Bills Digest no. 76 2014–15
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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.
Dinty Mather and Daniel Weight
Economics Section
27 November 2014
Contents
The Bills Digest at a glance
Purpose of the Bill
Structure of the Bill
Background
Appropriations
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions
Date introduced: 12 February 2015
House: House of Representatives
Portfolio: Finance
Commencement: On Royal Assent.
Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the Bills’ home pages for the Appropriation Bill (No. 3) 2014-2015 and Appropriation Bill (No. 4) 2014-2015, or through the Australian Parliament website.
When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.
The Bills Digest at a glance
Appropriation Bill (No. 3) 2014-2015 and Appropriation Bill (No. 4) 2014-2015 underpin the Government’s Mid‑Year Economic and Fiscal Outlook, and provide appropriations from the consolidated revenue fund for the Government’s activities.
This Bills Digest contains background material including the constitutional and other requirements for appropriation Bills.
The Appropriation Bill (No. 3) 2014-2015 (the No. 3 Bill) seeks to appropriate $1,385,908,000 out of the Consolidated Revenue Fund (CRF) for the ordinary annual services of the Government.
The Appropriation Bill (No. 4) 2013-2014 (the No. 4 Bill) seeks to appropriate $240,789,000 out of the CRF for other services of the Government that are not the ordinary annual services of the Government.
Part 1 of each Bill deals with preliminary matters, including when the Acts commence, and how to interpret them.
Part 2 of each Bill outlines the quantum and types of appropriation from the CRF.
Part 3 of each Bill replenishes the Finance Minister’s Advances.
Part 4 of each Bill deals with several technical matters, including crediting amounts to special accounts, and formally appropriating the amounts required from the CRF. Part 4 of the No. 4 Bill, in conjunction with Schedule 1 of that Bill, includes a mechanism for applying conditions to payments to states, territories and local governments.
Schedule 1 in the No. 3 Bill and Schedule 2 in the No. 4 Bill provide detailed information about the appropriations to be made to the departments and other Commonwealth entities listed.
Under the Charter of Budget Honesty Act 1998, the Government must release a Mid-Year Economic and Fiscal Outlook (MYEFO) report ‘by the end of January in each year, or within six months after the last budget, whichever is later’.[1] The Government released the 2014–15 MYEFO on 15 December 2014.[2] The 2014–15 MYEFO updated revenue and expenditure forecasts, and included the announcement of new policy measures.
These two Bills will add to or alter the appropriations – as required – to reflect all measures announced in the 2014–15 MYEFO or subsequently. Further details of those measures are included in the 2014–15 MYEFO.[3]
On 1 July 2014, the Public Governance, Performance and Accountability Act 2013 (PGPA Act) commenced.[4] The main change for present purposes arising from that Act was a new categorisation of Commonwealth entities as either non-corporate Commonwealth entities or corporate Commonwealth entities, which then have differing budgetary arrangements applied.[5] The categorisation depends upon whether or not a Commonwealth entity is established as a body corporate. Non-corporate Commonwealth entities include Departments.[6]
An appropriation is the legal release of monies from the CRF.[7] The annual Appropriation Acts are the authoritative source for details of annual appropriations provided to departments. The Acts take precedence over budget papers, portfolio budget statements and other associated materials.
There are certain unique constitutional requirements that a Bill proposing to appropriate monies must satisfy. An appropriation Bill must also comply with certain presentational requirements.
Constitutional requirements
Section 81 of the Constitution provides that:
All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund [CRF], to be appropriated for the purposes of the Commonwealth ...[8]
Section 83 of the Constitution provides that no money may be withdrawn from the CRF ‘except under appropriation made by law’.
The effect of these two sections is that all monies received by the Commonwealth must be paid into the CRF, and must not be spent before there is an appropriation authorising specific expenditure.
