Updated
7 May 2018
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Daniel Weight; updated by Phillip Hawkins
Economics
Section
The Commonwealth Budget: A Quick Guide
The Commonwealth Budget is typically the most
important annual policy statement by the Government.
This Quick Guide identifies
information and key concepts that are used in the Budget Papers and related
materials, and other resources that are available to analyse the Budget.
Contents
What occurs on Budget night?
What occurs after Budget night?
What is in the Budget Papers and
related materials?
Budget Speech
Budget Overview
Budget Paper No. 1: Budget Strategy
and Outlook
Budget Paper No. 2: Budget Measures
Budget Paper No. 3: Federal Financial
Relations
Budget Paper No. 4: Agency Resourcing
Portfolio Budget Statements
Ministerial Statements
Key concepts used in the Budget
Papers
Consolidated Revenue Fund and
appropriations
Legislation relating to the financial
management of the Commonwealth
Other Budget related reports not
released on Budget night
Mid-year Economic and Fiscal Outlook
Final Budget outcome
Intergenerational Report
Pre-election Economic and Fiscal
Outlook
Post-election Report
What occurs on Budget night?
Budget night is when the
Treasurer tables the annual Appropriation Bills in the House of Representatives
for the forthcoming year, and delivers the second reading speech on Appropriation
Bill (No. 1). Since 1994, the Appropriation
Bills have typically been tabled on the second Tuesday in May. The second
reading speech on Appropriation Bill (No. 1) commences at 7.30 pm.
Along with the Appropriation
Bills, the Government also tables the Budget Papers and related materials. The Budget Papers and related materials
are made available on the internet at www.budget.gov.au when the Treasurer commences the second reading speech on Appropriation
Bill (No. 1). Increasingly, detailed tables and budget data are also released
on data.gov.au shortly after the Budget Papers are tabled.
What occurs after
Budget night?
On the Thursday immediately following
Budget Night, a second reading speech on annual Appropriation Bill (No. 1)
is delivered by the Leader of the Opposition. The speech is often referred to
as the Leader of the Opposition’s Budget reply speech.
The details of the
expenditure proposed in the Budget are referred by the House of Representatives
to the Senate for consideration by the Senate. This enables the Senate to
commence its scrutiny of the Budget in the Senate Estimates process, despite the
Senate having not yet received the annual Appropriation Bills from the House of
Representatives.
Additional resources
What is in the Budget Papers and related materials?
The Budget Papers comprise:
- the Budget Speech
- the Budget Overview
- Budget Paper No. 1: Budget
Strategy and Outlook
- Budget Paper No. 2: Budget
Measures
- Budget Paper No. 3: Federal
Financial Relations and
- Budget Paper No. 4: Agency
Resourcing.
Additionally, for each
portfolio the Government produces a Portfolio Budget Statement. The Government
may also table one or more Ministerial Statements with the Budget Papers.
The contents of the Budget
Papers and related materials are discussed below.
Budget Speech
The Budget Speech is a
copy of the second reading speech for the Appropriation Bill (No. 1). The
Treasurer will use the second reading speech to set out the reasons why the annual
Appropriation Bills should be passed by the Parliament. Treasurers have used
the second reading speech to update the Parliament about the prevailing
economic circumstances, and to announce important or major policy decisions
that the Government has made.
Budget Overview
The Budget Overview
provides a summary of what the Government considers to be the main or important
aspects of the Budget.
Budget Paper No. 1: Budget Strategy and Outlook
Budget Paper No. 1: Budget
Strategy and Outlook provides high-level
information about the overall economic outlook, and the Commonwealth’s fiscal
position.
Specifically, it provides:
- information about the
international and domestic economic outlook, including numerical estimates of
key parameters such as gross domestic product (GDP) growth, employment, and the
consumer price index (CPI)
- a statement of the Government’s
fiscal strategy and the fiscal outlook of the Commonwealth (that is, the
Government’s outlook and strategy for revenue, notably taxes)
- estimates of the revenues and
expenditures of the Commonwealth, and their composition
- information on the proposed
capital investment of the Commonwealth
- information on the assets,
liabilities—including contingent liabilities, or ‘risks’—and debt held or owed
by the Commonwealth, and
- historical information about the
Commonwealth’s fiscal and debt position.
