Finance and Deregulation Portfolio
4.1
The committee took evidence from the Department of Finance and
Deregulation and portfolio agencies on Wednesday, 27 May and Thursday, 28 May
2009.
Department of Finance and Deregulation
Fiscal sustainability in the medium
term
4.2
The committee asked the Department of Finance and Deregulation (Finance)
to confirm debt figures across the forward estimates. Finance suggested that
this was an area to question the Department of the Treasury,[1]
but were able to confirm public figures from the budget papers. The committee
heard that net debt in 2012–13 is forecast to be $188.2 billion, while gross
debt would be $300.8 billion. [2]
4.3
The committee asked Finance how it would observe fiscal discipline in
order to hold real growth spending down to two per cent per annum. Dr Ian Watt,
Secretary of the department, responded to the question stating:
Ultimately, it is a matter of government deciding to keep new
spending tight, limited, and to bear down on existing spending wherever
possible. When you look at the periods where the government had had low rates
of growth of real spending—these have occurred in the case of all three former
governments, going back to the late seventies—they have usually come in periods
of tight budgets and been sustained as long as budgets stayed tight. I think
the answer is that the government has made a commitment and that commitment is
certainly able to be realised, but it will be a matter of all agencies, all
departments and all members of the government being signed on for that
commitment and working towards meeting it.[3]
Contingent liabilities
4.4
The committee spent some time discussing the subject of contingent
liabilities. A contingent liability is 'a specific category of fiscal risks.
Broadly, they represent possible costs or gains to the Australian Government
arising from past events which will be confirmed or otherwise by the outcome of
future events that are not within the Government's ability to control'.[4]
In response to questioning, Finance informed the committee that it has 'a role
to play in collecting information on contingent liabilities and reporting those
in the statement of risks'.[5]
4.5
The department was also questioned on methodology adopted in advising
the government on potential exposure to contingent liabilities for policy
decisions. Dr Paul Grimes, General Manager of the Budget Group, explained
that Finance conducts a survey of agencies each year, stating 'in the lead-up
to preparing the budget documents we will be in contact with all agencies to
collect this information'.[6]
He went on to state:
...the risks here are reporting both positive and negative risk
to the budget; they are not conducting an analysis of weighing up the benefits and
costs of specific risks. Obviously those are things that are considered through
the budget process proper and through the policy development process. If the government
takes on a contingent liability, in taking on that liability, that would have
been a policy decision that the government had made, and in making that
decision the government would way of benefits and costs. That is not outlined
in this statement. The statement is a disclosure of the actual liabilities and
risks that have been recognised.[7]
National Broadband Network
4.6
Following on from the subject of contingent liabilities, the committee
questioned Finance on matters relating to the proposal for a National Broadband
Network (NBN). Finance was asked to give more detail on the costing of the NBN
proposal, but initially declined on the grounds that it went to a cabinet
process, and involved commercial-in-confidence material, opting instead to take
the matter on notice.[8]
On the subject of what technology was involved in the costing, Mr Peter
Saunders, Division Manager of the Budget Review Division, confirmed that there
were assumptions about technology and uptake, but cited
commercial-in-confidence issues, taking the question on notice.[9]
The committee did hear however, that it was assumed in the costing that 90 per
cent of the network would involve fibre-to-the-premise, while the remainder
would adopt wireless and satellite technology.[10]
In response to further questions on the costing process, Mr Saunders stated:
We were provided with unit costs and the number of kilometres
that had to be covered, with unit rates per kilometre. We sought to find
benchmarks for those, had an iterative dialogue with the department of
broadband about that and eventually narrowed down the range to the one that has
been mentioned—$38 billion to $43 billion.[11]
4.7
The committee asked what mechanisms would be in place to ensure that the
new NBN company, which would be formed under the proposal, operated at arm's
length from the Government. Mr Lewis replied that the new company will be
established as a government business enterprise and that:
It will operate in accordance with the usual governance
arrangements for government business enterprises. An appropriate board will be
appointed to oversee the management of the company. Legislation will be
introduced to give effect to a range of policy announcements that the
government has already made...There will be the regulatory arrangements in
relation to how the wholesale company should operate and there will also need
to be arrangements put in legislation in relation to future privatisation of
the company.[12]
Suggestion of a joint sitting of
Treasury and Finance at an estimates hearing
4.8
Following a series of questions on both the budget and the NBN that were
referred to Treasury by Finance, Senator the Hon Helen Coonan made the
following comments:
Just as a matter of interest, has any thought been given—this
is something for you, Senator Sherry—to the utility of having some sort of
