Australian Government, 2008‑09 Budget
Budget

General government expenses

Reconciliation of expenses since the 2007‑08 Budget

Table 2 provides a reconciliation of expense estimates between the 2007‑08 Budget, Mid‑Year Economic and Fiscal Outlook 2007‑08 (MYEFO), Pre‑Election Economic and Fiscal Outlook 2007 (PEFO), and the 2008‑09 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. Excludes the public debt net interest effect of policy measures.

Discussion of the major changes between the PEFO 2007 and the 2008‑09 Budget, shown in the above table can be found in Statement 3 (in the section titled 'Variations in expense estimates'). Further information on expense measures can be found in Budget Paper No. 2, Budget Measures 2008‑09.

The most significant other variation between PEFO 2007 and the 2008‑09 Budget in 2008‑09 and the forward estimates period reflects the reduction in defence expenses (and corresponding increase in defence net capital investment) due to a change in accounting treatment whereby purchases of defence weapon systems are now classified capital expenditure rather than expenses. The new budget accounting framework is discussed in further detail in Appendix A of Statement 3 and in Statement 9.

Estimated expenses by function

Table 3 sets out the estimates of Australian Government general government sector expenses by function for the period 2007‑08 to 2011‑12.

Table 3: Estimates of expenses by function

Table 3: Estimates of expenses by function

  1. Purchases of specialist military equipment are now treated as net capital investment rather than as expenses.
    See Appendix A of Statement 3 and in Statement 9 for further details.

Major movements within the estimates of expenses by function between 2007‑08 and 2008‑09, and across the forward estimates, include increases in the following functions:

  • Social security and welfare, due to the continued effect of the indexation of payments, together with demographic and social factors such as the ageing of the population that affect demand driven programs;
  • Health, due to continued growth in the use of medical services over the forward estimates period and increasing costs for the provision of medical services;
  • Defence, the pattern of defence expenditure in 2008‑09 and across the forward estimates is affected by a number of factors, including the Government's commitment to maintaining 3 per cent real growth per year on average in underlying funding for Defence departmental expenditure; the affirmation of previous funding decisions, such as for the provision of an additional two battalions for the Australian Army; and savings in the Defence portfolio; and
  • Education, due to significant measures announced as part of the Government's Education Revolution, combined with increased real funding to government and non‑government schools.

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

A New Financial Framework for Specific Purpose Payments

The Council of Australian Governments (COAG) has agreed to a new framework for federal financial relations. The new financial framework is based on five key elements:

  • A significant rationalisation of the more than 90 existing specific purpose payments (SPPs);
    • combining many of them into five or six new national SPPs: health; early childhood development and schools; vocational education and training; disabilities services; and affordable housing;
    • converting some SPPs into general revenue assistance, where there are no compelling national objectives associated with the payment; and
    • some existing SPPs becoming National Partnership project payments where they support national objectives and provide a financial contribution to the States to deliver specific projects.
  • Greater flexibility for the States to direct their resources to areas where they will produce the best results;
    • rather than the Australian Government dictating how things should be done, there will be a rigorous focus on the achievement of outcomes — that is, what the States deliver to the people of Australia, not how they deliver it;
  • Greater funding certainty for the States. The new national agreements will be ongoing, with periodic reviews to ensure the maintenance of funding adequacy and the relevance of objectives;
  • Enhanced government accountability through simpler, standardised and more transparent performance reporting by all jurisdictions, with a new focus on the achievement of outcomes, value for money and timely public reporting; and
  • The provision of new incentive payments to drive reforms. The Australian Government will provide National Partnership payments to States to facilitate or reward reforms of national importance.

Implementing this new framework will allow both levels of government to work together in a more cooperative manner to improve outcomes for the community. These reforms will provide the platform for a new era of economic and social reform to increase the productive capacity of the economy and deliver a higher quality of service to Australians.

General public services

Table 4: Summary of expenses

Table 4: Summary of expenses

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, the Governor‑General and conduct of elections; expenses related to the collection of taxes and the management of public funds and public debt; assistance to developing countries to reduce poverty and achieve sustainable development, particularly in the Pacific region; and 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, and 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).

Total expenses within the legislative and executive affairs sub‑function tend to fluctuate over the Budget and forward estimates due to factors such as the timing of federal general elections. The Asia Pacific Economic Cooperation conference hosted by Australia in 2007 has also boosted estimated expenses in 2007‑08.

The trend increase in expenses in the financial and fiscal affairs sub‑function over the Budget and forward estimates reflects growth in three areas. First, it partly reflects the growth over time in the Australian Taxation Office's (ATO) penalty remission expenses associated with the growth of the tax base, which relates to the ATO's power to remit tax penalties in full or in part. Second, it reflects the commencement of other new ATO measures, specifically those focused on strengthening the ATO's compliance and enforcement activities, to improve compliance with taxation law. Third, the expenses in this sub‑function rise across the forward years due to increased investment expenses as financial assets accumulate in the Future Fund, administered by the Future Fund Management Agency.

The increase in expenses in the foreign affairs and economic aid sub‑function over the Budget and forward estimates is due primarily to the Government's commitment to raise the level of Australia's Official Development Assistance to 0.50 per cent of Gross National Income (GNI) by 2015‑16. In the 2008‑09 Budget, Official Development Assistance expenditure has been set at 0.32 per cent of forecast GNI for 2008‑09, 0.35 per cent in 2009‑10, 0.37 per cent in 2010‑11 and 0.38 per cent in 2011‑12. Fluctuations within the foreign affairs and economic aid sub‑function over the Budget and forward years also reflect the timing of Australia's contributions to multilateral development banks, which can see large variations from year‑to‑year.

