BILLS DIGEST NO. 86, 2015–16              24 February 2016

Appropriation Bill (No. 3) 2015–2016 [and] Appropriation Bill (No. 4) 2015–2016

Daniel Weight
Economics Section 

Date introduced: 4 February 2016

House:  House of Representatives

Portfolio: Finance

Commencement: Both Bills will commence 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) 2015–2016 and the Appropriation Bill (No. 4) 2015–2016 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.

Purpose of the Bills

The purpose of the Appropriation Bill (No. 3) 2015–2016 (the No. 3 Bill) is to appropriate an additional $1,308,670,000 ($1.3 billion) from the Consolidated Revenue Fund (CRF) in the 2015–16 financial year for the ordinary annual services of the Government. 

The purpose of the Appropriation Bill (No. 4) 2015–2016 (the No. 4 Bill) is to appropriate an additional $905,053,000 ($0.9 billion) from the CRF in the 2015–16 financial year for the other annual services of the Government. 

Structure of the Bills

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 relevant Advance to the Finance Minister (AFM).

Part 4 of each Bill deals with several technical matters relating to special accounts, the formal appropriation of monies from the CRF, and the automatic repeal of the Acts.

Schedule 1 of the No. 4 Bill nominates the Ministers who are able to impose conditions on grants of financial assistance to the states and territories. 

Schedule 1 of the No. 3 Bill and Schedule 2 of Bill No. 4 state the amounts of the appropriations to be made to each portfolio.

Background

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 2015–16 MYEFO on 15 December 2015.[2] The 2015–16 MYEFO updated revenue and expenditure forecasts, and included the announcement of new policy measures.[3]

The two Bills will add to or alter annual appropriations—as required—to give effect to some of the measures announced in the 2015–16 MYEFO. Not all measures will be implemented by these Bills, as some measures—in particular those affecting taxation—may require other legislation to be passed by the Parliament.[4]

Appropriations

An appropriation is the legal release of monies from the CRF.[5] 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]

Under the terms of the Constitution, there are certain unique requirements that a Bill proposing to appropriate monies from the CRF 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 …[7]

Section 83 of the Constitution provides that no money may be withdrawn from the CRF ‘except under appropriation made by law’.[8] 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.

Section 53 of the Constitution prevents proposed laws appropriating monies originating in the Senate.[9] Further, under section 56 of the Constitution, all proposed laws for the appropriation of money may only be introduced into the House of Representatives following a recommendation by the Governor-General.[10] 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.[11]

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 the Government’, and that other matters must not be dealt with in the same Bill.[12] 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.[13] 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.[14] 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 buildings;

(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.[15]

Adherence to the Compact has not always been strict, and the High Court has held that any disagreements between the Houses are not justiciable.[16] 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.

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’.[17] 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.

Where a Bill for the ordinary annual services of the Government includes amounts that the Senate considers should, because of the Compact, be included in a Bill for the other annual services of the Government, the Senate may elect to deal with that Bill as if it were a Bill for the other annual services of government; considering it to be susceptible to amendment by the Senate.[18]

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.

Appropriation 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—the purpose for which monies are to be used. 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. The Department of Finance explains ‘outcomes’ as follows:

Government 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 Parliament may make payments to the states with or without conditions, and amounts intended for payment to the states are identified separately in Appropriation Bills. 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] The AFM is then 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, […]:

(a)              because of an erroneous omission or understatement; or

(b)              because 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.[25]

The amount of appropriation allocated to the AFM in 2015–2016 is $295 million for the ordinary annual services of government, and $380 million for the other annual services of government.[26] The Finance Minister tables an annual report in Parliament on the use of the AFM.[27]

Senate Estimates

The particulars of both Bills were referred to the Senate legislative and general purposes standing committees under Senate standing order 26 for examination and report.  This process is generally known as the Senate Estimates process, and on 10 November 2015 the Senate resolved to hold the Additional Senate Estimates hearings between 8 and 12 February 2016.[28] 

Financial implications

The No. 3 Bill seeks to appropriate $1,308,670,000 ($1.3 billion) from the CRF.[29] The No. 4 Bill seeks to appropriate $905,053,000 ($0.9 billion) from the CRF.[30] The total amount of money sought to be appropriated by the two Bills is $2,213,723,000 ($2.2 billion).

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. In relation to the human rights implications of the Bills, the Government states:

…this Appropriation Bill performs an important constitutional function, by authorising the withdrawal of money from the Consolidated Revenue Fund for the broad purposes identified in the Bill.

However, as the High Court has emphasised, beyond this, the Appropriation Acts do not create rights and nor do they, importantly, impose any duties.

Given that the legal effect of Appropriation Bills is limited in this way, the Appropriation Bill is not seen as engaging, or otherwise affecting, the rights or freedoms relevant to the Human Rights (Parliamentary Scrutiny) Act 2011.[31]

In relation to previous appropriation Bills, however, the Parliamentary Joint Committee on Human Rights has stated as follows:

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.[32]

At the time of writing, the Bills had not been considered by the Parliamentary Joint Committee on Human Rights.

