Environment, media release, 2 May 2013, accessed 15 May 2013. 294. M Denholm, ‘Flawed forest deal a welcome peace‘, The Weekend Australian, 4 May 2013, p. 18, accessed 16 May 2013. 295. Australian Government, Budget measures: budget paper no. 2: 2013-2014, 2013, Commonwealth of Australia, Canberra,

pp. 79-80, accessed 15 May 2013. 296. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘Biodiversity Fund‘, SEWPaC website, accessed 24 May 2013.

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Australia’s unique species to the impacts of climate change, enhance the environmental outcomes of carbon farming projects, and help landholders protect carbon and biodiversity values on their land.’297 To date $250 million has been committed to projects.298

For the financial years 2013-2016, the Government has redirected $32.3 million from the fund to resource the implementation of the Tasmanian Forests Agreement and other Government priorities. It has also ‘rephased’ an additional $225.4 million from this four year period, meaning that this money will be spent in 2017-19. The reason provided by the Government for this decision is the lower projection for future carbon prices.299 More detail of this is provided in the brief Climate Action.

The Budget Papers state that the total expenditure by the fund over eight years will be more than $1 billion. Following the changes made in the Budget, the funding available in the Biodiversity Fund over six years to 2016-17 is approximately $600 million.300

Don Henry, CEO of the ACF, raised the ACF’s concerns about the deferral of spending for the Biodiversity Fund which, he said, had provided ‘a much-needed boost to biodiversity conservation in Australia’.301

Caring for our Country

In the period 2012-13 to 2016-17, there will be a redirection of $141 million in funding from Caring for our Country302 (CfoC) to the Tasmanian Forest Agreement and drought reform, as well as to other Government priorities. Landcare is part of the CfoC program, and it seems that some of the funding taken from CfoC is coming from Landcare, whose budget is being reduced by about $60 million when compared to the forward estimates shown in 2012-13.303

Criticising the cuts to Landcare, Greening Australia CEO Jason Cummings said that community groups and landholders rely heavily on these programs to deliver public good outcomes relating to water quality and biodiversity improvements.304 National Farmers Federation President Duncan Fraser criticised this redirection saying the government was ‘robbing Peter to pay Paul’.305

297. Clean Energy Future, ‘Biodiversity Fund webpage‘, accessed, 16 May 2013. 298. Budget measures: budget paper no. 2: 2013-2014, op. cit., p. 254. 299. Ibid., p. 255. 300. Personal communication, Department of Sustainability, Environment, Water, Population and Communities. 301. Environment News Service, ‘Australia trims environment protection in deficit budget‘, Environment news service website,

14 May 2013, accessed 17 May 2013. 302. Caring for our Country (CfoC), ‘Caring for our Country’, CfoC website, accessed 24 May 2013. 303. Australian Government, Portfolio budget statements 2012-13: budget related paper no.1.1: Agriculture, Fisheries and

Forestry Portfolio, Commonwealth of Australia, Canberra, 2012, p. 32, 33. 304. Australian Broadcasting Corporation (ABC), ‘Environment groups disappointed by budget cuts‘, ABC News website, 16 May 2013, accessed 16 May 2013. 305. Agribusiness, ‘Farmers slam Landcare cuts‘, The Australian, 16 May 2013, p. 21, accessed 16 May 2013.

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Water

Bill McCormick

Murray-Darling Basin Plan

Budget Paper No. 2 refers to a total $3.5 billion commitment over 12 years to support the implementation of the Murray-Darling Basin Plan. The majority of this money ($3 billion) will be spent in the seven years after 2016-17.306 The following are the figures until 2017:

Funding for Implementation of Murray-Darling Basin Plan 2012-13 through 2016-17

2012-13 2013-14 2014-15 2015-16 2016-17

$6.2 million $40.2 million $60.5 million $136.0 million $246.5 million

Source: Budget measures 2013-2014: budget paper no. 2

Half of the $3.5 billion total is committed to a $1.8 billion special account that runs for ten years from 2014-15. This is created in the Water Amendment (Water for the Environment Special Account) Act 2013.307 The money in this Special Account will be used to recover an additional 450 Gigalitres (GL) of environmental water on top of the recovery volume of 2750 GL set out in the Plan. This additional water recovery will only be achieved through projects (efficiency measures) that have no adverse effects on social or economic outcomes.308 The Special Account will provide $200 million to remove key operating constraints that currently limit the amount of environmental water that can be delivered through the river system.309 The following are the annual figures to be paid into the Special Account.310

306. Australian Government, Budget measures: budget paper no. 2:2013-2014, 2013, Commonwealth of Australia, Canberra, pp. 259-260, accessed 16 May 2013. 307. Water Amendment (Water for the Environment Special Account) Act 2013, accessed 29 May 2013. 308. A Albanese (Minister for Regional Development and Local Government) and C King (Minister for Regional Services, Local

Communities and Territories), Regional Australia: strengthening communities, ministerial budget statement, 14 May 2013, p. 191, accessed 21 May 2013. 309. J Gillard (Prime Minister) and T Burke (Minister for Sustainability, Environment, Water, Population and Communities), ‘Returning the Murray-Darling Basin to health’, media release, 26 October 2012, accessed 22 May 2013. 310. B McCormick, Water Amendment (Water for the Environment Special Account) Bill 2012, Bills digest, 57, 2012-13,

Parliamentary Library, Canberra, 2012, p. 17, accessed 22 May 2013.

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Figure 1: Annual Funding paid into Water for the Environment Special Account

Source: Water Amendment (Water for the Environment Special Account) Act 2013

The Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Act 2012 allows the long-term average sustainable diversion limit (SDL) set by the Plan to be adjusted by up to 650 GL above or below the 2750 GL figure without invoking the formal Basin Plan amendment process.311 Supply measures-such as works, river operations, or rule changes that achieve environmental outcomes with less water-could enable the Basin Plan’s 2,750 GL figure to be lowered to 2,100 GL and reduce the socio-economic impact of water recovery.312 The Government has provided up to $1.4 billion to improve the efficiency of environmental water delivery in the Basin.313

The Government has made available $310.0 million per annum from 2019-20 to bridge any shortfall in the recovery of environmental water, after the finish of the Water for the Future programs, to meet the requirements of the Plan.314

The commitment also includes $155.0 million over seven years from 2013-14 to the Murray-Darling Basin Authority for projects to restore the health of the wetlands in the Riverland of South Australia.315

Funding of $79.5 million over five years from 2012-13 under the National Partnership on Implementing Water Reform in the Murray-Darling Basin is aimed to help the Basin States meet the additional costs of implementing the Basin Plan.316

311. J Tomaras and B McCormick, Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment, Bills digest, 38, 2012-13, Parliamentary Library, Canberra, accessed 21 May 2013. 312. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘Fact sheet: Sustainable Diversion Limit (SDL) adjustment mechanism’, SEWPaC website, November 2012, accessed 21 May 2013. 313. Regional Australia: strengthening communities, op. cit. 314. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘Water for the Future‘,

SEWPaC website, accessed 24 May 2013 315. T Burke (Minister for Sustainability, Environment, Water, Population and Communities), ‘Restoring the Murray-Darling Basin to health‘, media release, 14 May 2013, accessed 17 may 2013. 316. Australian Government, Budget measures 2012-13: budget paper no. 3, Commonwealth of Australia, Canberra, 2013, p.

96, accessed 21 May 2013.

0

50

100

150

200

250

300

350

400

450

500

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

$ million

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The measure includes the deferral of expenditure under the Restoring the Balance in the Murray-Darling Basin program to allow for a slower pace of water recovery until 2015-16, based on the prospect that the total volume of water entitlements to be purchased will be reduced by water offset projects.317

EPBC Act Water Trigger

The Environment Protection and Biodiversity Conservation (EPBC) Amendment Bill 2013, if passed, will include a new matter of national environmental significance (MNES) to enable the Commonwealth Environment Minister to take into account significant impacts of coal seam gas and large coal-mining development on a water resource.318 The Government will provide $38.4 million over the next four years for the implementation of the amendment, which will involve an expanded assessment, compliance and enforcement role for the Department of Sustainability, Environment, Water, Population and Communities as well as an increased role for the Independent Expert Scientific Committee.319 These costs will be partially offset through enhanced cost recovery arrangements from July 2014 resulting in a revenue increase of $17.7 million over three years.

The Explanatory Memorandum gave no estimate of the cost of the implementation of this Bill, stating it will depend on the number of projects referred for assessment and approval.320 Coalition senators will oppose an amendment to the Bill that would prevent the Commonwealth from reaching bilateral agreements with the states on approval of projects under this MNES, citing the costs and time involved in Commonwealth approvals.321 If the amendment were to be defeated, and if approval bilateral agreements relating to this MNES were agreed to with all the states, there would be no need for this proposed expenditure.

Jeff Seeney, the Queensland Minister for State Development, Infrastructure and Planning, criticised this budget measure, saying that it would ‘impose more unnecessary green tape on the resources sector’ and would ‘duplicate the assessment and approvals process carried out by the Queensland Government.’322

317. Budget measures: budget paper no. 2: 2013-2014, op. cit., pp. 259-60. 318. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘What is protected under the EPBC Act?’, SEWPaC website, accessed 24 may 2013 319. Budget measures: budget paper no. 2: 2013-2014, op. cit., p. 257. 320. Explanatory Memorandum, ‘Environment Protection and Biodiversity Conservation Amendment Bill 2013’, p. 2, accessed

20 May 2013. 321. S Birmingham, ‘Second reading speech: Environment Protection and Biodiversity Conservation Amendment Bill 2013’, Senate, Debates, 14 May 2013, pp. 4-7, accessed 20 May 2013. 322. J Seeney (Acting Premier, Queensland), ‘Millions wasted on more green tape’, media release, 15 May 2013, accessed 20

May 2013.

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Climate action

Anita Talberg

‘Offsetting’ a lower projected carbon price

Treasury has revised its projection of a 2015-16 carbon price from $29 to $12.10.323 As a result, the expected revenue from the sale of carbon permits, after deducting industry and household assistance, is reduced by $1.9 billion until 2015-16.324 However, the Government has stated that the Clean Energy Future package will remain broadly Budget neutral through ‘offsetting savings’.325 Table 1 lists these, as highlighted in Budget Paper no. 2. The savings total $1.3 billion until 2015-16. In addition to those savings listed in Table 1, a further $300 million in cuts (Table 2) have been made over that time to climate change expenditure in general. The result is that net government expenditure on climate action until 2015-16 is just over $320 million more than at last year’s Budget. It would seem that reducing the Budget deficit has not been done at the detriment of climate action funding overall.

Additional savings

A second commitment period under the Kyoto Protocol: Australia has signed up for a second commitment period under the Kyoto Protocol. 326 As a requirement of this, Australia must adopt revised figures for the global warming potential (GWP) of certain greenhouse gases, such as methane. The net result of these new GWPs is an inflation of Australia’s emissions accounts, for example in the landfill sector. The government expects a $240 million increase in revenue from the sale of carbon permits.327 Also, as part of re-joining the Kyoto Protocol, Australia has opted to account for emissions from certain land-based activities that had previously been exempt from our international obligations. Consequently, all carbon credits generated from land-based emissions abatement activities under the Carbon Farming Initiative (CFI) will be Kyoto-compliant, and will be accepted to meet liabilities under the Carbon Price Mechanism (CPM). The Non-Kyoto Carbon Fund, which had been established to purchase credits deemed not Kyoto-compliant, becomes redundant. Although this increases some costs to the

323. G Combet (Minister for Climate Change, Industry and Innovation) and W Swan (Treasurer), Clean Energy Future package working in Australia’s interest, media release, 14 May 2013, accessed 16 May 2013. 324. K Swoboda and A Talberg, ‘Carbon scheme adjustments’, Budget Review 2013-2014, Parliamentary Library, Canberra, 2013, accessed 17 May 2013. From Table 1 of that document, the total reduction in revenue until 2015-16 is $10,584

million, plus $10,304 million, plus $9,274 million, plus $8,656 minus $4,580 million and $10,299 million and $ 8,929 million and $8,506 million (equals $6,504 million). From Table 2 of that same document, the total reduction in expenses from free permits until 2015-16 is $2,934 million plus $245 million plus $264 million plus $335 million (equals $3,778 million). Also from Table 2 of that same document, the total reduction in expenses from deferral of the tax free threshold changes is $820 million until 2015-16. As such, the total reduction in revenue from these changes is $6,504 million minus $3,778 million minus $820 million, which equals $1,906 million. 325. G Combet (Minister for Climate Change, Industry and Innovation), Transcript of media conference - Commonwealth

Parliamentary Offices, Sydney, transcript, 8 May 2013, accessed 15 May 2013. 326. G Combet (Minister for Climate Change and Energy Efficiency) and M Dreyfus (Parliamentary Secretary for Climate Change and Energy Efficiency), Australia joins Kyoto Protocol second commitment as world on track to 2015 climate change

agreement, media release, 9 December 2012, accessed 15 May 2013. 327. Australian Government, Budget measures 2013-2014:budget paper no. 2, Commonwealth of Australia, Canberra, 2013, p. 14, accessed 15 May 2013.

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government, it also saves almost $390 million over four years from the cancellation of the Non-Kyoto Carbon Fund.328

Abandoning the Global Carbon Capture and Storage Institute: the Institute has flagged that its ‘primary source of funding will be Membership fees’.329 Termination of the government’s funding agreement saves $45 million over four years.330

The destruction of refrigerants: with the introduction of the CPM, the government began applying an equivalent carbon price to synthetic greenhouse gases, such as refrigerants. To help industry manage this new levy, the government had outlined an incentive program, ‘Destruction of Waste Ozone Depleting Substances and Synthetic Greenhouse Gases.’ In 2011-12 this program was costed at $97.9 million over five years.331 However, the design of the scheme is now being altered to work in tandem with industry programs, such as that run by Refrigerant Reclaim Australia, a not-for-profit product stewardship organisation.332 The government is also relaxing the levy requirements for certain applications, such as medical and veterinary devices.333 Overall, these changes generate net savings of $81.5 million over four years.334

Early conclusion of the Solar Credits scheme: phase-out was completed in 2012, resulting in $1.8 million in savings.335

Additional expenses

As well as the savings noted above, the Government is increasing expenditure in some areas:

• an additional $6.1 million in 2013-14 is being provided for the running of the Australian Renewable

Energy Agency (ARENA)336

• $17.4 million over the forward estimates is being provided for Antarctica, most of which is for climate

change research337 and

• $23.3 million over four years is being provided so that the Australian Energy Regulator may fund

various changes, of which one is the establishment of a Consumer Challenge Panel to improve

328. Ibid, p. 15. 329. Global CCS Institute, Accelerating CCS 2013-2017: Five-year strategic plan, 12 July 2012, p.12, accessed 15 May 2013. 330. Budget measures 2013-2014: budget paper no. 2, op. cit., p.251. 331. Australian Government, Mid-Year Economic And Fiscal Outlook 2011-12, Commonwealth of Australia, Canberra, 2012, p.

155.

332. Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), ‘Destruction Incentives Program for waste synthetic greenhouse gases and ozone depleting substances’, SEWPaC website, accessed 17 May 2013. 333. Australian Government, Budget portfolio statements 2013-2014: budget related paper no. 1.17, Sustainability, Environment, Water, Population and Communities Portfolio, Commonwealth of Australia, Canberra, 2013, p. 24, accessed

16 May 2013. 334. Budget measures 2013-2014: budget paper no. 2, op. cit., p. 261. 335. Budget measures 2013-2014: budget paper no. 2, op. cit., p.15. 336. Budget measures 2013-2014: budget paper no. 2, op. cit., p. 249; there is an additional $25 million flagged for the

Antarctic Climate and Ecosystems CRC over five years from 2014-15; however, there is no breakdown of this funding. 337. C Emerson (Minister for Tertiary Education, Skills, Science and Research) and T Burke (Minister for Sustainability, Environment, Water, Population and Communities), Australian Government commits to Antarctica, media release, 13 May

2013, accessed 16 May 2013.

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consumer decision-making on electricity usage and costs.338 Alongside this, $6.8 million over four years is earmarked (from existing resources) for the development of a consumer energy data system.339

Table 1: Explicit ‘offsetting savings’ highlighted as such in Budget Paper no. 2

Expense ($m)

Program (Department/Agency 340 ) 2012-13 2013-14 2014-15 2015-16 2016-17

Clean Technology Program — reprofile funding (DIICCSRTE) -58 - 160.00 -60 -100

Education Investment Fund — return of unallocated funds (DIICCSRTE) -46.1 -46.8 -66.20 - -

Regional Structural Adjustment Assistance package — cessation (Regional) - -43.6 -5.40 -57.4 -28.6

Coal Mining Abatement Technology Support Package — reduction in funding (RET) - - - -14.5 -14.5

Carbon Capture and Storage Flagships — reduction in funding (RET) - - -100.00 -200 -200

Coal Sector Jobs Package — reduction in funding

- - - -160.7 -113.4

Low Carbon Communities — concluding rounds (RET) -5.7 -17.6 -49 -25.9 -

National Low Emissions Coal Initiative — reduction in funding (RET) - -32.8 -55.4 - -

Biodiversity Fund — rephasing of funding (SEWPaC) - -50.9 -70.6 -53.7 -50.2

Australian Renewable Energy Agency — deferral of funding (ARENA) - - -70 -150 -150

Total -109.8 -191.7 -256.6 -722.2 -656.7

Total savings over four and five years 1,280.3 1,937

Source: Budget measures 2013-2014: budget paper no. 2

338. Budget measures 2013-2014: budget paper no. 2, op. cit., p. 266; Australian Government, Budget portfolio statements 2013-2014: budget related paper no. 1.18, Treasury Portfolio, Commonwealth of Australia, Canberra, 2013, p. 95, accessed 16 May 2013.

339. Budget measures 2013-2014: budget paper no. 2, op. cit., p. 251. 340. The following department/agency abbreviations are used: DIICCSRTE—Department of Innovation, Industry, Climate Change, Science, Research and Tertiary Education; Regional—Department of Regional Australia, Local Government, Art and Sports; RET—Department of Resources, Energy and Tourism; SEWPaC—Department of Sustainability, Environment,

Water, Population and Communities; ARENA—Australian Renewable Energy Agency; CER—Clean Energy Regulator; ACCC—Australian Competition and Consumer Commission.

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Table 2: Additional expenses and savings related to climate action

Expense ($m)

Program (Department) 2012-13 2013-14 2014-15 2015-16 2016-17

Kyoto Protocol — adoption of second commitment period and new greenhouse gas GWPs (CER) - - - -100 -140

Issuing additional permits under the CPM (CER) - 3.2 12.3 - -

Termination of the Non-Kyoto Carbon Fund

- -49.6 -46.7 -60.7 -77.7

Global Carbon Capture and Storage Institute — cessation of funding agreement (RET) - -20 -20 -2.5 -2.5

Synthetic greenhouse gases and ozone depleting substances — altered arrangements (SEWPaC) - -15.6 -19.4 -24.0 -24.2

Solar credits scheme — early conclusion (CER) -1.4 -0.4 - - -

ARENA— additional departmental funding (RET) - 6.1 - - -

Antarctica — additional support (SEWPaC) 2.6 13.5 - 1.3 -

Empowering consumers on electricity choices (ACCC and RET) 8.3 8.6 7.2 5.8

Total 1.2 -54.5 -65.2 -178.7 -238.6

Total savings over four and five years 297.2 535.8

Source: Budget measures 2013-2014: budget paper no. 2

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Mining and resources changes

Alex St John

The most important Budget measure for the resources sector is that companies will no longer be able to immediately claim a tax deduction for the cost of acquiring an exploration permit or licence bought from another company.341 These ‘mining rights’ also include information relating to resource exploration. Instead of an immediate deduction of the full cost, these items will now be depreciated over 15 years. This measure does not apply to the initial purchase of such rights from a relevant government authority, or to ‘farm-in/farm-out’ arrangements.342 This measure is expected to raise $1.1 billion over the forward estimates.343

According to the Government, the changes aim to avoid exploration permits being sold through several companies (each time deducting the purchase price), without real exploration taking place.344 Mining advocacy groups have complained that the measure affects Australia’s international competitiveness.345 Petroleum advocates argue that the measure discourages smaller exploration companies from selling their interests to larger, better-resourced companies, thus reducing incentives to undertake exploration.346

According to the Reserve Bank, the Australian resource industry is heavily reliant on small, ‘junior explorers’, since most large companies have reduced their exploration capacity in Australia. Small companies typically sell their interests to medium-sized companies, who on-sell to large companies.347 Although the measure will reduce the tax benefit to companies acquiring interests from other companies by cash purchase, it is not clear whether the measure will discourage genuine exploration efforts, or simply remove incentives for speculative mining right acquisitions. The option to sell a mining interest by a farm-in arrangement keeps the entitlement for the incoming company to claim an immediate deduction.348 In this case, both the original and incoming mining interest holders retain a financial interest in the resource being commercially developed. To date, media commentary has focussed on increased costs to industry. There has been little examination of the propriety of allowing expensive assets (exploration permits and information) to be written off immediately - a benefit which is not generally open to other industries - and whether the risky nature of resource exploration justifies the favourable tax treatment.

341. Australian Government, Budget measures: budget paper no. 2: 2013-2014, Commonwealth of Australia, Canberra, 2013, pp. 36-37 accessed 15 May 2013. 342. Farm in/farm out arrangements are typically where a small exploration company assigns some of their mining rights to another company that will undertake more technical exploration or production on the permit (such as drilling test wells).

The original mining rights holder may earn a royalty or other benefit if the resource is commercially developed, in addition to being entitled to the proceeds of their remaining portion of the mining interest. 343. Budget measures: budget paper no. 2: 2013-2014, op. cit. 344. P Coorey, ‘Swan accuses BCA of Liberal bias‘, Australian Financial Review, 16 May 2013, p. 1, accessed 16 May 2013. 345. J Kunkel, ‘Budget 2013‘, Minerals Council of Australia website, 14 May 2013, accessed 15 May 2013; M Smith, ‘Changes ‘will discourage exploration’‘, Australian Financial Review, 16 May 2013, p. 10, accessed 16 May 2013. 346. Australian Petroleum Production and Exploration Association, ‘Oil & Gas industry budget response‘, Australian Petroleum Production and Exploration Association website, 14 May 2013, accessed 15 May 2013. 347. T Williams, ‘Exploration and the listed resource sector‘, Bulletin, Reserve Bank of Australia, September 2012, pp. 37-42, accessed 16 May 2013. 348. Budget measures: budget paper no. 2: 2013-2014, op. cit.

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A smaller measure is the Government’s previously announced move to restore the deductibility of certain expenses related to petroleum production operations under the Petroleum Resource Rent Tax (PRRT). A Federal Court decision in 2012 seemed to limit the ability of petroleum producers to apportion operating and exploration expenses over numerous projects, which was not in keeping with the design intent of the PRRT. 349 The original intended deductibility will be restored by amendments to the Act.350 The cost of this measure is $120 million over the forward estimates.351

Other exploration measures

Geoscience Australia (GA) has been provided with an additional $34 million in 2013-14 and $40 million annually thereafter. This funding is to expand GA’s core program of geo-scientific services, particularly the preparation of ‘pre-competitive’ data, which amounts to preparation of offshore petroleum acreage for competitive tendering.352 This funding will allow the agency to expand from 690 to 720 employees.353 This measure seems directed at opening up more offshore acreage for exploration in a bid to increase taxation revenue under the PRRT in the long-term.

The new GA funding coincides with the introduction of cash-bid tenders for selected exploration permits. Under the Offshore Petroleum and Greenhouse Gas Storage Act 2006, tenders for petroleum exploration permits may be invited by cash-bids (where an applicant nominates a price they will pay for the exploration rights) or a work-bid (where an applicant nominates a program of work they will undertake to develop the petroleum resource). 354 Cash-bids do not require an associated work program but provide instant revenue for the Government. Work-bids only provide substantial revenue to the Government if the resource moves into production. Since 1992, work-bids have been the only mode of tendering for exploration permits.355 Cash-bids are only designed to be used in areas where a petroleum resource is known to exist;356 hence the ‘pre-competitive data’ provided by GA must be high-quality for the tender process to be successful.

The Budget predicts that the cash-bid measure will raise $160.3 million over the forward estimates.357 However, as cash-bids are won by competitive tender, actual revenue will depend on market conditions. Petroleum advocates say the measure will reduce funds for exploration.358

349. W Swan (Deputy Prime Minister and Treasurer), M Ferguson (Minister for Resources and Energy) and D Bradbury (Assistant Treasurer), Amendments to address issues arising from Petroleum Resource Rent Tax litigation, media release, 14 December 2012, accessed 15 May 2013.

350. Petroleum Resource Rent Tax Assessment Act 1987, accessed 16 May 2013. 351. Budget measures: budget paper no. 2: 2013-2014, op. cit., pp. 31-32. 352. Australian Government, Portfolio budget statements 2013-14: budget related paper 1.16: Resources, Energy and Tourism portfolio, Commonwealth of Australia, Canberra, pp. 82-86, accessed 15 May 2013.

353. Ibid. 354. Offshore Petroleum and Greenhouse Gas Storage Act 2006, Chapter 2, accessed 15 May 2013 355. Department of Resources, Energy and Tourism (RET), ‘Competitive cash-bidding fact sheet‘, RET website, accessed 15 May 2013. 356. Ibid. 357. Budget measures: budget paper no. 2: 2013-2014, op. cit., p. 19. 358. APPEA, ‘Oil & Gas industry budget response‘, op. cit.

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Study into compliance with International Energy Agency requirements

The Budget provides $1.5 million over two years to the Department of Resources, Energy and Tourism (RET) to conduct a study and consultation on implementing the International Energy Agency’s (IEA) requirement that member countries stockpile 90 days’ worth of oil imports, to guard against supply disruptions. RET is also provided with $3.6 million over the forward estimates to introduce mandatory reporting by industry on their oil stockholdings.359

When Australia originally joined the IEA in 1979, Australia was a net exporter of oil and was exempt from the requirement to stockpile 90 days’ worth of imports. Since 2000, Australia has become heavily dependent on oil imports, but has not moved to implement the IEA requirement. Australia is the only

member country of the IEA that relies entirely on private industry to comply with its stockpiling requirement.360 As at January 2013, Australia had only 63 days of oil stock on hand, in contravention of the IEA’s requirement.361 The Minister for Resources and Energy currently can direct companies to stockpile liquid fuels, but these powers are designed to be exercised only as an emergency measure.362

359. Budget measures: budget paper no. 2: 2013-2014, op. cit., pp. 251-252. 360. International Energy Agency, Energy Policies of IEA Countries - 2012 Review - Australia, IEA, Paris, 2012, pp. 137-152. 361. International Energy Agency (IEA), ‘Closing oil stock levels in days of net imports‘, IEA website, January 2013, viewed 8 May 2013.

362. Liquid Fuels Emergency Act 1984, accessed 16 May 2013.

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Carbon scheme adjustments

Kai Swoboda and Anita Talberg

The original carbon price projections factored into the Budget estimates rose from $23 in 2012-13 to over $31 in 2020-21.363 This price path assumed that prices would continue to rise smoothly in the transition from the fixed price period (2012-13 to 2014-15) to the commencement to the emissions trading scheme (from 1 July 2015). At these prices and with the range of expenditures linked to the establishment of a carbon price, the net cost of the Clean Energy Future (CEF) package to the budget was expected to be $4.4 billion over the four years to 2014-15.364

As part of the 2013-14 Budget, the Government revised the price path for Australian carbon prices from 1 July 2015. Instead of carbon prices of around $29 in 2015-16 and $31 in 2016-17, the revised prices for these years are $12.10 and $18.60 respectively.365 These revisions, in turn, result in changes to a number of revenue and expenditure estimates.

Revenue

Government revenue under the CEF package comes from the sale of permits and the application of an ‘equivalent carbon price’ to some liquid and gaseous fuels and synthetic greenhouse gases. Changes to the assumed carbon price have a direct effect on revenue estimates. The revised price assumptions reduce revenue for 2015-16 by an estimated $6 billion (Table 1). There has also been a revision to revenue for the sale of permits of $500 million for 2012-13 to 2014-15.

Related expenses

Related expenses include:

• funding for specific industry programs

• compensation payments (including through the tax system) to individuals and some social service

providers and

• those that are directly related to changes in the carbon price, such as the value of ‘free’ permits to

eligible businesses.

Specific industry program measures to reduce carbon price-related expenditures are summarised in a related budget review paper.366 In addition to these measures, the Government announced that it would

363. Treasury, ‘Chart 5.1, Australian carbon price‘ and ‘Chart 5.39: CPI impact from carbon pricing compared with history‘, Strong Growth, low pollution: modelling a carbon price, accessed 17 May 2013. 364. Australian Government, Securing a clean energy future: The Australian Government’s climate change plan, July 2011, p. 135, accessed 16 May 2013. 365. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 2-48, accessed 15 May 2013. 366. Australia, Parliamentary Library, ‘Climate Action‘, Budget Review 2013-2014, Research paper, 3, 2013-2014,

Parliamentary Library, Canberra, 2013.

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defer to 2018-19 lifting the tax-free threshold from $18,200 to $19,400.367 The impact of changes to these expenditures and to the value of ‘free’ permits is summarised in Table 2.

In total, the Parliamentary Library estimates that measures announced in the 2013-14 Budget have reduced associated expenditure by $2.1 billion over the period 2012-13 to 2015-16. If the value of ‘free’ permits is also included, the reduction in expenditure associated with the carbon price is around $5.9 billion over the period 2012-13 to 2015-16.

Net impact

The net change in the Budget, taking into account the lower revenue estimates and reduced expenditures, is for the cost to the Budget to be higher, by around $625 million over the four years from 2012-13 to 2015-16 (Table 3).

Table 1: Carbon price revenue under different price assumptions, 2012-13 to 2016-17

2012-13 2013-14 2014-15 2015-16 2016-17

Original carbon price (a) ($) $23.00 $24.15 $25.40 $29.23 $31.18

Revenue from sale of permits ($ million) 7,690 8,685 9,275 9,400 NA

Revenue from application of equivalent carbon price (b) ($ million) 966 589 1,029 1,184 1,263

Total revenue ($ million) 8,656 9,274 10,304 10,584 NA

2013-14 Budget carbon price $23.00 $24.15 $25.40 $12.10 $18.60

Revenue from sale of permits ($ million) 7,540 8,340 9,270 4,090 6,110

Revenue from application of equivalent carbon price (b) ($ million) 966 589 1029 490 754

Revised carbon price total revenue ($ million) 8,506 8,929 10,299 4,580 6,866

Note: (a) Prices for 2015-16 and 2016-17 estimates by the Parliamentary Library from Treasury figures adjusted for CPI (b) No published equivalent carbon price estimates are available for 2015-16 and 2016-17. These estimated revenues are based on the revenue for 2014-15 adjusted for respective prices for 2015-16 and 2016-17. Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, p. 5-39, accessed 15 May 2013; Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 5-26, accessed 15 May 2013; Australian Government, Mid-year economic and fiscal outlook: 2012-13, pp. 155, 160 and 289, accessed 16 May 2013; Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12: Industry, Innovation, Climate Changes, Science, Research and Tertiary Education Portfolio, p. 319, accessed 16 May 2013; Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.4: Climate Change and Energy Efficiency Portfolio, p. 71, accessed 16 May 2013.

367. Australian Government, Budget measures: budget paper no. 2: 2013-14, Commonwealth of Australia, Canberra, p. 24, accessed 15 May 2013.