Box 1: Foreign Affairs

Table 4.1: Trends in major components of the foreign affairs sub‑function

Table 4.1: Trends in major components of the foreign affairs sub-function

  1. Other includes, amongst other items, the provision available for future aid spending in the Official Development Assistance (ODA) Contingency Reserve in the Budget and forward years. The ODA Contingency Reserve represents the difference between the amount of ODA already committed by Australia and the Government's target levels of ODA (0.32 per cent of Gross National Income in 2008‑09).
  2. The difference between these figures and the Government's ODA target is due primarily to the way multilateral replenishments are recognised. In accrual terms, multilateral replenishments are recognised as an expense when the pledge is made. ODA is recorded on a cash basis, and contributions to the multilateral replenishments are recognised at the time of payment.
  3. Some minor ODA delivered by other government departments may be classified to other functions.

Expenses in the general research sub‑function incorporate expenses incurred by the Commonwealth Scientific and Industrial Research Organisation and the Australian Nuclear Science and Technology Organisation. The reduction in estimated expenses in 2008‑09 partly reflects the profile of funding for the Cooperative Research Centres and the National Collaborative Research Infrastructure Strategy.

Expenses are projected to increase from 2008‑09 to 2010‑11, which reflects 2007‑08 Budget decisions providing increased funding to the Commonwealth Scientific and Industrial Research Organisation to expand the National Research Flagship initiative.

Expenses under the general research sub‑function also increase over the forward estimates due to the impact of a new measure which increases funding to the Australian Research Council to establish the Future Fellowships Program. For further details on this measure refer to Budget Paper No. 2, Budget Measures 2008‑09, Innovation, Industry, Science and Research portfolio.

Expenses in the general research function are expected to decrease in 2011‑12 due to the scheduled cessation of a number of programs in 2011 including the National Collaborative Research Infrastructure Strategy.

Medical research functions carried out by agencies such as the National Health and Medical Research Council are classified against the health function in this statement. For further information on medical research refer to the health function.

The rise in expenses across the Budget and forward estimates period for the government superannuation benefits sub‑function largely reflects the growth in military superannuation benefits due to growth in the schemes' salary base over time.

Box 2: General Research

Table 4.2: Trends in major components of the general research
sub‑function

Table 4.2: Trends in major components of the general research sub-function

  1. This program terminates in 2010‑11.

Defence

Table 5: Summary of expenses

Table 5: Summary of expenses

  1. Purchases of specialist military equipment are now treated as net capital investment rather than as expenses.
    See Appendix A of Statement 3 and in Statement 9 for further details.
Nature of expenses and major trends

Agencies covered by the defence function include the Department of Defence (Defence) and the Defence Materiel Organisation (DMO). (The Department of Veterans' Affairs falls within the Defence portfolio, but it reports independently of the portfolio and is not part of the defence functional classification.) Defence supports operations overseas and the delivery of navy, army, air and intelligence capabilities and strategic policy advice in the defence of Australia and its national interests. The DMO ensures that Defence capabilities are supported through efficient and effective acquisition and through‑life support of materiel.

The defence function records the majority of expenditure by the Defence portfolio, except for the Department of Veterans' Affairs, and except for superannuation payments to retired military personnel and housing assistance provided through Defence Housing Australia, which is reported in the housing and community amenities function.1

Total annual expenses for the defence function are estimated to rise by $2.4 billion over the period 2008‑09 to 2011‑12. In addition, real growth in total defence function expenses and net capital investment in the period 2007‑08 to 2011‑12 is projected to be 5.1 per cent (see Box 3).

Investment spending in the defence function, reported separately later in this statement, is proportionately larger than for other functions, primarily on account of acquisitions of military equipment and the construction of facilities and accommodation. Box 3 shows defence function expenses and net capital investment (the total of which is the impact of defence spending on the fiscal balance). Large defence capital projects may involve lumpy expenditures. This is particularly the case in 2008‑09 when the acquisitions of the new Headquarters Joint Operations Command and single living accommodation project are recorded in fiscal balance terms (boosting net capital investment in that year by around $500 million).

Measured in terms of the impact on fiscal balance, Box 3 shows the projected average real rate of growth in defence spending over the four years to 2011‑12 is around 5 per cent per annum. The real growth in defence funding over this period is similar, but can diverge from accrual expenditure measures in some years. 2

Box 3: Defence

Table 5.1: Trends in major components of defence spending

Table 5.1: Trends in major components of defence spending

  1. Over the period 2007‑08 to 2011‑12.

The Government has extended its 3 per cent real growth commitment from 2015‑16 to 2017‑18. This will provide a sound long‑term funding base for the forthcoming Defence White Paper.

The growth of the total budget may experience significant annual fluctuations, including as a result of slippage in expenditure from one year to the next year (or to later years), and in response to supplementary funding decisions (in particular, to support overseas operations). Moreover, fluctuations in the non‑farm Gross Domestic Product (GDP) deflator can themselves result in variations in the nominal growth rate of total defence function expenses.

In nominal terms, defence function expenses plus net capital investment is forecast to increase by $2.0 billion from 2007‑08 to 2008‑09 (see Box 3). This growth partly reflects the impact of exceptionally strong forecast growth in the non‑farm GDP deflator. In 2008‑09, this deflator is forecast to grow by 6¼ per cent, well above forecast Consumer Price Index (CPI) growth of 3½ per cent. This difference arises because of very rapid growth in forecast prices for Australia's non‑farm commodity exports, principally coal and iron ore.