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 (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.

Part 2 of each of the No. 3 and No. 4 Bills outline the quantum and types of appropriation from the CRF being proposed.

In the No. 3 Bill, money may be appropriated to departments as departmental or administered appropriation for outcomes, or payments for corporate Commonwealth entities within the meaning of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

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

•       appropriations for grants to the states, territories and local governments (also see clause 14 below)[33]

•       appropriations for new departmental or administered programs[34]

•       non-operating (or ‘capital’) appropriations for new administered assets and liabilities[35] or

•       appropriations for payments to departments for on-payment to corporate Commonwealth entities within the meaning of the PGPA Act.

Part 3 of each of the No. 3 and No. 4 Bills replenishes the AFM.

Part 4 of both Bills deal with certain technical matters, including formally appropriating moneys from the CRF.[36]

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 determine the conditions attaching to payments to the States, ACT, NT and local governments to the minister set out in Schedule 1 of that Bill.

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.

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

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[1].              Charter of Budget Honesty Act 1998, Schedule 1, Division 2 of Part 5, accessed 11 February 2016.

[2].              S Morrison (Treasurer), Release of 2015–16 Mid-year economic and fiscal outlook, media release, 15 December 2015, accessed 11 February 2016.

[3].              S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015–16, accessed 11 February 2016.

[4].              Constitution, section 55, accessed 19 February 2016.

[5].              Department of Finance (DoF), ‘Summary of annual appropriations’ DoF website, accessed 13 February 2016.

[6].              Pape v Commissioner of Taxation (2009) 238 CLR 1, [2009] HCA 23, accessed 10 February 2016.

[7].              Constitution, section 81.

[8].              Constitution, section 83.

[9].              Constitution, section 53.

[10].              Constitution, section 56.

[11].              B Wright and P Fowler, House of Representatives practice, 6th edn, Department of the House of Representatives, Canberra, 2012, p. 424, accessed 11 February 2016.

[12].              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’.

[13].              J Odgers, H Evans and R Laing, Odgers’ Australian Senate practice, 13th edn, Department of the Senate, Canberra, 2012, p. 369, accessed 11 February 2016.

[14].              Senate Standing Committee on Appropriations and Staffing, 50th report: ordinary annual services of the government, The Senate, Canberra, June 2010, accessed 11 February 2016.

[15].              Australia, Senate, Journals, 127, 2008–10, pp. 3642–43, accessed 11 February 2016.

[16].              Osborne v Commonwealth (1911) 12 CLR 321, [1911] HCA 19 per Griffith CJ at [336], accessed 11 February 2016.

[17].              Constitution, section 53.

[18].              B Wright and P Fowler, House of Representatives practice, op. cit., p. 430.

[19].              Australian Accounting Standards Board (AASB), ‘AASB 1050 Administered items’, AASB website, December 2013, accessed 11 February 2016.

[20].              Combet v Commonwealth (2005) 224 CLR 494, [2005] HCA 61, per Gummow, Hayne, Callinan and Heydon JJ at [123], accessed 19 February 2016.

[21].              Attorney-General (Vic); Ex rel Dale v Commonwealth (‘Pharmaceutical Benefits case’) (1945) 71 CLR 237, [1945] HCA 30, per Latham CJ at [253], accessed 11 February 2016.

[22].              Australian Government, Guidance for the preparation of the 2014–15 portfolio budget statements, March 2014, p. 21, accessed 11 February 2016.

[23].              Public Governance, Performance and Accountability Act 2013, section 11, ‘Note,’ accessed 11 February 2016.

[24].              DoF, ‘Advance to the Finance Minister’, DoF website, accessed 11 February 2016.

[25].              See, for example, Appropriation Act (No. 1) 2015–2016, section 10, accessed 24 February 2016.

[26].              Appropriation Act (No. 1) 2015–2016, subsection 10(3); Appropriation Act (No. 2) 2015–2016, subsection 12(3), both accessed 24 February 2016.  

[27].              Department of Finance, ‘Reports on advances provided under the annual Appropriation Acts’, Department of Finance website, accessed 13 February 2016.

[28].              Australia, Senate, Journals, 124, 2013–15, p. 3335, accessed 15 February 2016.

[29].              Appropriation Bill (No. 3) 2015–2016, clause 6.

[30].              Appropriation Bill (No. 4) 2015–2016, clause 6.

[31].              Explanatory Memorandum, Appropriation Bill (No. 3) 2015–2016, p. 3; Explanatory Memorandum, Appropriation Bill (No. 4) 2015–2016, p. 4, accessed 15 February 2016.

[32].              Parliamentary Joint Committee on Human Rights, Third report of 2013, The Senate, Canberra, 2013, p. 66, accessed 11 February 2016.

[33].              Appropriation Bill (No. 4) 2015–2016, clause 7.

[34].              Appropriation Bill (No. 4) 2015–2016, clauses 8 and 10.

[35].              Appropriation Bill (No. 4) 2015–2016, clause 9.

[36].              Appropriation Bill (No. 4) 2015–2016, clause 15.