Budget Paper No. 1: Budget
Strategy and Outlook also contains
technical details about the presentation of the financial information of the
Commonwealth, including how individual entities are classified for accounting
purposes, and the budgeted financial statements for the whole of the Commonwealth
Government.
Further resources
Budget Paper No. 2:
Budget Measures
Budget Paper No. 2: Budget
Measures contains information about the
budget measures—or policies—the Government intends to pursue. Each budget measure
is classified according to what aspect of the Commonwealth’s finances it mostly
affects, with:
- a revenue measure mostly affecting
the revenues of the Commonwealth
-
an expense measure mostly
affecting expenses of the Commonwealth and
- a capital measure mostly affecting
the capital—or assets—held by the Commonwealth.
The description of each
measure will have a costing attached to it. A costing is an estimate of the
impact of the proposed policy on the net fiscal position of the Commonwealth
(the ‘budget balance’). A costing only shows the incremental change to the
Commonwealth’s finances from that decision, not the total amount of funding or
expenditure related to that policy area or activity.
The costing will show whether
the measure is expected to have:
- a positive effect
- nil effect (-), a small effect
that is close to zero (...), or an uncertain, or an unquantifiable effect (*)
or
-
a negative effect
on the revenues or expenses for
the Commonwealth, or the amount of assets and liabilities held by the Commonwealth,
as the case may be.
For revenue measures:
- A positive number reflects an increase
in revenue from the policy measure; a positive impact on the Budget balance.
- A negative number reflects a decrease
in revenue from the policy measure; a negative impact on the Budget
balance.
For expense measures:
- A positive number reflects an increase
in expenditure from the policy measure; a negative impact on the Budget
balance.
- A negative number reflects a decrease
in expenditure from the policy measure, a positive impact on the Budget
balance.
For capital measures:
- A positive number reflects an increase
in the assets of the Commonwealth.
- A negative number reflects a decrease
in the assets of the Commonwealth.
Example: If the Government announces a measure to build a new
computer system, because the computer system will—once completed—be an asset
for the Commonwealth, the measure will be classified as a capital measure. The
measure will have a positive costing associated with it as the decision will
result in an increase in the assets held by the Commonwealth.
A costing is an estimate or
forecast of the expected effect of the measure on the Commonwealth’s finances
only. It will take account of the direct impact of the policy proposal on
revenues and expenses, including an estimate of the implications of any
behavioural change by affected entities in response to the measure. However, a
costing generally does not include any broader effects of the policy decision
on the Australian economy or community.
Budget Paper No. 3: Federal Financial Relations
Budget Paper No. 3:
Federal Financial Relations contains
information about grants of financial assistance made by the Commonwealth to
the States and Territories. There are two categories of financial assistance
that the Commonwealth may make:
- specific purpose payments, which are
monies provided by the Commonwealth on the condition that the states and territories
spend those monies on specified purposes such as health, education, or roads, or
use them to fund local governments. These are often called ‘tied grants’.
- general revenue assistance, which
are monies provided by the Commonwealth to the states or territories without
any conditions on how those monies may be spent. These are often called ‘untied
grants’.
The main type of general
revenue assistance is the revenue from the Goods and Services Tax (GST). Budget
Paper No. 3: Federal Financial Relations provides estimates of
the amount of GST revenue that will be collected, and estimates of how much
each state and territory will receive from the GST.
Further resources
Budget Paper No.
4: Agency Resourcing
Budget Paper No. 4: Agency
Resourcing deals with the various
types of appropriations that are used by the Government to fund entities and
activities. Budget Paper No. 4: Agency Resourcing shows:
- for each entity, and for each
outcome of each entity, the amounts and types of appropriation that are expected
to be utilised in the forthcoming year
- for each piece of legislation that
provides for a special appropriation, the amount of money expected to be drawn
against that appropriation in the forthcoming year and
- for each special account, the expected
transactions on that special account, and the expected balance of that special
account.