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Table 2: Carbon price program expenditure changes from 2013-14 Budget decisions and change to price assumption, 2012-13 to 2016-17 ($ million)

2012-13 2013-14 2014-15 2015-16 2016-17

2013-14 Budget program expenditure changes ($ million) (a) -109.8 -191.7 -256.6 -722.2 -656.7

2013-14 Budget deferral of increase to tax-free threshold ($ million) -820 -670

Change to expense for free permits ($ million) -335 -264 -245 -2934 Not available

Total change in associated expenditure ($ million) -445 -456 -502 -4476 Not available

Total saving over four years -5879

Note: (a) These measures are identified separately in the 2013-14 Budget and are summarised in a separate Parliamentary 2013-14 Budget Review paper. Source: Australian Government, Budget measures: budget paper no. 2: 2013-14, May 2013, p. 24, accessed 15 May 2013; Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12:

Industry, Innovation, Climate Changes, Science, Research and Tertiary Education Portfolio, p. 319, accessed 16 May 2013; Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.4: Climate Change and Energy Efficiency Portfolio, p. 71, accessed 16 May 2013; Australia, Parliamentary Library, ‘Climate Action‘, Budget Review 2013-2014, Research paper, 3, 2013-2014, Parliamentary Library, Canberra, 2013.

Table 3: Net change to budget from revised carbon price assumptions and impact of program expenditure changes in the 2013-14 Budget, 2012-13 to 2016-17 ($ million)

2012-13 2013-14 2014-15 2015-16 2016-17

Change in revenue ($ million) -150 -345 -5 -6,004 Not available

Change in linked expenditure measures ($ million) -443 -456 -502 -4,476 Not available

Net reduction in cost ($ million) 295 111 497 -1,528 Not available

Net change to budget over four years -625

Source: Parliamentary Library estimates from Tables 1 and 2.

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Commonwealth payments to the states

Daniel Weight

In 2013-14, the Australian Government is estimated to provide $95.3 billion in payments to the states and territories (states).368 Of these payments, $11.5 billion is designated for local government.369

Two types of payments are made to states: specific purpose payments (SPPs) and general revenue assistance (GRA). SPPs are made according to agreements between the Australian Government and the various states. The total amount of SPPs to be paid to the states in 2013-14 is estimated to be $44.1 billion.370 The largest categories of SPPs in 2013-14 relate to health ($16.1 billion) and education ($14.5 billion).371

GRA is financial assistance that may be spent upon any purpose, and is mainly comprised of the Goods and Services Tax (GST) revenue. In 2013-14, total GST revenue collected is estimated to be $53.1 billion, however the states will only receive $50.3 billion because of adjustments to final payments mostly due to the timing of receipts.372 Following the GFC and associated decline in consumer confidence and retail activity, the rate of increase in the GST revenue pool stagnated. This led some commentators to propose broadening the GST tax base to ensure that it continued to be a source of growth funding for the states.373 The most recent receipts and projections, however, suggest that the rate of increase in the GST revenue pool has begun to recover (see table 1 below).

Table 1: GST revenue pool

07-08 08-09 09-10 10-11 11-12 12-13* 13-14* 14-15* 15-16*

GST revenue pool—$b 44.4 42.6 46.6 48.1 48.8 50.2 53.1 55.8 58.9

Change—% n.a. -4.1 9.4 3.2 1.5 2.9 5.7 5.0 5.7

* Treasury estimate Source: Australian Government, Final budget outcome (various years), accessed 17 May 2013; Australian Government, Australia’s federal relations: budget paper no. 3: 2013-14, p. 114, accessed 17 May 2013.

The ultimate amount each state receives is based upon the principle of horizontal fiscal equalisation (HFE). In its 2010 Review, the Commonwealth Grants Commission (CGC)—the body which advises the Commonwealth on how to distribute the GST—adopted the following definition of HFE:

State governments should receive funding from the pool of goods and services tax revenue such that, after allowing for material factors affecting revenues and expenditures, each would have the fiscal capacity to provide services and the associated infrastructure at the same standard, if each made the same effort to raise revenue from its own sources and operated at the same level of efficiency.

374

368. Australian Government, Australia’s federal relations: budget paper no. 3: 2013-14, p. 139, accessed 17 May 2013. 369. Parliamentary Library calculation based on Ibid, p. 139, table B1. 370. Ibid, p. 18. 371. Ibid, p. 19. 372. Ibid, p. 114. 373. G Daily and M Dunckley, ‘States tax battle erupts‘, Australian Financial Review, 17 December 2012, p. 1, accessed 17 May

2013.

374. Commonwealth Grants Commission, Report on GST sharing relativities — 2010 review vol 1 main report, 2010, p. 34, accessed 17 May 2013.

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The effect of HFE is that each state can receive either more or less than it otherwise would if the GST revenue was distributed on an equal per capita basis. The amount each state receives is represented by a factor known as its ‘GST relativity’. The relativity can be loosely equated to the amount of GST a state receives for each dollar of GST collected in that state. Relativities since 2000-01 are shown at table 2 below.

Table 2: GST relativities since 2000-01

NSW Vic Qld WA SA Tas ACT NT

00-01 0.91 0.87 1.02 0.98 1.18 1.51 1.11 4.16

01-02 0.92 0.88 1.00 0.98 1.18 1.50 1.15 4.02

02-03 0.91 0.87 1.01 0.98 1.19 1.55 1.15 4.24

03-04 0.89 0.87 1.02 0.97 1.21 1.60 1.15 4.39

04-05 0.87 0.87 1.06 1.03 1.20 1.56 1.13 4.27

05-06 0.87 0.88 1.04 1.03 1.20 1.55 1.14 4.27

06-07 0.87 0.90 1.02 1.00 1.19 1.55 1.15 4.33

07-08 0.89 0.90 1.01 0.95 1.21 1.54 1.16 4.37

08-09 0.91 0.93 0.97 0.88 1.21 1.53 1.17 4.52

09-10 0.93 0.92 0.92 0.78 1.25 1.62 1.27 5.25

10-11 0.95 0.94 0.91 0.68 1.28 1.62 1.15 5.07

11-12 0.96 0.90 0.93 0.72 1.27 1.60 1.12 5.36

12-13 0.95 0.92 0.98 0.55 1.28 1.58 1.20 5.53

13-14* 0.97 0.90 1.06 0.45 1.26 1.61 1.22 5.31

14-15* 0.98 0.89 1.08 0.35 1.25 1.70 1.27 5.47

15-16* 0.99 0.90 1.05 0.37 1.21 1.78 1.29 5.40

16-17* 0.99 0.91 1.05 0.38 1.20 1.76 1.28 5.28

* Treasury estimate Source: Australian Government, GST distribution review - interim report, March 2012, p. xii, accessed 17 May 2013; Australian Government, Australia’s federal relations: budget paper no. 3: 2013-14, p. 115, accessed 17 May 2013.

The highest relativity is that of the Northern Territory (NT). The NT’s relativity is significantly affected by a high proportion of indigenous persons relative to the average in other states (30 per cent versus 2.5 per cent),375 which the CGC considers creates greater demand for, and cost in, service delivery. Accordingly, this results in a significantly higher relativity, making comparisons between the NT and other states difficult.

Western Australia’s relativity has been strongly affected by the resources boom. Until 2007-08, WA received about the same amount of GST revenue as was collected in that state. Since 2008-09, however, WA’s relativity has rapidly declined, reflecting its increased revenue raising capacity. The 2013-14 Budget estimates that WA will receive only around 35 cents for every dollar paid in 2014-15. This however, is an improvement from the 2012-13 Budget, where WA was estimated to receive only around 29 cents for every dollar in 2014-15.376

In response to concerns raised by the states—particularly WA—about the current arrangements for the distribution the GST revenue pool, the Commonwealth government announced the review of the GST distribution on 30 March 2011.377 The review was conducted by the Hon John Brumby, Mr Bruce Carter

375. Australian Government, GST distribution review - interim report, March 2012, p. 111, accessed 17 May 2013. 376. Australian Government Australia’s federal relations: budget paper no. 3: 2012-13, p. 123, accessed 17 May 2013. 377 J Gillard (Prime Minister) and W Swan (Deputy Prime Minster and Treasurer), ‘Review of GST distribution‘, media release, 30 March 2011.

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and the Hon Nick Greiner AC. An interim report was released by the Commonwealth Treasurer on 23 April 2012378 and a final report was released on 30 November 2012.379 To date, the Commonwealth government has not responded to that review, and a response prior to the commencement of the 2013 election caretaker period appears unlikely.

378 W Swan (Deputy Prime Minister and Treasurer), ‘GST Distribution review interim report‘, media release, 23 April 2012, viewed 22 May 2013. 379 W Swan (Deputy Prime Minister and Treasurer), ‘Release of the GST distribution review final report’, media release, 30 November 2012, accessed 22 May 2013.

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Financial regulation

Kali Sanyal

Background

The Government oversees corporate governance and supervises financial markets through the regulatory role of the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC).

ASIC’s role in managing the supervision of financial markets was broadened when that task was transferred from the Australian Securities Exchange (ASX) in 2010. On 1 August 2010, ASIC took over responsibility for supervision of real-time trading on Australia’s domestic licensed markets. This supplements its existing responsibility for enforcement of the laws against misconduct on Australia’s financial markets and its supervision of Australian financial services licence holders.380

The measure announced in the 2013-14 Budget will enhance the capacity of ASIC, and follows from other ASIC capacity enhancing measures in the 2012-13 Budget.381

The 2012-13 Budget

In the 2012-13 Budget, the Government earmarked $43.7 million for ASIC over the forward estimates period (including $16.3 million in capital) to replace its ongoing market surveillance system with an enhanced, integrated system with increased data mining and analysis capacity.382 In addition, the Government increased operational funding of ASIC by $101.9 million over the four years of the forward estimates period.383

The 2013-14 Budget

The potential risks inherent in market practices in over-the-counter (OTC) derivatives markets in the financial sector have been a concern for regulators around the world for more than a decade. 384 These risks were particularly evident during the peak of the global financial crisis (GFC). As a result, most governments in G20 countries have been engaged in developing a regulatory agenda to drive substantial reforms in the functioning of OTC derivatives markets.

380. Australian Securities and Investments Commission (ASIC), Market Supervision and Surveillance, ASIC website, accessed 15 May 2013; Australian Securities and Investments Commission, Regulatory Guide 214, Guidance on ASIC market integrity rules for ASX and ASX 24 markets, ASIC, August 2010, accessed 15 May 2013.

381. Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 23, accessed 15 May 2013. 382. Ibid. 383. Ibid. 384. Over-the-counter (OTC) market - A security traded in some context other than on a formal exchange such as the NYSE,

TSX, AMEX, etc. The phrase ‘over-the-counter’ can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network. In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as ‘unlisted stock’, these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone: Over-The-Counter - OTC, Investopedia Com (Forbes Com), accessed 16 May 2013.)

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In Australia, the agencies of the Council of Financial Regulators considered reforms in the Australian OTC derivatives market for a number of years, and the Council undertook a study of the OTC derivatives market in Australia in recent years.385 They recommended that OTC derivatives transactions need to be brought under centrally managed Financial Market Infrastructures (FMIs). By providing a central location for price discovery, FMIs can increase liquidity and transparency, and reduce systemic risk.

Following in the footsteps of major economic partners and in light of the Council of Financial Regulators’ recommendations, the Government introduced legislation in 2012 to amend previous Acts and provide a legislative framework to implement Australia’s G20 commitments in relation to OTC derivatives reforms. The Bill received Royal Assent on 6 December 2012.386

Accordingly, in the 2013-14 Budget, the Government announced that ASIC would receive $5.9 million over the forward estimates period of four years to implement the reforms.387

The Government estimates that the cost of the new measure in the 2013-14 Budget will be offset by an increase in financial sector levies collected by APRA.

385. Reserve Bank of Australia, OTC Derivatives Market, Reform Considerations, A report by the Council of Financial Regulators, March 2012, p. 3, accessed 15 May 2013. 386. Corporations Legislation Amendment (Derivative Transactions) Bill 2012, accessed 15 May 2013. 387. The budget figures have been taken from the following document unless otherwise sourced: Australian Government,

Budget measures: budget paper no: 2: 2013-14, Commonwealth of Australia, Canberra, 2013, accessed 15 May 2013.

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Budget Review 2013-14

Defence Budget overview

David Watt

In a partial reversal of last year’s budget cuts the Government has increased Defence spending in the 2013-14 Budget. The Minister for Defence points out that Defence will receive $113.0 billion across the Forward Estimates and contrasts this with the $103.0 billion set out in the Forward Estimates in the 2012-13 Budget.388

Table 1 below compares the total defence funding from the Forward Estimates in the 2011-12, 2012-13 and 2013-14 Portfolio Budget Statements, demonstrating the fluctuating fortunes of the defence budget in recent years.

Table 1: Total defence funding ($ billion)389

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Total

2011-12 26.559 24.826 26.586 27.436 105.407

2012-13 24.217 24.385 26.130 28.806 103.538

2013-14 25.433 27.843 29.40 7 30.797 113.48

Source: Parliamentary Library, data taken from Defence Portfolio budget statements 2011-12, 2012-13 and 2013-14.

A change in emphasis from the multi-decade defence funding plan contained in the 2009 Defence White Paper (DWP) to the four year Forward Estimates cycle was announced in the 2013 DWP:

The Government has determined that Defence will manage its resources with the annually updated four-year Forward Estimates model and a subsequent six-year general guidance for general planning purposes. 390

The Minister’s media release also states that the Government has provided Defence with ‘funding guidance’ of around $220.0 billion between 2017-18 and 2022-23. However, in the post-Global Financial Crisis world, it is difficult to know what ‘funding guidance’ will mean in reality as long-term plans are likely to ‘remain subject to change as strategic circumstances evolve ...’.391

Another notable feature of the Budget is that defence is required to absorb the funding of seven of the eight new expense measures set out in the Budget papers. This amounts to some $148.9 million between 2012-13 and 2013-14.392 The exception is the $585.7 million provided for operations in Afghanistan and the Middle East (see the Parliamentary Library Budget Brief Australian Defence Force (ADF) operations and regional engagement).

388. S Smith (Minister for Defence), Budget 2013-14: Defence budget overview, media release, 14 May 2013, accessed 15 May 2013. 389. Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.5A; Defence Portfolio, p. 22, accessed 16 May 2013; Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.5A:

Defence Portfolio, p. 233, accessed 16 May 2013; Australian Government, Portfolio budget statements 2013-14: budget related paper 1.4A Defence Portfolio, p. 14, accessed 15 May 2013. 390. Department of Defence, Defence White Paper 2013, Commonwealth of Australia, Canberra, 2013, p. 72, accessed 16 May 2013. 391. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 13. 392. Australian Government, Budget measures: budget paper no. 2: 2013-14, pp. 110-114, accessed 16 May 2013.

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Defence Capital Investment

Table 2 below indicates that total capital investment funding has grown from last year. The figures in brackets cover those projects which fall under the Major Capital Investment Program (projects in the Defence Capability Plan (DCP) and projects which have already been approved).

Table 2: Capital Investment Program ($ billion)393

2012-13 2013-14 2014-15 2015-16 2016-17 Total

2012-13 4.604

(3.138)

4.391 (2.477)

5.389 (2.401)

6.931 (2.515)

21.317

(10.532)

2013-14 5.701

(3.268)

7.120 (3.768)

7.454 (3.225)

8.174 (2.928)

28.451 (13.910)

Source: Parliamentary Library, data taken from Defence Portfolio budget statements 2012-13 and 2013-14.

The only major new addition to the capital equipment program in the 2013-14 Budget is the decision (announced at the time of the release of the 2013 Defence White Paper) to purchase 12 EA-18G fighter planes (the Growler variant of the Super Hornet) from the US. This will cost $2.9 billion, with $2.0 billion allocated to Defence in 2014-15 for this purpose.394

The Defence White Paper 2013 flagged that the Government would seek to replace the current Armadale Class patrol boats and the supply vessels HMAS Sirius and HMAS Success ‘at the first possible opportunity’.395 These intentions are repeated in the Minister’s Defence Budget Overview media release. The PBS notes that Project Sea 1654 phase 3 (the replacement of Sirius and Success) is set for first pass approval consideration during 2013-14, but there is no mention of specific new funding for this or the patrol boats.396 It is possible these intentions are covered by the $220.0 billion of ‘funding guidance’.

The number of Defence Capability Plan projects being prepared for approval has risen modestly since the 2012-13 Budget. There are now 12 projects on the First Pass list (there were six in last year’s PBS) and 17 projects on the Second Pass list (there were 19 last year).397 However, the list of projects set for consideration for Second Pass approval includes major acquisitions in the Joint Strike Fighter and the P-8A Poseidon Maritime Patrol Aircraft.

393. Portfolio budget statements 2012-13, op. cit., p. 32; Portfolio budget statements 2013-14, op. cit., p. 17. 394. J Gillard (Prime Minister) and S Smith (Minister for Defence), 2013 Defence White Paper: Air Combat Capability, media release, 3 May 2013, accessed 15 May 2013. 395. Defence White Paper 2013, op. cit., pp. 84-85. 396. Portfolio budget statements 2013-14, op. cit., p. 119. 397. Ibid., pp. 118-119.

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Defence Capital Investment Program

Dr Noemi Murphy

Funding for major and medium Defence capital works projects may be sourced from two different programs: the Major Capital Facilities (MCF) program and the Defence Capability Plan (DCP).398 The MCF develops facilities and infrastructure to support Defence’s Approved Capital Major Investment Program (ACMIP). It also funds acquisition and disposal activities where capital funding is required. Examples of projects funded by the MCF include the Moorebank Units Relocation (MUR) project and the Defence Logistics Transformation Program (DLTP) which supported elements of the Strategic Reform Program. DCP facilities funding is allocated to projects where there is an attached capability—for example, facilities (including training centres) for three new Hobart Class Air Warfare Destroyers (AWDs) to be home-ported at the Garden Island precinct in NSW.

Major Capital Facilities

The MCF receives less attention or reporting than the DCP, probably because it is used to maintain Defence’s immense estate—Defence is the largest landowner in Australia—while DCP funding supports the acquisition of new capabilities such as submarines and Joint Strike Fighters.

Arguably, this area has been underfunded for a number of years, compromising Defence’s ability to maintain its estate across Australia. Over the last four financial years, funding allocated to the MCF has been gradually decreasing. According to the revised figures provided by Defence in the Portfolio Additional Estimates, MCF funding has decreased from approximately $1.3 billion in 2009-10 to $880 million in 2012-13.399

Overall, this year’s budget does not address the issue. The 2013-14 Defence PBS shows funding for the MCF increases to $1.1 billion, which is approximately $100 million more than in 2012-13, but in the view of critics, still insufficient to properly meet Defence’s needs.400 Moreover, the MCF is more than halved by 2015-16 to $518.2 million. Although forward estimates are only indicative and are revised annually, this figure indicates that the underfunding of the MCF is likely to continue.

This continued underfunding runs the risk that Defence will shift lower priority regular maintenance and facilities upgrade projects to later years in favour of current higher profile capability projects.401 While this is understandable given current fiscal constraints, it also means that in the longer term the condition of the Defence estate will be compromised and may become dilapidated, with the attendant risks that major and expensive remediation work will be required. In its 2011 audit of the Defence Estate, the Australian National Audit Office (ANAO) concluded that funding applied to existing ‘estate maintenance

398. Defence Estate Quality Management System (DEQMS), website accessed 9 May 2013. 399. Australian Government, Portfolio additional estimates statements 2012-13: Defence Portfolio, p. 34, accessed 9 May 2013; Australian Government, Portfolio additional estimates statements 2011-12: Defence Portfolio, p. 26, accessed 9 May 2013; Australian Government, Portfolio additional estimates statements 2010-11: Defence Portfolio, p. 24, accessed 9 May 2013;

Australian Government, Portfolio additional estimates statements 2009-10: Defence Portfolio, p. 29, accessed 9 May 2013. 400. Australian Strategic Policy Institute, The Cost of Defence: ASPI Defence Budget Brief 2012-2013, ASPI, May 2012, pp. 121- 125. 401. S Smith (Minister for Defence), 2012-13 Defence Budget overview, media release, 8 May 2012, accessed 9 May 2013.

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is insufficient to preserve existing assets which, in many cases, Defence will require for long‐term use’.402 Notably, this audit was compiled during 2010-11 when allocated funding in the PBS reached its peak at $1.5 million - $500 million more than 2012-13. It is important that debate on the acquisition of major capability items does not obscure the less glamorous but essential need to maintain the Defence estate so as to provide members of the ADF with appropriate, modern and efficient working and accommodation facilities.

Capital works approval process

Also noteworthy is the capital works approval process description in the 2013-14 PBS, which states:

Major capital facilities projects are defined as having expenditure over $15m and are subject to Government approval and review by the Parliamentary Standing Committee on Public Works (PWC). Medium facilities projects have an expenditure of between $250,000 and $15m. Projects between $8m and $15m are subject to Government approval, but are not formally reviewed by the PWC.

403

The description appears somewhat vague and not reflective of current practices. While the statement about major capital facilities is accurate, there appears to be ambiguity in the definition of medium works. Medium works for the purposes of capital works projects have an expenditure of between $2 million-$15 million, including GST. Although Parliamentary approval is not required for medium works projects, the PWC needs to be notified of the expenditure. This process is outlined in the PWC Manual and by the Department of Finance and Deregulation (DoFD) in its publication Guidance for the Two Stage Capital Works Approval Process for Australian Government Construction Projects.404

Within the purview of its activities, the PWC has the power to review Medium Works Notifications and to make recommendations, to not allow the project to proceed and/or to ask the relevant agency to refer it as a major work. In its last annual report, the PWC reported that four medium works projects were rejected for various reasons.405 This indicates that the notification process plays an important role in scrutinising public expenditure.

402. Australian National Audit Office (ANAO), Audit Report No. 41, Commonwealth of Australia, Canberra, 2011, p. 11, accessed 9 May 2013. 403. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.4A: Defence Portfolio, p. 131, accessed 15 May 2013. 404. Parliamentary Standing Committee on Public Works (PWC), Parliamentary Standing Committee on Public Works Procedure

Manual, eighth edn, Commonwealth of Australia, Canberra, March 2010, p. 9, accessed 15 May 2013; Department of Finance and Deregulation (DoFD), Guidance for the Two Stage Capital Works Approval Process for Australian Government Construction Projects, DoFD, Canberra, 2012, paragraphs 7.57 & 8.11, accessed 15 May 2013. 405. Parliamentary Standing Committee on Public Works, Seventy-sixth annual report 2012, Commonwealth of Australia, Canberra, March 2013, pp. 3-4, accessed 15 May 2013.

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Australian Defence Force (ADF) operations and regional engagement

Nathan Church

The Government’s May 2013 Defence White Paper outlined a significant reduction in future ADF deployments which has shaped the Budget’s resourcing of Defence operations. In addressing the implications of a drawdown of major operations, the Defence White Paper states:

Over the next two years, Australia will conclude the most substantial of [its ADF] operations. Defence will assess lessons-learned, implement observations drawn from those lessons and reposition for both current and future security challenges … A key opportunity will be an enhanced capacity for Australia to contribute to stability and security in the Indo-Pacific.

406

Operations

The 2013-14 Budget estimate for the total additional cost of all ADF operations is $918.5 million, of which $886.2 million (96 per cent) comes from new and existing Government funding. The remainder (about $32.3 million) will be absorbed by the Department of Defence.407

The largest expense continues to be Operation Slipper, Australia’s military contribution to Afghanistan and the Middle East more broadly (including regional anti-piracy efforts). For 2013-14, the Government has allocated $874.9 million in Operation Slipper funding. Of this, $534.2 million is new money, with the remainder being previously agreed funding.408 While most of this funding will support international stabilisation and counter-terrorism efforts, $192 million has been earmarked for the complex task of extracting ADF personnel and equipment from their current areas of operation in Uruzgan Province.409 Although the impending drawdown of Australia’s presence in Afghanistan will create savings in the mid to long-term, Australia’s commitment to providing in-country security assistance over the next four years is forecast to cost some $1.4 billion.410

In addition to the Afghanistan drawdown, the ADF will also wind back operations in Timor-Leste (Operation Astute) and the Solomon Islands (Operation Anode) over the next two years. In 2013-14, Operation Astute funding will reduce by $116.2 million to just $5.4 million, to pay for equipment repairs following the drawdown of ADF personnel in March 2013. Similarly, Operation Anode funding will also decrease—from $42.9 million to $11.3 million,411 in alignment with the ADF component of the Regional Assistance Mission to Solomon Islands (RAMSI) drawing down from mid-2013.412

406. Department of Defence, Defence White Paper 2013, Commonwealth of Australia, Canberra, 2013, p. 35, accessed 15 May 2013. 407. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.4A: Defence Portfolio, p. 16, accessed 15 May 2013. 408. Australian Government, Budget Measures: budget paper no. 2: 2013-14, 2013, accessed 15 May 2013. 409. Ibid. 410. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 16. 411. Ibid. 412. S Smith (Minister for Defence), Budget 2013-14: Defence operations funding, media release, 14 May 2013, accessed 15

May 2013.

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During 2013-14, the cost of Operation Resolute—the ADF’s contribution to Australian border security— will rise slightly to $9.9 million. However, unlike Operations Slipper, Astute and Anode, the Government will continue to not provide any funds for Operation Resolute in the 2013-14 Budget.413

Regional Defence Cooperation

As stated in the 2013 Defence White paper, reduced ADF operations will present new opportunities for Defence engagement and cooperation with partner nations.414 This is reflected in the Budget, with an almost $16 million (20 per cent) nominal increase in the 2013-14 Defence Cooperation Program budget.415 This program—with a 2013-14 estimated budget of just under $94 million—incorporates ADF support to partner nations through advisers, training and capacity building initiatives.416

In terms of dollars spent, Australia’s biggest individual program partner is Papua New Guinea (PNG), with a forecast budget of just over $27 million. In addition, PNG and the wider South Pacific is Australia’s biggest regional program partner (approximately $64 million) compared to just over $17 million for the entire South-East Asian region.417 During 2013-14, Australia will also incorporate Myanmar into its Defence Cooperation Program, with an initial outlay of $172,000.418 This aligns with the Government’s broader Defence engagement with Myanmar, as signalled by the Prime Minister in March 2013.419

However, the Defence Regional Cooperation program is only one aspect of Australia’s broader engagement strategy, as noted in related commentary:

We’ll need to do more than allocate some additional resources if we want our neighbours to welcome our extra attention … Making the most of our renewed focus will depend on innovative approaches [and] honing genuinely expeditionary joint amphibious capabilities and defence partnerships.

420

413. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., pp. 15-16. 414. Department of Defence, Defence White Paper 2013, op. cit., pp. 35-36. 415. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 116. 416. Ibid.; Nautilus Institute For Security and Sustainability, Defence Cooperation Program-South Pacific, Nautilus Institute

website, accessed 15 May 2013. 417. Ibid. 418. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 117. 419. J Gillard (Prime Minister), Australia’s support for reform in Myanmar, media release, 18 March 2013, accessed 15 May

2013.

420. K Claxton, ‘Just being a “good local cop” isn’t easy’, The Strategist weblog, May 2013, accessed 15 May 2013.

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Defence personnel

Nathan Church

The 2013-14 Budget largely represents a continuation for Defence workforce planning. As Tables 1 and 2 demonstrate, the Government is proposing increases in Australian Defence Force (ADF) personnel and cuts to Australian Public Service (APS) staff, supporting Defence’s ‘transition to a leaner model in support of the Government’s defence reform agenda’.421

ADF workforce levels

In his 2013-14 Budget Overview press release, the Defence Minister reinforced the Government’s commitment to ‘an ADF workforce of approximately 59,000 permanent members’.422 However, this may be difficult to achieve, as the Budget itself cites improved labour market conditions as a catalyst for separations from the ADF—offsetting reportedly strong recruitment—as well as the potential for increased separations following the impending drawdown of multiple ADF operations.423 But with new capabilities planned, as well as a renewed focus on partner engagement strategies, the 2013 White Paper clearly states that ‘the ADF … will play a critical part … to best position Australia for the strategic transformation occurring in the Indo-Pacific region’.424

Table 1: Planned ADF workforce 2012-13 to 2016-17425

2012-13 2013-14 2014-15 2015-16 2016-17

ADF Permanent 56711 58235 58518 58664 58645

ADF Reserves 18956 19050 19300 19500 19700

Total 75667 77285 77818 78164 78345

Change (year on year) — +1618 +533 +346 +181

Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.4A: Defence Portfolio, p. 21, accessed 16 May 2013

Within the ADF services, Army will see the biggest growth between 2012-13 and 2016-17—up from 28,955 to 30,298 personnel. This same period is also expected to see an increase of 844 personnel in the number of Army Reserves, with steady growth of some 200 members per year.426

APS workforce levels

Between 2013-14 and 2016-17, the Government is forecasting a reduction of 741 APS Defence staff members, from 21,217 to 20,476.427 This represents an even larger cut across the forward estimates than the previous Budget (which indicated cuts of 648 APS staff) and further demonstrates the Government’s

421. Department of Defence, Defence White Paper 2013, Commonwealth of Australia, Canberra, 2013, p. 104, accessed 16 May 2013. 422. S Smith (Minister for Defence), Budget 2013-14: Defence Budget overview, media release, 14 May 2013, accessed 15 May 2013. 423. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.4A: Defence Portfolio, p. 19,

accessed 16 May 2013. 424. Department of Defence, Defence White Paper, op. cit., pp. 75, 55. 425. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 21. 426. Ibid. 427. Ibid.

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resolve to trim APS staff across its various departments.428 However, the APS workforce allocation of the Defence Materiel Organisation (DMO) is not anticipated to be subject to the same level of cuts. Over the forward estimates within DMO, the removal of APS staff back-filling ADF positions in 2013-14 (363 personnel) will in turn be largely offset with increases in its APS staffing (276 personnel) and contractor (21 personnel) allocations.429

Table 2: Planned civilian workforce (not including contractors) 2012-13 to 2016-17430

2012-13 2013-14 2014-15 2015-16 2016-17

APS—Defence 15794 15547 15183 15001 14893

APS—DMO (inc. ADF backfill) 5750 5670 5529 5548 5583

Total 21544 21217 20712 20549 20476

Change (year on year) — -327 -505 -163 -73

Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.4A: Defence Portfolio, p. 21, accessed 16 May 2013.

According to the Defence Budget Portfolio Statement 2013-14, ‘the [APS staffing] savings have been made possible by continuing reforms to Defence’s business practices, in particular through the wider application of Shared Services reform’.431 This rationale has been consistently used across the last three budgets, and has most recently been coupled with ongoing assurances from the Defence Minister (and the Budget itself) that support to operations and other priority services would not be negatively impacted by any measures contained within the Budget, including projected staffing cuts.432

428. Australian Government, Portfolio budget statements 2012-13: budget related paper no. 1.5A: Defence Portfolio, p. 36, accessed 16 May 2013; V Burgess, ‘1261 civilian jobs to go’, Australian Financial Review, 15 May 2013, p. 29, accessed 16 May 2013.

429. Portfolio budget statements 2013-14, Defence Portfolio, op. cit., p. 142. 430. Ibid., p. 21. 431. Ibid., p. 19. 432. S Smith, Budget 2013-14: Defence Budget overview, op. cit.; ibid.

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Early childhood education

Marilyn Harrington

National Partnership on Early Childhood Education

The 2013-14 Budget provides $660.1 million to extend the National Partnership on Early Childhood Education (the NP) until 31 December 2014.433 The measure does not affect the Budget’s forward estimates because additional NP funding generally has been anticipated through the Consolidated Revenue Fund. The funds will be appropriated through the Federal Financial Relations Act 2009.

