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Statement 6: Expenses and Net Capital Investment

• Reconciliation of Expenses since the 1999-2000 Budget

Part I: Overview of General Government Expenses

Table 1: Estimates of Commonwealth General Government Expenses

Expenses are estimated to decrease by 5.5 per cent in real terms between 1999-2000 and 2000-01. They are projected to increase by 1.5 per cent in 2001-02, decrease by 0.1 per cent in 2002-03, and increase by 1 per cent in 2003-04.

Major movements within the estimates of expenses include a reduction in expenses for the Treasury portfolio as a result of revised Commonwealth-State financial arrangements introduced as part of The New Tax System. Under the new arrangements, Financial Assistance Grants to the States and Territories ($17.3 billion in 1999-2000) have been abolished as a result of the States and Territories receiving all the revenue from the Goods and Services Tax (GST).

This has been partly offset by the following:

• Expenses for the Family and Community Services portfolio have risen in 2000-01, largely due to compensation measures announced as part of The New Tax System.


• The increase in the Australian Taxation Office expenses in the Treasury portfolio, between 1999-2000 and 2000-01 is largely due to the introduction of the Diesel and Alternative Fuels Grants Scheme. Expenses are also increased by the introduction of the Fuels Sales Grants Scheme, which is estimated at $110 million in 2000-01.


• The Budget introduces an integrated package of measures, the Regional Health Package - More Doctors, Better Services, directed at improving access to rural health and aged care services in the short-term, with initiatives to ensure the long-term sustainability of that access, at a cost of $562 million over the coming four years.

Estimates presented in Table 1 above are disaggregated and more fully explained in Part III of this statement, which deals with Commonwealth Expenses and Capital Estimates by portfolio.

Reconciliation of Expenses since the 1999-2000 Budget

Table 2: Reconciliation of Commonwealth General Government
Expenses Estimates

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

Variations in expense estimates from the 1999-2000 Budget to Mid-Year Economic and Fiscal Outlook 1999-2000 (MYEFO) were discussed in the 1999-2000 MYEFO document. Since MYEFO, however, expenses increase by $1,678 million in 1999-2000 and by $4,059 million in 2000-01. In 2001-02 estimates increase by $4,789 million and, in 2002-03, by $4,984 million.

Policy Decisions

The effect of policy decisions since MYEFO has been to increase estimates in all years - by $25 million in 1999-2000, $872 million in 2000-01, $832 million in 2001-02 and $728 million in 2002-03. These movements are largely due to:

• an additional $562 million over the Budget and forward years for the Regional Health Package - More Doctors, Better Services;


• an additional $500 million over the Budget and forward years for the Fuels Sales Grants Scheme, targeted at consumers in remote and non-metropolitan Australia and introduced to reduce the pump price of petrol and diesel in rural and regional areas;


• the Agriculture - Advancing Australia Package, which has been continued and enhanced for four years at a total cost of $309 million, with components refocused to facilitate change, while retaining essential elements of social welfare;


• an additional $240 million over four years for the Stronger Families and Communities Strategy;


• extra funding of around $240 million over three years for Fringe Benefits Tax transitional grants for public and not-for-profit hospitals to ease the transition to changes to the fringe benefits tax (FBT) legislation;


• an additional $135 million over three years for the Employee Entitlements Support Scheme to assist people who suffer a loss of employee entitlements due to employer insolvency, backdated to 1 January 2000;


• the Residential Aged Care Funding Equalisation and Assistance Package in response to the Productivity Commission's inquiry into nursing home subsidies, in which $148 million over six years to 2005-06 will fund the transition from different payment rates in each State to a uniform national payment for nursing home care;


• the Continued Australian Police presence in the United Nations Transitional Administration in East Timor at a cost of $104 million over four years;


• the Establishment of an Ongoing East Timor Aid Programme, in which additional funding of $100 million over four years will focus on long-term development and nation building; and


• $97 million for the Product Stewardship arrangement for Waste Oil, in which a 5 cent per litre levy will apply to oil and lubricant products from 1 July 2000 as part of the A New Tax System - Measures for a Better Environment package to fund payments to operations involved in sustainable recycling and re-use of waste oil.

Parameter and Other Variations

Parameter and other variations since MYEFO have increased expenses by $1,654 million in 1999-2000, $3,188 million in 2000-01, $3,957 million in 2001-02 and $4,256 million in 2002-03. These variations are predominantly due to:

• the impact of the reclassification of the Diesel Fuel Rebate Scheme (DFRS) from a revenue offset to an expense. This follows the agreement with the Australian Democrats to introduce a targeted grants scheme (while retaining a rebate scheme) in place of the tax credit scheme proposed in A New Tax System. This reclassification increases revenue by around $1.6 billion in 1999-2000 and $2 billion in 2000-01, with equivalent increases in expenses; and


• a re-evaluation of the expected distribution of Family Tax Benefit (FTB) Package between revenue and expenses. Recent survey data suggest that more families than previously expected will claim the FTB as a cash payment rather than through the taxation system, increasing expenses by around $0.6 billion from 2000-01.

Other variations include:

• an increase in estimated grants to balance state budgets in the Budget and the forward years ($70 million in 2000-01, $986 million in 2001-02 and $393 million in 2002-03). These payments ensure that the States are no worse off financially in the years following the introduction of the GST than they would be under the current arrangements;


• a $339 million downward revision over five years from 1999-2000 of expenses related to the East Timor deployment. This has resulted in a hand-back of funds to the budget, reflecting more accurate costings from on the ground experience in East Timor. Estimates of the costs of the deployment have been revised and adjustments made to the funding in all years;


• the effect of a large increase in the forecast number of unauthorised arrivals by boat, which has led to a significant increase in expected detention costs of $118 million in 1999-2000, and is projected to cost $215 million in 2000-01, $200 million in 2001-02 and $205 million in 2002-03; and


• an increase in expenditure on the cardiovascular group of drugs in the Pharmaceutical Benefits Scheme, largely due to higher than expected prescribing rates ($129 million in 1999-2000, $132 million in 2000-01, $140 million in 2001-02 and $150 million in 2002-03). This change is offset, in part, by a decrease in expected client numbers.