Budget Paper No. 4: Agency
Resourcing also shows the expected
level of staffing for each entity.
Further resources
Portfolio Budget Statements
A Portfolio Budget Statement
is a statement that is tabled by the relevant portfolio Minister in support of
the appropriation for that portfolio proposed in the Budget Papers. Portfolio
Budget Statements are made available on departments’ websites at the same time
as the Budget Papers are released.
The Portfolio Budget
Statement provides more detail on the proposed activities and expenditures of
each entity in the Minister’s portfolio for the Budget year and the forward
estimate years. Portfolio Budget Statements contain an overview of the
portfolio, with separate sections for each Commonwealth entity within that
portfolio.
Example: The Australian Tax Office is an entity within the
Treasury Portfolio. Therefore, the Treasury Portfolio Budget Statement will
include a section relating to the Australian Tax Office.
For each Commonwealth entity,
the Portfolio Budget Statement will include:
- a statement that shows the financial
resources proposed to be made available to that entity from all sources
- a reconciliation showing the expected
impact of the Government’s announced measures on that entity
- the outcomes that the Government
intends that entity to pursue
- a description of the programmes
that will contribute to each of the entity’s outcomes, an estimate of the
expenses expected to be incurred in delivering each programme, and performance
indicators against which the Government intends the performance of each
programme to be measured and
- the budgeted financial statements
of that entity.
Where it is relevant to the
activities of an entity, a Portfolio Budget Statement will also include other material,
such as information about the balances of, and transactions on, any special
accounts within an entity.
If additional Appropriation
Bills are introduced during the year, the Government will release a Portfolio
Additional Estimates Statement or a Portfolio Supplementary Additional
Estimates Statement for each portfolio that has its appropriation changed.
These statements will update the information in the most recent Portfolio
Budget Statement.
Further resources
Ministerial Statements
The Government may also table
one or more Ministerial Statements. Typically, Ministerial Statements released
with the Budget group together information related to one theme or issue.
Example:
If the Government wants to show how
much it is doing to assist regional or remote parts of Australia, it may release
a Ministerial Statement that brings together activities across all portfolios
that the Government believes assist regional and remote areas.
The standing orders of the
House of Representatives provide an opportunity for the relevant Minister to
speak on Ministerial Statements, and afford the Opposition an opportunity of a
reply.
Key concepts used in
the Budget Papers
It is useful to explain important
concepts used in the Budget Papers.
Accrual accounting and cash accounting
Accrual
accounting is a method of accounting that records revenues when they are earned
and expenses when they are incurred, regardless of when any cash is received or
paid. Costings are generally presented on an accrual accounting basis.
Example: The decline in value of an asset as it wears out—known as
depreciation—is recognised as an expense for an entity as it occurs, even
though no cash payment is required at that time.
Cash accounting is a method
of accounting that records receipts and payments of cash when they occur.
The Budget Papers use a mix
of both accrual accounting and cash accounting.
Fiscal
balance and underlying cash balance
Fiscal balance is an accrual
accounting measure of the balance between the revenues and expenses of the
Commonwealth.
Underlying cash
balance is a cash accounting measure of the balance between the receipts and
payments of the Commonwealth. It is the Government’s preferred measure for
showing the surplus or deficit of the Commonwealth in any one year.
Administered and departmental items
An administered item is an
item that a Commonwealth entity administers on behalf of the Commonwealth as a
whole. An administered item may be an expenditure, a revenue, or an asset. A
Commonwealth entity does not have discretion about what it can do with an
administered item, and must use that item in the way the Government directs. Administered
items mostly relate to outcomes and programmes that are managed by an entity.
Departmental items are
expenditures, revenues, or assets over which a Commonwealth entity has
discretion about how it may be used. Departmental items are mostly used for the
running of entities, such as for paying and accommodating staff.
General Government Sector, Public
Non-financial Corporations sector and Public Financial Corporations sector
entities
Commonwealth entities are
classified according to their activities and objectives into one of three
sectors.
Most Commonwealth entities do
not seek to make a profit, and are classified as General Government Sector
entities. Where a Commonwealth entity provides goods and services and seeks to
make a profit, it will be classified as either a Public Non-financial
Corporation or a Public Financial Corporation, depending upon whether or not it
provides financial services.
