Part V: Expenses and Capital

Relative to the 1999-2000 Budget, expenses have decreased slightly in 1999-2000, but increased significantly in the forward years (see Table 17).

Since the 1999-2000 Budget, there have also been a number of Capital Measures committed to the Attorney-General’s, Defence, Environment and Heritage, and Immigration and Multicultural Affairs Portfolios (see Table 24).

Table 17: Estimates of Commonwealth General Government Expenses(a)

(a) Expenses data on a AAS31 basis.

Expenses

Since the 1999-2000 Budget, the expense estimates have decreased slightly in 1999-2000, but increased significantly in the forward years. Increases in expense estimates since the 1999-2000 Budget have largely been driven by policy decisions, primarily due to:

  • legislative changes to The New Tax System package; and
  • Australia's involvement in peacekeeping and aid activities in East Timor.

Revisions to programme specific parameters increase expenses in all years mainly due to:

  • higher than expected expenses on the private health insurance rebate. The scheme came into effect on 1 January 1999 and the estimates have been adjusted in line with actual data on spending and membership take-up;
  • higher than expected levels of age pension payments;
  • increasing Youth Allowance expenses, which are primarily due to higher estimates of student numbers. Youth Allowance is a new programme that was introduced on 1 July 1998 and historical data is still being developed. The uptake of this new allowance was greater than first estimated; and
  • the estimates made at Budget for service and war widow pensions, allowances and healthcare were reassessed and based on actual expenditure for the last financial year and the first three months of this financial year. The major contributors to the increase were the assumptions made regarding veterans’ mortality rates.

Other variations since the 1999-2000 Budget include:

  • the redirection of some Defence capital expenditure to expenses;
  • estimated public debt interest expenses increasing since budget time in each year from 2000-01 to 2002-03. However, the increase in anticipated interest expenses has been accompanied by a significant offsetting rise in interest revenue (this is the result of a greater use of swaps transactions in the management of the Commonwealth’s debt portfolio);1 and
  • a reduction in the Contingency Reserve estimate.

Contingency Reserve

The Contingency Reserve is the means of ensuring that the aggregate estimates are robust and based on the best information available at the time of publication. The major components of the Contingency Reserve for the budget and forward estimates include the following:

  • an allowance for the tendency for budget estimates of expenses for existing government policy to be revised upwards in the forward years;
  • an allowance for the tendency for estimates of some expenses to be overstated in the budget year;
  • commercial-in-confidence and national security-in-confidence items which cannot be disclosed separately;
  • minor decisions made late in the Budget process; and
  • the effect of economic parameter revisions on the budget and forward estimates received late in the process and hence not able to be allocated to individual agencies.

Table 18: Reconciliation of General Government Expenses Estimates

(a) Excludes the public debt interest effect of policy decisions.

Table 19: Expense Measures since the 1999-2000 Budget

Table 19: Expense Measures since the 1999-2000 Budget (continued)

Table 19: Expense Measures since the 1999-2000 Budget (continued)

Table 19: Expense Measures since the 1999-2000 Budget (continued)

Table 19: Expense Measures since the 1999-2000 Budget (continued)

* In addition to this, the Department of Defence spent $7 million in 1998-99 by reprogramming within the global budget. Total Defence expenditure for the measure is $35.9 million.
** This total includes the impact on expenses of the General Practice Memorandum of Understanding which was included in ‘Other variations’ in the Contingency Reserve at Budget.

Table 20: Changes to General Government Expenses by Function since the 1999-2000 Budget(a)


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(a) All data in this table are produced on a AAS31 basis unless otherwise specified. Direct comparisons with cash outlays by function in previous budget documents is not possible because of the move to the accrual expense concept.
(b) There has been a reclassification from 1 July 1999 of subsidies paid to aged care facilities (nursing homes), from Health to the Social Security and Welfare function as a result of unifying the nursing homes and hostels systems under reforms of the Residential Aged Care System.

Table 21: Changes to General Government Expenses by Economic Type since the 1999-2000 Budget(a)


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(a) All data in this table are produced on a AAS31 basis unless otherwise specified.

Table 22: Changes to General Government Expenses by Agency since the 1999-2000 Budget(a)


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Table 22: Changes to General Government Expenses by Agency since the 1999-2000 Budget(a) (continued)


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(a) All data in this table are produced on a AAS31 basis unless otherwise specified.
(b) The Whole of Government portfolio includes elimination entries for transactions between agencies within the general government sector. These transactions will include grant payments, supply payments, superannuation payments and monies appropriated from the Official Public Account.

Capital

Capital in this section is defined as net capital investment, the capital component used in the calculation of the fiscal balance. This is defined as:

  • purchases of capital equipment
  • less any proceeds from their sale and any reduction in the value of capital equipment as measured by depreciation
  • plus net investment in other non-financial assets, including inventories.

Net capital investment is also equal to the change in non-financial assets held by the government, adjusted for revaluations.

Changes in Net Capital Investment

Table 23 provides a reconciliation of the MYEFO net capital investment estimates with those at the 1999-2000 Budget, showing the effect of policy decisions and parameter and other variations.

New capital decisions since Budget include:

  • the establishment of a 24-hour-a-day National Surveillance Centre by the Australian Customs Service to assist the national coastal surveillance effort;
  • additional fit-out and accommodation expenditure by the Department of Immigration and Multicultural Affairs to enhance its immigration compliance activities overseas;
  • capital improvements to enhance tourism infrastructure and environmental protection in the Kakadu and Uluru Kata-Tjuta National Parks; and
  • capital expenditure incurred in support of peacekeeping operations in East Timor.

The redirection of some defence spending from capital to operating expenses accounts for a substantial proportion of parameter and other variations in net capital investment since budget time.

A Broader View of Capital

A broader accounting view of capital is the maintenance of net assets. As owner, the Government is responsible for ensuring that agencies have access to new capital when additional investment is required to deliver outputs efficiently and competitively, having regard to the cost of capital. Agencies are responsible for ensuring that the value of the Government’s investment is maintained in accordance with Government policies. Normally, this requires each agency to ensure that revenues cover all expenses, including depreciation.

Since budget time, additional equity funding has been provided to the Australian Federal Police to enable it to extinguish accumulated liabilities under the present Australian Federal Police Adjustment Scheme (AFPAS) and the Cessation Payment Scheme. However, this has no impact on net capital investment.

Table 23: Reconciliation of General Government Net Capital
Investment Estimates(a)

(a) Net capital investment is defined as the purchase of property, plant, equipment and intangibles and net investment in other non-financial assets less proceeds from their sale and depreciation. Capital policy decisions as shown above do not include capital measures that fall outside this definition, for example equity injections to reduce an agency’s balance sheet liabilities.

Table 24: Capital Measures since the 1999-2000 Budget

Table 25: Net Capital Investment by Portfolio(a)


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(a) All data in this table are produced on a AAS31 basis unless otherwise specified.

1 Swaps are used in the efficient management of the Commonwealth's net debt portfolio.  Swap transactions generate interest expenses and interest revenues.   Consequently, a larger Commonwealth swaps programme increases both interest expenses and interest revenues.