Appropriation Acts, however, do not create a source of power for the Commonwealth to spend money; they merely release that money from the CRF. The Commonwealth’s power to spend money must be found in other parts of the Constitution.[9]
Proposed laws appropriating monies may not originate in the Senate.[10] Further, under section 56 of the Constitution, all proposed laws for the appropriation of money may only be introduced following a recommendation by the Governor-General.[11] As—by convention—the Governor General only acts upon the advice of the Executive, this provision of the Constitution prevents non-government members of the House of Representatives from introducing Bills that would propose to appropriate money from the CRF.[12]
The ‘ordinary annual services of Government’ versus ‘other’ services of Government
Section 54 of the Constitution requires that there be a separate law appropriating funds for the ‘ordinary annual services of Government’, and that other matters must not be dealt with in the same Bill.[13] However, what constitutes the ‘ordinary annual services of the Government’ and the ‘other’ services of the Government is not defined in the Constitution.
A working distinction between ordinary and other annual services was agreed in a ‘Compact’ between the Senate and the Government in 1965.[14] Several amendments have been made to the Compact since 1965, and in 2010 the Senate Standing Committee on Appropriations and Staffing recommended the Senate restate the Compact in a consolidated form.[15] On 22 June 2010, the Senate resolved as follows:
(1) To reaffirm its constitutional right to amend proposed laws appropriating revenue or moneys for expenditure on all matters not involving the ordinary annual services of the Government.
(2) That appropriations for expenditure on:
(a) the construction of public works and buildings;
(b) the acquisition of sites and building
(c) items of plant and equipment which are clearly definable as capital expenditure (but not including the acquisition of computers or the fitting out of buildings);
(d) grants to the states under section 96 of the Constitution;
(e) new policies not previously authorised by special legislation;
(f) items regarded as equity injections and loans; and
(g) existing asset replacement (which is to be regarded as depreciation),
are not appropriations for the ordinary annual services of the Government and that proposed laws for the appropriation of revenue or moneys for expenditure on the said matters shall be presented to the Senate in a separate appropriation bill subject to amendment by the Senate.
(3) That, in respect of payments to international organisations:
(a) the initial payment in effect represents a new policy decision and therefore should be in Appropriation Bill (No. 2); and
(b) subsequent payments represent a continuing government activity of supporting the international organisation and therefore represent an ordinary annual service and should be in Appropriation Bill (No. 1).
(4) That all appropriation items for continuing activities for which appropriations have been made in the past be regarded as part of ordinary annual services.[16]
Adherence to the compact has not always been strict, and the High Court has held that any disagreements between the Houses are not justiciable.[17] Any disputes, therefore, are to be determined between the Houses themselves.
The Senate’s powers
Section 53 of the Constitution provides, among other things, that the Senate may not amend proposed laws appropriating revenue or moneys for the ordinary annual services of the Government. The Senate may, however, return to the House of Representatives any such proposed laws requesting, by message, the omission or amendment of any items or provisions.
Furthermore, the Senate may amend proposed laws appropriating revenue for purposes other than for the ordinary annual services of the Government, as long as it does not ‘increase any proposed charge or burden on the people’.[18] Conceivably, the Senate could amend an appropriation Bill for the other services of Government so as to, for example, redirect the proposed appropriation to another purpose, or reduce the proposed appropriation to nil. The Senate may also request that, if new measures are included in a Bill for the ‘ordinary annual services of Government’, that the Bill be returned to the House with a message requesting those new measures be omitted from the Bill.
Presentational requirements
Departmental and administered expenses
Australian Accounting Standard 1050 Administered Items requires that government agencies distinguish between revenues and expenses that they administer for the Government, and those over which they have some control.[19] Generally, administered expenses are the costs of providing the programs that agencies run for the Government, while departmental expenses are the costs incurred in running agencies.
Appropriations Bills, therefore, distinguish between ‘administered’ expenses and ‘departmental’ expenses. Administered appropriation may only be used for the program or outcome that it is appropriated for, while departmental appropriation may be moved between different departmental activities.[20]
Outcomes and programs
While the level of detail necessary for an Appropriation Act to be valid is generally low, in the Pharmaceutical Benefits case the High Court held that:
...there cannot be appropriations in blank, appropriations for no designated purpose, merely authorising expenditure...[21]
The Appropriation Bills must, therefore, also describe—in general terms—what the moneys are to be utilised for. The Bills use four methods for describing the purposes of the proposed appropriations.