The NP was first agreed to in 2008 when all governments committed to ensuring, by mid-2013, universal access to an early childhood education program delivered by a four-year university-trained early childhood teacher, for 15 hours a week, 40 weeks a year, in the year before full time schooling.434 Funding of $970.0 million over five years was provided for the NP’s implementation.435

Five years into the program, it is difficult to assess progress in meeting this commitment. Preschool attendance data show that, in 2011-12, 72.5 per cent of children (excluding children enrolled in a long day care setting) attended a government funded and/or provided preschool service in the year before they commenced full-time school.436 It cannot be assumed, however, that those who do not attend a preschool service are without access because preschool attendance is not compulsory. Information about the ‘quality’ of these services is also not apparent from this data. The annual reports on the NP’s implementation (the most recent are for 2011) are gradually providing more information.437

The provision of preschool services varies significantly between jurisdictions with a mix of services provided by governments, community organisations and in long day care settings. A review of early childhood education provision in New South Wales, for instance, reported that generally about one in seven children were missing out and that in some areas, particularly rural and remote areas, this proportion was higher.438 Reinforcing these findings, Early Childhood Australia has welcomed the NP’s extension, but warns that more work needs to be done, particularly for ‘vulnerable populations’.439

Child Care Workforce - Early Years Quality Fund

The 2013-14 Budget provides ‘up to’ $300.0 million over two years to assist long day centres (LDCs) to offset the costs of employing higher qualified staff who are required as part of the National Quality

433. Information in this article has been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, pp. 123-4 and 128-9, accessed 21 May 2013. 434. Department of Education, Employment and Workplace Relations (DEEWR), ‘National Partnership Agreement on Early Childhood Education‘, DEEWR website, accessed 20 May 2013. 435. Ibid. 436. Steering Committee for the Review of Government Service Provision, Report on government services 2013, Productivity

Commission, 2013, p. 3.29, accessed 21 May 2013. 437. DEEWR, ‘National Partnership for Early Childhood Education: annual reports‘, DEEWR website, accessed 21 May 2013. 438. D Brennan, Review of NSW Government Funding for Early Childhood Education, NSW Department of Education and

Communities, 2012, pp. 1-2, accessed 21 May 2013. 439. Early Childhood Australia, Early years the missing piece in federal budget, media release, 14 May 2013, accessed 21 May 2013.

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Framework for Early Childhood Education and Care (the NQF).440 The NQF requirement is that all early childhood education and care (ECEC) workers hold certain minimum qualifications from 1 January 2014.441 The measure also provides $8.2 million over three years to administer the Early Years Quality Fund (EYQF), which includes the establishment of an advisory board. The funding for this measure appears in the portfolio budget statements and will be appropriated by future legislation.442

The measure does have some limitations: ECEC providers other than LDCs will not be eligible to apply for the funding, the funding will not necessarily be available for all LDCs because they will have to apply for the funding, and the funding will be capped for a period of two years.

It seems that the measure is only a first step. The Minister for School Education, Early Childhood and Youth, Peter Garrett, has indicated that ‘longer term consideration’ will need to be given to the future remuneration of the sector.443 To this end, the measure provides $6.2 million over four years to establish a Pay Equity Unit in the Fair Work Commission—the ECEC sector will be its first task.

The measure has not allayed the concerns of the ECEC sector. The Australian Childcare Alliance (ACA) considers the EYQF funding inequitable, claiming that the funding will go to less than 40 per cent of educators working in the LDC sector.444 The Opposition also considers the EYQF funding inadequate for the same reason. The Shadow Minister for Childcare and Early Childhood Learning, Sussan Ley, argues that, instead, a ‘proper’ wage case should be run through the Fair Work Commission.445

440. See also P Garrett (Minister for School Education, Early Childhood and Youth), K Ellis (Minister for Early Childhood and Child Care) and B Shorten (Minister for Employment and Workplace Relations, Financial Services and Superannuation), Boost for quality early childhood education, media release, 19 March 2013, accessed 21 May 2013; and DEEWR, ‘Early Years Quality Fund‘, DEEWR website, accessed 21 May 2013.

441. For further information, see: Australian Children’s Education & Care Quality Authority (ACECQA), ‘Higher qualifications‘ and ‘Qualifications‘, ACECQA website, accessed 21 May 2013. 442. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.5: Education, Employment and Workplace Relations portfolio, pp. 24 and 37, accessed 21 May 2013. 443. P Garrett (Minister for School Education, Early Childhood and Youth), K Ellis (Minister for Early Childhood and Child Care)

and B Shorten (Minister for Employment and Workplace Relations, Financial Services and Superannuation), Doorstop, transcript, 19 March 2013, accessed 21 May 2013. 444. Australian Childcare Alliance, Child Care Rebate freeze on indexation, another government hit on Australian families’ affordability of childcare, media release, 15 May 2013, accessed 21 May 2013. 445. ‘Shadow Minister says childcare fund a “sham”‘, ABC News, 7 May 2013, accessed 21 May 2013.

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School education: expenditure

Marilyn Harrington

The 2013-14 Budget’s estimates and projections for school education are premised on all state and territory governments signing the National Education Reform Agreement (NERA) which will implement the Government’s National Plan for School Improvement (NPSI) from 1 January 2014.446

The Australian Government’s additional NPSI contribution of $9.8 billion will be phased in over six years from 2013-14 to 2018-19.447 The Budget shows most of this additional funding will be provided in the last two years of the implementation period—$2.8 billion (28.6%) of the additional funding will be provided from 2013-14 to 2016-17.448

The immediate impact of the additional NPSI funding on the forward estimates is therefore small. In 2013-14, the Australian Government will provide an estimated $13.8 billion for schools, of which $473.4 million (3.4%) will be additional NPSI funding.449 This funding, which is from the Budget’s schools sub-function, does not include National Partnership (NP) funding for schools—an estimated $547.6 million in NP funding is included in the ‘School education-specific funding’ budget sub-function.450

Total expenses in the schools sub-function will grow by an estimated 8.5% in real terms from 2012-13 to 2013-14, and by 16.4% in real terms from 2013-14 to 2016-17.451 However, this growth is not uniform as the following table shows:

Real growth in school education sub-function, % change(a)

2013-14 8.5

2014-15 2.5

2015-16 6.4

2016-17 6.7

Percentage change 2013-14 to 2016-17 16.4

(a) Parliamentary Library estimates. Prices adjusted for inflation by the CPI to June 2013 prices. Index for June 2012 as published by the Australian Bureau of Statistics (ABS). Out-year index numbers calculated using Treasury estimates of CPI growth.

446. Council of Australian Governments (COAG), National Education Reform Agreement (NERA), COAG, 2013, accessed 16 May 2013. For a summary of the new school funding arrangements, see: Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, pp. 6-23-6-24, accessed 16 May 2013. 447. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 120, accessed 17 May 2013. 448. Ibid. 449. The budget figures in this article have been taken from the following document unless otherwise sourced: Australian

Government, Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., pp. 6-12, 6-20-6-25, accessed 16 May 2013. 450. Funding for National Partnerships (NPs) as listed in: ibid., p. 6-22. Disaggregated NP expenses are provided in: Australian Government, Australia’s federal financial relations: budget paper no. 3: 2013-14, pp. 51-64, accessed 17 May 2013. For

information about how to find school funding information in the budget papers, see: M Harrington, Australian Government funding for schools explained, Background note, Parliamentary Library, Canberra, 8 March 2013, p. 29, accessed 16 May 2013. 451. Parliamentary Library estimates.

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Sources: Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14; ABS, Consumer Price Index, Australia, March 2013, cat. no. 6401.0, ABS, Canberra, 2013.

The historic pattern of school expenditure will remain. The Australian Government will continue to provide the majority of its funding to non-government schools and state and territory governments will provide the majority of their funding to government schools. In 2013-14, the Australian Government will provide an estimated $4.9 billion (35.3% of funding in the schools sub-function) to government schools and an estimated $8.9 billion (64.7% of funding in the schools sub-function) to non-government schools. There is a slight shift in these proportions by 2016-17 when an estimated 37.8% of funding will be provided to government schools and an estimated 62.2% to non-government schools.

Government school expenditure is expected to grow by 10.0% in real terms from 2012-13 to 2013-14 and by 24.6% in real terms from 2013-14 to 2016-17. The 2013-14 Budget also estimates a 7.08% growth factor for government school funding under the current funding arrangements (comprising growth in average government schools recurrent costs (AGSRC) and enrolments), which is more than the 2012-13 budget estimate of 6.63 %.452 Without the Government’s projections for AGSRC, it is difficult to account for this increase. However, it may be the case that the increase is due to enrolments. The Budget’s government school enrolment projections for 2013 show a small increase of 1.4%.453 This is supported by Australian Bureau of Statistics resident population estimates that also show that the 0-4 age group, which is the cohort now entering school, grew by an estimated 2.2 per cent from 2007 to 2011.454

The growth in non-government school expenditure is expected to be 7.9% in real terms from 2012-13 to 2013-14 and 11.8% in real terms from 2013-14 to 2016-17. Overall, non-government school expenditure is ranked ninth, above higher education expenditure, in the Budget’s list of top 20 programs by expenses in 2013-14.

See also the Budget Review article, ‘School education: the National Plan for School Improvement‘.

452. Australian Government, Australia’s federal financial relations: budget paper no. 3: 2013-14, pp. 54-5; and Australian Government, Australia’s federal relations: budget paper no. 3: 2012-13, p. 57, accessed 17 May 2013. 453. Australian Government, Australia’s federal financial relations: budget paper no. 3: 2013-14, op. cit., p. 133. 454. Australian Bureau of Statistics (ABS), Population estimates by age and sex, regions of Australia, 2011, cat. no. 2325.0, ABS,

Canberra, 2012, accessed 17 May 2013.

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School education: the National Plan for School Improvement

Marilyn Harrington

The National Plan for School Improvement (NPSI) has two goals for the Australian school system to achieve by 2025: to rank in the top five countries internationally for student achievement in reading, mathematics and science; and to be considered a high quality and high equity schooling system by international standards.455

The National Education Reform Agreement (NERA) which all state and territory governments are required to sign by 30 June 2013 lays out the reforms and a new school funding model to achieve these goals.456 If fully implemented, the NPSI will provide an additional $14.5 billion over six years in government funding for schools, of which the Australian Government will provide 65.0% ($9.8 billion) and state and territory governments the remainder.457 The new school funding model, which is provided for in the 2013-14 Budget, is the focus of this article.

Current school funding arrangements

Currently, schools receive most of their funding from the National Schools Specific Purpose Payment (SPP). This funding is supplemented by a number of national partnerships (NPs) and the Australian Government’s own school education programs.458 These arrangements will apply until 31 December 2013. However, some existing NPs and other Australian Government school education programs will continue. These include two non-government school programs—capital funding and short-term emergency assistance—that are currently provided under the National Schools SPP.

Annual increases (indexation) in the National Schools SPP are determined by increases in average government school recurrent costs (AGSRC) and enrolments. AGSRC are based on state and territory government recurrent expenses, which also include Australian Government expenditure.459 The weighted average AGSRC increase fell significantly from 6.0% in 2011 to 3.9% in 2012.460

The new school funding model

The NPSI funding arrangements are referred to as National Education Reform (NER) funding in the budget papers. While the Budget provides more information about this funding (also discussed in the Budget Review article, ‘School education: expenditure’), questions about the new school funding arrangements remain. Some of these questions follow.

455. Australian Government, Budget 2013-14: National Plan for School Improvement, p. 5, accessed 17 May 2013. 456. Council of Australian Governments (COAG), National Education Reform Agreement (NERA), COAG, 2013, accessed 16 May 2013. 457. Information in this article is taken from the following document unless otherwise sourced: Australian Government, Budget

measures: budget paper no. 2: 2013-14, pp. 117-23, accessed 17 May 2013. See also: J Gillard (Prime Minister) and P Garrett (Minister for School Education), Resourcing all our kids, classrooms and teachers for the future, media release, 14 April 2013, accessed 18 May 2013. Note there is a difference for the Australian Government contribution between these two sources. 458. For further information about the current funding system, see: M Harrington, Australian Government funding for schools

explained, Background note, Parliamentary Library, Canberra, 8 March 2013, accessed 18 May 2013. 459. For further information about the AGSRC calculations, see: M Harrington, op. cit., pp. 18-9. 460. Ibid., p. 20.

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Indexation

The Government has justified its fixed 4.7% indexation rate for the NER funding because of its concern that the AGSRC rate of increase would continue to fall, thereby affecting future levels of government funding. However, the budget papers do not explain how this indexation factor was calculated.

The 4.7% indexation rate is to apply to the Australian Government’s current base funding. State and territory governments will be required to index their existing base funding by 3.0%.461 However, the NERA states that the overall indexation rate for the Student Resource Standard (SRS) will be indexed at 3.6% per annum.462 The calculation for this overall indexation rate is not provided in the available documentation. Possibly, the calculation could be explained on the basis that the Australian Government provides about one-third of total public funding to schools and two-thirds is provided by state and territory governments. On this basis, the 3.6% indexation figure is the sum of one-third of the Australian Government’s indexation rate (1.6%) and two-thirds of the state and territory governments’ indexation rate (2.0%). Presumably there will be more certainty about these calculations when the NERA appendix, which will provide this information, is published.

A lower indexation rate (3.0%) will apply to those schools that are funded above the proposed per student amounts of the SRS, as determined by their 2011 recurrent income recorded on the My School website.463 The SRS amounts ($9,271 per primary school student and $12,193 per secondary school student in 2014) take into account funding by all governments.

Unlike the per student SRS amounts, the various loadings for disadvantage, which are the other component of the full SRS amounts, will be applied equally to all eligible students regardless of the school they attend.

The Government has committed to an independent review of these indexation arrangements, to be completed by March 2015 and implemented from 2016.464

Per student funding

The amount of the Australian Government’s contribution to the per student SRS amounts and how much that amount will increase year-by-year to 2019 as the transition to the full NPSI funding model occurs, is not apparent from the budget papers. The NERA states that for government education systems the Australian Government will provide its current funding contribution and its agreed share of the additional NPSI funding adjusted according to the new indexation rates.465

Non-government schools

The Budget does not explain how individual non-government schools will be funded. The NERA provides that funding will adjusted according to a school’s ‘capacity to contribute’ determined by the existing socioeconomic status (SES) scores of the current non-government schools funding system.466 However,

461. J Gillard and P Garrett, op. cit. 462. COAG, op. cit., p. 29. 463. COAG, op. cit., p. 29. 464. Ibid. 465. J Gillard and P Garrett, op. cit. 466. COAG, op. cit., pp. 28-9.

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the sliding scale of funding between the two announced end points (90% of SRS funding for schools with an SES score of 93 or lower and 20% for schools with an SES score of 125 or greater) has not yet been published.467

‘Paying’ for the National Plan for School Improvement

The Budget makes a number of savings that are identified as defraying the costs of the NPSI reforms.468 Chief amongst these are the higher education and family payments budget measures.469

The costs will also be defrayed by the cessation or non-renewal of a number of school NPs and other school programs. These include a ‘redirection’ of $2.1 billion from five NPs that were previously provided for in the forward estimates: Low Socio-economic Status School Communities, Empowering Local Schools, Literacy and Numeracy, Rewards for Great Teachers and Rewards for School Improvement.

Conclusion

The future of the NPSI is uncertain. Only New South Wales has signed the NERA so far and there are mixed messages coming from other jurisdictions. Another outstanding issue is the loading for students with disabilities. In the interim, existing funding for these students will be extended.

Those jurisdictions that do not sign up to the NERA will continue to be funded according to a ‘modified’ version of the current system of funding and will n ot receive the additional funding on offer with the NPSI. The Government estimates that if the new school funding model is not implemented, school funding will ‘go backwards’ by $16.2 billion over the next six years.470 It has also released data showing how government and non-government schools will be affected on a state and territory basis.471

The Leader of the Opposition, however, has signalled that the Opposition will not back the new funding system unless all states and territories commit to it.472 He has also repeatedly said that the Opposition cannot support the new arrangements until all the details are known.473

467. Ibid., p. 28. 468. Australian Government, Budget 2013-14: National Plan for School Improvement, op. cit., p. 15. 469. These are discussed in the Budget Review articles, ‘Higher education‘, ‘Abolishing the Baby Bonus‘ and ‘Further savings from family assistance payments‘. 470. J Gillard (Prime Minister) and P Garrett (Minister for School Education), New data on a fairer funding plan for Australian

schools, media release, 19 May 2013, accessed 19 May 2013. 471. Ibid. 472. P Coorey, ‘Abbott to keep Labor tax cuts‘, The Australian Financial Review, 17 May 2013, p. 1, accessed 18 May 2013. 473. For example: T Abbott (Leader of the Opposition), Interview with Sabra Lane, AM, ABC Radio, 15 May 2013, accessed

18 May 2013.

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Indigenous education

Marilyn Harrington

Only two of the identifiable Indigenous education measures in the 2013-14 Budget involve additional funding. The two other budget measures involve a re-announcement of funding and a continuation of funding for existing Indigenous school education programs that will also involve an administrative change.

Indigenous education scholarships

The additional funding is for two Indigenous education scholarship programs. The Australian Indigenous Education Foundation (AIEF) will receive an additional $10.0 million for this year only and the Indigenous Youth Leadership Program (IYLP) will receive an additional $11.9 million over four years.474

The AIEF is not a government program. It is a non-profit organisation that has had significant success with its boarding school and residential college scholarships but has not been able to keep up with demand.475 The additional funding will bring the Government’s total contribution to the AIEF to $32 million since 2008. 476 The IYLP was started as a pilot program in 2006 and currently supports young Indigenous people from remote areas aged 16 to 24 years.477 The additional funding will now provide scholarships to younger students entering Years 7, 8 and 11 in 2013 and 2014. 478

Achieving Results Through Indigenous Education

The additional funding for the Achieving Results Through Indigenous Education (ARTIE) program was announced in December.479 The appropriation for this funding is a provision of the Indigenous Education (Targeted Assistance) Amendment Bill 2013 (the current Bill) which is currently before the Parliament.480

Indigenous Education (Targeted Assistance) Act 2000

Most of the targeted Indigenous education programs are funded by the Indigenous Education (Targeted Assistance) Act 2000 (IETA). The Budget has announced that $800 million over six years will be provided for a number of the IETA school education programs. From 1 June 2014, however, these programs will be moved from the IETA to annual appropriations.481 The rationale for the move is to provide ‘greater transparency’ of funding. 482 The IETA programs are collectively designated as non-ABSTUDY payments

474. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 132, accessed 15 May 2013. 475. P van Onselsen, ‘Interview with Andrew Penfold‘, Sunday Agenda, Sky News, 12 May 2013, accessed 15 May 2013. See also the AIEF website, accessed 15 May 2013. 476. P Garrett (Minister for School Education) and J Macklin (Minister for Families, Community Services and Indigenous Affairs),

Gillard Government boosts funding for Indigenous education, media release, 11 May 2013, accessed 13 May 2013. 477. Department of Education, Employment and Workplace Relations (DEEWR), Indigenous Education (Targeted Assistance) Act 2000: program guidelines 2009 to 2013, DEEWR, 29 November 2012, p. 82, accessed 6 May 2013. 478. Australian Government, Budget measures: budget paper no. 2: 2013-14, op. cit. 479. W Swan (Deputy Prime Minister and Treasurer) and P Garrett (Minister for School Education), Former footy greats helping

Indigenous kids stay in school, media release, 10 December 2012, accessed 9 May 2013. 480. For further information, see: M Harrington, Indigenous Education (Targeted Assistance) Amendment Bill 2013, Bills digest, 113, 2012-13, Parliamentary Library, Canberra, 2013, accessed 15 May 2013. 481. Australian Government, Budget measures: budget paper no. 2: 2013-14, op. cit., p. 131. 482. Ibid.

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and their funding is not disaggregated in the budget papers. However, the move to annual appropriations may provide less certainty of funding from year to year.

This budget measure creates an overlap with the current Bill.483 The Bill’s provisions include additional funding for the first six months of 2014 for some of the programs that will move to annual appropriations. These programs include the IYLP and the ARTIE which is part of the Sporting Chance Program.484 This raises the question whether the relevant provisions in the current Bill will be amended before it is passed or whether an amendment that will make the adjustment for all the affected IETA programs will be made in a separate Bill.

The proposed Indigenous education expenditure that is not separately identified in the Budget, except in general terms, is the loading for Indigenous school students that will apply under the Government’s National Plan for School Improvement (NPSI). 485 The NPSI is discussed in more detail in the Budget Review article on school education.

483. M Harrington, op. cit., p. 7. 484. Australian Government, Budget measures: budget paper no. 2: 2013-14, op. cit., p. 131. 485. Australian Government, ‘Indigenous loading‘, Fact sheet, Better Schools website, accessed 15 May 2013.

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Higher education

Leonie Doyle

The main news for the higher education sector in the 2013-14 Budget is its contribution to paying for the National Plan for School Improvement,486 following the Gonski Review of Funding for Schooling.487

The Budget contains three key savings measures for higher education, worth a total of $2.4 billion. These measures were foreshadowed in the Australian Government’s Statement on Higher Education on 13 April 2013. 488 They are:

• ending discounts for upfront payment (10 per cent discount) and voluntary repayment (5 per cent

bonus) of Higher Education Loan Program (HELP) debts, achieving savings of $276.7 million over four years.489 A brief history of these discounts is provided in a FlagPost article, ‘And then there were none: HECS discounts‘490

• applying an efficiency dividend to grants to higher education providers of 2 per cent in 2014 and 1.25

per cent in 2015, achieving savings of $902.7 million over four years and

• converting Student Start-up Scholarships into income contingent loans repayable under the HELP

scheme, achieving savings of $1,186.3 million over five years. Commentary on this decision can be found in ‘Higher education savings - students pick up the bill‘.491

The combined effect of uncapped student places and these additions to HELP will further load up student debt owed to the federal government. Outstanding HELP debt at 30 June 2013 has been revised up $2.1 billion to $22.3 billion and is expected to hit $42.1 billion by 2016-17. 492 Student debt is technically a government asset, but one with increasingly doubtful status.

While the budget savings represent a significant blow to higher education (particularly, in the long term, for higher education students) there are some good news items for the sector.

The National Collaborative Research Infrastructure Strategy (NCRIS), which supports major national research facilities hosted by Australian universities, receives a further two years’ funding to 2014-15,

486. Australian Government, National Plan for School Improvement, May 2013, accessed 15 May 2013. 487. Review of Funding for Schooling Expert Panel, Review of funding for schooling: final report, (the Gonski report), Department of Education, Employment and Workplace Relations, Canberra, December 2011, accessed 15 May 2013. 488. C Emerson (Minister for Tertiary Education, Skills, Science and Research), ‘Statement on higher education‘, media release,

13 April 2013, accessed 15 May 2013. 489. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, 14 May 2013, accessed 15 May 2013. 490. L Doyle, ‘And then there were none: HECS discounts‘, FlagPost weblog, 16 April 2013, accessed 15 May 2013. 491. L Doyle, ‘Higher education savings - students pick up the bill‘, FlagPost weblog, 19 April 2013, accessed 15 May 2013. 492. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 7-13, 14 May 2013, accessed 15

May 2013.

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with an investment of $185.9 million. This funding takes the pressure off a program that has survived on an interim solution reached last year that involved skimming $60 million from existing block grants.493

The Australian Research Council (ARC) Future Fellowships program receives another round of funding worth $135.3 million, through to 2017-18. The extension will give up to 150 talented mid-career researchers (both Australian and overseas) a four-year fellowship to conduct their research in Australia.

There is funding for a further 1,650 Commonwealth supported places annually in priority courses including teacher training (which will move to two years postgraduate) and language education (especially Asian languages), at a cost of $96.7 million over five years.

The Budget also gives effect to the AsiaBound initiative announced in late 2012, with $58.1 million over four years for a range of incentives for higher education students to study in Asia and/or study Asian languages. Further information is available in the Bills Digest for the Higher Education Support Amendment (Asian Century) Bill 2013.494

The federal government has pointed to ‘an extra $346 million’ in the Budget to meet increased demand for higher education places. 495 However, funding for the Commonwealth Grant Scheme (CGS), which provides the per student funding, has only increased by $256.7 million since the previous Budget, and over the period 2012-13 to 2015-16 there is an estimated $286.5 million less funding going to the CGS than in the 2012-13 Budget estimates.496

There is no new funding for health and medical research, which will have to wait for the federal government’s response to the recent Strategic Review of this area.497 There are also no new research and development initiatives or commercialisation schemes—both areas where Australia can do better.498

Overall, this is a Budget that imposes big savings on the higher education sector, but also extends a few lifelines—albeit short ones. The federal government’s total investment in higher education continues to grow, just at a slower rate than the sector was hoping for.

493. Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education, ‘Collaboration Research Infrastructure Scheme’, Department website, accessed 15 May 2013. Note: During the interim funding period NCRIS was known as Collaborative Research Infrastructure Scheme (CRIS).

494. L Doyle, Higher Education Support Amendment (Asian Century) Bill 2013, Bills digest, 96, 2012-13, Parliamentary Library, Canberra, 26 March 2003, accessed 15 May 2013. 495. C Emerson (Minister for Tertiary Education, Skills, Science and Research), ‘More kids at university and teacher training gets a boost‘, media release, 14 May 2013, accessed 15 May 2013. 496. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12: Industry, Innovation, Climate

Change, Science, Research and Tertiary Education Portfolio, p. 85, accessed 15 May 2013. 497. Department of Health and Ageing, Strategic review of health and medical research: final report, (McKeon review), Commonwealth of Australia, February 2013, accessed 15 May 2013. 498. Department of Industry, Innovation, Science, Research and Tertiary Education, Australian Innovation System Report -

2012, Commonwealth of Australia, September 2012, accessed 16 May 2013.

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Vocational education and training

Leonie Doyle

The 2013-14 Budget is a relatively quiet one for the vocational education and training (VET) sector.

The National Agreement for Skills and Workforce Development enters its second year of five years (2012-13 to 2016-17). In 2013-14, $1.4 billion will be allocated to states and territories under the Specific Purpose Payment, and a further $352.6 million in National Partnership payments.499 There is further national support for VET through the $1.6 billion allocated to skills programs administered by the Department.500 This is a substantial investment that retains a low profile.

In terms of new measures, the establishment of the Apprenticeships-Alternative Pathways Program aims to fast track apprenticeship training in high demand industries that are experiencing skills shortages. The program is worth $68.8 million over four years, most of which will go to peak industry bodies and large employers. They are expected to train an additional 4,000 apprentices.501

The inclusion of a $2,000 per apprentice incentive payment for employers is in contrast to last year’s Budget, which saved more than $400 million by reducing some apprenticeship incentives and scrapping others (as noted in Budget Review 2012-13).502

The Apprenticeships-Alternative Pathways Program is being partly funded by redirection of $18.0 million over three years from the Australian Skills Centres of Excellence Program. The Skills Centres Program was itself created in last year’s Budget from a redirection of funds.503 The three target industries were never announced and the program appears to have foundered before it commenced.

Also of note in this year’s Budget is a redirection of $15.0 million to offset a projected shortfall in revenue for the Australian Skills Quality Authority (ASQA). ASQA charges Registered Training Organisations for provider registration, course accreditation and the like, and is eventually intended to be self-funded via these cost-recovery arrangements. The ASQA website notes that its fees are currently under review.504

In Budget Strategy and Outlook: Budget Paper No. 1: 2013-14 the Government attributes rapid growth in outstanding Higher Education Loan Program (HELP) debt—$2.1 billion more than projected in the past year alone—partly to expansion of the VET FEE-HELP scheme.505 VET FEE-HELP provides income contingent loans to students of higher-level VET courses such as diplomas and advanced diplomas. Take-up has been slow, and prompted recent changes to the operation of the VET FEE-HELP scheme in order

499. Australian Government, Australia’s federal relations: budget paper no. 3: 2013-14, p. 65, accessed 16 May 2013. 500. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12: Industry, Innovation, Climate Change, Science, Research and Tertiary Education portfolio, p. 104, accessed 15 May 2013. 501. The budget figures have been taken from the following document unless otherwise sourced: Australian Government,

Budget measures: budget paper no. 2: 2013-14, 2013, accessed 16 May 2013. 502. Australia, Parliamentary Library, Budget review 2012-13, Research paper, 9, 2011-12, Parliamentary Library, Canberra, 2012, accessed 16 May 2013. 503. Ibid. 504. Australian Skills Quality Authority (ASQA), ‘Fees and charges‘, ASQA website, accessed 16 May 2013. 505. Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, p. 7-13, accessed 16 May 2013.

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to increase its use.506 It follows that the share of HELP debt held by vocational education and training students should continue to rise.

506. L Doyle, Higher Education Support Amendment (Further Streamlining and Other Measures) Bill 2013, Bills digest, 87, 2012- 13, Parliamentary Library, Canberra, 2013, accessed 16 May 2013.

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Department of Foreign Affairs and Trade—overview

Dr Cameron Hill and Nina Markovic

At a time when the Government is promoting its ‘Australia in the Asian Century’ White Paper and has been urged by a Parliamentary Committee to expand Australia’s overseas diplomatic presence, it seems counter-intuitive that the 2013-14 Budget subjects the Department of Foreign Affairs and Trade (DFAT) to significant efficiency measures, including temporary staffing reductions, and that an overseas mission is being closed and plans for new ones suspended. Current estimates (see graph) show that expenditure on DFAT is at historically low levels (0.3 per cent).

Source: Parliamentary Library (note: figures for 2012-13 and 2013-14 are estimates only)

Although the Government has yet to formally respond to the 2012 report of the Joint Standing Committee on Foreign Affairs, Defence and Trade’s inquiry into Australia’s overseas representation, the Budget might have been the opportunity to address the Committee’s recommendation that DFAT’s ‘funding be increased in the long term to a set percentage of gross domestic product sufficient for the creation of a diplomatic network appropriate to Australia’s standing in the G-20 and the [Organisation for Economic Cooperation and Development] OECD’.507 The report also recommended that the increased demand for DFAT’s consular services be funded through ‘a combination of increased passport fees and a small hypothecated and indexed travel levy’.

Budget savings

DFAT’s contributions to the Government’s fiscal consolidation over the forward estimates include: public service ($5.3 million), departmental ($8.5 million), and capital ($60.1 million) efficiencies.508 Further savings of $11.7 million in 2017-18 and $7.7 million in 2018-19 have been flagged.509 Australia will also

507. Joint Standing Committee on Foreign Affairs, Defence and Trade, Australia’s overseas representation: Australia’s overseas representation: Punching below our weight?, The Joint Standing Committee, 29 October 2012, accessed 15 May. 508. Australian Government, Portfolio budget statements 2013-14: Foreign Affairs and Trade Portfolio, 14 May 2013, pp. 19- 20, accessed 15 May 2013. 509. Australian Government, Budget measures: budget paper no. 2: 2013-14, accessed 15 May 2013.

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close its embassy in Hungary and will reportedly put plans to open an embassy in Senegal, announced in the 2012-13 Budget, on hold. 510

Staffing reductions?

It was reported on the day before the Budget that the Foreign Minister had stated that DFAT would not be forced to reduce staff as a result of the Budget. He also denied that DFAT’s budget was in a ‘parlous position’.511 While DFAT’s budget might not be ‘parlous’, it is confusing. The 2013-14 Budget states that part of DFAT’s savings will come ‘from a temporary reduction in Canberra-based positions in 2013-14’.512 It is unclear where the ‘temporary reductions’ will come from, particularly when staffing across DFAT’s three Outcomes is projected to increase by a total of 58 in 2013-14.513 It may be that these increases will be offset by decreases in non-permanent and/or contracted staff.

Wither the ‘Asian Century’?

