Expenses

Estimated accrual expenses in 2006-07 have decreased by $554 million since the 2006-07 Budget. This reflects a net decrease of $2.5 billion due to parameter and other variations, partially offset by new policy measures of $2.0 billion in 2006-07.

Table 8: Reconciliation of general government sector expense estimates

1. Excludes the public debt net interest effect of policy measures.
2. The contingency reserve includes an allowance for the established tendency of existing government policy (particularly demand driven programmes) to be higher than estimated in the forward years. This allowance, known as the conservative bias allowance, is progressively reduced so that the budget year conservative bias is zero by the budget. As is standard practice, the conservative bias has been reduced at this MYEFO in the forward years from 2007-08 onwards.

Policy decisions announced since the 2006-07 Budget increase estimated expenses by $2.0 billion in 2006-07 and include:

• $522 million in 2006-07 ($1.1 billion over three years) in funding for drought relief, including income support and interest rate subsidies to assist farmers and small businesses most affected by the drought;
• $225 million in 2006-07 ($1.3 billion over four years) for new and expanded listings on the Pharmaceutical Benefit Scheme (PBS), including Herceptin® for the treatment of early stage breast cancer ($120 million in 2006-07);
• $94 million in 2006-07 ($1.1 billion over nine years) for Energy Initiatives that will provide cheaper fuel options through LPG excise concessions and further develop energy resources through investment in alternative fuels;
• $82 million in 2006-07 ($492 million over four years) to increase payments to healthcare providers treating veterans under the Gold Card and White Card arrangements;
• $50 million in 2006-07 ($473 million over five years) on measures to improve the retention and recruitment of Australian Defence Force personnel; and
• $46 million in 2006-07 ($3.4 billion over 11 years) for the establishment of the first of two light infantry battalions. A provision for the second battalion has been included in the Contingency Reserve.

A full list of expense measures announced since the 2006-07 Budget is provided at Appendix A.

Since the 2006-07 Budget, parameter and other variations have reduced estimated expenses by $2.5 billion in 2006-07. This includes:

• a $390 million reduction in expenses as a result of delays to defence acquisition projects. This reduction is offset by increased expenses in 2007-08 and 2008-09;
• a $270 million reduction in expenses for the Pharmaceutical Benefits Scheme due to lower than expected expenditure against a number of drug groups (primarily chemotherapy, cholesterol lowering agents and blood pressure drugs);
• a $214 million reduction in Newstart Allowance expenses as a result of a fall in the forecast number of unemployment benefit recipients reflecting improved labour market conditions;
• a $192 million reduction in annual supplementary funding for government and non-government schools grants. This is due to a lower than anticipated increase in State and Territory expenditure on government schools, which is used to index the level of Australian Government funding each year;
• a $151 million reduction in Disability Support Pension expenses primarily due to lower than expected customer numbers to date in 2006-07 based on trends over the previous two years;
• a $127 million reduction in Job Network expenses resulting from a reduction in the estimate of Job Network provider activity for the remainder of the year; and
• a reduction in expense estimates following the inclusion of the provision for underspends in 2006-07. A provision is included each year at the MYEFO update to provide for the established tendency of departments and agencies to underspend their budgets in the current financial year.

These reductions in expenses are partially offset by:

• a $132 million increase in Defence expenses as a result of an increase in the non-farm GDP deflator, which is used to index Defence operating expenses;
• an $80 million increase in Medicare Services expenses due to higher than expected expenditure across a range of medical services provided by General Practitioners and specialists; and
• a $75 million increase in expenses in 2006-07 for Australian Technical Colleges reflecting the reprofiling of funds from future programme years. A major proportion of the increased expenses reflects the earlier than anticipated establishment of some colleges.