Bills Digest No. 47, 2013–14              14 March 2014

Appropriation Bill (No. 3) 2013-2014 [and] Appropriation Bill (No. 4) 2013-2014

Tarek Dale and Daniel Weight
Economics Section

Date introduced: 13 February 2014

House:  House of Representatives

Portfolio: Finance

Commencement: Royal Assent

Links: The links to the Bills, Explanatory Memoranda and second reading speeches can be found on the Bills’ home pages for the Appropriation Bill (No. 3) 2013–2014 and the Appropriation Bill (No. 4) 2013–2014, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

The Bills Digest at a glance

Appropriation Bill (No. 3) 2013–2014 and Appropriation Bill (No. 4) 2013–2014 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.

Purpose of the Bill

The Appropriation Bill (No. 3) 2013–2014 (the No. 3 Bill) seeks to appropriate $11.6 billion 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 $3.2 billion out of the CRF for services that are not the ordinary annual services of the Government.

Structure of the Bill

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 consolidated revenue fund.

Part 3 of each Bill includes mechanisms for the Finance Minister to reduce the amount appropriated, and replenish the Finance Minister’s Advances.

Part 4 of the No. 4 Bill deals with drawing right limits (an administrative restriction on spending, but not an appropriation).

Part 4 of the No. 3 Bill and Part 5 of the No. 4 Bill provide for several technical matters, including details relating to special accounts, formally appropriating the amounts required from the consolidated revenue fund, and the conditions applying to payments to state, territory 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 CAC Act bodies listed.

Background

Under Division 2 of the Charter of Budget Honesty, which is established 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 2013–14 MYEFO on 17 December 2013.[2] The 2013–14 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 2013–14 MYEFO or subsequently. Further details of those measures are included in the 2013–14 MYEFO.[3]

Appropriations

An appropriation[4] is the legal release of monies from the CRF. The annual Appropriation Acts are the authoritative source for details of annual appropriations provided to agencies. 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 …[5]

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.[6]

Proposed laws appropriating monies may not originate in the Senate.[7] 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.[8] 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.[9]

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.[10] However, what constitutes the ‘ordinary annual services of the Government’ and the ‘other’ services of the Government is not defined in the Constitution.

In the High Course case of Combet v Commonwealth, Gleeson CJ noted:

Section 53 of the Constitution provides that the Senate may not amend proposed laws appropriating revenue or moneys for the ordinary annual services of government. Legislation appropriating funds for the costs and expenses of maintaining the ordinary annual services of government is dealt with separately from legislation dealing, for example, with extraordinary charges and appropriations. Quick and Garran wrote that ‘[t]he ordinary annual services include the various public departments manned and equipped to carry on the general work of the Government departments, such as customs and excise, posts and telegraphs, light-houses, light-ships, and quarantine, naval and military defence, the money to pay for which is voted by Parliament from year to year’. The authors were writing at a time when the role of the Commonwealth was more modest than at present, but the idea they convey remains true…[11]

A working distinction between ordinary and other annual services was agreed in a ‘Compact’ between the Senate and the Government in 1965.[12] The substance of the compact is reflected in the following 1977 resolution of the Senate:

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 buildings;

              (c) items of plant and equipment which are clearly definable as capital expenditure;

              (d) grants to the states under section 96 of the Constitution; and

              (e) new policies not previously authorised by special legislation;

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.[13]

In 1999 the Compact was altered to reflect the adoption of accrual accounting. The adjustments provide that:

(i)       items regarded as equity injections and loans be regarded as not part of ordinary annual services

(ii)      all appropriation items for continuing activities for which appropriations have been made in the past be regarded as part of ordinary annual services

(iii)     all appropriations for existing asset replacement be regarded as provision for depreciation and part of ordinary annual services.[14]

Adherence to the compact has not always been strict, and the High Court has held that any disagreements between the Houses are not justiciable.[15] Any disputes 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.

However, 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’.[16] 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.[17] 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.[18]

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...[19]

The Appropriation Bills must, therefore, also describe—in general terms—what the moneys are to be utilised for. This is done by allocating both departmental and administered appropriations to specific outcomes. The then Department of Finance and Deregulation (now the Department of Finance) described the distinction between outcomes and programs as follows:

Government outcomes are the intended results, impacts or consequences of actions by the Government on the Australian community. Commonwealth programs are the primary vehicle by which government agencies achieve the intended results of their outcome statements.[20]

Each outcome pursued by an agency will have one or more programs contributing to that outcome.