There is no provision in the Budget for a new full embassy in Mongolia and/or new consulates in Thailand (Phuket), China (Shenyang) or eastern Indonesia, despite these being identified as priorities in the Asian Century White Paper.514

New funding measures

New measures involving DFAT include: $215.9 million over seven years to upgrade the Government’s classified communications network; $52.6 million over three years to upgrade the security of accommodation in Kabul; $50.6 million over seven years for a new High Commission in Kenya; $14.1 million over four years for DFAT’s continued coordination of the Regional Assistance Mission to Solomon Islands (RAMSI); and $4.3 million over one year to continue DFAT’s role in helping prevent people smuggling.515 Mining and other trade links have been cited by the Government as being at the heart of the diplomatic investment in Africa.516 As stated in the 2012-13 Additional Estimates and included in this year’s Budget, DFAT’s United Nations Security Council team has received $27.5 million over three years (out of a total of $30.7 million across three agencies) to secure additional representation at the UN headquarters in New York, as well as in Africa.517

510. Ibid., J Kelly, ‘Carr says the budget hit to foreign aid was inevitable, but aid groups are disappointed’, The Australian, 13 May 2013, accessed 17 May 2013. 511. AAP, ‘DFAT set to be spared job cuts’, The Canberra Times, 14 May 2013, accessed 15 May 2013. 512. Budget measures: budget paper no. 2: 2013-14, op. cit. 513. Portfolio budget statements 2013-14: Foreign Affairs and Trade Portfolio, op. cit., pp. 23, 31, 37. 514. Australian Government, ‘Australia in the Asian Century’ White Paper, accessed 15 May 2013. 515. Portfolio budget statements 2013-14: Foreign Affairs and Trade Portfolio, op. cit.; B Carr (Minister for Foreign Affairs),

Protecting Australia’s interests abroad, media release, 14 May 2013, accessed 15 May 2013. 516. Ibid. 517. Australian Government, Additional estimates 2012-13: Department of Foreign Affairs and Trade, accessed 17 May 2013;

Budget measures: budget paper no. 2: 2013-14, op. cit., accessed 15 May 2013.

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Official Development Assistance: a commitment delayed further

Dr Ravi Tomar

According to the Aid Budget Statement 2013-14, Australia’s Official Development Assistance (ODA) budget for 2013-14 is $5,666.4 million which is $516.8 million more than the estimated outcome for 2012-13.518 This represents a 7.8 per cent increase in real terms over the estimated outcome for 2012- 13. It is estimated that Australia’s ODA will increase this financial year to about 0.37 per cent of Gross National Income (GNI), as foreshadowed in the Aid Budget Statement 2012-13.

After putting it back by one year in the 2012-13 Budget, the Government has again delayed its commitment to achieve an ODA/GNI ratio of 0.5 per cent:

Australia remains committed to increasing its aid budget to 0.5 per cent of GNI. However, given substantial write-downs to Budget revenues, the Government will defer this target by one year to 2017-18. To reach this target, the Government expects to increase Australian aid to around 0.39 per cent in 2014-15, 0.41 per cent in 2015-16 and 0.45 per cent in 2016-17.

519

The financial implications of deferring the target are explained in Budget Paper No 2 2013-14:

This measure will achieve $1.9 billion in savings over the forward estimates while still increasing aid spending by 42.4 per cent over this period. The savings over the forward estimates will be achieved by a $1.5 billion reduction in the provision for expanded aid funding held in the Contingency Reserve and a reduction of $415.3 million to existing AusAID resources.

Under the new growth profile, official development assistance spending will have doubled from 2007-08 levels by 2015-16. 520

Of the overall aid budget, $4,944.2 million will be administered by AusAID and $800.5 million by Other Government Departments (OGDs). The Department of Immigration and Citizenship (DIAC) will manage the largest amount of OGD expenditure, $436.2 million in 2013-14. This includes up to $375.0 million for ‘costs associated with the sustenance of asylum seekers on residence determinations or bridging visas class E during their first 12 months in Australia’.

New initiatives

The initiative to enhance commitment to development in the Asia-Pacific region involves funding of $390.9 million over four years. This measure includes $137.0 million to be offset from the funding held in the contingency reserve and $253.9 million from within existing AusAID resources.521

To fund new programs in the 2013-14 Budget, $238.6 million across the forward estimates from existing AusAID funding will be transferred to OGDs. This will support government priorities including:

518. Unless otherwise indicated all information is derived from: B Carr, (Minister for Foreign Affairs), Budget: Australia’s international development assistance program 2013-14, statement accessed 16 May 2013; see also Summary of Australia’s overseas aid program: budget highlights 14 May 2013, accessed 16 May 2013.

519. Carr statement, ibid. 520. Budget measures: budget paper no.2, p. 161, accessed 16 May 2013. 521. Ibid., p. 162.

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• Regional Assistance Mission to Solomon Islands—transition

• Combating People Smuggling—enhancing the regional response and

• Australian Membership of the African Development Bank Group. 522

Aid allocations

Indonesia remains the largest recipient of Australia’s ODA. Funding for 2013-14 is $646.8 million, an increase of $105.2 million (19.4 per cent) over the expected outcome of $541.6 million. Papua New Guinea remains the second largest recipient with an allocation of $507.2 million. Other countries to receive large increases in allocations include Myanmar which will receive $82.8 million (up from $64.2 million in 2012-13) and Fiji at $58.2 million (up from $49.2 million in 2012-13).

Reactions to the aid budget

As Professor Stephen Howes from the Australian National University has observed, despite an extra $500 million in the aid budget and a lifting of the ODA/GNI ratio to 0.37 per cent, the response of the aid community has been ‘overwhelmingly negative’ for two reasons—the deferral of the ODA/GNI target by another year and the use of $375 million to support asylum seekers.523

The Australian Council for International Development (ACFID), the peak organisation for aid Non-Government Organisations (NGOs), said that the Government had delayed its ‘aid commitment for a second year in a row’ and that ‘pocketing $375 million a year for domestic use will never help combat poverty overseas’.524 CARE Australia called the aid budget ‘utterly disappointing’ and was critical of the money that would be used to ‘support the onshore processing of asylum seekers’.525 Oxfam Australia was also critical of the Government’s ‘broken promise’ and its decision to ‘plunder another $375 million … to pay for its domestic asylum seeker policy’.526

522. Ibid., p. 163. 523. S Howes, ‘Third time disappointed AND the third largest aid increase ever’, 15 May 2013, Development Policy Centre Blog, accessed 16 May 2013.

524. ACFID, Budget delays and diversions shouldered by the world’s poor, media release, 15 May 2013, accessed 16 May 2013. 525. CARE, Budget: Australia is one of the largest recipients of its aid program, media release, 14 May 2013, accessed 16 May 2013. 526. Oxfam, Governments broken promise on overseas aid will strip S1.9 billion more from the world’s poorest people, media

release, 14 May 2013, accessed 16 May 2013.

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Aged care workforce wage pressures

Peter Yeend

Background

The Government announced in the 2013-14 Budget a further measure to address the pressures facing the aged care workforce.527 The initiative proposes to change eligibility for the Workforce Supplement to preclude aged care providers whose workers are paid under state or territory awards or agreements and to extend access to the Supplement to providers of Veterans’ Home Care and Community Nursing programs.

This initiative follows a 2012-13 Budget initiative aimed at addressing aged care workforce issues along with the Living Longer Living Better (LLLB) aged care reforms the Government presented in that Budget.528 The 2012-13 Budget initiative provided $1.2 billion payable over five years to address long-standing workforce pressures in aged care. It was to be delivered through a Workforce Compact developed by an independently chaired Strategic Workforce Advisory Group, in consultation with the sector.529 The Workforce Compact is to start in July 2013.530

The Workforce Compact

The Workforce Compact is an attempt to improve wage rates for aged care workers in order to retain workers and also to encourage more workers into the industry. Under the Compact, if an employer agrees to establish the wage rates and conditions set out in the Compact, they are given access to government provided Workforce Supplement payments, which they are required to pass on to their qualifying employees. The Compact requires employers to engage their employees under enterprise agreements providing minimum wage levels. In order to qualify for the Workforce Supplement, employers need to provide:

• minimum annual wage increases for all aged care employees of 2.75%, or the Fair Work Australia

minimum increase, whichever is the greater and

• phased wage increases over and above the relevant award rates totalling 3% for personal care

workers, 8.5% for enrolled nurses and 12.6% for registered nurses.

Eligible aged care provider employers that meet the terms and conditions of the Compact will receive an extra:

• 1.0% of the amount of the basic subsidy/funding agreement in 2013-14

527. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2013-14, p. 174, accessed 16 May 2013. 528. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2012-13, p. 180, accessed 16 May 2013. 529. Department of Health and Ageing (DoHA), Strategic Workforce Advisory Group, accessed 16 May 2013. 530. DoHA, Living longer living better: workforce, Canberra, 2013, accessed 16 May 2013. The Workforce Compact is to begin in

July 2013 and is aimed at improving the capacity of the aged care sector to attract and retain staff through higher wages, improved career structures, enhanced training and education opportunities, improved career development and workforce planning and better work practices.

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• 2.0% of the amount of the basic subsidy/funding agreement in 2014-15

• 3.0% of the amount of the basic subsidy/funding agreement in 2015-16 and

• 3.5% of the amount of the basic subsidy/funding agreement in 2016-17.

All Workforce Supplement funding is to go to wages and is required to be delivered as an additional one per cent wage increase for all employees each year in 2013-14 to 2015-16, and an additional 0.5 per cent increase in 2016-17.531 Aged care providers are expected to contribute to the implementation of the Workforce Compact, that is, help make up for the proposed higher wage rates.

Dissent over the Workforce Compact

Generally, the issue aged care providers have with the proposed Workforce Compact is that they do not think the Workforce Supplement funding is sufficiently attractive for them to make the wages up to the required minimum to obtain the Supplement. Catholic Health Australia (CHA) claims one in five of their providers surveyed said they would not sign the Compact. CHA said all CHA providers surveyed pay above award wages and they have consistently argued pay rises should be fully funded by Government and Government contracts should not stipulate industrial outcomes.532 Aged and Community Services Australia (ACSA) also has reservations regarding the Workforce Compact and said while the Government is providing some funds to pay for the wage increases, it will be required of the providers to find the additional funds. The capacity of small, independent, regional and rural providers to implement the requirements and cope with the administrative burden is also a concern.533

531. DoHA, ‘Frequently asked questions‘, Living Longer Living Better website, accessed 16 May 2013. 532. Catholic Health Australia, Aged care legislation must pass, but success of Compact in doubt, media release, 24 April 2013, accessed 16 May 2013. 533. Aged Care Services Australia, Government workforce support announcement, media release, Canberra, 5 March 2013,

accessed 16 May 2013.

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Cancer initiatives

Amanda Biggs and Dr Luke Buckmaster

This year’s health budget sees a major focus on cancer. The World Leading Cancer Care measure provides funding of $189.9 million over four years for a range of new or expanded initiatives.534 Generally, responses from stakeholders have been positive.535 Major initiatives are discussed below.

Funding of $55.7 million is provided to extend breast cancer screening to older women.536 Breast cancer is the most common cancer among women in Australia, and the second most common cause of cancer-related deaths among women.537 The government-funded BreastScreen Australia program is credited with helping reduce mortality from breast cancer among women aged 50-69 by between 21 and 28%.538 Jointly funded with the states and territories, BreastScreen invites asymptomatic women in the target age range to a free mammography at two year intervals.539 Women aged 40-49 years and 70 years and over can also attend, but are not actively recruited. BreastScreen reports that 56% of women in the target group participate in screening, below the goal of 70%.540

This initiative expands the target age range to women aged 70-74 years, as recommended by an evaluation of the BreastScreen program in 2009.541 The evaluation pointed to a Dutch study showing a decline in mortality when breast cancer screening was extended to this age group.542 The evaluation also noted Australia’s improvement in life expectancy and higher rates of breast cancer among older women, to support its recommendation.543

Screening is not without its harms. There is a risk of ‘false-positives’ (cancer incorrectly detected may prompt more invasive procedures), and ‘false-negatives’ (detection of a cancer is initially missed leading to delays in treatment) and psychological distress associated with these.544

BreastScreen services are delivered by the states and territories, so an expansion of the eligibility arrangements may impact on the capacity of state-based services to deliver the additional services.

The Government has also announced that it will increase the fees available to pharmacists for dispensing chemotherapy medicines by $60 per infusion ($76.37 to $136.37) for six months from 1 July 2013. The Government will also conduct a review of arrangements for funding and delivery of chemotherapy services. This measure is expected to cost $29.6 million. The review was announced on 5 May 2013 by

534. Department of Health and Ageing, Budget at a glance, media release, 15 May 2013, accessed 15 May 2013. 535. The Australian Healthcare and Hospitals Association (AHHA) says it welcomes the cancer initiatives. AHHA, Health Budget delivers some gains but fails to address key health issues, media release, 15 May 2013, accessed 15 May 2013. 536. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian

Government, Budget measures: budget paper no. 2, 2013-14, accessed 15 May 2013. 537. Among women aged 34-75. BreastScreen Australia Evaluation Advisory Committee, Evaluation final report 2009, Screening monograph no. 1/2009, Commonwealth of Australia, 2009, p. 14, 17, accessed 15 May 2013. 538. Ibid., p. 10. Advances in management and treatment of the disease have also contributed to the decline in mortality. 539. Symptomatic women who do attend the program require specialised management and are generally referred to a clinical

service. Ibid, p. 273. 540. Ibid., p. 8. 541. Recommendation 2(ii). Ibid., p. 4. 542. Ibid., p. 215. 543. Ibid., p. 216. 544. Ibid., p. 52.

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the Minister for Health and Ageing, Tanya Plibersek, following talks between the Government and the Pharmacy Guild of Australia over funding for chemotherapy dispensing services.545

These talks arose in 2012 after the Government reduced by 76.2% the amount it pays for Docetaxel, a cancer treatment drug, as a result of generic versions of the drug entering the market.546 Pharmacy groups argued that the expense of dispensing chemotherapy medicines was insufficient to cover costs.547 They argued that the higher price paid to them for Docetaxel had effectively subsidised the cost of dispensing chemotherapy medicines.548 A recent Senate Committee report noted that the mechanism under which the price of Docetaxel was cut was known to the Pharmacy Guild when they signed the relevant funding agreement with the Government in 2010 (the Fifth Community Pharmacy Agreement).549 The Senate Committee recommended that the review:

… continue the examination of issues in chemotherapy drug pricing to ensure that existing funds under the Fifth Community Pharmacy Agreement as already agreed are appropriately directed to reflect the costs and benefits of the supply of chemotherapy drugs, and to ensure the ongoing supply of these drugs across all services, particularly in rural and regional areas.

550

In other measures, $36.5 million over four years is provided to the Victorian Cytology Service to support early detection of cervical cancers and research. Funding is provided under the National Partnership Agreement on Health Services.551 However, as this agreement is set to expire in June 2013 a new agreement will be needed to underpin this commitment.

A range of other initiatives are also funded over four years including: $23.8 million to expand the Bone Marrow Transplant Program, which provides financial assistance to cancer patients to access overseas-sourced bone marrow, stem cells, cord blood and other tissue transplants, where a local donor has not been identified ; $18.2 million to CanTeen for its Youth Cancer Networks program to support adolescents and young people with cancer; $18.5 million for a new prostate cancer research centre in Sydney, and to continue the work of two existing prostate cancer research centres in Queensland and Victoria; $19.5 million for the McGrath Foundation Breast Care Nurse initiative; $16.1 million for the National Bowel Cancer Screening Program and $8.3 million to Cancer Australia to improve cancer data collection and help support people affected by lung cancer.

545. Hon T Plibersek, Review to determine correct subsidy for chemotherapy infusions, media release, 5 May 2013, accessed 15 May 2013. 546. Senate Community Affairs Reference Committee, Supply of chemotherapy drugs such as Docetaxel, Commonwealth of Australia, 10 May 2013, accessed 15 May 2013, p. 6. 547. Ibid. 548. Ibid. 549. Ibid., p. 5. 550. Ibid., p. vii. 551. Council of Australian Governments, National Partnership Agreement on Health Services, December 2009, accessed 15 May

2013.

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Medicare

Amanda Biggs

This budget includes a number of announcements around Medicare, Australia’s national health insurance scheme.

Indexation of fees for items listed in the Medicare Benefits Schedule (MBS) will shift from November to July, with the next indexation date being delayed until July 2014. This is expected to generate some $664.4 million in savings over four years.552 Notably, some of these savings will be achieved through the Veterans Affairs portfolio, as the fees for Veterans medical services are linked to those on the MBS.

Historically, fees for MBS services have been indexed in November each year. Indexation of MBS fees were delayed once before. In the 1996-97 Budget, the newly elected Howard Government announced it would withhold the annual increase in Medicare fees due in November 1996.553 This effectively froze fees at 1995 levels for an additional 12 months.

While doctors set their own fees, rates of bulk billing, where the doctor accepts the Medicare rebate as full payment for the service, have been high. Around 82.4 per cent of GP services were bulk billed in the March quarter 2013, the highest level ever achieved.554 But if a doctor doesn’t bulk bill, patients can face significant out of pocket costs. The average patient contribution to see a doctor is $52.06; for GP services the average cost is $30.34, but for specialist services the average cost can be as high as $227.68, for obstetrics.555

The general threshold for the Extended Medicare Safety Net (EMSN) will rise from $1221.90 to $2,000 from 2015, generating savings of $105.6 million over four years. The lower concessional threshold will remain unchanged.556 The EMSN is an additional rebate for patients who incur high out of pocket costs for out-of-hospital services. Once an annual expenditure threshold is reached, Medicare pays 80 per cent of any subsequent costs for the rest of the year.557

Reaction from doctors and consumer groups to these two measures has been critical. The Consumers Health Forum (CHF) warns that bulk billing rates may fall as a result of the indexation delay.558 However, during the last freeze GP bulk billing rates fell only marginally.559 The Royal Australian College of General Practitioners warns that as GP fees fall further behind inflation, doctors will be forced to either absorb

552. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 176, accessed 15 May 2013. Unless otherwise indicated, the budget figures cited in this document are taken from this source. 553. Australian Government, 1996-97 Budget statement 3, 20 August 1996, p. 3-16, accessed 15 May 2013. 554. T Plibersek (Minister for Health), Bulk billing rates for GP services reach new record high, media release, 13 May 2013,

accessed 15 May 2013. 555. Department of Health and Ageing, Quarterly Medicare Statistics, March Quarter 2013, Table 1.1, accessed 15 May 2013. 556. It will continue to be indexed annually. 557. However, there is an upper limit on the amount of benefit that can be paid under the EMSN for a small number of

Medicare services. See Department of Health and Ageing, ‘Extended Medicare Safety Net - 1 January 2013’, accessed 15 May 2013. 558. Consumers Health Forum, Budget for medicines and cancer but no hip pocket relief, media release, 14 May 2013, accessed 15 May 2013. 559. From 79.7% to 78.9%. Department of Health and Ageing, Medicare Statistics, June quarter 2012 Table C3, accessed 15 May

2013.

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the additional costs or charge patients a gap fee to help meet their costs.560 The Australian Medical Association (AMA) warns that higher costs could cause people to delay seeing their doctor.561 While the Australian Healthcare and Hospitals Association (AHHA) warns that Australians, who already face high personal health costs by international standards, will face even higher costs as a result.562

Other savings will come from removing double billing by GPs where they are claiming both Chronic Disease Management items and a standard consultation, resulting in a saving of $119.6 million over four years. This measure will also apply to services provided through Veterans Affairs. A saving of $10.7 million over five years will be realised by removing the Medicare rebate for certain out of hospital services that should be provided in a hospital setting. New listings on the MBS will provide $1.5 million in savings over five years, as these will provide a safer, better alternative to some surgical techniques.

Funding of $19.6 million over two years will be provided for the Medical Services Advisory Committee (MSAC) to review the safety, quality and cost-effectiveness of existing MBS-funded services, and examine the evidence for new procedures and technologies. In other new spending, $10.0 million will be provided over two years to fund a national communications campaign to inform Australians about Medicare and health related services.

In line with previous budgets, the Medicare levy low income thresholds for families will be raised. The threshold exempts low income earners from paying the Medicare levy. It will be lifted to $33,693 with $3,094 for each dependent child for the 2012-13 income year, at a cost to revenue of $38.0 million over the forward estimates. This rise takes into account movements in the Consumer Price Index.

The proposed increase in the Medicare Levy is dealt with elsewhere in this Budget Review.

560. Royal Australian College of General Practitioners, Delayed freeze on MBS indexation slashes $664.4 million away from primary healthcare services, media release, 14 May 2013, accessed 15 May 2013. 561. Australian Medical Association (AMA), Government targets sick people to reduce budget deficit, media release, 14 May 2013. 562. Australian Healthcare and Hospitals Association (AHHA), Health Budget delivers some gains but fails to address key health

issues, media release, 15 May 2013, accessed 15 May 2013.

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Net medical expenses tax offset

Amanda Biggs

The Budget included an announcement that the net medical expenses tax offset (NMETO) would be phased out from 1 July 2013, with a saving of $963.5 million over four years.563 Transitional arrangements will allow taxpayers who incur medical costs for disability aids, attendant care or aged care expenses, to continue to claim the NMETO until 1 July 2019. After this date, the NMETO will cease to operate.

The NMETO allows Australian residents to annually claim a tax rebate to offset out-of-pocket medical expenses incurred above a certain threshold. The threshold is currently set at $5,000 for the 2012-13 income year (it was $2,060 for the income year 2011-12, but was raised in a 2012-13 Budget measure).564 Net medical expenses are out-of-pocket medical expenses incurred minus any refunds received from Medicare or a private health insurer.

Medical expenses are broadly defined and can include payments: to doctors, dentists, allied health providers and opticians; for spectacles, medical aids and appliances, laser eye surgery, in vitro fertilisation (IVF) procedures, carers for the blind or wheelchair bound and maintaining a guide dog; and residential aged care costs, including daily fees and accommodation costs. Certain costs do not count towards the NMETO, including payments for: cosmetic surgery or cosmetic treatments such as teeth whitening, non-prescription vitamins, over the counter pain relievers, accommodation or travel expenses associated with medical treatment, medical examinations for the purposes of life insurance, inoculations for overseas travel, ambulance charges or funeral expenses.565

Australian Tax Office statistics show that in 2010-11 around 802,000 taxpayers claimed the NMETO in 2010-11, with claims totalling around $567 million.566 The Government argues abolishing the offset is about ‘improving the sustainability of the health budget’.567 Furthermore, the NMETO provides no direct assistance to those on the lowest incomes who incur no tax liability.568

Notably, most of the savings won’t be realised until later in the forward years, from 2015-16 onwards.

Reaction to this measure from stakeholder groups has been mixed, with consumer and medical groups largely critical, but others in the community sector supportive. An IVF lobby group is reportedly

563. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 30. Unless otherwise indicated, the budget figures cited in this document are taken from this source. 564. The 2012-13 budget measure raised the threshold to $5,000 for the 2012-13 income year and, from July 2012, applied a means test to individuals on incomes over $84,000 and families with incomes over $168,000. These taxpayers will be

reimbursed 10 per cent of their net expenses, while those on lower incomes will continue to be reimbursed at 20 per cent. Australian Government, Budget measures: budget paper no. 2: 2012-13, p. 34, accessed 16 May 2013. 565. Australian Taxation Office (ATO), ‘Guide to tax offsets’, ATO website, accessed 16 May 2013. 566. Australian Taxation Office (ATO), ‘Taxation statistics 2010-11, Individuals’ Tax, Table 9‘, ATO website, accessed 16 May 2013. 567. S Dunlevy, ‘Treatment tax break is axed’, Herald Sun, 15 May 2013, p. 6, accessed 16 May 2013. 568. Australian Government, Budget 2013-14: Tax reform road map: a stronger, smarter and fairer tax system, May 2013, p. 18, accessed 16 May 2013.

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concerned that, without the NMETO, fertility treatment will become unattainable for many due to its often high cost.569

The Consumers Health Forum also expressed the view that the abolition of NMETO, combined with other proposed savings measures, could entrench high out-of-pocket medical costs.570 The other savings measures include the lifting of the expenditure threshold for the Extended Medicare Safety Net (EMSN), and the delaying of indexation of Medicare fees (both dealt with elsewhere in this Budget Review). Among the community sector, the Australian Council of Social Services (ACOSS) is broadly supportive of the abolition of NMETO and the raising of the EMSN general threshold.571

Recent reports highlight that out-of-pocket costs for medical treatment in Australia are among the highest of the developed economies.572 The Consumers Health Forum estimates that Australians pay an average of $1,075 out-of-pocket on medical services per annum, $94 above the developed countries average. Evidence is also emerging that patients are increasingly forgoing or delaying medical treatment due to cost considerations. The abolition of NMETO, combined with other measures in this budget previously mentioned, is likely to add weight to concerns around patient affordability issues.

The rationale for transitional arrangements for those with a disability or in residential aged care is that by 2019 DisabilityCare and proposed reforms to the aged care sector are expected to be fully operational, allowing these to offset any gap left by the abolition of the NMETO. However, it is not yet clear the extent to which these programs would be able to ameliorate high out-of-pocket medical costs for the disabled and the elderly. In any case legislation to establish aged care reform is currently before the Parliament, while DiabilityCare remains to be implemented.

Separate legislation will be required to enact this measure.

569. J Heath, ‘Specialist procedures put in doubt’, Australian Financial Review, 16 May 2013, p. 18, accessed 16 May 2013. 570. Ibid. 571. Australian Council of Social Services (ACOSS), Budget secures landmark disability and education reforms, but gaping hole for poorest on allowances, media release, 14 May 2013, accessed 16 May 2013.

572. These are broadly outlined in A Biggs, ‘Health spending: patients bearing higher costs’, FlagPost weblog, 2 May 2013, accessed 16 May 2013.

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Other health measures

Dr Rhonda Jolly, Amanda Biggs and Dr Matthew Thomas

E health

The 2010-11 Budget acknowledged the importance of technology in delivering better health services into the future. In that Budget, funding of $466.7 million over two years was committed to establish the key components of a Personally Controlled Electronic Health Record (PCEHR) system.573 At the time the investment in e health was welcomed, but crucially, critics argued that it was insufficient and misdirected.574

It may be that figures in 2012-13 confirm that funds were misdirected. Only 500,000 people had opted to register for a PCEHR in that year and it is expected that only 2.8 million will have registered by 2016- 17.575

Despite the low uptake of this fundamental element of an effective e health system, there is but one mention of e health in the Budget in relation to a savings measure, and no new funding to assist in promoting existing e health projects or initiate new ventures.576

Health Workforce

Parliamentary Library analysis of health workforce issues in recent Budgets has stressed the importance of adopting policy and funding initiatives that move away from conventional approaches to dealing with problems associated with a shrinking health workforce and increasing demand for health workers.577 Despite supporting substantial workforce reform, recent funding in this area has been consistently conservative in nature.

Funding has been allocated in this Budget, however, to continue for a ‘workforce redesign activities’ project. While the amount allocated to this project is minimal ($6.0 million in 2013-14), its objective has the potential to deliver greater workforce capabilities and efficiencies.

At the same time, the Government’s workforce body, Health Workforce Australia (HWA), set up specifically to address the many challenges involved in providing a more skilled and flexible workforce, will lose funding of $80.0 million over the next four years. Some of this funding is to be re-directed to the General Practice Rural Incentives Program (GPRIP), which provides relocation incentive payment to encourage medical practitioners to work in rural areas. GPRIP will be provided with $33.8 million in 2013-14; of this funding, $20.0 million will be redirected from HWA.

573. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2010-11, p. 225, accessed 16 May 2013. 574. F Foo, ‘Budget 2010: expert slams meagre e-health funding‘, The Australian, 12 May 2010, accessed 16 May 2013. 575. Australian Government, Portfolio budget statements 2013-14: budget related paper no.1.11: Health and Ageing Portfolio,

p. 176, accessed 15 May 2013. 576. The measure is the National Health Information Network, savings of $31.2 million to be achieved by ceasing funding. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian

Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2010-11, p. 179, accessed 16 May 2013. 577. R Jolly, ‘Health workforce‘, Budget Review 2010-11, Parliamentary Library, Research paper, 17, pp. 192-95, accessed 16 May 2013.

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The GPRIP program is an essential workforce program, calculated to reduce the inequities between health services available in metropolitan and rural areas. However, HWA has produced some valuable work, and it would be unfortunate if its capacity was diminished by the reduction in resources as announced in this Budget.

Victorian local hospital networks funding

The recent controversy between the Victorian and the Australian governments over hospital funding was a stark reminder that the blame game over health funding is far from over. Broadly, the dispute arose after changes to population growth estimates resulted in Commonwealth funding to most states to run their public hospitals being reduced from mid-2013.578 The impact in Victoria, where local decentralised hospital networks had already budgeted their spending, was considered particularly acute.579

While a Senate inquiry was underway, the Health Minister, Tanya Plibersek announced a Victorian hospital rescue package of $107.0 million to be paid directly to Local Hospital Networks, which would distribute funds to hospitals—bypassing the state government.580 The Health Minister accused the Baillieu Government of ‘savagely’ cutting public hospital funding by $616 million and mismanaging the health system.581

Funding for this ‘rescue package’ is committed in this year’s Budget, and is being drawn from a redirection of Victoria’s ‘reward payments’ under the National Partnership Agreement to deliver a Seamless National Economy. Funding is for a transitional period only, to July 2013, when a previously agreed new funding formula will commence.582

Registers for high-risk implantable devices and clinical quality

A patient register for high-risk implantable devices and two clinical quality registers for breast implants and cardiac devices will be established with funding of $12.1 million over four years. Funding for the patient register will also support the development of device identifiers, standard labelling, nationally consistent data requirements and national protocols for rapid patient identification. The two clinical quality registers will provide performance information on devices. Over time, costs for operating these registers will be recovered from the medical devices industry—from 1 July 2014 for the patient register and 1 July 2015 for the two clinical quality registers.

The safety and regulation of implantable medical devices has come under scrutiny following a number of device problems and recalls. These include voluntary recalls for the poly implant prostheses (PIP) breast implants and the De Puy ‘metal on metal’ hip replacement system, following a number of safety issues.

578. For more detail see R de Boer, ‘The missing billion? Revisions to health funding not unprecedented’, Flagpost weblog, 1 February 2013. Payments to the states for hospital services are made under the National Health Reform Agreement. 579. Senate Finance and Public Administration Committee, Implementation of the National Health Reform Agreement report, p. 8, accessed 17 May 2013. 580. T Plibersek, Victorian hospital rescue package helps patients, media release, 21 February 2013, accessed 17 May 2013. 581. Ibid. 582. Under the National Health Reform agreement a new funding formula based on an activity basis, rather than on population

estimates, is being introduced.

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The establishment of an opt-out patient register for breast implants was a recommendation of a recent Senate Committee report.583 A patient register should assist in the rapid and accurate identification of patients in the event of a future recall while the quality registers should help identify emerging safety issues.

Indexation of tobacco excise

A substantial body of research evidence demonstrates that increases in the price of tobacco result in a reduction in tobacco use, especially among price-sensitive young people.584 Raising tobacco taxes has thus been found to be one of the most effective means for governments to reduce tobacco use, along with its negative health impacts.585 If tobacco taxes are to prove effective in reducing tobacco consumption then this demands that they should keep pace with inflation and increases in real income.

Tobacco excise rates are currently indexed to the Consumer Price Index (CPI) which has historically, on average, been lower than the growth in average weekly ordinary time earnings (AWOTE). Based on this trajectory, current indexation arrangements will result in tobacco excise falling in relation to wages over time, thereby reducing the health protective effects associated with higher tobacco prices.586 In light of this finding, the Henry Review of the taxation system recommended that tobacco excise should be indexed to wages rather than the CPI, a recommendation taken up by the Government.587 The Government has indicated that the change in indexation arrangements should result in a packet of 25 cigarettes increasing in price by seven cents from the first half of 2014. The change is thus in line with the Government’s strategy to ‘continue to implement regular staged increases in tobacco excise as appropriate, to reduce demand for tobacco’.588

Supporting leave for living organ donors

Background

Australia’s organ donation rate has increased in recent years. At 15.6 donors per million people (dpmp) in 2012, the rate is at its highest level since national records were first kept.589 This improvement is likely to have been in large part a result of the Government’s substantial reforms to the nation’s organ donation system, introduced from 1 July 2008.590 While there are marked signs of improvement in

583. Senate Community Affairs Committee, The role of the Therapeutic Goods Administration regarding medical devices, particularly Poly Implant Prothese (PIP) breast implants, The Senate, 2012, p. viii, accessed 20 May 2013. 584. See for example Australian Government, Australia: the healthiest country by 2020 - National preventative health strategy - the roadmap for action, The Department of Health and Ageing/The Taskforce, Canberra, 2009, p. 175, accessed 17 May

2013.