joint Senate estimates with both Treasury and Finance? I make the suggestion in
all seriousness. To get a composite picture, in fairness—in terms of public
accountability and general transparency of the estimates process—it seems to me
that, rather than putting witnesses in positions where they have to assume
responsibility over and over again, there could be some utility in having a
joint sitting.[13]
4.9
The minister representing the Finance Minister, Senator Sherry responded
to these comments by taking the suggestion on notice, stating:
I have not given it any consideration. I would want to
consult with the appropriate ministers and so I would take that on notice. We
will deal with this suggestion if it emerges in the Senate.[14]
Deregulation program
4.10
The committee asked Finance how savings through deregulatory measures
were costed. Finance informed the committee that often in the case of major
economic deregulatory measures, the Productivity Commission will have provided
a costing, though these tend to be for a broad series of reforms. Other savings
that relate to reforms within government are generally costed in the standard
budget or similar process.[15]
4.11
The committee heard that, generally, the focus is on savings to business
and business processes. Ms Susan Page, General Manager of the Deregulation
Policy Division, provided more detail, stating:
...invariably there is an investment upfront in order to achieve
the savings for business. IT systems are a good example of this. For example,
some of the work that is being done through the financial services working
group, which Senator Sherry is overseeing, that requires an investment
initially in departmental and other time in order to develop the simplified
product disclosure statements that will hopefully provide savings for both
consumers and business over time. But some savings over time, such as removal
of particular types of regulation processes, things like that, they do provide
savings for government.[16]
4.12
Finance was also asked about a further round of microeconomic reform
scheduled as part of the Nation Building and Jobs Plan. Ms Page commented that
in addition to a role in relation to a reform of the legal profession through
the Business Regulation and Competition Working Group of COAG, Finance is conducting
a review of pre-2008 subordinate legislation. Ms Page explained further,
stating:
That involves scrutinising the Commonwealth database, the
FRLI database, which has about 30,000 items. We are in the middle of filtering
that so that we can go to agencies and say, 'Of all of these instruments, these
are the ones that appear to us to impose costs on business'—in other words,
those that are in fact economic regulations. There are a lot of things in the
database that are gazette notices, notification, court notices and things like
that.
So what we are doing at the moment is working with agencies,
and we have a first tranche of agencies that we are working with at the moment,
showing them what we think the major pieces of economic regulation are. Then we
are working with them essentially to refine further the nature of the
regulation—what the purpose of it was, at the age of it, whether or not it has
been recently reviewed—and on the basis of that we will prepare a report for
our minister to say, 'There is a scope here,' perhaps for further review,
perhaps not, depending on what we find. As a secondary effect of that process,
we may even be able to identify further redundant regulation for clean-up or
removal.[17]
4.13
When questioned about the Government's previously announced 'one-in,
one-out' policy towards new regulation, Ms Page stated:
The government has instituted the 'one in, one out' policy.
The way in which it works is that ministers are asked to identify scope for an
offsetting regulation. It is not mandatory that they have to provide one. Part
of the reason for that is that the deregulatory agenda has expanded since that
initial commitment by the government.
There are a range of other things that ministers have done.
They have provided various offsets in the form of redundant regulation as part
of various clean-ups. Some of them are involved in various reviews at the moment.
But we do have some examples of offsets that are provided from time to time by
ministers. It is proving to be quite an important discipline—when people are
proposing regulation, they are starting to think about how it will affect the
stock of regulation that they have and whether or not there is scope for any
further rationalisation.[18]
Gershon Review of ICT
4.14
Finance provided an update of the implementation of recommendations from
the Review of the Australian Government's Use of Information and
Communication Technology by Sir Peter Gershon. Finance informed the
committee that they have completed phase 1 of the 'business-as-usual' review and
realised savings of approximately $110 million across 51 agencies.[19]
'Business-as-usual' refers to ICT expenditure on the normal operations, as
opposed to projects that alter an agency's. ICT capability.[20]
4.15
The committee also heard that Finance had revised down the expected
savings from implementing the Gershon findings. This was the result of
collecting improved data since the publication of the review, which suggested
less savings were available from 'business-as-usual' activities. The revised
saving figures were $298.2 million in 2010–11, $303.1 million in 2011–12 and
$306.1 million in 2012–13.[21]
Travel entitlements
4.16
There was extensive questioning of the Ministerial and Parliamentary
Services (MAPS) branch of Finance over travel entitlements. The committee
questioned MAPS over media reports alleging that Senator McLucas had
incorrectly drawn a travel allowance while in Canberra.