As indicated, defence capital spending has been more volatile than recurrent expenditure. Variations in the annual rates of growth in defence function spending reflect, in part, the capacity of Defence and DMO to complete spending their overall capital budgets, particularly for military equipment. For example, in this budget an amount in excess of $1 billion has been rephased from 2008‑09 into future years since the Mid‑Year Economic and Fiscal Outlook 2007‑08 to reflect changes in the timing of expected payments for military equipment.

In 2008‑09, funding in excess of $1 billion is being provided through the operations reserve for Defence overseas operations in Iraq, Afghanistan, East Timor and the Solomon Islands. This new reserve will be drawn from internal resources and funding arising from strong non‑farm GDP indexation received by Defence in 2008‑09. (For further information on the operations reserve see Establishment of 2008‑09 Defence operations reserve to fund overseas operations, Budget Paper No. 2, Budget Measures 2008‑09, Defence portfolio.) Operational funding will continue to be provided on a 'no win, no loss' basis.

The Budget also provides for a number of new measures, including the Defence Family Health Support Package, the implementation of the Australia‑United States Defence Trade Cooperation Treaty and intelligence support measures. The cost of these measures, and some other minor proposals, will be funded from within Defence's existing resources. For further details on these measures, refer to Budget Paper No. 2, Budget Measures 2008‑09, Defence portfolio.

The Department of Defence has commenced a major internal program to drive savings and efficiencies in its expenditure. These savings are intended to provide it with the capacity to meet longer‑term cost pressures and to create the scope to fund new high priority initiatives that may arise from the forthcoming Defence White Paper. Of the total savings to be made in 2008‑09:

  • $191 million in general savings will be returned to the Budget, with this amount being allocated back to Defence in future years, together with $25 million in additional funding; and
  • $210 million in further savings will be retained by Defence in the operations reserve created for 2008‑09.

Public order and safety

Table 6: Summary of expenses

Table 6: Summary of expenses

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 and intelligence activities, in addition to the protection of Australian Government property.

Projected expenses for the courts and legal services sub‑function over the Budget and forward estimates period reflect offsetting influences, with growth in funding for the courts continuing but with some tailing off in the expenses for other programs. For example, expenses associated with the Northern Territory Night Patrol Program administered by the Attorney‑General's Department are provided for 2007‑08 and 2008‑09 only, with future funding subject to consideration in the 2009‑10 Budget (following an evaluation of the Northern Territory Emergency Response). There is also a projected reduction in expenses across the forward years associated with the gradual winding down of the Operation Wickenby investigations into large‑scale money‑laundering, tax fraud and associated crimes.

Expenses for the other public order and safety sub‑function are projected to grow moderately in nominal terms over the Budget and forward estimates period. This is a result of reduced expenditure in some elements of the sub‑function being offset by increased expenditure in others. In particular, the Attorney‑General's Department's expenditure in relation to this sub‑function will decrease following the conclusion of security‑related activities for the 2007 Asia‑Pacific Economic Cooperation forum, and the cessation of public awareness campaigns relating to anti‑money laundering and the national security hotline. These reductions are offset by a significant increase in resourcing for the Australian Federal Police (AFP) and moderate increases for the security and intelligence agencies. The additional AFP funding will allow an increase in investigative coverage of high impact criminal matters, including transnational crime and organised criminal activity.

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 primary and secondary schools.

Total expenses under the education function are estimated to increase by 7.8 per cent in real terms from 2008‑09 to 2011‑12, or 2.5 per cent annually on average. The major reasons for this growth are the measures announced as part of the Government's Education Revolution and indexation of funding provided to schools. Higher education expenses decrease between 2007‑08 and 2008‑09 due to the one‑off impact of funding of $500 million being provided to Australian universities to contribute towards capital investment primarily in teaching and research facilities. For further information on measures announced in the 2008‑09 Budget, refer to Budget Paper No. 2, Budget Measures 2008‑09 under the Education, Employment and Workplace Relations portfolio.

Expenses relating to higher education continue to grow over the forward years from 2008‑09. The growth in expenses under the Commonwealth Grants Scheme (CGS) reflect both the indexation of grants with reference to the Higher Education Indexation Factor, and the increase in higher education student numbers funded through the CGS as a result of new measures, such as the phasing out of full fee paying places at universities. Other new measures which impact on higher education include the increase in Commonwealth higher education scholarship places from 44,000 to 88,000 places over four years, which will increase total funding for learning scholarships by 75.4 per cent in real terms by 2011‑12, or 20.6 per cent annually on average, and the reduction of the maximum student contribution for commencing students studying maths and science. Expenses increase markedly between 2008‑09 and 2009‑10 due to the one‑off impact of the reallocation of $304 million in funding for disbursements from the Higher Education Endowment Fund (to be incorporated into the new Education Investment Fund). Total higher education expenses are expected to rise by approximately 13.5 per cent in real terms from 2008‑09 to 2011‑12, or 4.3 per cent annually on average.

Box 4: Higher Education

Table 7.1: Trends in major components of the higher education
sub‑function

Table 7.1: Trends in major components of the higher education sub-function

  1. These disbursements will be made from the Education Investment Fund, which is to established by 1 January 2009, replacing the Higher Education Endowment Fund.