585. Ibid. See also World Health Organisation (WHO), WHO Technical Manual on Tobacco Tax Administration, WHO, Geneva, 2010, accessed 17 May 2013. 586. Australia’s Future Tax System Review, Australia’s future tax system: report to the Treasurer: part two - detailed analysis, Commonwealth of Australia, Canberra, 2010, p. 454, accessed 17 May 2013. 587. Ibid. 588. Intergovernmental Committee on Drugs, National tobacco Strategy 2012-2018, Commonwealth of Australia, Canberra,

2012, p. 20, accessed 17 May 2013. 589. Australia and New Zealand Organ Donation Registry, Monthly Report on Deceased Organ Donation in Australia December 2012, 2013, accessed 20 May 2013; Donate Life, Facts and statistics, DonateLife website, accessed 20 May 2013. As noted

above, it should be borne in mind that the rate is increasing off a relatively low base. 590. See Australian Government, A world’s best practice reform package on organ and tissue donation for transplantation: overview, accessed 20 May 2013.

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Australia’s organ donation rate, it nevertheless remains one of the lowest in the developed world. The waiting list for organs is substantial, with 1,536 Australians awaiting transplant as at December 2012.591 A vast majority of people on the waiting list (1,080 people) were waiting for kidneys, which are able to be donated by a living donor.

According to Transplant Australia, international research shows that 24 per cent of potential living organ donors choose not to donate because of anticipated financial hardship, and some 45 per cent of living donors do experience some financial hardship as a result of their donation.592 This measure provides for a pilot study in which a payment up to the national minimum wage is paid to donors (via their employers) to help cover their costs while they recover from surgery. As such, the measure seeks to provide support to those living donors who do provide an organ (in 2012 there were 237 live kidney donors) and encourage others to do so, thereby increasing the number of organ donations. Transplant Australia chief executive officer, Chris Thomas is reported as having estimated that the scheme could result in over 100 extra live donors per year.593

Comment

It is worth noting that some aspects of the Supporting Leave for Living Organ Donors pilot have changed between the time of the joint press release of 7 April 2013 announcing the measure and the release of the 2013-14 Budget. Initially, the Government was to provide $1.3 million over two years towards the pilot but Budget Paper No. 2 provides for $2.6 million over three years.594

The main concerns that might be raised in relation to any scheme that provides financial or in-kind support for living organ donors are that this should neither result in poor people being exploited for their body parts nor undermine the altruism that is assumed to underpin organ donation. Given that most live donors are friends or relatives of the person requiring an organ, the scheme is restricted to people who are employed, payments are made to employers and not directly to donors, and that the scheme only provides for payment up to the minimum wage for a limited period, the scope for exploitation of the poor is minimal. Similarly, the scheme is unlikely to compromise the altruism of donors or would-be donors. In any case, it is debatable whether or not such an emphasis should be placed on altruism as a necessary component of organ donation.595

591. Australia and New Zealand Organ Donation Registry, Waiting List Data, accessed 20 May 2013. 592. Transplant Australia, Transplant Australia welcomes supporting paid leave for living donors, media release, 7 April 2013, accessed 20 May 2013 and Australia and New Zealand Organ Donation Registry, Transplants by year, accessed 20 May 2013.

593. Organ donors to be paid six-weeks’ salary, ABC News, 7 April 2013, accessed 20 May 2013. 594. T Plibersek (Minister for Health) and S Neumann (Parliamentary Secretary for Health and Ageing), Supporting paid leave for living organ donors, media release, 7 April 2013, accessed 20 May 2013. 595. See M Thomas and M Klapdor, The future of organ donation in Australia: moving beyond the ‘gift of life’, Research paper,

11, 2007-08, Parliamentary Library, Canberra, 2008, accessed 20 May 2013; G Moorlock, J Ives and H Draper, ‘Altruism in organ donation: an unnecessary requirement?’, Journal of Medical Ethics, 28 March 2013, accessed 20 May 2013.

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Migration and humanitarian programs

Janet Phillips

Migration program

As part of the Budget process each year the Government announces the number of places it plans to allocate for permanent migrants under Australia’s Migration Program.596 In last year’s Budget the planning figure of 190,000 places was the highest on record.597

In this year’s Budget announcement, Australia’s Migration Program remains capped at 190,000 places for 2013-14. The majority of these places will continue to be set aside for skilled migrants (128,550) with a smaller allocation for those entering under the family stream (60,885). However, the Government has made a ‘small shift’ of 700 places from the skill stream to the family stream ‘in response to the continuing high levels of demand for family stream places from Australians, particularly in the partner category’.598

Interestingly, the Minister for Immigration and Citizenship made no mention in his Budget press release of the additional 4,000 family stream places promised for humanitarian entrants in response to a recommendation made by the Expert Panel on Asylum Seekers in August 2012.599 The Panel proposed that irregular maritime arrivals (IMAs) should only be eligible to sponsor family within the family stream of the Migration Program and not through the Special Humanitarian Program (SHP).600 To accommodate the expected increase in demand for visas in the family stream the Government had announced it would increase the number of family stream places by 4,000 per year which would be quarantined specifically for humanitarian entrants (IMAs and non-IMAs).601

While there is an increase in funding in the 2013-14 Budget under Outcome 1 (Visa and Migration) and Outcome 5 (Settlement Services for Migrants and Refugees) relating to the ‘increase in places for the annual Migration Program, specifically in the Family Migration Program as a result of the report of the Expert Panel on Asylum Seekers’, the size of the Migration Program as a whole has not increased and it would appear that the increase in family stream places is only to accommodate skilled migrants who wish to sponsor family members.602

596. This practice was introduced by the Howard Government during the 2007-08 Budget. See K Andrews (Minister for Immigration and Citizenship), Budget 2007: a prosperous cohesive nation, media release, 8 May 2007, accessed 15 May 2013. Note: planning places do not apply to the temporary business visa program for skilled migrants (subclass 457). These visa grants are demand-driven and not counted under the Migration Program, or subject to caps set by Government. 597. For more detail see Australia, Parliamentary Library, Budget Review 2012-13, Research paper, 9, 2011-12, Migration

program, Parliamentary Library, Canberra, 2012, accessed 15 May 2013. 598. B O’Connor (Minister for Immigration and Citizenship), Migration program delivering for Australia, media release, 14 May 2013, accessed 15 May 2013. 599. Ibid.; Expert Panel on Asylum Seekers, Report of the Expert Panel on Asylum Seekers, August 2012, pp. 16, 40-1 and 136-7,

accessed 15 May 2013. 600. For background on this issue see J Phillips, Asylum seekers and refugees: how will they be affected by this year’s Budget? FlagPost weblog, 10 May 2013, accessed 15 May 2013. 601. C Bowen (Minister for Immigration and Citizenship), Government implements expert panel’s family reunion

recommendation, media release, 22 September 2012, accessed 15 May 2013. 602. The budget figures and information in this brief have been taken from the following documents unless otherwise sourced: Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.11: Immigration and Citizenship

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Also in this Budget is an expense measure of $14.9 million over two years to promote social inclusion and expand the Government’s Diversity and Social Cohesion Program; and a revenue measure expected to raise $198.0 million over four years through increases in visa application charges for the temporary work (skilled) (sub-class 457) visas from 1 July 2013.

Humanitarian program

Australia has two distinct programs to facilitate the arrival of permanent migrants—the Migration Program for skilled and family entrants and the Humanitarian Program for refugees and those in refugee-like situations. Since 1995-96, Humanitarian Program planning levels have hovered between 12,000 and 13,750 places, but refugee advocates have argued for an increase in Australia’s resettlement commitment for many years. The previous Minister for Immigration and Citizenship, Chris Bowen, stated on several occasions that his preference would be to increase the Australia’s humanitarian intake to 20,000. However, he pointed out that such an increase would be expensive.603 In spite of the expense, and in line with recommendations of the Expert Panel on Asylum Seekers, the Government announced on 23 August 2012 that it would increase Australia’s Humanitarian Program to 20,000 places for 2012- 13, including an immediate commitment to resettle an additional 400 refugees directly from Indonesia.604

This resulted in an increase over the budgeted expenditure under Outcome 2 (Refugee and Humanitarian Assistance) for 2012-13 and this level of funding has continued for 2013-14 with over $3 million in additional departmental expenses each year. Departmental expenses for settlement services (Outcome 5) have also increased significantly, presumably in order to fund the extra support and assistance required for the additional refugees and humanitarian entrants under the expanded Humanitarian Program (about $51 million extra funding for 2012-13 and $111 million for 2013-14).

Commencing this year the Government will also allow up to 500 entrants from within the Humanitarian Program to settle in partnership with community organisations under the Community Partnership Settlement Pilot. Partnering community groups will be responsible for visa application charges and this measure is expected to increase revenue by $5.3 million over two years.

Portfolio, pp. 23-4, 31-2 and 72-4; ‘Part 1: Revenue measures‘, Budget measures: budget paper no. 2: 2013-14, p. 13 and ‘Part 2: Expense measures‘, Budget measures: budget paper no. 2: 2013-14, pp. 197-9, accessed 15 May 2013. 603. C Bowen (Minister for Immigration and Citizenship), The Refugee Convention and beyond, Keynote address to the International Association of Refugee Law Judges, Melbourne, 3 February 2012, accessed 15 May 2013. 604. J Gillard (Prime Minister) and C Bowen (Minister for Immigration and Citizenship), Refugee program increased to 20,000

places, media release, 23 August 2012, accessed 10 May 2013. For more background see J Phillips, Asylum seekers and refugees: how will they be affected by this year’s Budget?, op. cit.

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Responding to unauthorised arrivals

Cat Barker and Harriet Spinks

As had been widely predicted, the 2013-14 Budget includes significant additional funding for costs associated with the detention and processing of Irregular Maritime Arrivals (IMAs), as well as for measures aimed at combatting people smuggling.605 Numbers of asylum seekers arriving unauthorised by boat have increased dramatically in the past year, despite the Government’s attempt to stem the flow of arrivals through the implementation of recommendations made by its Expert Panel on Asylum Seekers—over 18,000 IMAs have arrived since the Panel’s report was released on 13 August 2012.606

Asylum seeker management

Prior to 2012-13 all Department of Immigration and Citizenship (DIAC) funding for managing IMAs, including detention and processing costs, as well as regional cooperation efforts aimed at curbing arrivals, was provided under a single program measure—Program 4.3 Offshore Asylum Seeker Management. In the 2012-13 Budget the costs were divided between three programs. Program 4.3 is now concerned only with the care and management of IMAs in detention centres, community detention, or in the community on a Bridging Visa. Other expenditure falls under Program 4.5 Regional Cooperation and Associated Activities and Program 4.6 Refugee Status Determination for Offshore Entry Persons.607

The bulk of the increased funding for IMAs in the 2013-14 Budget is in Program 4.3, which has been allocated $2.9 billion for 2013-14, up from $2.1 billion in the revised 2012-13 Budget (which was itself an increase from the $1.05 billion initially allocated for 2012-13).608 Funding for regional cooperation has not altered significantly, and funding for refugee status determination (RSD) has been removed from DIAC’s budget altogether, as responsibility for this will be transferred to the Refugee Review Tribunal.609 The increased funding for IMAs is almost entirely in the area of detention and care in the community. The Budget also includes costs associated with the establishment of Regional Processing Centres in Nauru and Papua New Guinea. In addition the Budget has allocated $15.7 million in capital funding for the current year (but nothing for 2013-14 or the forward estimates) for upgrades to the immigration detention network.610 The costs associated with the management of IMAs are predicted to decline over the forward estimates, down to $1.4 billion in 2016-17, which is a reflection of the Government’s hope that numbers of arrivals will decline as it continues to implement the recommendations of the Expert Panel.611 However, the experience of the last several years is that costs in this area have actually increased, and budgets have been substantially revised upwards.612

605. For example see S Morrison, Labor must come clean on $5 billion asylum budget black hole, media release, 9 May 2013, accessed 16 May 2013. 606. Figures compiled by the Parliamentary Library based on media releases from the Minister for Home Affairs. 607. Australia, Parliamentary Library, Responding to unauthorised arrivals, Budget Review 2012-13, Research Paper, 9, 2011-

12, Parliamentary Library, 2012, accessed 16 May 2013. 608. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.11: Immigration and Citizenship Portfolio, p. 55, accessed 16 May 2013. 609. Ibid. p. 52. 610. Australian Government, Budget measures: budget paper no. 2: 2013-14, 2013, p. 294, accessed 16 May 2013. 611. Portfolio budget statements 2013-14: Immigration and Citizenship Portfolio, op. cit. 612. Parliamentary Library, Budget Review 2012-13, op. cit.

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While DIAC has received no further funding for Program 4.6 Refugee Status Determination for Offshore Entry Persons, it has been allocated $16.6 million over two years for legal expenses associated with refugee status determinations (RSD) for IMAs, which the High Court has determined are judicially reviewable, and a review of Australia’s RSD system.613 This reflects the fact that a large number of negative primary asylum decisions for IMAs are currently being overturned on appeal.614

Combating people smuggling

Significant funding was allocated to counter people smuggling measures in the 2009-10 and 2011-12 Budgets.615 In the 2013-14 Budget, $160.8 million has been allocated under the banner of combating people smuggling, all of which will go towards measures that are essentially extensions of those due to expire at the end of 2012-13.616 The bulk of this additional funding will go to the Australian Customs and Border Protection Service (Customs) and DIAC. Customs will receive $68.4 million to increase surveillance and patrol activities and improve response capability in Australia’s northern waters, including extending leases on vessels, increasing the number of patrol days and deploying an additional patrol vessel and surveillance aircraft.617 Of the $55 million allocated to DIAC, $50 million will go towards efforts to reduce irregular migration to Australia through improved engagement with source and transit countries.618 The Government has also committed $9.9 million of existing Department of Defence resources in 2013-14 to continue Operation Resolute, which is the Defence contribution to surveillance activities led by Border Protection Command.619

As illustrated in the table below, more than half of the additional funding will be spent in 2013-14, with only one of the seven measures allocated funding over the forward estimates. Given that people smuggling networks have proven to be adaptable and resilient, and the number of people in need of asylum remains high, the need for counter measures will undoubtedly extend beyond this financial year and require consideration in the 2014-15 Budget.620

613. Budget measures: budget paper no. 2: 2013-14, op .cit., p. 200. 614. See DIAC Asylum Trends Australia 2011-12, DIAC, Canberra, 2012, p. 30, accessed 16 May 2013. 615. See Australia, Parliamentary Library, Budget review 2009-10, Research paper, 33, 2008-09, Parliamentary Library, Canberra, 2009, accessed 15 May 2013 and Australia, Parliamentary Library, Budget review 2011-12, Research paper, 13,

2010-11, Parliamentary Library, Canberra, 2010, accessed 15 May 2013. 616. Budget measures: budget paper no. 2: 2013-14, op. cit., pp. 87-89, 159, 197-198. 617. Ibid., p. 89. 618. Ibid., p. 198. 619. Ibid., p. 111. 620. C Barker, The people smugglers’ business model, Research paper, 2, 2012-13, Parliamentary Library, Canberra, 2013,

accessed 15 May 2013; United Nations High Commissioner for Refugees (UNHCR), Global trends 2011, UNHCR, 2012, accessed 15 May 2013.

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Table: New funding in the 2013-14 Budget for combating people smuggling ($m)

Measure Agency

(a) 2012-13 2013-14 2014-15 2015-16 2016-17 Total

Law enforcement AFP - 3.0 - - - 3.0

Post-interdiction management of SIEVs Customs - - - - - 3.8

(b)

Prevention and disruption Customs 3.6 6.4 - - - 13.6

DIAC 1.9 1.7 - - -

Strengthening response

capability

Customs 15.3 53.1 - - - 68.4

Continuation of preventative initiatives DFAT - 4.3 - - - 4.3

Disruption activities DIAC - 1.9 1.9

Enhancing the regional

response

DIAC - 16.2 13.8 9.9 10.1 65.8

AGD - 3.2 3.6 4.5 4.5

Total 20.8 89.8 17.4 14.4 14.6 160.8

(a) Australian Federal Police (AFP); Department of Foreign Affairs and Trade (DFAT); Attorney-General’s Department (AGD) (b) This amount will be met from within Customs’ existing resources. Source: Budget Measures: Budget Paper No. 2: 2013-14

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Industry and innovation package

Eugenia Karanikolas

The 2013-14 Budget includes several measures to implement the Government’s ‘A plan for Australian jobs’ package. The plan was announced on 17 February 2013 and is largely a response to the Report of non-Government members of the Prime Minister’s Manufacturing Taskforce. Following are some of the measures funded through this year’s budget.

• Enterprise Solutions Program: $29.4 million provided over five years to assist small to medium

enterprises (SMEs) in becoming more competitive when applying for government tenders. This measure responds to concerns about the barriers facing SMEs, in particular, in terms of access to finance and skills.

• Industry Innovation Precincts: $238.4 million provided over five years to build ten industry hubs

focusing on increasing collaboration between research institutes and industries with high export growth potential.

• Australian Industry Participation: $98.2 million provided over five years which includes funding for the

Industry Capability Network and the establishment of a new Australian Industry Participation authority. This measure responds to the calls to increase the opportunities for Australian businesses to compete for large private projects and government procurement in Australia.

• Services Leaders Group: $5.6 million over five years for the establishment of a group of service

industry representatives to provide advice to government on issues facing the sector. This measure responds to concerns raised by the industry that Australia’s largest sector was losing its competitiveness because of the government’s reluctance to move towards a knowledge-based economy.621

• Venture Australia: $378.6 million in further funding for the Venture Australia program to support

innovative businesses.622 This program was reviewed in 2012. The review found that it was difficult to evaluate its effectiveness given the relatively short time it has been operating. The review, however, recommended that the program continue because it has the support of stakeholders.623

• Anti-Dumping and Countervailing System reforms: this is a related measure to the jobs plan package

(it is administered by the Attorney General’s portfolio). Funding of up to $27.7 million is provided over four years. The cost of establishing a new Anti-Dumping Commission624 as recommended in the Brumby review is included in the funding.

621. Australian Services Union and the Finance Sector Union, Off-shore and off work: the future of Australia’s service industries in a global economy - an update, report prepared by the National Institute of Economic and Industry Research, 2012, accessed 15 May 2013.

622. Australian Government, Budget measures: budget paper no.2: 2013-14, 2013, accessed 15 May 2013. 623. Australian Government, Review of venture capital and entrepreneurial skills, report prepared by the Treasury and the Department of Industry, Innovation, Science, Research and Tertiary Education, 2012, accessed 15 May 2013. 624. For more information on the recent legislative reforms on Australia’s anti-dumping system see L Ferris and E Karanikolas,

Custom Amendment (Anti-dumping Commission) Bill 2013, Bills Digest, 82, 2012-2013, Parliamentary Library, Canberra,

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The cost of the jobs plan measures in this year’s Budget is estimated to be around $798 million. The above measures are to be funded, in part, through the $1 billion savings realised by the cessation of the R&D tax breaks for large companies.625

The measure that has attracted the most attention is the establishment of the industry innovation precincts. The first manufacturing precincts will be in Melbourne and Adelaide. The Melbourne manufacturing precinct will focus on advanced manufacturing, biological engineering and renewable energy whilst the Adelaide precinct will focus on manufacturing for the defence industry.626 The measure has been broadly welcomed but concerns have been raised, with the Australian Chamber of Commerce and Industry arguing that such a policy is ineffective and reminiscent of policies in the 1970s.627

The changes to the Australian Industry Participation Plan have also attracted attention. Short of mandating local content, the Government is introducing legislative changes which will affect projects of $500 million or more. Under this measure all large projects will be required to provide a plan outlining the opportunities for involvement available to local industry. Whilst in principle the maximisation of local industry involvement has been welcomed, an industry group pointed out that just increasing the opportunity to tender is not enough for a bid to succeed. It notes that issues such as knowing how to tender, having appropriate management systems and being able to meet a variety of legislative requirements are what prevent local business from winning work.628

Notwithstanding its relatively low funding levels, the establishment of the Services Leaders Group is an interesting development and may be signalling the Government’s willingness to support the growth of more knowledge-based and higher value-add sectors in Australia.

In short, whilst it is unclear how much these measures will help increase the competitiveness of Australia’s industry, the focus on supporting advanced manufacturing and services is positive.

2013, accessed 15 May 2013; J Brumby, Review into anti-dumping arrangements, report, Commonwealth of Australia, November 2012, accessed 15 May 2013. 625. Australian Government, Budget measures: budget paper no.2: 2013-14, 2013, accessed 15 May 2013. 626. Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education, Manufacturing Precinct, accessed 16 May 2013. 627. ‘Innovation plan more aimed at unions rather than industry: ACCI‘, Business Spectator, 18 February 2013, accessed 16 May 2013. 628. Australian Petroleum Production and Exploration Association (APPEA), Submission to the Senate Legislative Committee, Exposure Draft of the Australian Jobs Bill 2013 , 2013, accessed 16 May 2013.

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Roads and rails

Robert Dossor

In the 2013-14 Budget almost $24 billion is allocated to infrastructure spending. This spending includes funds allocated for large projects such as the Sydney F3 to M2 link, the Brisbane Cross River Rail project, and the Melbourne Metro rail expansion.629

The infrastructure component of this Budget, while smaller than the $36 billion infrastructure component of the 2012-13 Budget, includes a number of long term projects and fewer current projects, meaning less money will be spent on recurrent spending for ongoing projects.

The Budget includes a number of large projects which have long timelines such as the Melbourne Metro rail and Sydney’s F3 to M2 link. Of the almost $24 billion announced, only $18.8 billion is actually visible in the forward estimates.630 This is probably because the timelines of these projects are longer than the forward estimates period. In addition, in cases where the Commonwealth funding is contingent on agreement being reached in the host state or territory, the funding may have been allocated to the contingency reserve.

The Budget measures: Budget Paper No: 2, 2013-14 explains that the Government will provide funding to most of the largest infrastructure projects from 2014-15 to 2018-19 under the Nation Building Program which goes beyond the forward estimates.631

Road and rail funding

The Budget makes a commitment to funding over $4.5 billion in rail infrastructure. This represents over 24 per cent of all infrastructure funding. Funding for roads exceeds $14 billion over the forward estimates, representing over three quarters of all infrastructure funding. A total of almost $73 million over the forward estimates is allocated to other projects, such as the Townsville Convention and Entertainment Centre and the National Partnership on liveable cities.632

629. W Swan (Treasurer), Budget speech 2013-14, 14 May 2013, accessed 20 May 2013. 630. Australian Government, Australia’s Federal Relations, budget paper no. 3, 2013-14, pp. 84-92, accessed 17 May 2013. 631. Australian Government, Budget measures: budget paper no. 2, 2013-14, p. 225, accessed 20 May 2013. 632. All figures obtained from Budget paper no. 3, op. cit., pp. 84-92.

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Who gets what?

Chart: State/Territory share of infrastructure spending 2013-14 Budget

Source: Australian Government, Australia’s Federal Relations, budget paper no. 3, 2013-14, pp.84-92.

The chart above illustrates the infrastructure spending share for each state and territory. New South Wales receives the largest share at 28 per cent, closely followed by Queensland at 26 per cent. Queensland’s share which is significantly larger than its population share (at 20.1 per cent),633 can be explained by the number of expensive, long term projects such as the Bruce Highway Package and the Brisbane Cross River Rail.634 Victoria receives the next highest share with almost 20 per cent followed by Western Australia with 16.5 per cent, and South Australia with 4.9 per cent. Tasmania, the Australia Capital Territory and the Northern Territory each receive less than 3 per cent.635

Reduction of funds from Nation Building Program

Budget Paper No. 2 includes details of funds being deducted from the Nation Building Program next phase.636 These funds are no longer allocated to projects within this program because of savings being achieved or projects changed, minimised or cancelled. $10 million from this fund is being used to fund the Heavy Vehicle Safety and Productivity Program which has been extended to include livestock transport.637

633. Australian Bureau of Statistics (ABS), Australian demographic statistics Sep 2012, cat. No. 3101.0, ABS, Canberra 2013. 634. A Albanese (Minister for Infrastructure and Transport and Minister for Regional Development and Local Government), Budget: building and planning for Queensland’s future, 2013, 2013, accessed 20 May 2013. 635. Australia’s Federal Relations, budget paper no. 3, 2013-14, op. cit., pp. 84-92. 636. Budget measures: budget paper no. 2, 2013-14, op. cit., p. 225. 637. Ibid., p. 224.

NSW, 28.0%

Vic, 19.9% Qld, 26.0%

WA, 16.5%

SA, 4.9%

Tas, 2.0%

ACT, 1.0% NT, 1.7%

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Mineral Resource Rent Tax

The Regional Infrastructure Fund, which the Government uses to fund regional infrastructure needs, will be reduced by some $2 billion over the forward estimates as a result of the lower than expected revenue arising from the Mineral Resource Rent Tax. This fund, however, will still fund over $2.2 billion in projects over the forward estimates.638

638. Australia’s Federal Relations, budget paper no. 3, 2013-14, op. cit., p. 92.

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Funding for the Royal Commission into Institutional Responses to Child Sexual Abuse

Monica Biddington

In November 2012, the Prime Minister, Julia Gillard, announced the establishment of a Royal Commission into institutional responses to instances of child sexual abuse. This followed allegations from a senior police officer in New South Wales that the Catholic Church covered up evidence involving paedophile priests.639

On 11 January 2013, the Governor-General appointed a six-member Royal Commission to investigate Institutional Responses to Child Sexual Abuse (Royal Commission).640 The Royal Commission will inquire into how institutions with responsibility for children have managed and responded to allegations and instances of child sexual abuse. It will investigate where systems have failed to protect children, and make recommendations on how to improve laws, policies and practices to prevent and better respond to child sexual abuse in institutions.

The Royal Commission commenced its operations in April 2013.641 The number of hearings and the level of complaints and allegations are not yet clearly established and these factors will have an impact on the budget for administering the Royal Commission.642 In future, the Government will need to review the need for changes to the funding in consultation with the Royal Commission.

The Government will provide $434.1 million over four years (including $66.8 million in 2012-13 and $43.2 million in capital funding) to fund the Royal Commission.643 Capital funding includes the construction of offices, hearing rooms and witness support facilities across Australia. Funding to the Attorney-General’s Department for financial assistance for witnesses to the Royal Commission of $20.032 million per year from 2013-14 to 2015-16 will be provided.644 The funding also includes $45.0 million over four years from 2012-13 for the Department of Families, Housing, Community Services and Indigenous Affairs to provide expert services to help support survivors of child sexual abuse.645

639. J Gillard (Prime Minister), Announcement of Royal Commission, transcript of press conference, 12 November 2012, accessed 16 May 2013. See also Australian Broadcasting Corporation (ABC), ‘Gillard launches Royal Commission into child abuse’, ABC website, accessed 15 May 2013.

640. Further information can be found in the joint press release, Government formally establishes Royal Commission, of 11 January 2013 issued by the Prime Minister, the Attorney-General and the Minister for Families, Community Services and Indigenous Affairs, accessed 15 May 2013.

641. Royal Commission into Institutional Responses to Child Sexual Abuse, About the Royal Commission, Royal Commission website, accessed 15 May 2013. 642. Australian Government, Portfolio budget statements 2013-14; budget related paper no. 1.2: Attorney-General’s Portfolio, p. 14, accessed 15 May 2013. 643. Budget Strategy and Outlook: budget paper no.1: 2013-14, accessed 15 May 2013, p. 1-44 and Australian Government,

‘Part 2: Expense measures’, Budget measure: budget paper no. 2: 2013-14, accessed 16 May 2013. 644. Australian Government, Portfolio budget statements 2013-14; Attorney-General’s Portfolio, p. 28, op. cit. 645. ‘Part 2: Expense measures’, Budget measure: budget paper no. 2: 2013-14, op. cit.; and Australian Government, Portfolio

budget statements 2013-14: budget related paper no. 1.6: Families, Housing, Community Services and Indigenous Affairs Portfolio, p. 45, accessed 15 May 2013.

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Legal aid

Jaan Murphy

This year’s Budget items are broadly consistent with historical pattern of legal aid expenditure, taking into account the temporary additional funding provided since the 2011-2012 Budget to provide legal aid for ‘people smuggling, national security and drug-related cases’.646

The Government provides funding to the states and territories for the delivery of Commonwealth legal aid services by state and territory legal aid commissions for disadvantaged Australians through the National Partnership Agreement on Legal Assistance Services (National Partnership).647

In 2013-14 the Government will provide $200.6 million dollars under the National Partnership, an increase of $2.5 million from last year (2012-2013). The forward estimates indicate that each year funding under the Agreement will increase, resulting in a total increase of $11.4 million between 2013- 14 and 2016-17.648

Legal aid commissions will also directly receive $25.8 million in 2012-13 under the Attorney-General’s Department Program 1.3: Justice Services, representing a significant increase of $11.3 million compared to last year’s revised budget figures. The amount is estimated to reduce to around $18.8 million in 2014- 15, $3.8 million in 2015-2016 and $3.9 million in 2016-17.649

This is a return (in 2015-2016 and 2016-2017) to the levels of funding forecast under the Justice Services program in the 2010-11 Budget, prior to being revised in the 2011-12 Budget to include ‘additional funding for legal aid for people smuggling, national security and drug-related cases’.650

The Budget papers do not explain the basis on which expenditure on legal aid commissions under the Justice Services program is expected to decrease. However, the increase in the Budget reflects the Government’s commitment to ‘to improve Australians’ access to justice’.651

646. See: Research Branch, Budget review 2013-14, backgrounders, legal aid, Research paper, 3, 2012-13, Parliamentary Library, Canberra, May 2013; Australian Government, Portfolio budget statements 2011-12: budget related paper no. 1.2: Attorney-General’s Portfolio, pp. 30-31, viewed 15 May 2013; Senate Legal and Constitutional Affairs Committee, Attorney-General’s portfolio, Additional Estimates, 22 February 2011, pp. 74-82, accessed 15 May 2013.

647. Australian Government, National partnership agreement on legal assistance services, Commonwealth of Australia, Canberra 2010, p. 2, accessed 15 May 2013. 648. Australian Government, Budget measures: budget paper no. 3: 2013-14, p. 106, accessed 15 May 2013. 649. Australian Government, Portfolio budget statements 2012-2013: budget related paper no 1.2: Attorney-General’s

Portfolio, p. 28, accessed 15 May 2013. 650. Previous forward estimates stated that expenditure on legal aid to Legal Aid Commissions would be around $3.5 million for the 2010-11 financial year and for the corresponding forward years. These figures were revised in the 2011-12: Australian Government, Portfolio budget statements 2010-11: budget related paper no. 1.2: Attorney-General’s Portfolio,

p. 33, viewed 15 May 2013. The revised figures were: $20.5 million in 2010-11; $10.4 million in 2011-12; $10.6 million in 2012-13; $3.7 million in 2013-14; and $3.8 million in 2014-15: Portfolio budget statements 2011-12: Attorney-General’s Portfolio, op. cit.; Senate Legal and Constitutional Affairs Committee, Attorney-General’s portfolio, Additional Estimates, op. cit. 651. M Dreyfus (Attorney General, Minister for Minister for Emergency Management, Public Service and Integrity, Special

Minister of State), Increasing access to justice because ‘everyone deserves a fair go’, media release, 14 May 2013.