Appropriations for ‘outcomes’ of non-corporate Commonwealth entities
For non-corporate Commonwealth entities, the purposes of operating appropriations (both departmental and administered) are specified with reference to the ‘outcomes’ of those entities. Outcomes ‘are the intended results, impacts or consequences of actions by the Government on the Australian community.’[22]
Appropriations for corporate Commonwealth entities
As corporate Commonwealth entities are legally distinct from the Commonwealth itself,[23] monies cannot be appropriated directly to those entities. Instead, amounts are appropriated to relevant Departments for on‑payment to corporate Commonwealth entities within Departments’ portfolios.
Non-operating appropriations
Non-operating appropriations are amounts designated for the capital needs of entities. Typically, these amounts are equity injections into entities, or monies for the purchase or development of the assets of entities. Under the Compact, they can only ever be proposed in a Bill dealing with the ‘other’ annual services of Government.
Appropriations for payments to the states
Under section 96 of the Constitution, the Commonwealth may make payments to the states with or without conditions, and amounts intended for payment to the states are identified separately. Again, because of the Compact, amounts to the states can only ever be proposed in a Bill dealing with the ‘other’ annual services of Government. Amounts to the Australian Capital Territory and the Northern Territory are also included with the amounts for the states.
Advance to the Finance Minister
The Advance to the Finance Minister (AFM) is the appropriation of monies to the Finance Minister without any particular outcome or purpose specified. The AFM is established in the first two Appropriation Acts each year,[24] and is subsequently replenished whenever supplementary Appropriation Acts are passed. The Finance Minister may allocate the moneys appropriated as AFM to outcomes already provided for in that same Appropriation Act where the Finance Minister is satisfied that there is an urgent need for expenditure, in the current year that is not provided for, or is insufficiently provided for, in the existing Appropriation Act:
- because of an erroneous omission or understatement or
- because the additional expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Appropriation Bills before those Bills were introduced into the House of Representatives.
The amount of appropriation allocated to the AFM each year has typically been limited to $295 million for the ordinary annual services of government, and $380 million for the other annual services of Government. The Finance Minister tables an annual report in Parliament on the use of the AFM.[25]
The No. 3 Bill seeks to appropriate $1,385,908,000 from the CRF.[26] The No. 4 Bill seeks to appropriate $240,789,000 from the CRF.[27] The total amount of money sought to be appropriated by the two Bills is $1,626,697,000.
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the two Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.
The Government states that the two Bills are ‘not seen as engaging, or otherwise affecting, the rights or freedoms relevant to the Human Rights (Parliamentary Scrutiny) Act 2011’.[28]
In relation to previous appropriation Bills, the Parliamentary Joint Committee on Human Rights has stated:
The committee notes that it does not anticipate it will generally be necessary for it to make substantive comments on appropriation bills... Nonetheless, the committee considers that there may be cases in which the committee considers it appropriate to comment on such bills. These might include specific appropriation bills or specific appropriations where there is an evident and substantial link to the carrying out of policy or programs under legislation that gives rise to human rights concerns and where the issues have not been adequately addressed in its examination of the substantive legislation or there has not been an opportunity for such examination.
The committee, however, notes that appropriation bills are highly technical in nature and it is likely to be difficult for the committee to identify particular human rights concerns in the time available. The committee would therefore find it helpful if the statements of compatibility accompanying these bills identified any proposed cuts in expenditure which may amount to retrogression or limitations on human rights, in particular economic, social and cultural rights.[29]
At the time of writing, the Bills had not been considered by the Parliamentary Joint Committee on Human Rights.