Vocational and other education expenses are estimated to increase by 2.4 per cent in real terms from 2008‑09 to 2011‑12, or 0.8 per cent annually on average. The increase in expenses for vocational and other education sub‑function are mainly been driven by budget measure Skilling Australia for the Future which will deliver up to 630,000 additional funding places over five years. Also, contributing to the vocational and other education expenses is the impact of increased migration places in the skilled, family and humanitarian categories. In addition a new measure, School Grants for On‑The‑Job Training, will increase expenses in this sub‑function.

Box 5: Vocational and Other Education

Table 7.2: Trends in major components of the vocational and other
education sub‑function

Table 7.2: Trends in major components of the vocational and other education sub‑function

Total expenses for the government and non‑government schools sub‑functions are expected to rise by 9.5 per cent in real terms from 2008‑09 to 2011‑12, or 3.1 per cent annually on average. The increase in the spending in the government and non‑government schools sub‑function secures the Government's commitment to deliver at least $42 billion to Australian schools over the Budget and forward estimates period.

Expenses related to the school education — specific funding sub‑function show a large increase in 2008‑09 as a result of the introduction of new Education Revolution measures in the 2008‑09 Budget. These measures include Trade Training Centres in Schools; the Digital Education Revolution; and the National Asian Languages and Studies in Schools program. Funding of this sub‑function declines in 2010‑11 — primarily reflecting the funding profile for the Digital Education Revolution which provides higher levels of funding in the early years of the program, but declines after 2009‑10. Overall, funding is estimated to increase by 12.5 per cent in real terms from 2007‑08 to 2011‑12.

The Government will establish an Education Investment Fund in 2008‑09. This fund will provide for future investments in higher and vocational education infrastructure. A provision for financing such projects has been incorporated into the Contingency Reserve. These projects will be determined through the budget process according to rigorous evaluation criteria, and in line with prevailing macroeconomic conditions.

Health

Table 8: Summary of expenses

Table 8: Summary of expenses

  1. The estimated financial impact of premium growth on the forward estimates for the Private Health Insurance Rebate has been allocated to the Contingency Reserve, due to commercial sensitivities.
  2. This sub‑function now includes health care agreements, due to the new framework for federal financial relations. Further details are provided in page 6‑6, titled 'A New Financial Framework for Specific Purpose Payments'.
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 and funding under Australian Health Care Agreements between the Australian Government and the States and Territories (hospital services 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 having to face excessive price barriers.

Expenses related to health are likely to be a major contributor to the growth in Australian Government spending in future decades.

Total expenses for this function are estimated to increase by 5.2 per cent in real terms over the forward years, or on average by around 1.7 per cent per annum in real terms.

Medical services and benefits funded through Medicare and the Private Health Insurance Rebate are the main contributors to health function expenses and are estimated to increase by 6.7 per cent in real terms over the forward years, or by around 2.2 per cent per annum on average in real terms. This category makes up around 43 per cent of total health expenses in 2008‑09 and across the forward estimates period. Medicare expenditure is primarily driven by growth in both the number of services provided by general practitioners (GPs) and a shift by GPs to enhanced primary care services, such as managed care and team care services for patients with chronic diseases, which have a higher Medicare rebate. Major components of the Medical services and benefits sub‑function are outlined in further detail below in Box 6.

Box 6: Medical Services and benefits

Table 8.1: Trends in major components of the Medical Services and
benefits sub‑function

Table 8.1: Trends in major components of the Medical Services and benefits sub-function

  1. For a detailed discussion of the Medicare Benefits Schedule, refer to Outcome 3 of the Health and Ageing Portfolio Budget Statement 2008‑09.
  2. The financial impact of projected premium growth on the forward estimates for the Private Health Insurance Rebate has been allocated to the Contingency Reserve, due to commercial sensitivities. The decrease in estimated expenses from 2007‑08 to 2008‑09 reflects the expected impact of the measure Personal income tax — increasing the Medicare levy surcharge thresholds (see Budget Paper No. 2, Budget Measures 2008‑09 for further details).
  3. Veterans' Medical Benefits are covered under Outcome 2 of the Department of Veterans' Affairs (Defence portfolio) Portfolio Budget Statement 2008‑09.

The trend in the estimated expenses for the hospital services sub‑function is driven by funding growth determined in the Australian Health Care Agreements, which were to expire on 1 July 2008, but have been extended by 12 months as agreed by the Council of Australian Governments in March 2008. Estimated expenses in 2007‑08 and 2008‑09 are similar because of a $500 million supplementary funding injection provided by the Government to the State and Territory governments in 2007‑08. Further information about this payment is provided in Budget Paper No. 2 Budget Measures 2008‑09 (see the measure COAG — Additional funding for public hospitals). This function also includes expenses relating to services to veterans, which are projected to remain relatively stable, with an ageing and increasingly frail veteran community requiring more hospital services, but this being offset by declining client numbers in the veteran community.

Expenses in the health services sub‑function are largely comprised of population health programs and the provision of blood and blood products, which is one of the main drivers of growth. The costs for blood and blood products are estimated to grow at an average of 5.5 per cent annually in real terms over the forward estimates period due to an increased demand for blood and specific blood products. Expenses in this sub‑function are expected to increase significantly between 2007‑08 and 2008‑09 as a result of the implementation of a number of new measures, including $290 million over three years for the Commonwealth Dental Health Program and $209 million over four years for the National Cancer Plan.