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Funding for community legal services decreased slightly whilst funding for Indigenous legal aid increased. The Attorney-General’s Department Program 1.3: Justice Services administers $39.4 million for the provision of community legal services across Australia (down from $39.9 million in 2012-13).652 Under the Attorney-General’s Department Program 1.5: Indigenous Law and Justice, Commonwealth funding for Indigenous legal aid and policy reform has increased to $73.8 million (up 5.6 million from $68.2 million in 2012-2013).653

The Government announced two additional spending measures. The first is an additional $10.3 million in funding over four years for community legal centres. The second is an additional $42.0 million in funding over two years for legal assistance.654 However, it is not clear if the additional funding is included in the budget amounts listed for community legal centres ($39.4 million in 2013-14), indigenous legal aid and policy reform ($73.8 million in 2013-2014) or legal assistance services ($200.6 million in 2013-2014).655

The Law Council of Australia (LCA) and Law Institute of Victoria (LIV) have both expressed disappointment with the 2013-14 Budget. The LIV has called for a Legal Aid Summit to discuss funding, while the LCA will lobby for increased funding as the amount allocated is, in its view ‘$61.2 million short of what is required for the Commonwealth to return to a 50 per cent share of funding with the states and territories’ ... Up to 1997, the Commonwealth contribution to Legal Aid Commission funding was 55 per cent—current funding in 2013 stands at 35 per cent.’656

The Government has also continued funding (at the level previously announced in the 2011-2012 Budget) the National Broadband Network (NBN) Regional Legal Assistance Program, which provides grants to increase legal assistance delivery to remote areas.657

652. Portfolio budget statements 2013-2013: Attorney-General’s Portfolio, op. cit., p. 28. 653. Ibid., p. 30. See also: Research Branch, Budget review 2013-14, Indigenous law and justice, Research paper, 3, 2012-13, Parliamentary Library, Canberra, May 2013. 654. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 89, viewed 15 May 2013. The $42 million is

comprised of $15 million of funding to state and territory legal aid commissions and $6.0 million in funding to Aboriginal and Torres Strait Islander legal services in 2013-2014 and 2014-2015: Budget Measures: budget paper no. 2: 2013-14, op. cit., pp. 90; Portfolio budget statements 2013-2013: Attorney-General’s Portfolio, op. cit., p. 17. 655. Australian Government, Portfolio budget statements 2013-2013: budget related paper no 1.2: Attorney-General’s Portfolio, op. cit., p. 28; Australian Government, Budget measures: budget paper no. 3: 2013-14, op. cit. p. 106, accessed 15 May 2013. 656. Law Institute of Victoria, Federal Budget prompts call for legal aid summit, media release, 15 May 2013, accessed 16 May 2013; Law Council of Australia, Law Council says legal assistance sector funding falls short, media release, 14 May 2013, accessed 15 May 2013. 657. A Albanese (Minister for Regional Development and Local Government) and C King (Minister for Regional Services, Local Communities and Territories), Regional Australia: strengthening communities, ministerial budget statement, 2013, accessed 15 May 2013, p. 24.

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Budget Review 2013-14

Indigenous law and justice

Diane Spooner

The Attorney-General’s Portfolio budget statements 2013-14, Program 1.5: Indigenous Law and Justice,658 has an increase in expenses for this Program of $6.0 million per year in 2013-14 and 2014-15 for Aboriginal and Torres Strait Islander legal services. The aim of this Program is to improve access to justice for Indigenous people through the provision of services.659

This increase in expenses reflects the additional budget measure Legal assistance—expansion of funding. This measure is set out in Budget measures: budget paper no. 2: 2013-14 where the Government will provide $42.0 million over two years for legal assistance services.660 Funding of $15.0 million in each of the next two years will be provided to state and territory legal aid commissions, and funding of $6.0 million in each year will be provided to Aboriginal and Torres Strait Islander legal services.661

However, it is not clear if this additional funding is included in the budget amounts listed for Indigenous legal aid and policy reform ($73.8 million in 2013-2014—up from $68.2 million in 2012-2013).662

In his speech outlining access to justice measures in the Budget, the Attorney-General said that the $12 million of new funding will allow Aboriginal and Torres Strait Islander legal services to:

[b]uild on the recent increase in Commonwealth funding for family law and child protection matters and to respond to expensive and complex criminal cases. 663

Further details on legal aid and community legal services can be found in the Legal Aid brief.

658. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.2: Attorney-General’s Portfolio, p. 30, accessed 16 May 2013. 659. Ibid. 660. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2013-14, accessed

16 May 2013. 661. Ibid., p. 90. 662. Portfolio budget statements 2012-2013, Attorney-General’s Portfolio, op. cit., p. 30. Prior to 2010-2011, payments were made for ‘the provision of legal aid for Indigenous Australians’ and also for ‘the provision of law and justice advocacy

services for Indigenous Australians’. As noted by the Attorney-General’s Department: Legal Aid for Indigenous Australians and the Law and Justice Advocacy and Development Programs were combined during the [2010-11] year to create the Indigenous Legal Assistance and Policy Reform Program’: Attorney-General’s Department, Annual report 2010-11, p. 87. 663. M Dreyfus QC (Attorney-General), Increasing access to justice because ‘everyone deserves a fair go’, media release,

14 May 2013, accessed 16 May 2013.

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Budget Review 2013-14

Independent Children’s Lawyers—exemption from payment of new court fees

Moira Coombs

One of the Government’s revenue measures in the 2013-14 Budget is to exempt Independent Children’s Lawyers (ICLs) from paying certain court fees in the Family and Federal Circuit Courts. The fees relate to the issuing of subpoenas and the filing of applications for interim orders in family law proceedings. The estimated cost to revenue is $4.0 million over four years.664

Exempting [Independent Children’s Lawyers] from these payments supports the Government objective of delivering equitable access to the justice system. 665

The term independent children’s lawyer is defined in the Family Law Act 1975:

Independent children’s lawyer for a child means a lawyer who represents the child’s interests in proceedings under an appointment made under a court order under subsection 68L(2). 666

The Independent Children’s Lawyer is a best interests advocate, rather than a representative of the child.

In 2012 former Attorney-General, Nicola Roxon, when announcing a research project by the Australian Institute of Family Studies on the effectiveness of Independent Children’s Lawyers in representing children in family law matters noted:

Under the Family Law Act 1975, an Independent Children’s Lawyer is appointed in some family law matters to assist courts in resolving disputes involving children. The appointments are managed and funded by legal aid commissions. Independent Children’s Lawyers are specially trained legal professionals. They ensure agreements are in a child’s best interests and that a child’s views are put to the court. Independent Children’s Lawyers are one way the Government meets Australia’s commitments under the Convention on the Rights of the Child.

667

The Attorney-General, Mark Dreyfus, notes in the Budget media release that the exemption of Independent Children’s Lawyers from certain court fees responds to stakeholder feedback and recognises:

the integral role of Independent Children’s Lawyers in complex family law matters and will enable these lawyers to provide vital independent representation to children in court hearings at reduced cost. 668

664. Australian Government, ‘Part 1: revenue measures’, Budget measures: budget paper no. 2: 2013-14, accessed 16 May 2013. 665. This is part of the Government commitment in the 2013-2014 Budget to improve access to justice for Australians. See M Dreyfus (Attorney-General), Increasing access to justice because ‘everyone deserves a fair go’, media release, 14 May

2013, accessed 15 May 2013. 666. Family Law Act 1975 Subsection 68L(2) of the Act provides that where the court deems it to be necessary, the court may make an order for the independent representation of the child’s interests in the family law proceedings. 667. N Roxon (Attorney-General), Research to ask families and children about Independent Children’s Lawyers, media release,

25 May 2012, accessed 15 May 2013. 668. M Dreyfus (Attorney-General), Increasing access to justice because ‘everyone deserves a fair go’, media release, op. cit.

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Reduction of funding for international legal measures

Leah Ferris

In the lead-up to the 2013-14 Budget the Foreign Minister, Senator Carr, announced that, while international aid funding will continue to grow, the Government’s target to increase funding so that it reaches 0.5% of the gross national income (GNI) will be deferred another year.669 Cost-saving measures have also been included in the Budget with respect to Australia’s contribution to the International Criminal Court (the ICC) and Australia’s assistance with law and justice frameworks in Africa.

The International Criminal Court

The Government will achieve savings of $40.3 million over four years by re-directing money from programs within the Attorney-General’s Department and departmental expenses of Portfolio agencies.670 This will include reducing the funding Australia provides to the ICC by $5.0 million over 4 years.

The ICC is the first permanent international criminal court and was established by the Rome Statute, to which Australia became a state party on 1 September 2002. 671 As a member state, Australia is obliged to contribute annually to the operations of the ICC. The contributions of each state are determined by the same method used by the UN, which roughly corresponds with a country’s income.672 For example, in the 2011-12 period Australia’s assessed contribution was $3,878,760.673 In addition to the annual required contribution, Australia has made a number of one-off voluntary contributions to various ICC programs.674

It would appear that the funding provision for the ICC over the past five years has been significantly higher than Australia is required to contribute.675 The Government has announced that it will reduce Australia’s funding provision for the ICC by $5.0 million over four years to reflect the Commonwealth’s compulsory obligation to the ICC. Instead of decreasing the funding by 1.25 million each year, the Government has significantly reduced this year’s contribution and allocated more funding in subsequent

669. B Carr (Foreign Minister), Foreign aid, media release, 13 May 2013, accessed 14 May 2013. 670. The budget figures in this brief have been taken from the following document unless otherwise sourced: Budget measures: budget paper no. 2: 2013-14, accessed 15 May 2013. 671. Further information about the ICC is available on the Attorney-General’s website: Attorney-General’s Department (AGD),

‘Support for the International Criminal Court’, AGD website, accessed 16 May 2013; In order to ratify the Rome Statute, Australia enacted the International Criminal Court Act 2002 and the International Criminal Court (Consequential Amendments) Act 2002. 672. Further information on how contributions to the ICC are calculated are set out in this report: International Criminal Court:

Assembly of State Parties, Report of the Court on the methodology for its scale of assessment, eleventh session, 14-22 November 2012, the Hague, accessed 15 May 2013. 673. Attorney-General’s Department (AGD), Annual Report 2011-12, AGD, 2012, p. 159, accessed 15 May 2013. 674. R McClelland (Attorney-General) and K Rudd (Foreign Minister), Australia boosts support for the International Criminal Court, media release, 14 July 2011, accessed 15 May 2013. 675. As part of the 2011-12 Budget, the Government reduced the funding allocated to the ICC, though this was not a substantial reduction: Australian Government, Budget measures: budget paper no. 2: 2011-12, accessed 16 May 2013.

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years.676 Even with the decrease in funding, the amount allocated for Australia’s contribution to the ICC will be be significantly higher than the assessed contribution.

Australia’s contribution to the International Criminal Court

2012-13

(Revised Budget)

2013-14 (Budget)

2014-15

(Forward year 1)

2015-16

(Forward year 2)

2016-17

(Forward year 3)

Total-Expense ($m) 4,940 6,324 7,462 7,743 7,926

Source: Portfolio budget statements 2012-13: budget related paper no. 1.2: Attorney-General’s Portfolio

Australian assistance with law and justice frameworks in Africa

In the 2009-10 Budget, the Government announced that it would provide $17.3 million over four years to assist African countries in developing law and justice frameworks.677

On 4 August 2010, the Leader of the Opposition asked the Department of Finance and Deregulation to prepare a costing on discontinuing the program.678 The Department advised that the total amount of funding to be reversed over the four years (from 2010-11 to 2013-14) was $16.7 million.679 The Department appeared to have been of the view that funding would only be ongoing till 2013-14. However, in the 2013-14 Budget the Government has calculated that it will save 17.6 million over the next 4 year period (2013-14 to 2016-17) by concluding the program, which suggests that at some stage

further money was budgeted for the continuation of the program.

As part of the 2013-14 Budget the Government has announced that funding will cease for this program, as ‘the program’s planned achievements have largely been met’.680 The Government stated that it would continue with its commitments to aid programs in Africa.

Africa — law and justice frameworks — Australian assistance

2012-13 2013-14 2014-15 2015-16 2016-17

Total - Expense ($m) - -4.3 -4.4 -4.4 -4.5

Source: Budget measures: budget paper no. 2: 2013-14

676. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.2: Attorney-General’s Portfolio, p. 32, accessed 16 May 2013. 677. Australian Government, Budget measures: budget paper no. 2: 2009-10, accessed 16 May 2013. Further information about the program is included in Budget Paper No. 2. 678. Department of Finance and Deregulation, Receipt of request for funding of an election commitment: Discontinue funding

for Africa Law and Justice Frameworks, media release, 5 August 2010, accessed 16 May 2013. This measure formed part of the Coalition’s economic plan for the 2010 election. 679. Department of Finance and Deregulation, Release of costing of election commitment: discontinue funding for Africa Law and Justice Frameworks, 10 August 2010, accessed 16 May 2013. 680. Budget measures: budget paper no. 2: 2013-14, accessed 15 May 2013.

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Organised crime and crime prevention

Cat Barker

New funding of $149.9 million has been allocated in the 2013-14 Budget under the banner of addressing gang violence and organised crime, all for measures announced in advance:

• $9.1 million will go to CrimTrac for a national rollout of the Australian Ballistics Identification Network, based on the Integrated Ballistics Identification System used by the Australian Federal Police (AFP) and New South Wales Police, for analysis of seized firearms

• $64.0 million will go to the AFP to establish a National Anti-Gang Taskforce and an Australian Gang Intelligence Centre, and supplement the Criminal Assets Confiscation Taskforce

• $30.2 million will go to the Australian Customs and Border Protection Service (Customs) to establish a National Border Targeting Centre, based on models used in the United Kingdom and United States, to better deal with high risk international passengers and cargo

• $5.6 million from the Confiscated Assets Account (CAA) will be provided to the Queensland and Victorian police forces to assist with their participation in multi-agency taskforces in Brisbane and Melbourne established to target serious and organised crime on the waterfront and

• $40.9 million will go to the Attorney-General’s Department (AGD) for the National Crime Prevention Fund.681

National Anti-Gang Taskforce and Australian Gang Intelligence Centre

The National Anti-Gang Taskforce will comprise 70 members of the AFP and state police, plus officers from the Australian Crime Commission (ACC), Customs, the Department of Immigration and Citizenship, the Australian Tax Office and Centrelink.682 As no additional funding has been provided to these other Commonwealth agencies, it appears they will be expected to absorb the costs of involvement within their existing resources. Given the ACC’s role as the national criminal intelligence agency and its mandate in relation to serious and organised crime, it would be reasonable to expect that the agency might have a more prominent role in these measures, particularly in the planned intelligence centre, than appears to be the case. In fact, while the ACC’s funding will remain relatively stable from 2012-13 to 2013-14 (down slightly from $1.05 to $1.02 billion), its average staffing level is projected to drop from 558 to 504, a reduction of 9.7 per cent.683

The Australian Government has been trying for some time to convince states and territories to refer Constitutional powers to the Commonwealth so that it can enact national anti-gang laws and improve national unexplained wealth laws.684 The issue was elevated to the Council of Australian Governments in

681. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, pp. 81-97, accessed 15 May 2013. 682. Ibid., p. 82. 683. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.2: Attorney-General’s Portfolio,

p. 85, accessed 15 May 2013. 684. See for example, M Dreyfus (Attorney-General), Federal Government still waiting for states to cooperate on national anti-gang laws, media release, 4 April 2013, accessed 16 May 2013. The latter was recommended by a Parliamentary

committee: Parliamentary Joint Committee on Law Enforcement, Inquiry into Commonwealth unexplained wealth legislation and arrangements, The Senate, Canberra, 2012, recommendation 15, accessed 16 May 2013.

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April 2013, only to be referred back to the Standing Council on Law and Justice, where the proposal had previously failed.685 Some commentators have suggested that the Taskforce will not be effective without national anti-gang laws, which have helped to make the (US) Federal Bureau of Investigation model on which it is based, so successful.686 The Minister has insisted the Taskforce would still work, but admitted ‘it’ll be a lot more effective if we get national anti-gang laws’.687

National Border Targeting Centre

The National Border Targeting Centre will be established in two stages, the first involving expanded information and joint targeting efforts, the second involving a move to a dedicated facility where agencies will plan joint operations, share intelligence and undertake investigations.688 Of the $30.2 million provided in the Budget, $20.5 million is capital funding to upgrade facilities and information technology equipment.

According to the Australian Government, 85 per cent of border seizures of drugs and other contraband are the result of intelligence from Customs and other Australian and overseas law enforcement agencies. 689 Given the rising number of passengers and cargo consignments coming through Australia’s air and sea ports, intelligence will play an increasingly important role in supporting a risk-based approach to combating risks at the border.690

National Crime Prevention Fund

Section 298 of the Proceeds of Crime Act 2002 allows the Australian Government to use money confiscated under the Act and the proceeds of confiscated assets (held in the CAA) to fund crime prevention and law enforcement measures, measures relating to drug addiction treatment and diversionary measures relating to illicit drug use.691 While the Australian Government has continued to draw on the CAA to make a series of small grants, it deferred payments of $32 million in the 2011-12 Budget and $58.3 million in the 2012-13 Budget so funds could be diverted to other priorities.692 The 2013-14 Budget will allow an additional $40.9 million to be spent on grants for projects aiming to prevent street crime and gang violence over the four years to 2015-16.

685. Ibid.; Council of Australian Governments, Communique, Canberra, 19 April 2013, accessed 15 May 2013. 686. T Priest, ‘National anti-gang taskforce doomed to failure‘, The Australian, 5 March 2013, p. 14, accessed 16 May 2013; J Clare (Minister for Home Affairs), ‘Interview with Alexandra Kirk‘, ABC radio AM, transcript, Australian Broadcasting Corporation (ABC),6 March 2013, accessed 16 May 2013.

687. J Clare, ‘Interview with Alexandra Kirk’, ibid. 688. J Gillard (Prime Minister) and J Clare (Minister for Home Affairs), National Border Targeting Centre to target organised crime, media release, 3 March 2013, accessed 15 May 2013.

689. Ibid. 690. See the backgrounder, ‘Border security‘ in the Parliamentary Library’s Budget review 2013-14 for information on trends and projections in relation to international passengers and cargo.

691. Proceeds of Crime Act 2002, accessed 15 May 2013. 692. Attorney-General’s Department, ‘Overview of the Proceeds of Crime Act 2002‘, Australian Government crime prevention website, accessed 16 May 2013; Australia, Parliamentary Library, Budget review 2012-13, Research paper, 9, 2011-12, Parliamentary Library, Canberra, 2012, accessed 16 May 2013.

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Referendum on Local Government

Rob Lundie

The Budget provides $55.6 million over two years for the conduct of the referendum on the constitutional recognition of local government which will be held on the same day as the federal election, 14 September 2013. The Australian Electoral Commission (AEC) will receive $44.0 million over two years to conduct the referendum ($3.0 million in 2012-13 and $41.0 million in 2013-14). The Department of Regional Australia, Local Government, Arts and Sport received $11.6 million ($1.1 million in 2012-13 and $10.5 million in 2013-14) to undertake a national civics education campaign to provide information to the general public on the referendum and reform process.693

The referendum will be the third attempt to have local government recognised in the Australian Constitution following failed attempts in 1974 and 1988. The decision to hold the referendum supports the recommendations of the Expert Panel on Constitutional Recognition of Local Government and the Joint Select Committee on Constitutional Recognition of Local Government.694 Both reports supported the financial recognition of local government so that direct Commonwealth funding of local government activities is given greater legal certainty. The Government has released the wording of the proposed changes to section 96 of the Constitution and the exposure-draft of the Constitution Alteration (Local Government) 2013 Bill which provides for ‘financial assistance to states and local government bodies’.695

With only eight of the 44 previous referenda questions being successful, it is important that the referendum has bipartisan support. The Opposition spokesperson Senator Barnaby Joyce has indicated the Coalition will support the referendum but some of its members have voiced opposition to the proposal.696 Mr Abbott has said that in order to allow proper debate on the Bill it is his intention to allow at least two members to vote against it so that they can prepare a ‘no’ case.697 Local government bodies have also urged support for the referendum.698

In addition to the budget measure above, the House of Representatives has received additional funding over two years of $0.7 million.699 This is in part to support the work of the Joint Committee on Constitutional Recognition of Local Government as well as other operations. The Department of the Senate also received additional funding of $3.6 million over four years in part to support the operations

693. Australian Government, Budget measures: budget paper No. 2: 2013-14, p. 246, accessed 16 May 2013. 694. Expert Panel on Constitutional Recognition of Local Government, Final report, September 2011. Joint Select Committee on Constitutional Recognition of Local Government, Report, accessed 16 May 2013. 695. A Albanese (Minister for Regional Development and Local Government) and M Dreyfus (Attorney-General), Release of

draft constitutional amendment to recognise local government, joint media statement, 16 May 2013, accessed 16 May 2013. Note that the words ‘on such terms and conditions as the Parliament thinks fit.’ are part of Section 96 but do not appear in this press release. This is made clearer in the exposure-draft of the Constitution Alteration (Local Government) 2013 Bill a link to which is included in the joint media statement. 696. Senator B Joyce (Shadow Minister for Regional Development, Local Government and Water), Local Government

Referendum, media doorstop, 16 May 2013, accessed 16 May 2013. 697. A Abbott (Leader of the Opposition), Joint press conference with Joe Hockey (Shadow Treasurer) and Jamie Briggs (Coalition spokesman on scrutiny of government waste), transcript, 13 May 2013, accessed 17 May 2013. 698. Australian Local Government Association, Local government welcomes Bill to allow 2013 referendum, media release, 16

May 2013, accessed 17 May 2013; Council of Capital City Lord Mayors, Constitutional recognition legislation moves referendum closer, media release, 15 May 2013, accessed 17 May 2013. 699. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.19A: Department of the House of Representatives, p. 8, accessed 16 May 2013.

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of the Joint Select Committee on Constitutional Recognition of Aboriginal and Torres Strait Islander Peoples as it inquires into and reports on steps that can be taken to progress towards a successful referendum on Indigenous constitutional recognition.700

700. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 229, accessed 16 May 2013.

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Budget Review 2013-14

Public sector

Dr Nicholas Horne and Deirdre McKeown

Australian Public Service

Background—APS staffing and efficiency dividend

Excluding contractors, the Budget gives an estimate of 257,376 average staffing level (ASL) for agencies in the general government sector (GGS) for 2013-14 and a revised estimate for 2012-13 of 256,631 ASL (down from 258,027 in the 2012-13 Budget excluding contractors).701 ASL is not a headcount but rather a figure showing full-time equivalent staffing levels.

In the lead-up to the Budget it was reported that the government would be making public service expenditure savings of approximately $580 million over four years, potentially in relation to APS staffing levels in the executive strata.702 Prior to the Budget, staffing reductions were also reported for some agencies.703

As noted in Budget Review 2012-13, the 2012-13 Budget imposed an increased efficiency dividend of 4.0 per cent on agencies for the 2012-13 financial year only; the increase was expected to result in savings of $1.5 billion over 2012-15.704

2013-14 Budget measures

Public service staffing

Over the course of the 2013-14 financial year the Budget estimates:

• total ASL reductions of 4,120 ASL for GGS agencies and

• total ASL gains of 4,865 ASL for GGS agencies including increases in military and reserve personnel

(2,858 ASL excluding increases in military and reserve personnel).

Overall, including increases in military and reserve personnel, the Budget estimates a net increase of 745 ASL from 2012-13 levels (256,631 ASL). Excluding increases in military and reserve personnel the Budget estimates a net decrease of 1,262 ASL from 2012-13 levels.

701. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget strategy and outlook: budget paper no. 1: 2013-14, 2013, pp. 6-58, 6-71-6-76, accessed 16 May 2013. The general government sector ‘comprises all government departments, offices and some other bodies’ and ‘provides public services that are mainly non-market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income’: ibid., p. 9-13.

702. S Maiden, ‘Swan to skin the fat cats‘, Sunday Telegraph, 12 May 2013, accessed 16 May 2013. 703. For example R Peake, ‘Budget fears as more PS jobs to go‘, Canberra Times, 25 April 2013; J Kelly, ‘Department to lose 150‘, The Australian, 28 March 2013, accessed 16 May 2013. 704. The increase was an additional 2.5 per cent on the existing annual rate of 1.5 per cent. Australian Government, Budget

strategy and outlook: budget paper no. 1: 2012-13, 2012, p. 1-13; Australian Government, Mid-year economic and fiscal outlook 2011-12, 2011, p. 216; Australia, Parliamentary Library, Budget review 2012-13, Research paper, 2011-12, Parliamentary Library, Canberra, 2012, pp. 107-09, accessed 16 May 2013.

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The largest projected individual ASL reductions for 2013-14 are for the Department of Human Services (-1,341 ASL), the Department of Climate Change and Energy Efficiency (DCCEE) (-483 ASL), the Department of Defence (-247 ASL excluding contractors), the Australian Bureau of Statistics (-236 ASL), the Federal Circuit Court of Australia (-234 ASL), and the Department of Agriculture, Fisheries and Forestry (-230 ASL). Together these account for 67.3 per cent of the total estimated ASL reductions for 2013-14.

The largest projected individual ASL gains for 2013-14 are for Department of Defence military and reserve staff (+1,524 and +483 ASL respectively), the Australian Taxation Office (+508 ASL), the Department of Families, Housing, Community Services and Indigenous Affairs (+358 ASL), the Family Court and Federal Circuit Court (+217 ASL), the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) (+181 ASL), the Department of Resources, Energy and Tourism (DRET) (+139 ASL), and the Attorney-General’s Department (+129 ASL). Together these account for 72.8 per cent of the total estimated ASL increases for 2013-14.

The Budget indicates that some projected ASL changes (for example those for DCCEE, DIICCSRTE, DRET, the Family Court and the Federal Circuit Court) are related to transfers of responsibilities or functions.705

Savings and funding measures

The efficiency dividend rate will decrease from 4.0 per cent in 2012-13 to the original annual rate of 1.25 per cent.706 The Budget identifies various savings including:

• $295.2 million over 2013-17 across portfolios arising from reduced expenditure on APS executive-level staffing ($148.4 million); lower property costs through reduced office space requirements for new leases, buildings and major fit-outs ($63.8 million); efficiencies associated with the transfer of DCCEE functions to DIICCSRTE and DRET ($14.6 million); and efficiencies associated with expanding the online AusTender procurement system ($68.4 million)

• $102.6 million over 2013-17 in the Human Services and Immigration and Citizenship portfolios

through streamlining service delivery administration

• $88.4 million over 2013-19 in the Department of Foreign Affairs and Trade arising from temporary

staffing reductions in 2013-14, efficiencies in overseas estate management, and closure of the Australian Embassy in Hungary

• $80.0 million over 2013-17 in Health Workforce Australia through program rationalisation efficiencies

and

• $62.4 million over 2012-17 in the Department of Human Services arising from process, transaction

and communications efficiencies.707

705. Budget strategy and outlook: budget paper no. 1: 2013-14, op. cit., pp. 6-75-6-76. 706. P Wong (Minister for Finance and Deregulation), A more efficient Australian public service, media release, 14 May 2013, p. 2, accessed 16 May 2013.

707. Australian Government, Budget measures: budget paper no. 2: 2013-14, 2013, pp. 108-09, 160, 171, 194, 198-99, accessed 16 May 2013.

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As well as savings, the Budget commits funding to expanding the national Telepresence video conferencing system to further reduce travel expenses ($19.3 million over 2012-17) and to the creation of a whole-of-government web-based system to manage government grant advertising, applications and reporting ($9.1 million over 2013-17).708

The Budget also commits $21.4 million over 2013-17 for the Fair Work Commission to provide a right of recourse for victims of workplace bullying.709 This partially implements a recommendation of the House of Representatives Standing Committee on Education and Employment’s inquiry report on workplace bullying. 710

Opposition policies

The Opposition has foreshadowed a number of changes in relation to the APS if it is elected to government at the 2013 federal election. These include:

• a reduction in staff numbers of some 12,000 over two years through natural attrition in order to

realise savings (first announced May 2010)711

• establishing a Commission of Audit to review government operations and identify savings and

• abolition of the Department of Climate Change and Energy Efficiency (in March 2013 the Department

of Climate Change and Energy Efficiency was merged with the Department of Industry, Innovation, Science, Research and Tertiary Education and the Department of Resources, Energy and Tourism).712

Paid parking in the Parliamentary Zone

The Budget includes a commitment to introduce paid parking on national land in the ACT suburbs of Parkes, Barton, Russell and Acton:

The Government will introduce paid parking to all Australian Government owned car parks on National Land in the ACT suburbs of Parkes, Barton, Russell and Acton from 1 July 2014. This is estimated to generate revenue of $73.3 million over three years and will help alleviate congestion in the area and allow visitors increased access to cultural institutions.

713

The National Capital Authority (NCA) will administer the introduction of paid parking with capital funding of $8.8 million over two years for the installation of pay parking machines and the upgrade of selected

708. Ibid., pp. 156, 290. 709. Ibid., p. 137. 710. Australian Government, Australian Government response to the report workplace bullying: we just want it to stop, House of Representatives, Canberra, 2013, pp. 12-13, accessed 17 May 2013. 711. K Stefanovic and R Greenwood, ‘Interview with Tony Abbott‘, Today, transcript, Nine Network, 15 May 2013, p. 2,

accessed 16 May 2013. 712. T Abbott and J Hockey, Transcript of joint press conference, media release, 8 May 2013, pp. 2-3, accessed 16 May 2013; Australian Government, Amendments to the Administrative Arrangements Order, Commonwealth of Australia, Canberra,

25 March 2013, pp. 2-3, accessed 16 May 2013. 713. Budget measures: budget paper no. 2: 2013-14, op. cit., p. 18.

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car parks. The NCA will also receive funding of $1.9 million over four years for ‘operational requirements associated with the introduction of pay parking’.714

The debate over paid parking in the Parliamentary Zone has continued for some decades with the NCA conducting a number of inquiries and public consultations. Most recently, in July 2009, the then Minister for Home Affairs, Brendan O’Connor, convened an Intergovernmental Committee (IGC), chaired by the NCA and including representatives from the federal and ACT governments, to review paid parking in the Parliamentary Zone, Barton and Russell.715

The IGC released a discussion paper in November 2010 and a parking consultation report in May 2013. In the latter report, the IGC noted a range of objections to the introduction of paid parking including a lack of alternative transport options and a lack of services and amenities in the precinct.716 The paper also noted that submissions from government departments identified Fringe Benefits Tax (FBT) as an issue and the implications of the tax should pay parking be introduced.717 The NCA has invited public comment ‘on the allocation of car parks for long stay and short stay on National Land from 1 July 2014’.718

The new pay parking policy ‘covers around 9,000 car spaces on national land’ and will include departments with government-owned car parks such as Defence, Treasury, Finance, Prime Minister and Cabinet and Attorney-General.719 The introduction of paid parking will also have an impact on parking at national institutions that control their own car parks: Parliament House, the National Gallery of Australia, the National Portrait Gallery, High Court of Australia and the Australian War Memorial. To date there has been no indication whether or not these institutions will adopt ‘government policy in the management of their car parks’.720 Without paid parking these institutions ‘may be liable for fringe benefits tax for their staff having free parking’.721

A number of departmental enterprise agreements (EA) expire on 30 June 2014. It is likely that when negotiations on new EAs commence the issue of the car parking FBT may be raised.

Reaction

Reaction to the introduction of paid parking has been varied. Member for Canberra, Gai Brodtmann, believes that the lack of amenities in the Parliamentary Zone must be examined before paid parking is introduced.722 The Canberra Times has reported that, in view of Ms Brodtmann’s recommendation, the

714. Ibid. 715. National Capital Authority (NCA), ‘Have your say on parking in Russell, Barton and the Parliamentary Zone’, NCA website, accessed 15 May 2013. The NCA website includes previous inquiries.

716. Intergovernmental Committee; IGC Parking consultation report, 14 May 2013 p. 12; see also Intergovernmental Committee, Discussion paper on parking management in Parkes, Barton and Russell, 6 November 2010, on NCA, ‘Have your say on your national capital’, NCA website, accessed 15 May 2013.

