Bills Digest no. 135 2008–09
Appropriation Bill (No. 2) 2009-2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 12 May 2009
House: House of Representatives
Portfolio: Finance and Deregulation
Commencement: On Royal Assent
Links: The relevant links to the Bill, Explanatory Memorandum and
second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
To
appropriate approximately $10.629 billion for the non-ordinary (‘other’) annual
services of government.
Section 83 of the Constitution of Australia provides that no
monies may be withdrawn from the Consolidated Revenue Fund except ‘under an
appropriation made by law’. Laws authorising spending are either:
- special appropriations, or
- six (usually) annual appropriation acts.
Appropriation Bill (No. 2) 2009-2010 (the Bill) is an annual
appropriation.
Section 54 of the Constitution
requires that there be a separate law appropriating funds for the ordinary
annual services of the government. That is why there are separate annual
appropriation bills for ordinary annual services and for ‘other’ annual
services. The distinction between ordinary and other annual services was set
out in a ‘Compact’ between the Senate and the Government in 1965 (the Compact
was updated to take account of the adoption of accrual budgeting).
Appropriation
Bill (No. 1) is introduced with the Budget and appropriates funds for the
‘ordinary annual services of the Government’. Appropriation Bill (No. 2)—which
is also introduced with the Budget—appropriates funds for ‘other’ annual
services. A third Appropriation Bill—Appropriation (Parliamentary Departments)
Bill No. 1—funds the parliamentary departments.
Budget terms and processes
Departmental and administered expenses
Departmental outputs (expenses) are the costs of running
agencies, for example, salaries, depreciation and other day-to-day operating
expenses. Administered expenses are the costs of programs that agencies administer.
While most administered expenses are funded through special appropriations,
some are funded through the Appropriation Bills.
Departmental outputs and administered expenses contribute to
outcomes. They are the results or consequences for the community that the
government wishes to achieve. An example, in the Attorney-General’s portfolio,
is:
An equitable and accessible system of federal civil justice.[1]
Portfolio
Budget Statements
When the Budget is brought
down, the government releases Portfolio Budget Statements. They contain,
amongst other things, explanations of the funding sought through the three
Appropriation Bills. The Portfolio Budget Statements are ‘relevant documents’ for
the purposes of section 15AB of the Acts Interpretation Act 1901. This
means that the Portfolio Budget Statements can be used to help interpret an
Act.
The Bill contains processes for reducing amounts that have
been appropriated but which are subsequently found to be more than was needed.
Reductions can apply to:
- payments to the states, territories and local governments and
administered items
- administered assets and liabilities, and other departmental
items, and
- CAC Act body payments.
Beginning in 2008-09, the process for reducing
appropriations for payments to the states, territories and local governments changed
from the process in previous years. Under the new process, the amount reduced
is based on agencies’ financial statements in their annual reports. In essence,
the amount of the reduction is the difference between the total of amounts
appropriated less the amount shown as having been spent in agencies’ financial
statements.
The advance to the Finance
Minister (AFM) provides flexibility to the Budget process by authorising the
Finance Minister to expend money when the Finance Minister is satisfied that
there is an urgent need for expenditure during the financial year but for which
there is not a sufficient appropriation. The Finance
Minister can expend money from the AFM only if the proposed expenditure meets
certain criteria, namely, there is an urgent need for
the expenditure that is not provided for, or is insufficiently provided for,
because of an omission or understatement or because of unforeseen circumstances.
In the past, payments for other services fell into four
categories:
- payments to the states, territories and local government (these
were paid under section 96 of the Constitution)
- new administered expenses
-
‘non-operating’ (sometimes called ‘capital’) costs:
- appropriations for ‘administered assets and liabilities’ fund,
for example, the purchase of new administered assets and the reduction of
administered liabilities
- funding in the form of ‘equity injections’ is, for example, for
substantial investment in new assets
- ‘loans’ are provided when an investment is expected to result in
a return to the investment, for example, productivity gains
- ‘previous years’ outputs’ appropriations replenish
funds used to provide departmental outputs in a previous year. This can occur,
for example, when the government has decided to introduce a new program but the
decision comes too late for the program to be funded through the additional
appropriation bills. In such cases, the program is funded initially from
existing appropriations. This funding is later replenished in the form of a
previous years’ outputs appropriation, and
The fourth category is payments to CAC Act bodies. They are authorities
and companies established under the Commonwealth
Authorities and Companies Act 1997 (CAC Act). Examples of
CAC Act bodies are the Australian War Memorial, the Australian Film Commission,
and the Australian Broadcasting Corporation.
Before 2008-09, payments to CAC
Act bodies were made ‘directly’ to the bodies through Appropriation Act No. 2.