The Intergenerational Report 2007, released on 2 April 2007, projected spending on pharmaceutical benefits to grow faster than other Australian Government health spending, such as on hospitals, medical benefits and other areas. Savings from the introduction of the Pharmaceutical Benefits Scheme Reform package, which was announced at the Mid‑Year Economic and Fiscal Outlook 2006‑07, were expected to slow growth of the pharmaceutical services and benefits sub‑function. However, new high cost drug listings on the Pharmaceutical Benefits Scheme, combined with amendments to the reform package, have increased estimated growth to 1.9 per cent annually in real terms over the forward estimates. Major components of the pharmaceutical services and benefits sub‑function are outlined in further detail below in Box 7.

Box 7: Pharmaceutical services and benefits

Table 8.2: Trends in major components of the pharmaceutical services
and benefits sub‑function

Table 8.2: 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 the Health and Ageing Portfolio Budget Statement 2008‑09.
  2. Repatriation Pharmaceutical Benefits are covered under Outcome 2 of the Department of Veterans' Affairs (Defence portfolio) Portfolio Budget Statement 2008‑09.
  3. The sharp drop in expenses from 2008‑09 is due to the conclusion of the national human papillomavirus catch up program.
  4. The increase in estimated expenses is due primarily to the inclusion of the Life Saving Drugs Program in this sub‑function (previously included in other health services).

Expenses in the Aboriginal and Torres Strait Islander health sub‑function reflect the implementation of the Northern Territory Emergency Response and other indigenous health initiatives focusing on preventative health and drug and alcohol services.

Expenses in the general administration sub‑function consist largely of health education and training services. The expected growth in expenses from 2007‑08 to 2008‑09 is due to increases in expenditure to develop the capacity of the health workforce, and new measures, including GP Super Clinics, which will provide funding of $275.2 million for 31 facilities that will offer a range of primary care and allied health services.

The Government will establish a Health and Hospitals Fund in 2008‑09. This fund will provide for future investments in health infrastructure priorities. A provision for financing such projects has been incorporated into the Contingency Reserve from 2009‑10 onwards. These projects will be determined through the budget process according to rigorous evaluation criteria, and in line with prevailing macroeconomic conditions. Social security and welfare

Table 9: Summary of expenses

Table 9: Summary of expenses

Nature of expenses and major trends

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

Social security and welfare function expenses are estimated to total around $102 billion in 2008‑09 and grow at an average annual rate of 1.1 per cent over the forward estimates period. The sub‑functions contributing most to the growth over the forward estimates are: assistance to the aged, which is expected to grow at an average annual rate of 3.3 per cent in real terms over the forward estimate period and assistance to people with disabilities (average annual real growth of 2.3 per cent over the forward estimates period). The major components of the assistance to the aged sub‑function are outlined below in Box 8.

The main driver of growth in the majority of the sub‑functions is the indexation of personal benefits and income support 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.

Box 8: Assistance to the Aged

Table 9.1: Trends in major components of the assistance to the aged
sub‑function

Table 9.1: Trends in major components of the assistance to the aged sub-function

  1. These payments are closed to new recipients.

The increase in projected expenses in the assistance to people with disabilities sub‑function is primarily due to the indexation of the Disability Support Pension, the Carer Allowance and Carer Payment programs, with Disability Support Pension expenses being the most significant component to this sub‑function.

Expenses relating to the assistance to families with children sub‑function are expected to remain constant in real terms over the forward estimates. This is attributed to a reduction in real growth for Parenting Payment and Family Tax Benefit (FTB) programs. The reduction in expenses for Parenting Payment is due to increased participation in the workforce by recipients. FTB expenditure is expected to decrease over the forward estimates in real terms due to the recent measure Better Targeting and Delivery of Family Tax Benefit — $150,000 income test on primary earner for FTB B which tightens means testing of FTB B and a decrease in recipients primarily driven by higher incomes. Further information on this measure is presented in Budget Paper No. 2, Budget Measures 2008‑09 under the Families, Housing, Community Services and Indigenous Affairs portfolio. The Child Care Tax Rebate will be more than doubled across the forward estimates as a result of the Government's commitment to making child care more available and affordable through the recent measure Early Childhood — Child Care Tax Rebate — increase from 30 per cent to 50 per cent. Further information on this measure is presented under the Education, Employment and Workplace Relations portfolio in Budget Paper No. 2, Budget Measures 2008‑09.

The major components of the assistance to families with children sub‑function are outlined below in Box 9.

Box 9: Assistance to Families with Children

Table 9.2: Trends in major components of the assistance to families
with children sub‑function

Table 9.2: Trends in major components of the assistance to families with children sub-function

  1. The increase in estimated expenses from 2007‑08 to 2008‑09 is primarily due to the increase in the baby bonus from $4,258 to $5,000 in 2008‑09.

The decline in estimated expenses between 2008‑09 and 2009‑10 in the Aboriginal Advancement sub‑function is due to funding for the Northern Territory Emergency Response provided for 2008‑09 only, with future funding to be determined prior to the 2009‑10 Budget, based on an evaluation of the Emergency Response. Provision has been made in the Contingency Reserve for ongoing costs associated with the Emergency Response. This provision is included in the other purposes function.

The main driver of the assistance to the unemployed sub‑function is the Newstart Allowance program. Expected increases in expenses over the Budget and forward estimates period are primarily the result of projected increases in Newstart Allowance recipients in line with forecast economic parameters.

Housing and community amenities

Table 10: Summary of expenses

Table 10: Summary of expenses

Nature of expenses and major trends

The housing and community amenities function includes the Australian Government's contribution to the Commonwealth Housing Agreement, other Australian Government housing programs, expenses of Defence Housing Australia (DHA) and various regional development and environment protection programs.

