Australian Government, 2005–06 Budget

General government expenses

Reconciliation of expenses since the 2004-05 Budget

Table 2 provides a reconciliation of expense estimates between the 2004-05 Budget, Mid-Year Economic and Fiscal Outlook 2004-05 (MYEFO) and the 2005-06 Budget, showing the effect of policy decisions and economic parameter and other variations.

Table 2: Reconciliation of expense estimates

Table 2:  Reconciliation of expense estimates

  1. Excluding the public debt net interest effect of policy measures.

Discussion of the major changes between the 2004-05 MYEFO and the 2005-06 Budget, shown in the above table can be found in Statement 2 (in the section titled Variations in expense estimates). Further information on expense measures can be found in Budget Paper No. 2, Budget Measures 2005-06.

Expense estimates by function

Table 3 sets out the estimates of Australian Government general government expenses by function for the period 2004-05 to 2008-09.

Table 3: Estimates of expenses by function

Table 3:  Estimates of expenses by function

  1. There has been some reclassification of expenditure that was previously reported under the Aboriginal advancement nec sub-function (social security and welfare) to other primary functions.

Major movements within the estimates of expenses by function between 2004-05 and 2005-06, and across the forward estimates, include increases in the following functions:

  • Defence due to continued funding increases associated with the Government’s White Paper Defence 2000 — Our Future Defence Force, together with funding for major Australian Defence Force deployments, such as the operations in Iraq;
  • Education due to increased schools funding associated with the election commitment School infrastructure — investing in our schools together with increased higher education funding reflecting the majority of the Our Universities measures;
  • Health due to a continued increase in the use of medical and pharmaceutical services over the forward estimates period, increasing costs for the provision of medical services and a continuing trend towards newer and more expensive drugs under the Pharmaceutical Benefits Scheme; and
  • Social security and welfare due to the Welfare to Work package as well as the continued effect of indexation of payments together with the demographic and social factors that affect demand driven programmes.

Estimates presented in Table 3 above are explained in greater detail for each individual function in the following pages.

General public services

Table 4: Summary of expenses

Table 4:  Summary of expenses

  1. In order to better reflect the Australian Federal Police’s role in overseas development and assistance missions (such as the Regional Assistance Mission to the Solomon Islands), approximately a third of its departmental funding has been reclassified from the other public order and safety sub-function (public order and safety) to the foreign affairs and economic aid sub-function (general public services).
  2. There has been some reclassification of expenditure that was previously reported under the Aboriginal advancement nec sub-function (social security and welfare) to other primary functions.
Nature of expenses and major trends

The general public services function includes expenses relating to the organisation and operation of government. This includes: expenses related to the Parliament, Governor-General and conduct of elections; expenses related to the collection of taxes, and management of public funds and public debt; and assistance to developing countries including assistance initiatives in the Pacific, contributions to international organisations and the operations of the foreign service. It also includes: expenses related to research in areas not otherwise connected with a specific function; expenses related to overall economic and statistical services and government superannuation benefits (excluding nominal interest expenses on unfunded liabilities which are included under the nominal superannuation interest sub-function in the other purposes function).

Expenses within the function tend to fluctuate over the budget and forward estimates period partly due to one-off factors such as the preparation for a federal election in 2007-08 (legislative and executive affairs sub-function) and the 2006 Census (financial and fiscal affairs sub-function).

General research sub-function expenses are expected to grow over the forward estimates period reflecting the on-going impact of the Backing Australia’s Ability — An Innovation Plan for the Future package, announced in January 2001 and the Backing Australia’s Ability — Building Our Future Through Science and Innovation package announced in May 2004. Fluctuations in the foreign affairs and economic aid sub-function over the Budget and forward years are due to timing effects in Australia’s contributions to multilateral development banks. The increase in expenses in 2008-09 for this sub-function is due to the impact of the Government’s decision to write off a proportion of Iraq’s debt to Australia.

Defence

Table 5: Summary of expenses

Table 5:  Summary of expenses

Nature of expenses and major trends

Expenses in this function are within the Defence portfolio and support operations and delivery of navy, army, air and intelligence capabilities and strategic policy in the defence of Australia and its national interests.

Total annual expenses for the Defence function rise by over $1.6 billion over the period 2005-06 to 2008‑09.

The growth and pattern of expenditure is due to a number of factors. Firstly, there is the influence of significant funding increases for investments in capability announced by the Government in Defence 2000 — Our Future Defence Force (the 2000 White Paper). Secondly, there are variations in funding levels for major Australian Defence Force deployments, such as the operations in Iraq.

The remaining growth in expenses is largely due to changes in price together with additional funding provided in this and previous budgets for North West Shelf surveillance, logistics, military personnel costs and initiatives, and maintenance of the Defence estate.

Public order and safety

Table 6: Summary of expenses

Table 6:  Summary of expenses

  1. In order to better reflect the Australian Federal Police’s role in overseas development and assistance missions (such as the Regional Assistance Mission to the Solomon Islands), approximately a third of its departmental funding has been reclassified from the other public order and safety sub-function (public order and safety) to the foreign affairs and economic aid sub-function (general public services).
Nature of expenses and major trends

Expenses for the public order and safety function support the administration of the Federal legal system and the provision of legal services, including legal aid, to the community. Public order and safety expenses also include law enforcement activities and the protection of Australian Government property.

Expenses for the courts and legal services sub-function increase from 2004-05 to 2007-08 reflecting the new family law system. The increase in expenditure from 2004-05 to 2005-06 for the other public order and safety sub-function is a result of new protective security and regional counter-terrorism measures.