Beginning in 2008-09, payments to CAC Act bodies are paid ‘indirectly’ through
portfolio departments. The reason for the change is that CAC Act bodies are
legally and financially separate from the Commonwealth and so do not debit
appropriations or make payments from the Consolidated Revenue Fund. Rather,
funding for CAC Act bodies is now paid to the relevant portfolio departments
which, in turn, pass the funds on to the CAC Act bodies.
Payments for other services will change substantially on the
commencement of this Bill. As noted, in the past, payments to the states,
territories and local governments have been made under Appropriation Bill (No.
2). Beginning with the Bill, payments to the states and territories will be
funded predominately under a special appropriation, namely, the Federal
Financial Relations Act 2009 (FFR Act). Payments under the FFR Act
appear in the Department
of the Treasury Portfolio Budget Statements.
The following will continue to be paid under Appropriation
Bill (No. 2):
- payments made directly to local government
- some payments through the states and territories for non‑government
schools that are not paid from the Schools Assistance Act 2008 or the
Council of Australian Governments Reform Fund
- non-operating costs (as before), and
- CAC Act body payments (as before).
As to the reason for the change, according to Budget Paper
No. 4 2009-10:
The FFR Act implements the centralised payments arrangement
agreed by COAG in the Intergovernmental Agreement on Federal Financial
Relations. The detail of the Commonwealth's payments to the States and
Territories is now contained in one piece of Commonwealth legislation. This
streamlining will also greatly improve public transparency of these payments and
the ability of the Parliament to scrutinise the payment arrangements.[2]
The Bill contains a completely new part dealing with general
drawing rights limits. As noted, section 83 of the Constitution of Australia
provides that no monies may be withdrawn from the Consolidated Revenue Fund
except ‘under an appropriation made by law’. Drawing rights are, in essence, a
control over the power to make payments authorised under appropriations:
Drawing rights provide controls around the expenditure of
money and the use of appropriations. They are a statutory control over who may
draw upon appropriations and make payments, and they allow for conditions and
limits to be set by the Finance Minister (or his delegate) in relation to those
activities.[3]
Sections 26 and 27 of the Financial
Management and Accountability Act 1997 (FMA Act) govern drawing
rights. Section 26 requires an official or minister to be authorised by a valid
drawing right to do any of the following:
- make a payment of public money
- request that an amount be debited against an appropriation, or
- debit an amount against an appropriation.
Section 27, among other things, provides the Finance
Minister with the power to issue, revoke or amend drawing rights. Those with
power to issue drawing rights (in addition to the Finance Minister) are Chief
Executives, Chief Financial Officers, officials who have been delegated the
power to issue drawing rights, and all officials who have been issued with
drawing rights.[4]
The Nation‑building
Funds Act 2008 established the Building Australia Fund, the Education
Investment Fund, and the Health and Hospitals Fund as well as special accounts
for each of those funds. The amounts in these special accounts are appropriated
for the purposes for which the Funds were created. The Nation-building Funds
Act 2008 and the Federal
Financial Relations Act 2009—which is the special appropriation under
which most payments to the states and territories are made—both contain
mechanisms to limit the amounts that can be paid from each special account
annually. The maximum amount that can be paid from each special account is
called its ‘general drawing rights limit’.
According to the Explanatory Memorandum, the reason for the
general drawing rights limits is as follows:
The general drawing rights limits provide Parliament with a
mechanism by which it may review the maximum amounts that can be paid under
each of these Acts in a financial year.[5]
The Bill contains the general
drawing rights limits for each special account for 2009‑10. The Bill does
not appropriate amounts from the funds.[6]
The Bill appropriates about $10.629
billion. This compares with about $12.691 billion in Appropriation Act (No. 2)
2008-09.
With the exception of the
provisions dealing with the general drawing rights limits, the Bill’s provisions are substantially the provisions of
Appropriation Act (No. 2) of previous years.
Clause 6 provides that the total of the items in Schedule
2 is $10 628 628 000.
Clause 7 deals with payments to the states,
territories and local government, and recasts provisions in previous
Appropriation Acts. Subclause 7(2) provides that if the Portfolio
Statements indicate that certain activities were intended to be for a
particular outcome, then expenditure on those activities is taken to be as
contributing to the outcome.
Clause 8 deals with ‘administered items’. Subclause
8(1) provides that the amount identified for an administered item in an
outcome can be used to contribute to that outcome. The wording of subclause
8(2) is identical to that in subclause 7(2).
As noted, administered assets and liabilities are one
of the four categories of non-operating costs. Clause 9 deals with
administered assets and liabilities items. Subclause 9(1) provides that
the amount identified for an agency’s administered assets and liabilities may
be applied to achieving any of the agency’s outcomes, which are specified in Schedule
2 of the Bill or in Schedule 1 of Appropriation Bill (No. 1) 2009-2010. The
wording of subclause 9(2) is identical to that in subclause 8(2) and subclause 7(2).