Housing sub‑function expenses will grow over the forward estimates with growth from 2007‑08 due primarily to new measures to address housing affordability including, the National Rental Affordability Scheme, Homes for the Homeless and the Housing Affordability Fund. Further information on these measures is presented in Budget Paper No. 2, Budget Measures 2008‑09 under the Families, Housing, Community Services and Indigenous Affairs portfolio.

Housing sub‑function expenses will also grow over the forward estimates period due to the Department of Defence's increasing demand for housing provided by DHA. This is primarily in support of the personnel to be assigned to the Headquarters Joint Operation Command to be located in Bungendore, New South Wales, increased Australian Defence Force (ADF) numbers (primarily in the Army) and in response to changes to the geographical location of ADF personnel. DHA expenditure is also forecast to grow moderately due to the replacement of expiring leases and the on‑going upgrade and maintenance of DHA housing.

The urban and regional development sub‑function comprises of expenditure relating to regional development programs and the natural disaster mitigation program. The decline in estimated expenses from 2008‑09 reflects: the winding‑up of the Regional Partnerships and Sustainable Regions programs from 2007‑08; the profile of expenditure under the Better Regions program (which assists local communities deliver local infrastructure and other regional and community projects); and a more cost effective approach to the administration of the regional programs.

Expenses under the environment protection sub‑function are projected to decrease after 2009‑10 reflecting the completion of two significant water management programs, Water Smart Australia and Raising National Water Standards.

Other significant expenses relating to water conservation programs are allocated to the natural resources development sub‑function of the agriculture, forestry and fishing function.

Recreation and culture

Table 11: Summary of expenses

Table 11: Summary of expenses

Nature of expenses and major trends

Recreation and culture function expenses support public broadcasting; the regulatory framework for Australia's broadcasting sector; cultural institutions; funding for the arts and the film industry; assistance to sport and recreation activities; and the management and protection of national parks and other world heritage areas. This function also includes expenses relating to the protection and preservation of historic sites and buildings, including war graves.

The profile of expenses relating to the sports and recreation sub‑function primarily reflects the impact on expenses of higher expenditure in 2007‑08. Expenses in 2007‑08 have been boosted by funding to support World Youth Day and to support a number of sport infrastructure projects, which do not flow through to the forward years. Commonwealth support for these infrastructure projects is mainly delivered in the form of grants, which are recorded as expenses.

The most significant development in broadcasting over the period 2008‑09 to 2011‑12 is likely to be Australia's digital television switchover. The Government has established a Digital Television Switchover Taskforce, which is responsible for coordinating and overseeing Australia's transition from analogue to digital television by 31 December 2013. Additionally, an Industry Advisory Group has been established, bringing together broadcasters, retailers, manufacturers, antenna technicians, public and commercial housing agencies, as well as government departments.

Box 10: Broadcasting

Table 11.1: Trends in major components of the broadcasting sub‑function

Table 11.1: Trends in major components of the broadcasting sub-function

The arts and cultural heritage sub‑function includes all Government arts expenditure. The most significant development in this area is the creation of two new agencies on 1 July 2008. Screen Australia will be established following the merger of the three film bodies, Film Australia Limited, the Australian Film Commission and Film Finance Corporation Australia. The National Film and Sound Archive will also be established as a separate agency, independent from Screen Australia.

Fuel and energy

Table 12: Summary of expenses

Table 12: Summary of expenses

Nature of expenses and major trends

This function comprises a wide range of fuel and energy expenses administered across a number of portfolios. It includes expenses for Fuel Tax Credits and the Energy Grants (Cleaner Fuels) Scheme, which are administered by the Australian Taxation Office (ATO). It also includes some expenses of the Department of Environment, Water, Heritage and the Arts, including the fuel and energy aspects of measures related to the Climate Change Strategy and to the whole‑of‑government Securing Australia's Energy Future initiative.

Fuel and energy function expenses are expected to increase in 2008‑09 reflecting increased expenditure in relation to several greenhouse related programs, including the Low Emissions Technology Demonstration Fund (LETDF), the Renewable Remote Power Generation program, and the Solar Cities program. This is due to the Government's election commitment to increase funding to the Solar Cities program and the rephasing across the Budget and forward years of funding in the LETDF. The rephasing of the LETDF was undertaken to better reflect the expected grant payment profile for the six announced projects under the program. Future projects otherwise funded under the LETDF will be funded through the National Clean Coal Fund and the Renewable Energy Fund.

Expenses related to the fuel and energy function reflect significant growth due to the phased implementation of the Fuel Tax Credits measure over a six year period from 2006‑07. From 1 July 2008 eligibility for entitlements expands to include a 50 per cent credit for 'off‑road' business use of excisable fuels in newly eligible activities and a full credit for all fuels used in currently eligible activities. Fuel Tax Credits expenses are expected to be $4,754 million in 2008‑09 rising to $5,380 million in 2011‑12, the last year of the phased implementation.

Additionally, the fuel and energy function includes expenses for programs relating to the production or use of alternative fuels including ethanol and biodiesel, which are administered by the Department of Resources Energy and Tourism (DRET) and the Australian Taxation Office. Expenses are projected to increase for alternative fuels programs from 2008‑09 onward due to higher funding in support of climate change and innovation initiatives, including: the Energy Innovation Fund, the Renewable Energy Fund and National Clean Coal Initiative, all of which are administered by DRET.

This function also includes expenses relating to the Liquefied Petroleum Gas vehicle purchase and conversion rebate scheme, and a continuation of company tax compensation payments to New South Wales and Victoria following the decision not to sell the Snowy Hydro Limited.