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,[21] 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

•       the expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Bill for this Act before that Bill was introduced into the House of Representatives.

The amount of appropriation allocated to the FMA 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.

Financial implications

The No. 3 Bill seeks to appropriate $11,595,880,000 from the CRF.[22] The No. 4 Bill seeks to appropriate $3,211,112,000 from the CRF.[23] The total amount of money sought to be appropriated by the two Bills is $14,806,992,000.

Statement of Compatibility with Human Rights

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’.[24]

Key issues and provisions

Part 1 of each of the No. 3 and No. 4 Bills deal with preliminary matters, including when the Acts commence, 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 and Portfolio Additional Estimates Statements may be used as extrinsic materials to interpret the Acts.[25]

Part 2 of each of the No. 3 and No. 4 Bills outline the quantum[26] and types of appropriation from the consolidated revenue fund.

In the No. 3 Bill, the money is appropriated to departments as departmental or administered appropriation, or payments for Commonwealth authorities or companies within the meaning of the Commonwealth Authorities and Companies Act 1997 (CAC Act bodies). The details of appropriations are outlined in proposed Schedule 1 of that Bill.[27]

In the No. 4 Bill, the money is appropriated to departments as either:

•       grants to the states, territories and local governments (see also clause 18 below)

•       departmental appropriations for

–      new administered outcomes (although no new administered outcomes are specified in Schedule 2 of this Bill, this mechanism has been used in other Appropriations Bills),

–      non-operating (or ‘capital’) appropriations

–      other departmental items (or ‘equity injections, over which the Agency also exercises control’)[28] or

•       payments to departments in relation to CAC Act bodies

according to Schedule 2 of that Bill.

Part 3 of each of the No. 3 and No. 4 Bills includes mechanisms for the Finance Minister to reduce the amount appropriated, and replenishes the Finance Minister’s Advances.

The reduction mechanisms effectively allow the Finance Minister to retain any moneys that have been appropriated but are no longer required due to reductions in the program costs or changes in government priorities.

The replenishment of the Finance Minister’s Advances established under Appropriation Act (No. 1) 2013–2014 and Appropriation Act (No. 2) 2013–2014 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 Bill No. 4 deals with drawing right limits. Clause 16 in Part 4 of Bill No. 4 increases a general drawing right limit established in the Appropriation Act (No. 2) 2013–2014 (subsection 16(3)) for the Health and Hospitals Fund (HHF). The HHF drawing rights limit is based on section 267 of the Nation-building Funds Act 2008 (Cth). From the Bill’s Explanatory Memorandum:

Clause 16 specifies a new general drawing rights limit for one of the Nation-building Funds Act 2008 by altering the operation of section 16 in Act (No. 2) [The Appropriation Act (No. 2) 2013-2014].

…The HHF is established under section 214 of the Nation-building Funds Act 2008. It consists of the investments of the HHF and the HHF Special Account…

…It is important to note that the Bill will not appropriate amounts to be paid from the HHF … Under section 27 of the FMA Act, the Finance Minister is able to issue drawing rights, without which no public money may be spent, thereby providing a control mechanism over spending … Clause 16 places a limit over the amount of drawing rights that may be issued.

Specifying a general drawing rights limit, and thereby limiting the ability to issue drawing rights to that limit, is an effective mechanism to manage expenditure of public money as the official or Minister making a payment of public money cannot do so with the authority of a valid drawing right under the FMA Act. The purpose of doing so is to provide Parliament with a transparent mechanism by which it may review the rate at which amounts committed to the … HHF are expended.[29]

Part 4 of Bill No. 3 and Part 5 of Bill No. 4 provide for several technical matters. Firstly, they ensure 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 14 in the No. 3 Bill and clause 17 in the No. 4 Bill.[30] Secondly, they contain the provisions formally appropriating moneys from the CRF: clause 15 in the No. 3 Bill and clause 19 in the No. 4 Bill.