Clause 10 deals with ‘other departmental items’. Clause
10 authorises funding for three departmental non-operating categories of
funding—equity injections, loans and previous years’ outputs. Clause 10 provides that the amount specified in an other departmental item for an Agency
may be applied for the departmental expenditure of the Agency.
Clause 11 deals with ‘CAC Act body payments items’. Subclause
11(1) provides that an amount appropriated for a CAC Act body payment item
may only be applied for payment to the CAC Act body named. Subclause 11(2) provides
that if an Act provides that a CAC Act body must be paid amounts that are
appropriated by the Parliament for the purposes of the body, and Schedule 2 contains a CAC Act body payment item for that body, then the body must be paid
the full amount specified in the item.
Clause 12 deals with adjustments to payments to the
states, territories and local government, and to administered items. Subclause
12(1) provides that the amount by which payments to the states, territories
and local government and for administered items can be reduced is the
difference between what has been appropriated and what has been spent, the
latter being the amount shown in agencies’ financial statements. However, paragraph 12(2)(a) gives the Finance Minister power to determine that subclause
12(1) does not apply or that subclause 12(1) applies as if the
amount in the annual report were the amount that the Finance Minister
determines [paragraph 12(2)(b)].
Subclause 13(1) enables the minister responsible for an agency, or the
chief executive of the agency—where the Finance Minister is responsible for the
agency—to seek a reduction in administered assets and liabilities and other
departmental items, while subclause 13(2) empowers the Finance Minister
to make a determination that accords with the request. However, the
determination cannot reduce the appropriation below zero [subclause 13(3)].
Requests are not legislative instruments [subclause 13(5)]. However,
while the Finance Minister’s determinations are legislative instruments and are
disallowable, the determinations are not subject to the sunsetting provisions
of the Legislative Instruments Act 2003 [subclause 13(6)].
Clause 14—which deals with reductions to CAC Act
bodies payment items. The wording in clause 14 is almost the same as in clause
13. However, whereas a request can come from the Chief Executive of an
agency for which the Finance Minister is responsible in the case of clause
13, a similar request must come from the Secretary of the Department in the
case of CAC Act bodies [paragraph 14(1)(b)]. Subclause 14(5) confirms
that a reduction can be made for a CAC Act body even though it has been
allocated funds under subsection 11(2).
As noted, the advance to the Finance Minister authorises the
Finance Minister to expend money when the Finance Minister is satisfied that
there is an urgent need for expenditure during the financial year but for which
there is not a sufficient appropriation. Clause
15 deals with the advance. Subclause 15(3) allocates a maximum of $380
million to the advance.
As discussed, the Bill seeks to limit the amounts that can
be paid annually from the special accounts for three of the funds established
under the Nation‑building Funds Act 2008. Further, the Bill seeks
to limit the amounts that can be paid for general purpose financial assistance
and national partnership payments under the Federal Financial Relations Act
2009. Clause 16 General drawing rights limits contains these
provisions.
Subclause 16(1) limits the amount for the Building
Australia Fund to $1 025 000 000, subclause 16(2) limits the amount for
the Education Investment Fund to $1 390 094 000, while subclause 16(3) limits
the amount for the Health and Hospitals Fund to $ 465 700 000. Subclauses
16(4) and 16(5) relate to the Federal Financial Relations
Act 2009.The former limits the amount for general purpose financial
assistance to $1 000 000 000 while the latter limits the amount for national
partnership payments to $23 000 000 000.
Clause 18 Conditions etc. applying to State, ACT, NT and
local government items
Section 96 of the Australian Constitution allows Parliament
to provide financial assistance to the states on such terms and conditions as
the Parliament thinks fit. Clause 18 seeks to ensure that
payments made by the states, territories and local governments from financial
assistance provided by the Commonwealth must accord with the conditions that
the ministers specified in Schedule 1 establish.
Clause 19 Appropriations of the Consolidated Revenue Fund provides that the Consolidated Revenue Fund is appropriated as
necessary for the purposes of the Bill including the operation of the Bill as
affected by the Financial Management and Accountability Act 1997.
Schedule 1 confers on the ministers named, power to
determine conditions under which any payments to and through the states and
territories and local government authorities may be made, and the amounts and
timing of those payments.
Appropriations are set out in Schedule 2.
Members, Senators and
Parliamentary staff can obtain further information from the Parliamentary
Library on (02) 6277 2464.
Richard Webb
21 May 2009
Bills Digest Service
Parliamentary Library
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