Agriculture, forestry and fishing

Table 13: Summary of expenses

Table 13: Summary of expenses

Nature of expenses and major trends

Agriculture, forestry and fishing function expenses support assistance to primary producers, forestry, fishing, land and water resources management, quarantine services and contributions to research and development.

Expenses within this function are expected to decrease by around 5.4 per cent in real terms between 2008‑09 and 2011‑12, primarily because of the decrease in expenditure on drought‑related measures within the rural assistance sub‑function. This reflects an assumed return to normal seasonal conditions in Australia and a consequent cessation of drought assistance outlays. The decrease in the expenses related to the general assistance (not allocated to specific industries) sub‑function from 2007‑08 is due to the cessation of assistance for the equine influenza outbreak. There is also a decrease in projected expenses in the fishing, horticulture and other agriculture sub‑function after 2007‑08 and 2008‑09, which is attributable to the conclusion of the Tasmanian Community Forest Agreement and the Securing our Fishing Future package.

The overall decrease in agriculture, fishing and forestry expenses is partially offset by the expected significant increase in expenditure in the natural resources development sub‑function. This sub‑function includes government expenditure on water resource management, including expenditure in rural areas under the new national plan for water, Water for the Future. The increase in expenses from 2009‑10 reflects the anticipated increase in activity under the national plan, particularly in relation to the Sustainable Rural Water Use and Infrastructure and the Restoring the Balance in the Murray‑Darling Basin programs, to improve water infrastructure and address water over‑allocation in the Murray Darling Basin.

Other significant expenses on conservation and the sustainable use and repair of Australia's natural environment are included in the environment protection sub‑function (housing and community amenities function) and the national estate and parks sub‑function (recreation and culture function).

Mining, manufacturing and construction

Table 14: Summary of expenses

Table 14: Summary of expenses

Nature of expenses and major trends

Expenses under this function relate to the manufacturing and export sectors, and are designed to assist the efficiency and competitiveness of Australian industries. Major expenses include programs specific to the automotive and textiles, clothing and footwear industries. These expenses also include Australian Government assistance to exporters through direct financial assistance for the development of export markets, information and promotional assistance, finance and insurance services, trade policy, programs providing research and development assistance grants, and strategic investment incentives.

Total expenses are projected to decrease due to a downward trend in projected expenses for the Automotive Competitiveness and Investment Scheme, the termination of the Pharmaceuticals Partnerships Program and the termination of the Commercial Ready program (refer to Budget Paper No. 2, Budget Measures 2008‑09). This decrease is partially offset by an estimated increase in expenses relating to the Research and Development Tax Concession Scheme.

Box 11: Mining and mineral resources (other than fuels) manufacturing and construction

Table 14.1: Trends in major components of the mining and mineral
resources (other than fuels) manufacturing and construction sub‑function

Table 14.1: Trends in major components of the mining and mineral resources (other than fuels) manufacturing and construction sub-function

Transport and communication

Table 15: Summary of expenses

Table 15: Summary of expenses

  1. Most road and rail funding from 2009‑10 onwards is currently classified under the road transport sub‑function and will be reclassified between the road and rail transport sub‑functions as programs of work are determined.
Nature of expenses and major trends

Transport and communication function expenses support the infrastructure and regulatory framework for Australia's transport and communication sectors. Expenses within this function are expected to increase by around 3.3 per cent in real terms from 2008‑09 to 2011‑12. The primary driver of the increase is expenses relating to the road transport sub‑function, which are expected to increase by 16.5 per cent in real terms over this period.

The decline in estimated expenses in the communication sub‑function between 2007‑08 and 2011‑12 primarily reflects the conclusion of the Connect Australia Package which consists of four components: Broadband Connect, Clever Networks, Mobile Connect and Backing Indigenous Ability.

The decline in the communication sub‑function expenses does not take account of the proposed investment in the National Broadband Network (NBN). The Government has indicated it will provide up to $4.7 billion to establish the NBN. A request for proposal to build and operate the NBN was issued on 11 April 2008 with the outcome of this process expected in late 2008. Provision for the NBN has been included in the Contingency Reserve. Further information can be found in the measure, National Broadband Network — establishment and implementation, detailed under the Broadband, Communications and Digital Economy portfolio in Budget Paper No. 2, Budget Measures 2008‑09.

The decrease in estimated expenses in the rail transport sub‑function from 2009‑10 is due to the allocation of land transport infrastructure funding between road and rail projects not yet being finalised (until funding is allocated it is classified under the road transport sub‑function which makes up the overarching majority of land transport infrastructure expenditure). Funding currently allocated to 2009‑10 in the rail transport sub‑function comprises expenditure associated with works on the mainline rail track at Wodonga, Victoria and a scoping study into a future inland rail corridor.

The increased level of estimated expenses in the air transport sub‑function in 2008‑09 is mainly due to aviation security funding including equipment trials for the screening of liquids, aerosols and gels carried on board aircraft flying international routes.

The increase in estimated expenses in the road transport sub‑function from 2007‑08 to 2011‑12 is due primarily to an increase in investment in the National Land Transport Network. A five year program of land transport infrastructure investment will provide total funding of $22.7 billion over 2009‑10 to 2013‑14, including $16.8 billion for projects on the National Network and $2.3 billion for the Strategic Regional Program, Roads to Recovery Program and Black Spot Program. It also includes funding for identified local road grants reported in the local government assistance sub‑function. Major components of the road transport sub‑function are outlined in further detail in Box 12 below.