Clause 18 of the No. 4 Bill provides that grants to the states, territories and local governments may be made subject to conditions determined by the Commonwealth. This section declares that the ministers mentioned in Schedule 1 of the No. 4 Bill are the relevant ministers for determining any conditions.

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 CAC Act bodies listed.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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ISSN 1328-8091

[1].              Charter of Budget Honesty Act 1998, Schedule 1, Division 2, accessed 11 March 2014.

[2].              J Hockey (Treasurer), Mid-year economic and fiscal outlook 2013–14, speech, 17 December 2013, accessed 4 March 2014.

[3].              J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2013–14, 2013, accessed 4 February 2014.

[4].              See: Department of Finance, ‘Annual appropriation rules – summarised’, Department of Finance website, accessed 4 March 2014.

[5].              Constitution, section 81, accessed 12 March 2014.

[6].              Pape v Commissioner of Taxation [2009] HCA 23 (7 July 2009). See also http://www.austlii.edu.au/au/cases/cth/HCA/2009/23.html, accessed 11 March 2014.

[7].              Constitution, section 53.

[8].              Constitution, section 56.

[9].              IC Harris ed., House of Representatives practice, fifth edn, Department of the House of Representatives, Canberra, 2005, p. 410, accessed 4 March 2014.

[10].              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’.

[11].              Combet v Commonwealth (2005) 224 CLR 494; [2005] HCA 61 (21 October 2005) at paragraph 8, emphasis added. See also http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/2005/61.html, accessed 4 March 2014.

[12].              See: Department of the Senate, Odgers’ Australian Senate practice, 12th edn, Commonwealth of Australia, Canberra, 2008, Chapter 13, accessed 4 March 2014.

[13].              A Missen, ‘Speech: Standing Committee on Constitutional and Legal Affairs’, Senate, Debates, 17 February 1977, p. 184, accessed 4 March 2014.

[14].              Department of the Senate, Odgers’ Australian Senate practice, 12th edn, op. cit.

[15].              Osborne v Commonwealth (1911) 12 CLR 321, per Griffith CJ at 336, accessed 4 March 2014.

[16].              Constitution, section 53.

[17].              Australian Accounting Standards Board (AASB), AASB 1050 administered items, AASB, December 2007, accessed 4 March 2014.

[18].              Combet v Commonwealth, op. cit., Gummow, Hayne, Callinan and Heydon JJ at paragraph 123.

[19].              Attorney-General (Vic); Ex rel Dale v Commonwealth (‘Pharmaceutical Benefits case’) (1945) 71 CLR 237, per Latham CJ at 253.

[20].              Department of Finance and Deregulation, Guidance for the preparation of the 2013–14 portfolio budget statements, Commonwealth of Australia, March 2013, p. 20, accessed 4 March 2014.

[21].              See: R Dossor, Appropriation Bill (No. 1) 2013–2014 [and] Appropriation Bill (No. 2) 2013–2014, Bills digest, 126, 2012–13, Parliamentary Library, Canberra, 2013, accessed 11 March 2014.

[22].              Appropriation Bill (No. 3) 2013–2014, clause 6.

[23].              Appropriation Bill (No. 4) 2013–2014, clause 6.

[24].              Explanatory Memorandum, Appropriation Bill (No. 3) 2013–2014, p. 4 and identical text in the Explanatory Memorandum, Appropriation Bill (No. 4) 2013–2014, p. 4, accessed 11 March 2014.

[25].              The portfolio budget statements and portfolio additional estimates statements are relevant documents for the purposes of section 15AB of the Acts Interpretation Act 1901 (Cth).

[26].              In particular clause 6 of each Bill.

[27].              Appropriation Bill (No. 3) 2013–2014, Schedule 1—Services for which money is appropriated.

[28].              ‘…”equity injections” can be provided to Agencies 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) 2013–2014, op. cit., p. 9).

[29].              Explanatory Memorandum, Appropriation Bill (No. 4) 2013–2014, op. cit., pp. 15–16.

[30].              For more detail on special accounts, see: Department of Finance and Administration (DFAA), Guidelines for the management of special accounts, Financial Management Guidance no. 7, DFAA, October 2003, accessed 11 March 2014.