4.17
The committee was informed that the Special Minister of State had
requested a brief on the matter, and the advice given by MAPS was that Senator
McLucas was within entitlement and that the protocol for investigation of
alleged misuse of entitlements did not need to be invoked.[22]
Other issues discussed
4.18
Other issues discussed with Finance included its role in the decision to
convert Medibank Private to for-profit status, the balance of the three nation
building funds, the public sector superannuation liability, consultancy costs
across government, government procurement, the Commonwealth grants framework,
ministerial staff travel and Comcar.
ASC Pty. Ltd.
4.19
ASC Pty. Ltd. (formerly the Australian Submarine Corporation) appeared
before the committee for the first time. The committee discussed the history of
the plan to privatise the company, which has been put on hold due to the global
financial crisis and related factors.[23]
The committee also discussed consultancy costs related to the postponed sale,
the company's relationship with the Defence Materiel Organisation and the
economic benefits of the company's activities.
Medibank Private
4.20
Issues discussed with Medibank Private included its conversion to
for-profit status, the impact of the Medicare Levy Surcharge, the use of
generic prostheses and the prevalence of fraud.
Conversion to for-profit status
4.21
The committee sought advice from Mr Savvides, Managing Director of
Medibank Private, on the initiation of the discussion to convert Medibank to
for-profit status. In response, Mr Savvides stated:
...it is not a new idea. All I am really dealing with here is
the word ‘initiating’. From the time of the previous government, when Medibank
was being reviewed for sale and there was a process in play for preparation of
that event if it did take place, Medibank back at that time, with the help of
their external auditors, started to put in place the process of accounting as a
for-profit, in the event that that might happen. If you were to walk inside of
our organisation, especially in the finance department, and see what our people
do, you would have seen the capability starting to be reflected. So it is quite
an old idea. It goes back several years.
In our conversations with our shareholder and finance
department, which are regular conversations, it is not something that we do not
talk about. We are in parallel mode and we are ready to move if we need to
move. So ‘initiation’ is the wrong word. When the correspondence occurs between
the chair and the shareholder, that correspondence is about making sure that
both sides understand. Certainly, the board is expressing its view about what
it thinks is important and, if there is a decision by the owner to make a
change, then the organisation is obviously ready because it has been in
parallel mode for some time.[24]
4.22
When asked what Medibank's assumptions were about tax and dividend
policy after the conversion, Mr Savvides declined to go into detail on the
grounds that it was commercial-in-confidence information. He later provided
further information stating:
The payment of tax and dividends only occurs if there is
surplus or a profit for a converted company. That is an after-the-event
distribution. As I said earlier the fund has a strong balance sheet with reserves
beyond the capital adequacy requirement. If in fact the fund has covered its
risk, paid its claims, paid its overheads, met its margin requirement for its
corporate plan to achieve a certain profitability and delivered a surplus then
it is distributing after having achieved all of its required obligations.[25]
Future Fund Management Agency
4.23
There was an extensive discussion with the Future Fund Management Agency
(FFMA) concerning the fund's current investment strategy. FFMA indicated to the
committee that they have been targeting higher rates of return on their
investments in the last three months. Mr Paul Costello, General Manager of
FFMA, provided more detail to the committee stating:
The best way to observe that is in the lowering of the
proportion of cash held in the portfolio as the proportion of other higher
return seeking assets grows. That has always been the expectation—and it has
been commented on continuously since we began—of the rate at which the Future
Fund program would become invested. By definition, that is reducing the cash
holding to a more normal size for a long-term program like ours and replacing
that with a range of other exposures in equity markets, debt markets, property
markets and a range of other areas.[26]
4.24
Other matters discussed with FFMA included its policy towards hedge
funds, and expectations of the future inflation rate.
Australian Electoral Commission
4.25
The committee spent considerable time questioning the Australian
Electoral Commission (AEC) on the decision to close electoral education centres
in Melbourne and Adelaide. The committee heard that the closure of these
centres will yield savings to the AEC of $620,000. Mr Ed Killesteyn, the
Electoral Commissioner, stated that the decision was made with regard to
falling attendance at the centres, the continuation of outreach education
programs and the need to ensure the maintenance of the core capability of the
AEC to conduct elections and manage the roll.[27]
4.26
The committee also questioned the AEC extensively on the process by
which new addresses are registered on the electoral roll after electors moved,
followed by a discussion of the enrolment of members and senators in their
electorate in the event that they reside outside that electorate.
4.27
Other issues discussed with the AEC included progress in assisting
people with disabilities to vote more easily, and allegations of undeclared
campaign donations.
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