Example:
Imagine the Government established a
corporation that had the purpose of providing loans for a certain purpose on
commercial terms, and the Government expected that entity to make a profit.
The
corporation would be classified as a Public Financial Corporation in the
Budget.
Most material in the Budget
relates to the activities of entities in the general government sector only.
Further resources
Outcomes
and programmes
An outcome is the purpose
for which monies are appropriated to a Commonwealth entity.
A programme is an activity
that is undertaken by a Commonwealth entity to achieve an outcome. For each
outcome, there may be one or more programmes.
Retained
revenue receipts
Section 74 of the Public Governance, Performance and Accountability Act
2013 provides a mechanism where
certain amounts received by entities may be retained by that entity. The
categories of revenues mostly relate to amounts likely to be received by the
entity to defray the cost of providing a good or service. Examples may include
application or processing fees.
The exact categories of
monies that agencies are able to retain are set out in the Rules made under the
Public Governance, Performance and Accountability Act
2013.
Parameter variations and policy decisions
In places in the Budget
Papers, a distinction is made between changes to the Commonwealth’s finances
that occur because of parameter variations, and changes that occur because of policy
decisions.
A parameter variation is a
change to the finances of the Commonwealth that is outside the direct control
of the Government. Parameter variations mostly occur because of changes in the
broader Australian or international economy, and changes to the composition or
demographics of the Australian population.
Example:
Companies pay tax on their profits.
If, in a given year, company profits are lower than previously anticipated,
Commonwealth tax receipts from companies are also likely to be lower.
Such a
reduction in company tax receipts would be recorded as a parameter variation in
the Commonwealth Budget.
Parameter variations may
affect both the receipts and payments of the Commonwealth.
Example:
Unemployment benefits are available
to any person who is unemployed within the meaning of the Social Security
Act 1991. If there are more people unemployed in a given year, payments of
unemployment benefits will be greater.
The reasons for, and
magnitude of, parameter variations are mostly set out in the economic and financial
information contained in Budget Paper No. 1: Budget Strategy and Outlook.
The term policy decision
denotes the cumulative effect of all changes to the finances of the
Commonwealth that arise because of the budget measures—or actions—of the
Government. Each budget measure is set out in Budget Paper No. 2: Budget
Measures. The magnitude of the cumulative effect of the Government’s policy
decisions are set out in the financial information contained in Budget Paper
No. 1: Budget Strategy and Outlook.
Special Accounts
A special account is an
amount of money that is held in the Consolidated Revenue Fund and is earmarked
for a specific purpose, and which may only be released when the criteria for
release are satisfied.
Special accounts are mostly
used to provide transparency about how much the Government is providing to a
specific purpose or activity, or to quarantine amounts for specific purposes or
activities. They are often used when dealing with entities outside of the
Commonwealth Government as a way to account for funds.
Consolidated Revenue Fund and appropriations
The Consolidated Revenue Fund
is established by section 81 of the Constitution. All monies received by the Commonwealth must be paid into the
Consolidated Revenue Fund. It is a constitutional requirement that, before the
Government may spend any monies, an Act of the Parliament providing for an appropriation
must authorise the release of the necessary monies from the
Consolidated Revenue Fund.
A Bill that proposes an
appropriation may take two general forms:
- an annual Appropriation Bill or
- a Bill that proposes a special
appropriation.
Each year, annual Appropriation
Bills provide for about 20 per cent of the Commonwealth’s expenditure, and
special appropriations provide for about 80 per cent of the Commonwealth’s
expenditure.
Annual Appropriation Bills
An annual Appropriation Bill
will typically propose the appropriation of a finite amount of money, but that
money will be provided to a broad range of entities and outcomes. The finite
nature of such appropriations means that the Executive Government must return
to the Parliament periodically and request the Parliament appropriate further
monies for those entities and outcomes.
Each year, there are at least
three annual Appropriation Bills. Appropriation Bill (No. 1) for a given year
will propose to appropriate monies for activities that are part of the
‘ordinary annual services’ of the Executive Government. Appropriation Bill (No.