Part 1 of each of the No. 3 and No. 4 Bills deal with preliminary matters, including when the Acts commence (on Royal Assent), and how to interpret the Acts. Clause 4 of each of the No. 3 and No. 4 Bills provides that the accompanying Portfolio Budget Statements may be used as extrinsic materials to interpret the Acts.[30]
Part 2 of each of the No. 3 and No. 4 Bills outline the quantum and types of appropriation from the CRF.[31]
In the No. 3 Bill, the money is appropriated to departments as departmental or administered appropriation for outcomes, or payments for corporate Commonwealth entities within the meaning of the PGPA Act. The details of appropriations are outlined in Schedule 1 of that Bill.[32]
In the No. 4 Bill, the money is appropriated to departments as either:
- grants to the states, territories and local governments (see also clause 14 below)
- departmental appropriations for
– new administered programs
– non-operating (or ‘capital’) appropriations or
– other departmental items (or ‘equity injections, over which the non-corporate entity also exercises control’)[33] or
- payments to departments for on-payment to corporate Commonwealth entities under the PGPA Act,
according to Schedule 2 of that Bill.
In both Bills, the ‘Note’ to clause 6 indicates that some sections of the former Financial Management and Accountability Act 1997 continue to apply due to the Public Governance, Performance and Accountability Act (Consequential and Transitional Provisions) Act 2014.[34]
Part 3 of each of the No. 3 and No. 4 Bills replenishes the AFM. The replenishment of the AFM established under Appropriation Act (No. 1) 2014-2015 and Appropriation Act (No. 2) 2014-2015 means that that the Finance Minister, after the passage of the two Bills, will have the same amount of discretionary appropriation available as the Finance Minister did at the start of the financial year.
Part 4 of each of the No. 3 and No. 4 Bills ensures that if an appropriation is made for purposes that are covered by a Special Account, then the Special Account is replenished by the same amount as the appropriation: clause 11 in the No. 3 Bill and clause 13 in the No. 4 Bill.[35] Part 4 also contains the provisions formally appropriating moneys from the CRF, subject to the effect of certain provisions of the Public Governance, Performance and Accountability Act 2014 and the Financial Management Act (as it continues to apply due to the Public Governance, Performance and Accountability Act (Consequential and Transitional Provisions) Act 2014): clause 12 in the No. 3 Bill and clause 15 in the No. 4 Bill.
Clause 14 of the No. 4 Bill deals with Parliament’s power, under section 96 of the Constitution, to provide financial assistance to the states. It delegates the power to the responsible minister to determine the conditions under which payments are made to the states, ACT, NT and local governments, and the amounts and timing of those payments.[36] This section declares that the minister nominated in Schedule 1 of the No. 4 Bill is the relevant minister for determining any conditions.
Schedule 1 in the No. 3 Bill and Schedule 2 in the No. 4 Bill provide detailed information about the services for which appropriations are to be made to each portfolio and for each Commonwealth entity. Appropriations under the No. 3 Bill are; Defence (40.7%), Immigration and Border Protection (9.8%), Social Services (9.6%), and Employment (8.3%) with 31.6% divided among the remaining portfolios. The major portfolio breakdown for the No. 4 Bill is; Agriculture (37.4%), Foreign Affairs and Trade (19.1%), Attorney-General (13.0%) and Immigration and Border Protection (9.9%).
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.
[1]. Charter of Budget Honesty Act 1998, Schedule 1, Division 2 of Part 5, accessed 26 February 2015.
[2]. J Hockey (Treasurer), Mid-year economic and fiscal outlook 2014–15, media release, 15 December 2014, accessed 13 February 2015.
[3]. J Hockey (Treasurer) and M Cormann (Minister of Finance), Mid-year economic and fiscal outlook 2014–15, Budget website, December 2014, accessed 13 February 2015.
[4]. Public Governance, Performance and Accountability Act 2013, accessed 23 February 2015.
[5]. Corporate Commonwealth entities that fall under the Public Governance, Performance and Accountability Act 2013 include those bodies previously covered by the repealed Commonwealth Authorities and Companies Act 1997, accessed 26 February 2015.
[6]. Public Governance, Performance and Accountability Act 2013, sections 10 and 11.