717. IGC, Parking consultation report, ibid., p. 10. See Australian Taxation Office (ATO), ‘Car parking fringe benefits’, ATO website, for information on the payment of the car parking FBT, accessed 15 May 2013. 718. NCA, ‘Have your say on car park mix’, media release, 16 May 2013, accessed 16 May 2013. 719. NCA, ‘Parking management on national land Q & A’, ibid., NCA website, accessed 15 May 2013. 720. Ibid. 721. R Peake, ‘Parking headaches in triangle’, Canberra Times, p. 1, 16 May 2013, accessed 16 May 2013. 722. R Peake, ‘Demand to fix amenities before any change’, Canberra Times, p. 3, 16 May 2013, accessed 16 May 2013.

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Joint Committee on the National Capital and External Territories ‘is asking Territories Minister Catherine King to give the go ahead for … [a] new inquiry’.723

ACT Senator Gary Humphries, who has campaigned against the introduction of paid parking, said ‘public servants paying for parking would effectively lose a salary scale’. 724 The Member for Fraser, Andrew Leigh, supports the policy but said ‘he understood the concerns of those who worked in the Parliamentary Triangle’.725

The ACT Chief Minister, Katy Gallagher, supports the introduction of paid parking but believes the revenue raised should be used to support the NCA or the national institutions. She said ‘[a]ny line that it gets sucked into consolidated revenue is not acceptable to me’.726

The Community and Public Sector Union (CPSU) has not commented on the paid parking policy announced in this Budget but has previously expressed concerns about the introduction of paid parking in the Parliamentary Zone.727

723. Ibid. 724. Ibid. 725. Ibid. 726. E Macdonald and T McIlroy, ‘Gallagher backs paid parking - but wants fund to stay local’, Canberra Times, p. 2, 15 May

2013, accessed 16 May 2013. 727. Community and Public Sector Union (CPSU), ‘ACT parking’, CPSU website, accessed 16 May 2013.

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Science outlook

Matthew L James

Science and research

Federal government commitments to science and technology (S&T) involve disbursements to many agencies but totals have remained generally consistent over the past decade, (notwithstanding a rapid succession of Science Ministers, with four different occupants in 16 months.) 728 Estimated total Federal Government expenditure on science, research and innovation areas in the last budget was $8,934.7 million, down from $9,270 million in 2011-12, and $8,474 million in 2010-11.729 The total figures for the new financial year will become available in due course in The Australian Government’s 2013-14 Science, Research and Innovation Budget Tables on the website of the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education.

The field includes about a dozen public sector research agencies, such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO) along with rural sector research agencies. The Cooperative Research Centres (CRC) Program links researchers with industry to focus research and development (R&D) efforts on progress towards utilisation and commercialisation. The Australian Research Council (ARC) controls the allocations of Federal research funds to teams and individuals, particularly in the tertiary education sector. The higher education and medical sectors receive funds from a variety of schemes, as covered elsewhere in the Higher Education-Budget Review. The Chief Scientist provides advice on science, technology and innovation issues to the Prime Minister and Ministers, who in turn, oversee a wide spectrum of portfolios that touch on S&T.

The Government announced reduced growth to the university sector on 14 April, and the Science & Technology Australia lobby group responded:

We represent 68,000 people working in science and technology across Australia. Dr Emerson’s announcement that $2.3 billion will be slashed from Universities to contribute to school reforms is profoundly disappointing. The cuts will have a direct effect on the day-to-day work of Australia’s Science and Technology workforce, who fuel national productivity and innovation.

730

In March this year, the CSIRO Staff Association said that cuts were expected as a result of the government’s requirement for the agency to increase its efficiency.731 Subsequently, in April 2013, CSIRO announced the expected loss of up to 200 staff. The PBS confirms the loss of 165 CSIRO staff this year.732

728. A Bandt (Australian Greens), Labor warfare delivers 4 science & research ministers in under 16 months: Bandt, media release, 22 March 2013, accessed 9 May 2013. 729. Australian Government, The Australian Government’s 2012-13 Science, Research and Innovation budget tables, Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education, 2012, accessed 15 May

2013.

730. M Holland, ‘Research funding cuts; and planets not for sale - Physics in May 2013‘, Science and Technology Australia, website, 14 April 2013, Australian Institute of Physics, accessed 9 May 2013. 731. CSIRO Staff Association (CSA), ‘CSIRO under pre$$ure‘, CSA website, 15 March 2013, accessed 9 May 2013. 732. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12, Industry, Innovation,

Science, Research and Tertiary Education Portfolio, Commonwealth of Australia, Canberra, 2013, p. 46, accessed 15 May 2013.

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Chief Executive Dr Megan Clark was quoted as claiming that the redundancies would reduce expenditure by 2.5%, and that a further saving of 2.5% would be achieved by cutting operational costs. 733

The Australian Academy of Science proposed a plan for Australian science in its January 2013 Pre-budget submission to Treasury, arguing that Australia needs a scientifically literate population with high skills and ability in order to compete internationally in many areas of scientific research.734 In April 2013, the Chief Scientist also noted the lack of a national science and technology plan.735 As well as outlining a strategy plan, his related papers compared Australian R&D to that in overseas nations.

The 2013-14 Budget appeared to maintain the funding status quo across science sector agencies listed above, although funding for the CRC program will fall from $156.2 million in 2012-13, to $144.8 million in 2013-14, before rising again over later years.736 On the positive side, the Australian Institute of Marine Science received additional operational funding for its activities of $30.9 million over four years, while CSIRO obtained $12.1 million for its new marine vessel.737 CSIRO has a new Property Investment Plan said to consolidate key sites and buildings at Clayton and Black Mountain to provide new facilities.738 The Budget gave Geoscience Australia additional funding of $154 million over four years. (The reasons are outlined in the Mining and Resources Changes - Budget Review.)

Nuclear

The Australian Nuclear Science and Technology Organisation (ANSTO) received $8.1 million to cover costs at its new reactor, along with $28.7 million over four years to assist with nuclear waste management activity. The Budget announced that the Government allocated $35.7 million over four years to secure and study an appropriate site for a national radioactive waste management facility.739 Changes to programs in climate change sectors are covered in the Climate Action - Budget Review.

733. W Ockenden, ‘CSIRO looks set to cut 200 jobs‘, ABC News Online website, 17 April 2013, accessed 9 May 2013. 734. Australian Academy of Science (AAS), Priorities for Australian science: pre-budget submission to Treasury from the Australian Academy of Science, AAS, Canberra, January 2013, accessed 13 May 2013. 735. I Chubb (Chief Scientist), The case for an Australian science & technology strategy, Paper for PMSEIC April 2013, Office of

the Chief Scientist of Australia, Canberra, accessed 9 May 2013. 736. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.12, Industry, Innovation, Science, Research and Tertiary Education Portfolio, Commonwealth of Australia, Canberra, 2013, p. 46, accessed 15 May

2013.

737. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, Commonwealth of Australia, Canberra, 2013, accessed 15 May 2013, pp. 209, 250.

738. C Emerson (Minister for Tertiary Education, Skills, Science and Research) and D Farrell (Minister for Science and Research), Investing in Australia’s world leading science, media release, 14 May 2013, accessed 15 May 2013. 739. Budget measures: budget paper no. 2: 2013-14, op. cit., p. 210, 253.

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Abolishing the Baby Bonus

Michael Klapdor

In its 2013-14 Budget, the Labor Government has again looked to tighten access and levels of family assistance to find some significant savings. One of the standout measures is the abolition of the Baby Bonus. The Government proposes to replace the Baby Bonus with a smaller supplementary payment added to a families’ Family Tax Benefit Part A (FTB-A) entitlement. The measure is expected to save $1.1 billion over five years and will be implemented from 1 March 2014.740

The Baby Bonus is a payment intended to help families with the costs of a newborn baby or adopted child (under the age of 16). It is payable to families who have not received Paid Parental Leave and whose estimated combined adjusted taxable income (ATI) is $75,000 or less in the six months after their child is born or adopted.741 It is payable to parents whose baby is stillborn. The amount of Baby Bonus currently payable is $5,000 per eligible child and it is made in 13 fortnightly instalments. The first instalment is paid at a higher rate of $846.20 and the other 12 fortnights are paid at a rate of $346.15. The Baby Bonus is paid at the same rate to all families considered eligible.

The proposed replacement payment will be come in the form of an additional loading on an eligible families’ FTB-A payment with an additional $2,000 for a firstborn child (and all multiple births) and $1,000 for any subsequent children. It will be paid as an initial upfront instalment of $500 with the remaining amount paid fortnightly over a three month period. FTB-A is intended to help families with the costs of raising children and is paid to eligible carers who meet residency requirements and meet the income test. The income test for FTB-A reduces a person’s payment when their ATI is over $47,815. The impact of the test varies depending on the number of children in the family and their age: large families can still receive some FTB-A even with an ATI above $228,000 a year. It is not clear how the new ‘additional loading’ will be treated under the income test (such as whether higher income families will receive the full amount of the new payment).

Background

The payment now known as Baby Bonus was introduced by the Howard Government in 2004. It was then called ‘Maternity Payment’ and was a non-means tested lump sum replacement of the First Child Tax Rebate and the Maternity Allowance. The introduction of this new form of assistance for newborns was seen as an alternative to the introduction of government-funded paid parental leave which, unlike the payments it replaced, would provide the same level of assistance to all parents. Maternity Payment was formally renamed the Baby Bonus in 2007. From 1 January 2009, the $75,000 income limit was applied to the payment and it switched from being paid as a lump sum to being paid in mandatory fortnightly instalments. The introduction of Paid Parental Leave (PPL) in January 2011 provided much more generous support to working parents with newborn or newly adopted children and around half of new parents are now receiving support through this scheme.742 To be eligible for PPL, which provides up 18

740. J Macklin (Minister for Families, Community Services and Indigenous Affairs, Minister for Disability Reform), A more sustainable family payments system, media release, 14 May 2013, accessed 15 May 2013. 741. ATI includes taxable income, salary sacrificed into superannuation, employer provided fringe benefits, foreign income, negatively geared property or investment losses, tax free pensions/benefits but less any Child Support maintenance paid. 742. For more information see M Klapdor, Family Assistance and Other Legislation Amendment Bill 2013, Bills digest, 88, 2012-

13, Parliamentary Library, Canberra, 2013, accessed 15 May 2013.

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weeks’ pay at the minimum wage, the parent needs to meet a work test and have an ATI of $150,000 or less in the year prior to the birth/adoption.

The budget measure was a recommendation of the Henry Tax Review. The review noted that government-funded research had found that the actual direct costs of children for low-income families were closer to $2,000 for a first child and $1,000 for a second child and that the current Baby Bonus rates covers much more than these costs.743

Baby Bonus has been a regular target for savings

The Labor Government has frequently targeted the Baby Bonus as a source of savings by changing or freezing indexation arrangements, introducing the income limit and reducing the rate of payment. The 2012-13 Mid-Year Economic and Fiscal Outlook proposed further cuts to the amount of Baby Bonus paid for second and subsequent children but the Bill to implement this measure is still before the Parliament.744

Paying all eligible recipients the same $5,000 amount, regardless of relative differences in means and the actual cost of having children, means the Baby Bonus is a poorly targeted and, in many cases, particularly generous form of assistance compared to other family payments. The merging of the payment with FTB-A has benefits of reduced complexity and improved targeting. The new form of assistance will more closely reflect the costs of a new child for low-income families and, if FTB-A’s income test is applied, ensure a greater level of assistance goes to families with lesser means. The reduced rate of assistance compared to the Baby Bonus will, however, hurt those low-income and welfare-dependent families unable to access the PPL scheme.

Birth rates and early births

The behavioural impact of changes to Baby Bonus has been an ongoing issue. While it is unlikely that its abolition will have a significant impact on birth rates, there is a strong possibility that it will affect the timing of births, as occurred in 2004 when the payment began.745 The timing and manner of the payment cut produces a financial incentive for a birth to occur earlier than it might otherwise. A gradual reduction in the rate of payment, a staged transition to the replacement payment, or a shortened time between announcement and implementation may have reduced this incentive.

743. Australia’s Future Tax System Review, Australia’s future tax system: final report: part 2: detailed analysis, (Henry Tax Review), Commonwealth of Australia, 2009, chapter F3-2, accessed 15 May 2013. 744. M Klapdor, op. cit. 745. See M Klapdor, op. cit., for discussion of these issues.

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Further savings from family assistance payments

Michael Klapdor

The 2013-14 Budget includes a number of measures targeting family assistance, parental leave and child care payments, continuing a tradition of finding significant savings from relatively small changes. The measures are expected to save close to $4.5 billion over the forward estimates.746 The Government has stated that these measures are to ‘secure a fair and sustainable family payments system for Australia’s future’ and form part of an ongoing effort to ‘modernise’ the system.747

Freeze on indexation

Indexation in the family assistance system is the automatic adjustment of certain amounts or limits in line with movements in prices, as measured by the Consumer Price Index (CPI). The budget measures propose to extend a freeze on the indexation of the following amounts until 1 July 2017:

• the upper income limit of $150,000 for Family Tax Benefit Part B (FTB-B)—if the higher income earner

in a couple or single parent has income over this limit they are not eligible for FTB-B • the upper income limit of $150,000 for claimants of dependency tax offsets, Paid Parental Leave (PPL)

Pay, and Dad and Partner Pay • the FTB-A upper income free area of $94,316 (plus $3,796 for each child after the first)—payment

rates reduce by 30 cents for each dollar above this ‘free area’ until they reach zero • the FTB-A supplement ($726.35 per child) and the FTB-B supplement ($354.05 per family)—these

supplements are paid to families at the end of the financial year and • the annual Child Care Rebate (CCR) cap of $7,500—families can claim up to 50 per cent of their out-of-pocket costs for using approved child care up to this maximum cap.

The FTB-A upper income free area, the FTB-B upper income limit and the dependency tax offsets income limit have not been adjusted since July 2008. The FTB supplements were frozen for three years from 2011-12. The CCR cap was reduced from $7,941 to $7,500 in 2011-12 and has not been adjusted since. The new freezes are expected to save $1.3 billion over the forward estimates.

These freezes produce savings as a result of families gradually earning more income and moving above these limits, either losing eligibility or receiving a lower-rate of payment as a result. In the case of CCR, savings are produced by preventing entitlements rising as fees increase. In 2014-15, an estimated 127,000 families will receive a lower rate of FTB-A as a result of these changes while around 17,300 will lose eligibility for FTB-A and 2400 for FTB-B.748 More than 75% of the two million families who received FTB in 2009-10 had annual incomes under $80,000 and will be largely unaffected by these changes.749

746. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 125, pp. 142-150. 747. J Macklin (Minister for Families, Community Services and Indigenous Affairs, Minister for Disability Reform), A more sustainable family payments system, media release, 14 May 2013, accessed 16 May 2013. 748. P Karvelas, ‘Excessive’ Baby Bonus scrapped, The Australian, 15 May 2013, accessed 16 May 2013. 749. Senate Community Affairs Committee, Answers to Questions on Notice, Families, Housing, Community Services and

Indigenous Affairs Portfolio, Budget Estimates 2012-13, 28 and 29 May 2013, Question 40, accessed 16 May 2013.

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However, concerns have been expressed by some that the push for savings risks the support the system currently enjoys and its effectiveness in reducing child poverty.750

Not proceeding with FTB-A increases

Savings of around $2.5 billion will be achieved following a decision not to go ahead with a 2012-13 budget measure to increase FTB-A from July 2013 by $300 per annum for families with one child and $600 for families with two or more children, as well as increases in the base rate. The measure has rarely been mentioned since last year’s Budget and no legislation was introduced to implement it.

Rule changes for FTB and child care payments

Savings of $562.0 million over five years are expected from a measure to reduce the time families have to reconcile their income, make lump sum claims and satisfy any requirements for the FTB supplements, from two years down to one. This will affect claims for FTB and child care assistance including Child Care Benefit and CCR. The measures are intended to bring the reconciliation period in line with the ‘usual arrangements for lodging tax returns’.751 These are significant savings and will particularly affect those with income from businesses (who are more likely to need longer periods to reconcile income). Less than 10% of families receive these payments as lump sums and less than 10% take longer than a year to lodge their tax return.752 The changes will simplify the current system and exemptions will be provided in certain circumstances.

Further savings of $76.6 million over four years are expected to be realised by amending the eligibility for FTB-A so that it is only payable in respect of children over the age of 16 until the end of the calendar year in which they finish school. Currently, young people aged 16 and 17, who have completed their Year 12 qualification, are still considered eligible children for the purposes of paying FTB-A. Those who no longer qualify their parent for FTB-A can instead test their eligibility for Youth Allowance, however, due to its much tighter means test a considerably smaller number would qualify. The age of eligibility for FTB-A has been gradually lowered: down from 24 to 21 in the 2011-12 Budget, and from 21 to 19 in the 2012-13 Budget. These measures have been aimed at making FTB-A the main form of assistance for school-aged and younger children and Youth Allowance the main payment for older young people and those no longer receiving support from their families.

A smaller measure to cut the length of time FTB, Schoolkids Bonus and PPL can be paid for those temporarily absent from Australia, from three years to one, will save around $20.1 million over four years. These rules allow eligible parents to continue to receive payments (though usually at a lower rate) while the family, the recipient or their eligible child is overseas temporarily. While Defence and Australian Federal Police deployed overseas will be exempt from this Budget measure, diplomatic staff and AusAID workers will not.

750. G Redmond and P Whiteford, ‘Middle class welfare—are we hitting the target?’, The Conversation website, 16 May 2013, accessed 16 May 2013. 751. Australian Government, op. cit., p. 145 752. J Macklin, op. cit.

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DisabilityCare Australia

Luke Buckmaster

The Budget announced an additional $14.3 billion over seven years for the transition towards full implementation of DisabilityCare Australia (DisabilityCare) (formerly the National Disability Insurance Scheme) by 1 July 2019.753 This funding is intended to contribute towards two distinct stages of implementation of the scheme:

• $2.4 billion for the initial launch of DisabilityCare in New South Wales, the Australian Capital Territory,

Victoria, Tasmania, South Australia and the Northern Territory from 2013-14 to 2015-2016

• $11.9 billion for all states and territories (including Queensland, which will move to full

implementation without participating in the launch stage) to introduce the full scheme from 2016-17 to 2018-19.754

It is intended that the full DisabilityCare scheme will commence by 1 July 2019. The Government says that the total operating cost of DisabilityCare in first full year of the scheme (2019-20) will be $22.2 billion.755

Agreement with Western Australia over participation in the scheme is yet to be reached. The Government says that it is ‘continuing to work with Western Australia towards full scheme rollout’.756 The $14.3 billion provided in the budget is based on all states and territories accepting the funding offer for DisabilityCare Australia on the same terms as those agreed with New South Wales in December 2012.757 This may include an amount set aside for Western Australia, should an agreement with that state be reached, but this is not clear.

Funding for DisabilityCare is to come from a combination of:

• an increase in the Medicare levy from 1.5 to 2 per cent of taxable income beginning in 2014-15

(announced in this Budget) , expected to raise $20.4 billion between 2014-15 and 2018-19—money raised by the levy will be placed into a DisabilityCare Australia fund for 10 years and ‘will only be drawn upon to fund the additional costs of delivering DisabilityCare Australia’758

• new Australian Government funding drawn, for example, from savings in a range of areas including

recent changes proposed to Government support for private health insurance and measures in the

753. Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 140, accessed 15 May 2013. For detailed background on DisabilityCare, see L Buckmaster and J Tomaras, National Disability Insurance Scheme Bill 2012, Parliamentary Library, Bills Digest 72, 2012-13, 11 February 2013, accessed 17 May 2013.

754. Australian Government, Budget measures: budget paper no. 2, op. cit. 755. Australian Government, DisabilityCare Australia, Commonwealth of Australia, 14 May 2013, p. 2, accessed 15 May 2013. 756. Ibid., p. 11. 757. Australian Government, Budget measures: budget paper no. 2, op. cit. Bilateral DisabilityCare agreements between the

Commonwealth and states and territories can be found on the DisabilityCare website, accessed 16 May 2013. 758. ‘Additional costs’ refers to ‘net additional expenditure’ for the Commonwealth and ‘growth costs’ of the scheme for the states and territories. Hon J Gillard (Prime Minister), Locking in a fairer future for Australians with disability, media release,

1 May 2013, accessed 17 May 2013.

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2013-14 Budget including changes to retirement incomes policy and the phase-out of the Net Medical Expenses Tax Offset

• existing Australian Government funding for disability care and support and

• new and existing state and territory funding for disability care and support. 759

Why identifying the source of financing is important

The significance of financing DisabilityCare goes beyond the issue of identifying where the additional money will come from. As with the health system, funding for disability has long been the subject of debates about cost-shifting and blame-shifting between the Commonwealth and state and territory governments. The need to ensure the security of funding for disability into the future was therefore an important part of the rationale for the scheme.

In its report recommending the introduction of DisabilityCare, the Productivity Commission noted that ‘current funding for disability is subject to the vagaries of governments’ budget cycles’ and proposed that the Commonwealth should finance the entire costs of DisabilityCare.760 This would be done by directing payments from consolidated revenue into a dedicated fund using an agreed formula entrenched in legislation. The Productivity Commission’s proposal that the Commonwealth become single funder of DisabilityCare was based on the view that:

... this would provide certainty, clear lines of funding responsibility, avoid the inefficiencies of the Commonwealth-State ‘blame game’ that afflicts some shared funding arrangements, and reflect the Australian Government’s unique capacity to raise efficient and sustainable taxes of the magnitude required.

761

In the event the Government chose not to pay for DisabilityCare from general revenue, the Productivity Commission suggested it introduce ‘a levy on personal income ... with an increment added to the existing marginal income tax rates’.762 Unlike the Medicare levy which only pays for about half of the $18 billion annual cost of Medicare, this levy would be ‘hypothecated to the full revenue needs’ of DisabilityCare.763

Comment

As can be seen above, the method of financing agreed between the Australian and state and territory governments is different to the two main approaches proposed by the Productivity Commission in a number of respects. For example, the Commonwealth will not be the single funder, leaving open the possibility of the kinds of problems with shared funding arrangements identified above. Also, the

759. Australian Government, DisabilityCare Australia, pp. 4-5. A fixed annual amount of money in the DisabilityCare Australia fund will be set aside for use by states and territories which have met certain conditions, including agreement to implement the full scheme and once at least 50% of their eligible population is covered by the scheme. This is intended to help states and territories with the costs of establishing the full scheme. Australian Government, Budget measures: budget paper no. 2, op. cit., p. 29.

760. Productivity Commission (PC), Disability care and support, Inquiry report, vol. 1, no. 54, 31 July 2011, p. 3, accessed 16 May 2013. 761. Ibid., p. 33. 762. Ibid., p. 85. 763. Ibid.

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increased Medicare levy will be hypothecated to a dedicated fund (for 10 years) but this is not designed to meet the full revenue needs of the scheme. Reliance on the multiple sources identified above creates some risk of future instability of financing for DisabilityCare.

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Indigenous affairs

John Gardiner-Garden

The 2013-14 Budget has provided for the continuation of funding for such ‘Closing the Gap’ National partnerships as those on Remote Indigenous Housing, Indigenous Economic Participation, Indigenous Early Childhood Development, Remote Service Delivery, Remote Indigenous Public Internet Access and Stronger Futures in the Northern Territory, and renewed funding for Closing the Gap in Indigenous Health Outcomes (whose 2008 funding commitment is due to expire this year).

Indigenous people will benefit from the implementation of a new needs-based funding model for schools as part of the National Plan for School Improvement, $800.0 million over six years to extend funding for programs previously funded under the Indigenous Education (Targeted Assistance) Act 2000 extension, and $127.5 million to extend programs that help young Australians gain qualifications or employment.764 The only measures offering entirely new Indigenous-specific funding are two Indigenous education scholarship programs—$10.0 million for 2012-13 to the Australian Indigenous Education Foundation (which supports the placement of Indigenous students in boarding schools) and an additional $11.9 million over four years for the Indigenous Youth Leadership Program—see brief on ‘Indigenous education’.

In the Health and Ageing portfolio the Indigenous-specific budget measures include the continuation of programs with funding already included in the forward estimates (improving trachoma control for Indigenous Australians, and mosquito control and cross border liaison in the Torres Strait) and a saving of $20.0 million over four years to the National Rural and Remote Health Infrastructure Program with future grant rounds to focus on remote areas and Indigenous communities.

Measures in the Families, Housing, Community Services and Indigenous Affairs portfolio include:

• $26.3 million ($24.5 million new and $1.8 million redirected from a 2012-13 Budget measure) to

continue welfare reform initiatives in the Cape York until 31 December 2015

• $16.4 million ($4.5 million from existing departmental funds) over two years to continue and expand

income management in Western Australia

• $44.1 million to continue the existing Municipal and Essential Services Program until 30 June 2014,

effecting delivery of essential services to indigenous people in around 340 remote communities

• $15.0 million over three years from 2014-15 to continue funding to the National Congress of

Australia’s First Peoples, a representative body created in 2010 to facilitate engagement and consultation on government policy and processes

• $6.2 million of capital funding over two years to the Aboriginal Hostels Limited to upgrade facilities

located in remote and regional areas of Northern Australia

764. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 132, accessed 15 May 2013.

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• $3.0 million to extend for one year the Community Development Financial Institutions pilot program

which provides marginalised people, focusing on the pilot’s indigenous people, access to affordable credit and financial literacy assistance

• $1.3 million over two years to continue our support of the Longitudinal Study of Indigenous Children,

as part of the $4.3 over two years ‘Longitudinal Surveys—additional funding’ measure.765

In the Attorney-General’s portfolio measures include $12.0 million additional funding over two years for Aboriginal and Torres Strait Islander Legal Services, and $10.3 million additional fund over four years for Community Legal Centres, many of whose clients are Indigenous.766

Regional Australia, Local Government, Arts and Sport portfolio measures include—as part of Creative Australia—$14.0 million over four years to expand the existing Indigenous Languages Support program, an additional $11.3 million over four years to continue the Closing the Gap component of the Indigenous Visual Arts Industry Support program, and an additional $1.7 million over four years for the National Aboriginal and Islander Skills Development Association Dance College.767

$141.5 million over five years is being redirected from ‘Caring for our Country’ (which will continue to receive $2.1 billion over five years from 2013-14 for the delivery of sustainable natural resource management) to fund other programs in the Sustainability, Environment, Water, Population and Communities portfolio.

In the Infrastructure and Transport portfolio measures include $9.9 million over two years to provide a further funding round for the Remote Airstrip Upgrade component of the Regional Aviation Access program, while $1.3 million over two years is provided in the Parliament portfolio to support the Joint Select Committee on Constitutional Recognition of Aboriginal and Torres Strait Islander Peoples’ work towards a parliamentary and community consensus on referendum proposals.768

Minister Macklin also referred in her Budget statement to $14.4 million for Reconciliation Australia and $6 million for the Army Aboriginal Community Assistance Program.769 They represent a continuation of an earlier funding level with neither reported as a budget measure in budget paper no. 2.

765. J Macklin (Minister for Families, Community Services and Indigenous Affairs, Continued investment to close the gap, ministerial budget statement, 14 May 2013, accessed 17 May 2013, p. 4. 766. Ibid., p. 5. 767. Ibid. 768. Ibid. 769. Ibid., pp. 4 and 3 respectively.

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Work and study incentives for the unemployed and single parents

Michael Klapdor

Raising the allowance income free area

Despite facing significant pressure to raise the payment rate of Newstart Allowance (NSA), the Government has chosen the more modest measure of permitting allowance payment recipients to earn a little bit more income before their welfare payment is affected by the income test.

Allowance recipients can earn more income

The income free area is currently set at $62 per fortnight (pf). Income over this amount begins to reduce a person’s payment rate in two stages: by 50 cents for every dollar earned between $62 and $250 pf and by 60 cents for every dollar earned over $250 until the person’s payment rate reaches zero.770 This budget measure will see the income free area raised to $100 pf, allowing allowance payment recipients to earn an extra $38 pf before their payment is affected. Payments that will benefit from the measure include NSA, Sickness Allowance, Parenting Payment Partnered as well as the Widow and Partner Allowances. These payments are all paid at equivalent rates—$497.00 pf for a single person without children or $448.70 for a member of a couple—and are means tested in the same way. The Government states that 800,000 people could benefit from the measure, although only 150,000 of those on income support are currently earning more than the $62 free area.771

Limit has rarely changed but will now be automatically adjusted through indexation

The income free area for NSA has rarely changed since the unemployment benefit was introduced in 1945 and when it has been changed, it has been with the intention of encouraging jobseekers to take up part-time work and to help payment recipients overcome poverty traps.772 The budget measure also proposes to index the income free area limit to the Consumer Price Index, the first time this limit will be subject to automatic adjustments. The current income free area dates back to May 1986 when it was set at $60 pf, though the Howard Government increased the limit by $2 pf in 2000, as part of the GST compensation package. If the 1986 limit (with the additional $2) had been indexed to inflation, as the current measure proposes to do, the income free area in 2012 would be around $146 pf.773

Measure will do little to address the problem of adequacy

Raising the income free area, expected to cost $258 million over four years, was a recommendation of the Senate Education, Employment and Workplace Relations Committee’s inquiry into the adequacy of allowance payments in 2012.774 The inquiry, chaired by Coalition Senator Chris Back, concluded, ‘on the

770. Single principal carers of dependent children currently have a more generous income test with a flat-rate 40 cent reduction for every dollar earned over $62 per fortnight. 771. B Shorten (Minister for Employment and Workplace Relations, Financial Services and Superannuation), Budget 2013-14: Better support to help more Australians enter the workforce, media release, 14 May 2013, accessed 15 May 2013. 772. See Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), ‘4.10.2 Historical

Unemployment & Sickness Benefit Income Test’, Guide to Social Security Law, FaHCSIA website, accessed 14 May 2013. 773. Reserve Bank of Australia (RBA), ‘Inflation Calculator’, RBA website, accessed 14 May 2013. 774. B Shorten, op. cit.; Senate Standing Committee on Education, Employment and Workplace Relations, The adequacy of the

allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support

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weight of evidence, the Committee questions whether Newstart Allowance provides recipients with a standard of living that is acceptable in the Australian context for anything but the shortest period of time’.775 The Committee recommended greater incentives and assistance for allowance recipients to work but did not recommend an increase in the rate of payment. In their additional comments to the report, Labor senators and Greens Senator Rachel Siewert lent their support to an increase in the rate of payment.776

Increasing the income free area, does not address the fundamental issues of adequacy and the increasing disparity between pension and allowance rates. Faced with calls to increase the NSA rate in last year’s Budget, the Government introduced a small supplementary payment, the Income Support Bonus, paid as two instalments of $105 for singles and $87.50 for members of a couple. Lifting the income free area will provide an average benefit of $19 pf for those earning more than $62 pf.777 This average increase, combined with the new Bonus and the Clean Energy Supplement, remains far short of the $100 per fortnight increase for single allowance recipients recommended by the Henry Review and called for by welfare groups, the Greens and some Labor backbenchers.778

Small incentives for single parents to work and study

The Government also announced two small measures that will benefit single parents: extending eligibility for the Pensioner Education Supplement (PES) to all single parents on NSA and allowing some Parenting Payment recipients to keep their Pensioner Concession Card (PCC) for 12 weeks when they lose eligibility for income support once their children turn eight years old. These measures would appear to be in response to the outcry which followed the Government’s removal of transitional Parenting Payment rules on 1 January 2013, which saw many single parents moved onto the lower rate NSA or off income support altogether.779 Extending the PES (worth $62.40 pf) to all single parents on NSA will provide a small incentive for them to take up any opportunities to study. Allowing some Parenting Payment recipients to keep their PCC from 1 January 2014 will be little comfort to those affected by the changes at the beginning of this year.

into work and the impact of the changing nature of the labour market, The Senate, Canberra, 2012, p. 76, accessed 14 May 2013. 775. Ibid., p. 50. 776. Government Senators, ‘Additional Comments’, ibid., p. 81, and Australian Greens, ‘Additional Comments’, ibid., p. 91. 777. B Shorten, op. cit. 778. P Karvelas, ‘Labor’s welfare rebels hit out’, The Australian, 14 May 2013, accessed 14 May 2013. 779. M Klapdor, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Bills digest, 64, 2011-12, Parliamentary Library, Canberra, 2012, accessed 15 May 2013.