Education

Table 7: Summary of expenses

Table 7:  Summary of expenses

Nature of expenses and major trends

Education expenses support the delivery of education services through: higher education institutions; vocational education and training providers (including technical and further education institutions); and government (state and territory) and non‑government schools.

Expenses under the student assistance sub-function include the ABSTUDY scheme, Assistance for Isolated Children and income support for students aged twenty-five years and over through AUSTUDY.

Total expenses for this function are estimated to increase by 10.1 per cent in real terms over the three forward years, 2006‑07 to 2008‑09, or 3.3 per cent annually on average, with expenses on higher education and schools being the main drivers.

Growth in the higher education sub-function from 2004-05 to 2005-06 reflects the impact of the majority of the Our Universities package effective 1 January 2005. Funding associated with Our Universities continues to grow over the forward years, along with increases in funding under the Commonwealth Grant Scheme, increases to the number of higher education student places and scholarships and additional funding for capital projects. Growth is also due to the application of the higher education indexation factor.

Growth in expenses relating to schools is driven by funding provided under the Schools Assistance Act 2004 (the Act). Estimated Australian Government funding of $33 billion, including expenses for the election commitment $1 billion Investment In Our School Infrastructure, will be provided to and through the states and territories over the four year period 2005 to 2008 (calendar year) under the Act.

The student assistance sub-function will decline between 2004-05 and 2005-06 as a result of the closure of the Student Financial Supplementation Scheme to new borrowers.

Health

Table 8: Summary of expenses

Table 8:  Summary of expenses

  1. The financial impact of premium growth on the forward estimates for the Private Health Insurance Rebate has been allocated to the contingency reserve.
  2. There has been some reclassification of expenditure that was previously reported under the Aboriginal advancement nec sub-function (social security and welfare) to other primary functions.
Nature of expenses and major trends

The health function includes expenses relating to: medical services funded through Medicare and the Private Health Insurance Rebate (medical services and benefits sub-function); provision of in‑hospital services to eligible veterans and their dependants (hospital services sub-function); funding under Australian Health Care Agreements between the Australian Government and the states and territories (health care agreements sub-function); and the Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes (pharmaceutical services and benefits sub-function).

The major purpose of health function expenditure is to ensure that all Australians have access to essential health services through a range of providers and without excessive price barriers.

Expenses related to health are likely to be a major, if not the major, contributor to increased Australian Government spending in the future. Total Government health spending is expected to remain at around 4 per cent of GDP over the Budget and forward estimates years.

Total expenses for this function are estimated to increase by 10.3 per cent in real terms over the three forward years, or on average by around 3.3 per cent per annum. This growth is most pronounced in the areas of hospital services and pharmaceutical services and benefits.

Medical services and benefits funded through Medicare and the Private Health Insurance Rebate are the main contributors to health function expenses, making up around 40 per cent of total health expenditure.

The hospital services sub-function has average annual growth in real terms of 6.0 per cent due to an ageing and increasingly frail veteran community requiring more hospital services.

The trend in the estimates for the health care agreements sub-function is driven by 3.0 per cent average annual growth, in real terms, in funding for the Australian Health Care Agreements over the life of the current agreements that cover the period 1 July 2003 to 30 June 2008.

The expense for the pharmaceutical services and benefits sub-function is one of the fastest growing health expenses and is forecast to grow at an average of 5.4 per cent per annum in real terms. This growth is driven by a combination of an ageing population and demand for newer and more expensive drugs.

Box 6.1: Pharmaceutical services and benefits

Table 8.1: Trends in major components of the pharmaceutical services and benefits sub-function

Table 8.1:  Trends in major components of the pharmaceutical services and benefits sub-function

  1. For a detailed discussion of the Pharmaceutical Benefits Scheme, refer to Outcome 2 of Health and Ageing Portfolio Budget Statements 2005-06.
  2. Veterans’ Pharmaceutical Services are covered under Outcome 2 of the Department of Veterans’ Affairs (Defence Portfolio) Portfolio Budget Statements 2005-06.
  3. Subsumed within Outcomes 1 and 2 of Health and Ageing Portfolio Budget Statements 2005-06. The decrease in ‘Other’ in 2005-06 is attributable to the fulfilment of prevalence cohort immunisations for the Meningococcal C Vaccination Programme.
  4. Approximately 20 per cent of Health Insurance Commission departmental expenses and 14 per cent of Health and Ageing departmental expenses are allocated to this sub-function.

Social security and welfare

Table 9: Summary of expenses

Table 9:  Summary of expenses

  1. There has been some reclassification of expenditure that was previously reported under the Aboriginal advancement nec sub-function (social security and welfare) to other primary functions.
Nature of expenses and major trends

The social security and welfare function includes pensions and services to the aged, services to the unemployed, assistance to people with disabilities, a variety of assistance to families with children, income support and compensation for veterans and their dependants, and advancement programmes for Aboriginal and Torres Strait Islander people.

Social security and welfare function expenses are estimated to total around $87.6 billion in 2005-06 and grow significantly over the forward years. The sub-functions contributing most to the growth in the forward years are the assistance to the aged, and assistance to people with disabilities. The main driver in growth in these sub-functions is the indexation of payments, including maintaining the single rate of age and disability pensions at a minimum of 25 per cent of Male Total Average Weekly Earnings. The growth also reflects demographic and social factors such as the ageing of the population and expected developments in the economy and the labour market.

There has been an increase in the assistance to families with children sub-function in 2005-06 and in the forward years due to the increased rate of Family Tax Benefit Part B announced during the election campaign.

Part of the increase in the assistance to the unemployed, assistance to people with disabilities and assistance to families with children sub-functions is a result of the Government’s Welfare to Work package and changes to Family Tax Benefit arrangements.


Miscellaneous