[7]. Department of Finance, ‘Annual appropriation rules—summarised’, Department of Finance website, accessed 13 February 2015.
[8]. Constitution, section 81, accessed 16 February 2015.
[9]. Pape v Commissioner of Taxation (2009) 238 CLR 1, [2009] HCA 23, accessed 13 February 2015.
[10]. Constitution, section 53.
[11]. Constitution, section 56.
[12]. IC Harris, House of Representatives practice, fifth edn, Department of the House of Representative, Canberra, 2005, p. 410, accessed 13 February 2015.
[13]. Constitution, section 54: ‘The proposed law which appropriates revenue or moneys for the ordinary annual services of the Government shall deal only with such proposed appropriation’.
[14]. Department of the Senate, Odgers’ Australian Senate practice, twelfth edn, Commonwealth of Australia, Canberra, 2008, chapter 13, accessed 13 February 2014.
[15]. Senate Standing Committee on Appropriations and Staffing, 50th report: ordinary annual services of the government, The Senate, Canberra, June 2010, accessed 23 February 2015.
[16]. Australia, Senate, Journals, 127, 2008–10, pp. 3642–3, accessed 26 February 2015.
[17]. Osborne v Commonwealth (1911) 12 CLR 321, per Griffith CJ at 336, accessed 13 February 2015.
[18]. Constitution, section 53.
[19]. Australian Accounting Standards Board (AASB), ‘AASB 1050 administered items, AASB website, December 2013, accessed 13 February 2015.
[20]. Combet v Commonwealth (2005) 224 CLR 494, [2005] HCA 61, per Gummow, Hayne, Callinan and Heydon JJ at paragraph 123.
[21]. Attorney-General (Vic); Ex rel Dale v Commonwealth (‘Pharmaceutical Benefits case’) (1945) 71 CLR 237, per Latham CJ at 253, accessed 13 February 2015.
[22]. Australian Government, Guidance for the preparation of the 2014-15 portfolio budget statements, Department of Finance, March 2014, p. 21, accessed 13 February 2013.
[23]. Public Governance, Performance and Accountability Act 2013, section 11, ‘Note,’ accessed 23 February 2015.
[24]. Department of Finance, ‘Advance to the Finance Minister’, Department of Finance website, accessed 13 February 2015.
[25]. Department of Finance, ‘Reports on advances provided under the annual Appropriation Acts’, Department of Finance website, accessed 13 February 2015.
[26]. Appropriation Bill (No. 3) 2014-2015, clause 6.
[27]. Appropriation Bill (No. 4) 2014-2015, clause 6.
[28]. Explanatory Memorandum, Appropriation Bill (No. 3) 2014-2015, p. 4 and identical text in the Explanatory Memorandum, Appropriation Bill (No. 4) 2014-2015, p. 4, accessed 16 February 2015.
[29]. Parliamentary Joint Committee on Human Rights, Third report of 2013, The Senate, Canberra, 2013, p. 66, accessed 26 February 2015.
[30]. The portfolio budget statements and the portfolio additional estimates statements are relevant documents for the purposes of section 15AB of the Acts Interpretation Act 1901 (Cth).
[31]. In particular clause 6 of each Bill.
[32]. Appropriation Bill (No. 3) 2014-2015, Schedule 1—Services for which money is appropriated.
[33]. ‘...”equity injections” can be provided to non-corporate entities to, for example, enable investment in assets to facilitate departmental activities’. These do not automatically lapse, but are available until spent (Explanatory Memorandum, Appropriation Bill (No. 4) 2014-2015, op. cit., p. 9).
[34]. Financial Management and Accountability Act 1997 and Public Governance, Performance and Accountability (Consequential and Transitional Provisions) Act 2014, accessed 26 February 2015.
[35]. Department of Finance, ‘Special accounts’, Department of Finance website, accessed 16 February 2015.
[36]. Explanatory Memorandum, Appropriation Bill (No. 4) 2014-2015, op. cit., pp. 11–12.
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