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Housing help for age pensioners

Peter Yeend

Introduction

The Government announced in the 2013-14 Budget a trial of a new housing assistance arrangement for some age pension recipients who choose to downsize their residential home into smaller, more appropriate, accommodation.780 It is to be a trial and refers to persons moving into a retirement village unit or a granny flat.

Pilot scheme details

The scheme is quite simple and will allow eligible age pensioners to ‘quarantine’ proceeds from the net sale proceeds from a change of a residential home of up to $200,000 in a special account. Income from the account will be exempt from the pension income test and the asset from the assets test for up to ten years, providing there are no withdrawals from the account. The home must have been owned for 25 years and at least 80% of the proceeds of the net sale, that is, after the purchase of the replacement residence, must be placed into the special account.781

Origins of the pilot proposal

The Government’s Advisory Panel on the Economic Potential of Senior Australians presented the issue of too much unutilised assets being held in residential homes in its 2011 report.782 In the Government’s response, it promised to consider housing issues facing older Australians.783 The Productivity Commission (PC) also raised the issue of pensioners being adversely affected by the sale of a residential home in its 2011 report Caring for Older Australians.784 The PC proposed a special age pensioner savings account scheme to exclude house sale proceeds from the pension income and assets tests.785 However, the PC proposal was presented along with a proposal to remove the exemption of the residential home and amounts held in residential aged care accommodation bonds from the assets test. The Government, in its Living Longer Living Better (LLLB) aged care reforms, did not take up this recommendation.786

780. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2013-14, p. 152, accessed 15 May 2013. 781. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.6: Families, Housing, Community Services and Indigenous Affairs Portfolio, p. 26, accessed 16 May 2013. 782. Advisory Panel on the Economic Potential of Senior Australians, Realising the economic potential of senior Australians, The

Treasury, Canberra, 2011, p. 22, accessed 15 May 2013. 783. Australian Government, Government response to report on Realising the economic potential of seniors Australians, Canberra, 2012, p. 3, accessed 15 May 2013. 784. Productivity Commission (PC), Caring for older Australians, PC, Canberra, 12 June 2012, pp. xxxvi-xxxvii, accessed 15 May

2013.

785. Ibid., p. xl. 786. Department of Health and Ageing (DoHA), Living longer. living better, DoHA, Canberra, 2012, accessed 15 May 2013.

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Are age pensioners affected by income or assets?

As at March 2012, some 12% of all age pensioners (272,700) were paid a part-rate age pension due to assets.787 In contrast some 28% (635,000) of age pensioners were paid a reduced rate due to income, leaving 60% (1,357,800) on maximum rate pension.788 As such far more age pensioners are on a reduced pension due to the income test than the assets test. The assets test cut-off limits for homeowners are now quite high; for a single person $731,500 and for a partnered couple $1,086,000 (combined).789 The residential home, whatever its value, is not counted as an asset.

Who may benefit from the proposal?

Age pensioners with income or assets on either the maximum rate or a reduced rate may be able to benefit from this proposed trial, either in maintaining a higher rate of pension or just retaining a pension. Retaining a pension is important for many as it also provides a Pensioner Concession Card.790

Will many take the offer up?

The requirement to retain at least 80% of the net proceeds of the residence sale and purchase in the special account may be quite onerous for some, especially those hoping to realise some capital from the downsizing process. It is hard to imagine many will be willing to lock that much money away to take advantage of this option. For some pensioners already on a reduced rate, it may be not worth the effort to lose access to that capital just to hang on to the pension. Not being able to make withdrawals is quite inflexible. The big hurdle for all will be the requirement that 80% of the net sale of the 25 year residential home must be placed into the special account.

The elephant in the room is the issue of whether this initiative is appropriate. Pensions are means tested to target assistance to those with lesser means. If a person can access value from a property sale by downsizing, it would appear reasonable that they should use their own resources first, rather than calling on the taxpayer to provide a pension or a higher rate of pension. This is one of the fundamental tenets of the Government’s LLLB aged care reforms, that is, those with greater means should make a greater contribution.

787. This includes homeowners and non-homeowners. 788. Ibid.; Senate Community Affairs Committee, Answers to Questions on notice, Families, Housing, Community Services and Indigenous Affairs Portfolio, Budget Estimates 2012-13, 28 and 29 May 2012, Question 76, accessed 15 May 2012.

789. These asset test cut-off limits apply from 20 March 2013 and refer to the limits above which no pension rate is payable. 790. M Klapdor, Why the pension concession card is so valuable, FlagPost weblog, 15 January 2013, accessed 16 May 2013.

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No new major superannuation announcements

Kai Swoboda

On 5 April 2013, the Government made a number of announcements relating to changes to superannuation, including capping the tax exemption for earnings on superannuation assets supporting income streams at $100 000 and increasing the concessional contributions cap for those aged 50 or more.791 The Government’s overall intent in making these changes was to ‘improve the fairness, sustainability and efficiency of the superannuation system’.792 The measures also provided savings to the budget of $947 million over the forward estimates.793 A separate Parliamentary Library brief summarised these announcements.794

The 2013-14 Budget included some more detailed costing for these measures, with only a minor change in total savings over the forward estimates from these announced measures ($901 million).795

In addition to including these previously announced measures, the 2013-14 Budget included only a small number of minor superannuation budget measures at a net cost of around $10 million over the forward estimates including:

• amendments to the 2012-13 Budget measure to reduce the contributions tax concession for those

earning more than $300,000 (exempting federal judges sitting on or after 1 July 2012); using a similar definition of income to that used for calculating whether a person is liable to pay the Medicare levy surcharge; and refunding to former temporary residents the tax paid under the measure (revenue gain of $25.2 million over the forward estimates)

• further grants of financial assistance to compensate members of four superannuation funds, formerly

under trusteeship of Trio Capital Limited (Trio), that suffered losses due to fraudulent conduct (the cost of $16.7 million in 2012-13 recovered by industry levies collected in 2012-13)

• additional funding for the Superannuation Complaints Tribunal (cost $2.6 million over four years to be

recovered by industry levies)

• funding to support the development of a Charter of Superannuation Adequacy and Sustainability and

establishment of Council of Superannuation Custodians (cost $0.2 million over four years), and

• amend the eligibility criteria for the low income superannuation contribution to pay individuals with

an entitlement below $20 (cost $15 million over four years).796

The superannuation industry was generally appreciative that no further major changes were announced.797 The Association of Superannuation Funds of Australia noted that:

791. W Swan (Treasurer) and B Shorten (Minister for Financial Services and Superannuation), Reforms to make the superannuation system fairer, joint media release, 5 April 2013, accessed 14 May 2013. 792. Ibid. 793. Ibid. 794. K Swoboda, ‘Announcements end superannuation budget speculation?‘, FlagPost weblog, 8 April 2013, accessed 15 May

2013.

795. Australian Government, Budget measures: budget paper no. 2, 2013-14, pp. 39-42, 151, 271, accessed 15 May 2013. 796. Ibid., pp. 38, 266 and 270-271.

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Over the past few months we have expressed concern regarding the impact on community confidence in superannuation as a result of the ongoing speculation. These concerns appear to have been addressed. 798

797. Association of Superannuation Funds of Australia, Budget allows people to plan for their retirement with certainty, media release, 14 May 2013, accessed 15 May 2013; Australian Institute of Superannuation Trustees (AIST), Super relief: AIST welcomes stability for Australians saving for retirement, media release, 15 May 2013, accessed 15 May 2013; SMSF Professionals’ Association of Australia, SMSF trustees and advisors sleep easier after 2013 budget, media release, 14 May 2013, accessed 15 May 2013.

798. Association of Superannuation Funds of Australia, op. cit.

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Measures to minimise exploitation of franking credits by ‘dividend washing’

Bernard Pulle

In the 2013-14 Budget, the Australian Government announced that it will close a loophole that enables sophisticated investors to engage in ‘dividend washing’ which results in two sets of franking credits being claimed on what is effectively the same parcel of shares in publicly listed companies. The gains to revenue are estimated at $60 million spread equally over the forward years 2014-15, 2015-16 and 2016-17.799

In a media release on the Budget, the Assistant Treasurer and Minister Assisting for Deregulation, outlined further details of the proposed measures to prevent ‘dividend washing’, the reasons for the proposed changes and the consultation that will take place based on a discussion paper that will be released in late May 2013.800

What is ‘dividend washing’?

‘Dividend washing’ refers to transactions where investor X who holds a parcel A of shares in a listed public company Z sells those shares just before it goes ex-dividend (the right to the dividend and any franking credits remains with the seller). Investor X immediately purchases another parcel B of shares in company Z, equivalent to the shares in A, in the cum-dividend market (the right to the dividend and any franking credits remains with the buyer). Historically, a rule of the market has allowed a two-day period for settlement of option trades which has been exploited by sophisticated investors to buy shares which carry a dividend to claim two sets of franking credits.

Under current tax law, investor X could claim franking credits in relation to the shares in A as well as franking credits in relation to the shares in B. The measures proposed in the budget will result in investor X being able to claim only one set of franking credits. The Budget paper also indicated that the proposed changes will target the two-day period after a share goes ex-dividend.

Outline of methods to close the loophole

The media release indicated that the Australian Government will consider the following changes to close this loophole:

• changes to the holding period rules where shareholders are required to hold a share at risk for 45

days in order to gain access to franking credits attached to dividends paid on the share and

• modification of the ‘last-in first out’ rules to ensure that the shares bought in the ‘dividend washing’

operations are treated as one parcel of shares.

799. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2 2013-14, p. 36, accessed 16 May 2013. 800. D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), media release, 14 May 2013 Protecting the Corporate tax base from erosion and loopholes - measures and consultation arrangements, Attachment F, pp. 16—17,

accessed 16 May 2013.

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The proposed changes will only apply to investors that have franking credit tax offset entitlements in excess of $5,000, so that the typical ‘mum and dad’ investors will not be affected by the proposed changes.

Justification for the changes

The justification for these changes (according to the media release) is maintenance of the integrity of the imputation system where the intention was that franking credits should only benefit the true economic owners of shares and ensure that franking credits are only available to shareholders in proportion to their shareholdings.801

The media release also refers to an aspect of ‘dividend washing’, where shareholders who may not be entitled to claim franking credits, ‘trade’ their franking credits to other shareholders who can. For example, non-residents of Australia cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and cannot get a refund of the franking credit. The franked amount of dividends paid or credited to non-residents is exempt from Australian income and withholding taxes.802 The ‘dividend washing’ operation presents opportunities for non-residents to ‘trade’ their franking credits to residents who could claim the franking credits.

The media release concludes by asserting that eliminating large scale ‘dividend washing’ will support investment by improving the efficiency and integrity of the tax system.

801. Ibid. 802. Australian Taxation Office, You and your shares 2011-12: dividends paid or credited to non-resident shareholders, accessed 16 May 2013.

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Measures to protect the corporate tax base

Bernard Pulle and Jamie Roberts

Introduction

This brief gives an overview of the following six measures proposed in the 2013-14 Budget which are directed at protecting the corporate tax base from erosion and closing loopholes in the taxation law:

• addressing aggressive tax structures that seek to shift profits by artificially loading debt into

Australia803

• closing loopholes in the consolidation regime

• closing loopholes in the Offshore Banking Unit regime

• improving the integrity of our foreign resident capital gains tax regime

• increasing ATO compliance checks on offshore marketing hubs and business restructures and

• targeting the deduction for exploration to genuine exploration activity.

A seventh measure which is also directed at protecting the corporate tax base and closing loopholes deals specifically with ‘preventing dividend washing’.804 This is the subject of a separate brief in this Budget Review.

In summary, the six measures referred to above are projected to bring in additional revenue of $4,136.5 million over the forward estimates ($108.4m in 2013-14, $875.3m in 2014-15, $1, 479.2m in 2015-16 and $1, 673.6m in 2016-17).805 Further details about these six measures, along with the reasons why they are necessary and how the Government proposes to consult on them, were outlined by the Assistant Treasurer in a Budget-day media release.806

Trends in company tax receipts as a percentage of GDP

Annual company tax receipts in 2011-12 were the highest on record, surpassing the pre-global financial crisis (GFC) collection figures for the first time (see table 1 below). This increase resulted in a commensurate increase in company tax as a proportion of GDP (representing 4.56 per cent of GDP in 2011-12), which is similar to what was achieved in 2008-09 when the GFC began.

803. The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, p. 33-37, accessed 18 May 2013. 804. Ibid., p. 36. 805. Ibid., pp. 33-37. 806. D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), Protecting the corporate tax base from erosion

and loopholes - measures and consultation arrangements, media release, 14 May 2013, accessed 18 May 2013.

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However, actual collections in 2011-12 were significantly lower than what was estimated in the 2011-12 MYEFO ($70, 000m) and in the 2012-13 Budget ($67, 460m)807 - these amounts already reflecting significant and successive downward revisions in tax receipts.

As these six budget measures are designed to strengthen the domestic corporate tax base and protect revenue leakage, they are helpful in underwriting the expected increase in company tax receipts over the forward estimates, and the path back to surplus. This estimated increase should also result in a steady improvement in company tax as a proportion of GDP.

Disclosures in the Budget Speech and media releases

The Treasurer in his 2013-14 Budget speech stated that the Australian Government will be ‘closing loopholes and protecting the corporate tax base to ensure multinationals and big businesses are not being given an unfair advantage’.808 Ever since the GFC, governments in the developed world have been examining ways and means of ensuring that multinational enterprises pay a fair share of tax in each of the jurisdictions in which they operate.

The Treasurer and the Assistant Treasurer, in a joint media release on Budget day, also pointed out that the aggressive tax practices of some multinational and other large companies are an increasing focus of many G20 countries.809 The Commissioner of Taxation (the Commissioner) identified a range of aggressive tax minimisation strategies which are currently being employed to take advantage of design flaws, vulnerabilities and unexpected interactions in Australia’s corporate tax laws.

In a 10 May 2013 media release, the Commissioner acknowledged that he, along with his counterparts in the United States and the United Kingdom, had substantial sources of data that were evidence of the widespread use of complex offshore structures by wealthy individuals and companies to conceal assets.810 This data is said to reveal that Singapore, the British Virgin Islands, the Cayman Islands and the Cook Islands are among the jurisdictions in which these offshore structures are set up.811

Concluding comments

In May 2013, the Treasury released an issues paper entitled Implications of the Modern Global Economy for the Taxation of Multinational Enterprises.812 Among other matters, this paper sought to critique the quality and availability of evidence of base erosion and profit shifting (BEPS) in Australia, and to consider what additional data might be needed to reach definitive conclusions on the extent and nature of the problem.

It may therefore be inferred that these budget measures are preliminary initiatives to deal with certain aspects of BEPS in Australia, and that it might be necessary to deal with other aspects of BEPS based on

807. Australian Government, Budget strategy and outlook: budget paper no. 1: 2012-13, accessed 22 May 2013. 808. W Swan (Deputy Prime Minister and Treasurer), Budget speech 2013-14, accessed 18 May 2013. 809. W Swan ( Deputy Prime Minister and Treasurer) and D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), Protecting the corporate tax base from erosion and loopholes, joint media release, 14 May 2013, accessed

18 May 2013. 810. Australian Taxation Office, No safe havens, media release, 10 May 2013, accessed 19 May 2013. 811. Ibid. 812. Australian Government, Implications of the modern global economy for the taxation of multinational enterprises, the

Treasury, Issues paper, May 2013, accessed 18 May 2013.

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unfolding evidence. A Treasury Scoping Paper is expected to be released in late June 2013 after submissions on the Issues Paper have been duly considered.

Table 1: Percentage of corporate tax receipts to gross domestic product (GDP)

Company tax receipts (cash)

Alternative measures of GDP

Average GDP (a) Company tax, % of average GDP

Chain volume GDP & related measures Real income

measures

Current price measures

$m $m $m $m $m

2003-04 36 101 1 153 355 1 038 459 859 635 1 017 150 3.55%

2004-05 40 404 1 190 111 1 089 044 920 969 1 066 708 3.79%

2005-06 48 960 1 226 323 1 143 973 994 968 1 121 755 4.36%

2006-07 57 100 1 272 776 1 204 271 1 083 303 1 186 783 4.81%

2007-08 61 700 1 320 746 1 263 465 1 175 321 1 253 177 4.92%

2008-09 60 391 1 342 514 1 303 785 1 254 293 1 300 197 4.64%

2009-10 52 209 1 370 540 1 318 604 1 292 315 1 327 153 3.93%

2010-11 56 262 1 403 888 1 403 888 1 403 888 1 403 888 4.01%

2011-12 66 584 1 451 120 1 453 150 1 473 227 1 459 166 4.56%

(a) The average of the three alternative measures of GDP provided

Sources: Statement 5: Revenue, Budget paper no. 1: 2012-13, Table C1; Statement 5: Revenue, Budget paper no. 1: 2013-14, Table C1; Australian Bureau of Statistics (ABS), Australian system of national accounts 2011-12, cat. no. 5204.0, ABS, Canberra, 2012, p. 24.

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Further tax compliance measures

Jamie Roberts

Introduction

In the 2013-14 Budget, the Australian Government committed to provide the Australian Taxation Office (ATO) with a further $145.7 million over the forward estimates to fund two separate tax compliance initiatives.813 These two measures are expected to yield an additional $989.2 million in revenue over the same period.

These measures are in addition to a wider suite of compliance initiatives which have provided the ATO with substantial amounts of money over the previous few years. Although the importance of sophisticated compliance programs cannot be underestimated, it is unclear why these particular measures specifically require additional funding to be provided to the ATO - especially since the ATO is already expected to allocate resources to combat the most significant compliance risks within the tax and superannuation systems.

Nevertheless, if the expected yield on investment is able to be realised, the relatively small outlay to fund these two measures may nonetheless be appropriate.

Targeting the misuse of trusts

The first measure will allow the ATO to specifically direct resources to investigate those individuals and entities which may use trust structures to inappropriately minimise their tax positions. This measure will fund the operation of a Trust Taskforce which, in conjunction with Project Wickenby, is designed to respond to instances of aggressive trust-related tax avoidance and evasion. 814

This measure is in response to ‘[e]merging evidence [which] … shows a significant increase in the level of trust-based non-compliance’.815 This funding will enable the ATO to examine the use of trusts to hide income, mischaracterise transactions, and otherwise conflate amounts of trust income - all of which are techniques that individuals and entities are known to employ to minimise their tax.

This compliance initiative comes during a time when the Australian Government has been actively seeking to modernise how trust income is taxed. The Assistant Treasurer and Minister Assisting for Deregulation has previously acknowledged that the taxation of trust structures ought to be much simpler

813. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, May 2013, accessed 21 May 2013. 814. Project Wickenby is a multi-agency taskforce which, since 2006, seeks to protect the integrity of Australia’s financial and regulatory systems by preventing people from promoting or participating in the use of tax havens; Australian Taxation

Office, Compliance program 2012-13, July 2012, p. 33, accessed 21 May 2013. 815. D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation), ATO taskforce to target trust misuse, media release, 14 May 2013, accessed 21 May 2013.

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and more streamlined, and in October 2012 he released an options paper canvassing a variety of reform options in this space.816

One of the key policy objectives enunciated in this options paper was that tax liabilities in respect of trust income should always attach to the entities that receive the economic benefits from the trust.817 This is an acknowledgment that individuals and entities are currently able to exploit trust structures for income (and therefore tax) purposes, and that reform is needed to redress this inequity in the tax system.

Until such reforms are settled and implemented, there is little doubt that robust compliance activity is needed to crack down on the misuse of trust structures. This measure ought to enable the ATO to effectively target all those parties involved in improper tax minimisation through trusts, and either protect or recover a very large amount of money ($379.0 million over the forward estimates) that would have otherwise escaped collection as consolidated revenue.

Enhancing third party reporting and data matching

The second measure will provide the ATO with additional funding to expand its data matching and third party reporting capabilities. The ATO acknowledges that its main tool for detecting non-compliance with the tax law is the analysis and matching of information which it receives from taxpayers and third parties (such as financial institutions).818 This measure is aimed at strengthening the reporting systems which the ATO already has in place, and establishing new reporting systems as required.

The ATO intends to develop and utilise reporting systems that will monitor, among other things, the payment of government grants, the sale of real and intangible assets, sales through merchant debit and credit providers, the distribution of partnership and company moneys, and the payment of interest income. Targeting these particular areas of compliance is expected to result in a $610.2 million gain to revenue over the forward estimates.

As mentioned above, there have been other instances in recent times where the ATO has been provided money to facilitate particular compliance-related activities. For example, $58.3 million (through to 2014- 15) was provided to the ATO in the 2011-12 MYEFO to improve its data matching capability to ensure better compliance with the tax system. This measure was expected to yield $436.4 million over the same period.819

It is unclear if and how this earlier measure interrelates with the current budget measure, given that they essentially serve a similar purpose, over a similar time period, and each is estimated to contribute significant and separate amounts of money to consolidated revenue. Notwithstanding this, if further gains to revenue are available, this additional funding may nonetheless be warranted.

816. D Bradbury (Assistant Treasurer and Minister Assisting for Deregulation) and B Ripoll (Parliamentary Secretary to the Treasurer), Significant step forward for trust reforms, media release, 24 October 2012, accessed 21 May 2013; Australian Government, Taxing trust income - Options for reform, policy options paper, October 2012, accessed 21 May 2013.

817. Taxing trust income - Options for reform, op. cit., p. 7. 818. Compliance Program 2012-13, op. cit., p. 2. 819. W Swan (Treasurer) and P Wong (Minister for Finance and Deregulation), Mid-year economic and fiscal outlook: 2011-12, November 2011, p. 176, accessed 21 May 2013.

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Taxation—reforms to work-related self-education expenses

Kali Sanyal

Background

The Government plans to cap work-related self-education expenses deductions.

Deductible education expenses vary by category of activity in relation to a taxpayer’s earned income. A taxpayer may incur costs in undertaking a course of study or other education activity, such as conferences and workshops, including tuition fees, registration fees, student amenity fees, textbooks, professional and trade journals, travel and accommodation expenses, computer expenses and stationery. Deductible expenses are those incurred in the production of the taxpayer’s current assessable income.

Currently, a taxpayer can claim unlimited such expenses as deductions when lodging a tax statement. The Government is somewhat nervous that the potential for uncapped claims for a wide range of expenses allows some people to enjoy significant private benefits at taxpayers’ expense.

According to Taxation Statistics 2010-11, released by the Australian Taxation Office (ATO) in April 2013, tax deduction claims from individual taxpayers for self-education purposes rose to $1,166 million in income year 2010-11 (taxation year 2011-12) from $1,103 million in the previous year.820

Budget measure

On 13 April 2013, the Government announced that a cap on tax deductions on work-related self-education expenses would be part of targeted reforms in the 2013 Budget:

The Government will better target work related self-education expense deductions as part of a package of reforms to make a down-payment on the National Plan for School Improvement.

… Without a cap on the amount that can be claimed under this deduction, it’s possible to make large claims for expenses such as first class airfares, five star accommodation and expensive courses. 821

Effective 1 July 2014, the Government will put an annual cap of $2,000 on this deduction and estimates that this measure will save $250.0 million in 2015-16 and $270.0 million in 2016-17, giving total budget savings of $514.3 million over the forward estimates period.822

The Government intends to retain the system where employers are not liable for fringe benefits tax for education and training they provide to their employees, unless an employee salary sacrifices to obtain these benefits. This is in recognition of the need to encourage employers to continue to invest in the skills of their workers.

820. Australian Taxation Office, Taxation Statistics 2010-11, 2013, p. 17, accessed 16 May 2013. 821. W Swan (Deputy Prime Minister and Treasurer), Reforms to self-education expense deductions, media release, 13 April 2013, accessed 16 May 2013. 822. Australian Government, Budget measures: budget paper no: 2: 2012-13, 2012, p.30, accessed 16 May 2013.

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The typical claim for formal qualifications through self-education expenses is less than half the maximum proposed. For expenses such as conferences, seminars and workshops, including those held locally, the typical claim is only a few hundred dollars, remaining well below the cap.823

Accordingly, the Government’s stated reform has a small target and the majority of those with self-education expenses will not be affected by this change.

The anticipated savings from this measure will be redirected to the Government’s recent initiative ‘Better Schools - A National Plan for School Improvement’.824

Stakeholders’ reaction

Academic groups have condemned the intended cap:

The dean of the business school at the University of Technology, Sydney, Roy Green, said on Monday it was a “remarkable step” for a government which supported encouraging individuals to contribute to the knowledge based economy to take.

The dean of the Melbourne Business School, Zeger Degraeve, said the decision was “unfortunate”.

“Stripping money from one area of education to put into another is not sound, integrated policy,” he said.

… Professor Green said given the government has stated its intent to crack down on first-class airfares and five star accommodation being claimed as self-education expenses, it should have specifically targeted those claims instead of introducing a blanket restriction. 825

Universities Australia chief executive Belinda Robson warned jobs could go:

‘Universities will be looking at every opportunity for making cost reductions,’ she said. 826

The Government has said that it will revisit the issue, with further consultation with stakeholders to better target the deduction while still supporting essential training. As part of that consultation, a discussion paper will be released in late May 2013.

823. Reforms to self-education expense deductions, media release, 13 April 2013, op. cit. 824. The national plan for school improvement website, accessed 16 May 2013. 825. T Dodd, ‘MBA schools slam tax deduction cap‘, The Australian Financial Review, 16 April 2014, p. 6, accessed 16 May 2013. 826. S Maiden, ‘Students pay for reforms‘, The Sunday Times, 14 April 2013, p. 5, accessed 16 May 2013.

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Workplace relations

Anne Holmes

New measures

Workplace bullying—individual right of recourse

The Fair Work Amendment Bill 2013 currently before the Parliament gives the Fair Work Commission the power to issue orders to stop workplace bullying.827 The Budget provides $21.4 million over four years in extra resources for the Commission to carry out this new function.828

The anti-bullying measure follows growing public uneasiness about workplace bullying. A recent inquiry by the House of Representatives Standing Committee on Education and Employment recommended that workers who are bullied should have a right to seek remedies through an adjudicative process.829 This measure is a part of the government’s response to that report.

Establishment of an individual right to seek remedies was widely supported, but there was some debate about what the mechanism should be. Some employer groups argued that bullying is not a workplace relations issue, but a work health and safety issue.830 There was also some concern about the possibility of forum shopping and confusion between the workplace relations jurisdiction and the work health and safety jurisdiction. There was, however, a good deal of support for using the Fair Work Commission because its processes are well understood, relatively speedy, and not costly.831

Funding for this measure comes partly from a reduction in funding to the Office of the Fair Work Building Industry Inspectorate.

Asbestos Safety and Eradication Agency

The Budget includes funding of $10.5 million for the establishment of the Asbestos Safety and Eradication Agency within the Department of Education, Employment and Workplace Relations. Legislation for the establishment of the agency is before the Parliament.832 The Bills digest for the Bill contains useful background information.833

The Asbestos Safety and Eradication Agency will coordinate the implementation of a national strategic plan to improve asbestos management and awareness. The plan is due for release on 1 July 2013. A draft

827. Fair Work Amendment Bill 2013, introduced 21 March 2013, accessed 16 May 2013. 828. The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2013-14, accessed 16 May 2013. 829. House of Representative Standing Committee on Education and Employment, Workplace bullying: ‘We just want it to

stop’, The House of Representatives, Canberra, October 2012, accessed 16 May 2013. 830. For example, Australian Industry Group and Australian Mines and Metals Association, Submissions to the Senate Standing Committee on Education, Employment and Workplace Relations, Inquiry into the Fair Work Amendment Bill 2013, accessed 16 May 2013. 831. Ibid., chapter 6. 832. Asbestos Safety and Eradication Agency Bill 2013, introduced 20 March 2013, accessed 16 May 2013. 833. I McCluskey and T Fox, Asbestos Safety and Eradication Agency Bill 2013, Bills digest, 105, 2012-13, Parliamentary Library,

Canberra, 2013, accessed 16 May 2013.

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of the plan has been released for public comment.834 It states its goal as ‘to minimise exposure to asbestos fibres, in order to eliminate asbestos-related disease in Australia’, and sets out strategies under the headings: Awareness; Better Practice; Identification and Removal; Research; and International Coordination.835 Asbestos management is currently regulated by the states and territories, and part of the Agency’s work will be to develop nationally consistent responses.

The Agency will support an Asbestos Safety and Eradication Council to advise the Minister and the Chief Executive Officer. Part of the funding will be used for research and communication activities to improve asbestos awareness.

Funding for this measure comes partly from a reduction in funding to the Office of the Fair Work Building Industry Inspectorate.

Other funding decisions

Fair Work Ombudsman

The 2010-11 Budget included funding of approximately $20 million a year for three years for the Office of the Fair Work Ombudsman to assist in establishing the national workplace relations system, including providing education, guidance and mediation services to employers and employees.836 The 2013-14 Budget provides for a partial continuation of that funding, to the extent of $25.7 million over four years.

Funding for this measure comes partly from a reduction in funding to the Office of the Fair Work Building Industry Inspectorate.

The Fair Work Ombudsman will also receive an additional $3.4 million over four years to monitor and enforce employer compliance with conditions for 457 visas. These visas require that workers be paid market rates and be employed in specific jobs. Previously the Fair Work Ombudsman could hear complaints of abuse but could not undertake checks for compliance.

Office of the Fair Work Building Industry Inspectorate

Funding for the Office of the Fair Work Building Industry Inspectorate has been cut by $24 million over four years. The savings will be achieved through changed administrative and procedural practices.

This cut of $6 million a year is substantial in the light of total available resources for the Fair Work Building Inspectorate in 2012-13 of $73 million.837 On the other hand, funding for the Inspectorate at

834. Office of Asbestos Safety, National Strategic Plan for asbestos awareness and management, discussion draft, DEEWR, Canberra, 2 April 2013, viewed 16 May 2013. 835. Ibid. 836. Australian Government, Budget measures: budget paper no. 2: 2010-11, 2010, p. 146, accessed 17 May 2013. 837. Australian Government, Portfolio budget statements 2013-14: budget related paper no. 1.6: Education, Employment and

Workplace Relations Portfolio, p. 236, accessed 17 May 2013.

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$65 million for 2013-14 is still comparable to funding for the predecessor body, the Office of the Australian Building and Construction Commission, which was $68 million in 2010-11.838

The savings from this measure will partly fund the three other measures discussed above.

Other measures

The Budget provides $6.2 million over four years to establish a Pay Equity Unit in the Fair Work Commission. The Unit will initially focus on the early childhood education and care sector, collecting data and conducting research. This measure is an element of the Government’s program to boost the quality of early childhood education, which is dealt with elsewhere in this brief.

The Fair Entitlements Guarantee Scheme assists workers who are owed money when their employer enters liquidation or bankruptcy.839 Until now, outworkers, some of whom are very vulnerable workers, have not been able to claim under the scheme because they are not employees. (The situation of outworkers in the textiles, clothing and footwear industry was improved by amendments last year to the Fair Work Act 2009 which made businesses along the value chain responsible for moneys unpaid by other businesses in the value chain.840) The Budget includes funds of $1.2 million over five years to extend the Fair Entitlements Guarantee Scheme to outworkers in the textiles, clothing and footwear industry.

838. Australian Government, Portfolio budget statements 2010-11: budget related paper no. 1.6: Education, Employment and Workplace Relations Portfolio, Office Of The Australian Building And Construction Commissioner, p. 323, accessed 17 May 2013.

839. Department of Education, Employment and Workplace Relations, ‘Fair Entitlements Guarantee‘, DEEWR website, accessed 17 May 2013. 840. S O’Neill, Fair Work Amendment (Textile, Clothing and Footwear Industry) Bill 2011, Bills digest, 92, 2011-12, Parliamentary Library, Canberra, 2012, accessed 17 May 2013.

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