2) in a given year will propose to appropriate monies for the ‘other’ annual
services of the Executive. The Senate enjoys different powers over
Appropriation Bills for the ‘ordinary annual services’ of the Executive
Government and Appropriation Bills for the ‘other’ annual services of the
Executive Government. The difference between the two types of Appropriation
Bill, and powers of the Senate over each, are explained in more detail in Odgers’ Senate Practice.
The appropriation of monies
for the operation of the Parliament for a given year is proposed in a separate
Appropriation (Parliamentary Departments) Bill, reflecting that the Parliament
is distinct from the Executive Government.
Often the Government will
require further monies during the year, and will introduce additional
Appropriation Bills. Additional Appropriation Bills will be numbered
consecutively.
Supply Bills
If, in a given year, the
Government does not intend to table and pass through the Parliament a full
Budget before the start of the financial year, the Government may introduce
Supply Bills that propose to appropriate a small amount of money to ensure the
continued operation of the Government until a full Budget can be prepared.
Special appropriations
A Bill may also propose to
appropriate an unlimited amount of money, but only make it available for a
specific purpose or in specific circumstances. Such an appropriation is known
as a special appropriation. Almost all of the Commonwealth’s substantial
expenditure programs are now provided for by special appropriations; with
monies being automatically released from the Consolidated Revenue Fund where
the criteria applying to that appropriation are met.
Example: Medicare is established under the Health Insurance
Act 1973. Section 125 of that Act appropriates from the Consolidated
Revenue Fund any amount of money required for the payment of Medicare benefits.
To change the amount of money
that will be provided by a special appropriation, the criteria that must be met
to use the special appropriation need to be changed. Where those criteria are
set out in legislation, the Parliament must pass an amendment to that legislation.
Example: The Paid Parental Leave Act 2010 provides
under what circumstances a person is entitled to parental leave pay. To change
the amount that is paid under that Act, an amendment to that Act is needed to
change the eligibility criteria for parental leave pay.
Further resources
Legislation relating
to the financial management of the Commonwealth
Charter of Budget Honesty
The Charter of Budget Honesty
is a set of rules that establish how the Commonwealth is to manage and report
on its fiscal performance. It is a schedule to the Charter of Budget Honesty Act 1998.
Public Governance, Performance and
Accountability Act 2013
The Public Governance, Performance and Accountability Act
2013 is the main Act that provides
for the financial management of the Commonwealth. The Public Governance,
Performance and Accountability Act 2013 allows certain matters to be dealt
with via delegated legislation, known as Rules.
Further resources
Other Budget related
reports not released on Budget night
Additional budget reports
must be publicly released and tabled in Parliament from time to time.
Mid-year Economic
and Fiscal Outlook
Under the Charter of Budget
Honesty, the Treasurer must release the Mid-Year Economic and Fiscal Outlook
report within six months of the Budget, or by the end of January in a given
year, whichever is later. The Mid-Year Economic and Fiscal Outlook
report must update any information that has changed since the Budget.
Final Budget outcome
Under the Charter of Budget
Honesty, the Treasurer must produce a Final Budget Outcome within three
months of the end of each financial year. The Final Budget Outcome must contain
the fiscal outcomes for the Commonwealth for the relevant year.
Intergenerational
Report
Under the Charter of Budget
Honesty, every five years the Treasurer must release and table in Parliament an
Intergenerational Report. The Intergenerational Report must
assess the sustainability of current Government policies over the next 40
years.
Pre-election
Economic and Fiscal Outlook
Under the Charter of Budget
Honesty, within 10 days of the calling of a general election the Secretaries of
the Department of Finance and the Treasury must release a Pre-Election
Economic and Fiscal Outlook report. The Pre-Election Economic and Fiscal
Outlook must update any information that has changed from the last budget
update.
Post-election Report
Under the Parliamentary
Service Act 1999, within 30 days of the end of the caretaker period for a
general election the Parliamentary Budget Officer must release
a Post-election Report that sets out the Parliamentary Budget Officer’s
estimates of the costings of the election commitments made by political parties
during the preceding election campaign.
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