The decrease in estimated expenses in the sea transport sub‑function from 2007‑08 to 2008‑09 is a result of the merger of the Australian Maritime College (AMC) and the University of Tasmania. The Government gifted the AMC's assets (valued at $61.4 million) to the University to facilitate integration of the AMC into the University from 1 January 2008 providing a one‑off increase in expenses in 2007‑08. This sub‑function is dominated by expenses related to the Tasmanian Freight Equalisation Scheme and the Bass Strait Passenger Vehicle Equalisation Scheme.

Box 12: Road transport

Table 15.1: Trends in major components of the road transport sub‑function

Table 15.1: Trends in major components of the road transport sub-function

  1. Includes keys2drive, Interstate Road Transport Fees, Seatbelts on regional school buses and OECD Road Transport - Contribution.
  2. See Outcome 1 of the Infrastructure, Transport, Regional Services and Local Government Portfolio Budget Statements 2008‑09.

The Government will establish a Building Australia Fund in 2008‑09. This fund will provide for future investments in critical economic infrastructure in the areas of roads, rail, ports and broadband. A provision for financing such projects has been incorporated into the Contingency Reserve from 2009‑10 onwards. These projects will be determined through the budget process according to rigorous evaluation criteria, and in line with prevailing macroeconomic conditions.

Other economic affairs

Table 16: Summary of expenses

Table 16: Summary of expenses

Nature of expenses and major trends

The other economic affairs function includes expenses on tourism and area promotion, labour market assistance, immigration, industrial relations and other economic affairs not elsewhere classified.

Total expenses for the other economic affairs function are estimated to remain relatively stable over the period 2007‑08 to 2011‑12. This reflects lower growth in expenditure in the labour market assistance to job seekers and industry and industrial relations sub‑functions, offset by expected growth in the vocational and industry training function as a result of measures in this Budget.

Expenses in the tourism and area promotion sub‑function are expected to decrease slightly from 2007‑08 mainly due to administrative savings in the Australian Tourism Development Program and departmental savings by Tourism Australia. For further details on both measures, refer to Budget Paper No. 2, Budget Measures 2008‑09, Resources, Energy and Tourism Portfolio.

The growth in estimated expenses in the vocational and industry training sub‑function is mainly due to the introduction of the Government's election commitment measure, Skilling Australia for the Future. The measure will provide an additional 85,000 apprenticeship places over five years. Further information on this measure is presented in Budget Paper No. 2, Budget Measures 2008‑09 under the Education, Employment and Workplace Relations portfolio.

Estimated expenses for labour market assistance to job seekers and industry are projected to decline over the period 2008‑09 to 2011‑12 as a result of lower costs arising from the Employment Services for 2009‑10 to 2011‑12 measure, which streamlines and refocuses employment services arrangements. Further information regarding this measure is presented in Budget Paper No. 2, Budget Measures 2008‑09 under the Education, Employment and Workplace Relations portfolio.

The implementation of the Government's workplace relations reforms will reduce expenses under the industrial relations sub‑function. This results from lower administrative costs associated with the rationalisation of the award system, and the transition from Australian Workplace Agreements to the new system.

The growth in expenses in the immigration sub‑function between 2007‑08 and 2008‑09 is mainly due to new measures announced in the 2008‑09 Budget to increase migration places in the skilled, family and humanitarian categories, and increase support to newly arrived migrants in the areas of language and work skills training. The impact from these new measures on expenses will gradually tail off in future years while expenses relating to short‑term visas for international students and tourists are expected to continue to increase during the same period.

Other purposes

Table 17: Summary of expenses

Table 17: Summary of expenses

  1. Asset sale related expenses are treated as a component of the Contingency Reserve.
Nature of expenses and major trends

The other purposes function includes expenses incurred in the servicing of public debt interest, and assistance to the state, territory and local governments. The function also includes items classified to natural disaster relief, costs of asset sales, the Contingency Reserve (which is an allowance included in aggregate expenses to reflect anticipated events that cannot be assigned to individual programs), and expenses related to nominal interest on unfunded liabilities for government superannuation benefits.

The most significant expenses in the other purposes function relate to general revenue assistance paid to State and Territory governments. Virtually all of these expenses comprise payments of Goods and Services Tax (GST) revenue grants to the states and territories, which are provided on an 'untied' basis. The forecast growth in these expenses reflects expected growth in GST revenue over time. More detailed information on these expenses is provided in Budget Paper No.3 Australia's Federal Relations 2008‑09.

Payments to State and Territory governments that are tied to specific purposes (for example, health and education) are reported under their relevant functions earlier in this statement. More detailed information is also provided in Budget Paper No. 3 Australia's Federal Relations 2008‑09 and in the Portfolio Budget Statements of the corresponding portfolios with responsibilities in these areas.

The assistance to other governments' expense encompasses transfers and payments to the States and Territories, of which around 96 per cent is to Western Australia for offshore petroleum royalties, and the balance being for compensation for National Capital Influences in the Australian Capital Territory and assistance to other governments through the Attorney‑General's Department. These expenses are expected to fluctuate across the forward years due mainly to a combination of a decrease in estimated oil production volume and estimated increase in price, on which the royalty payments are based.

Estimated expenses relating to the local government assistance sub‑function steadily increase across the Budget and forward estimates period due to forecast population increases and changes in the Consumer Price Index (local government funding provided by the Commonwealth is linked to population and inflation). A significant component of local government assistance is categorised under other expense functions (refer to Budget Paper No. 3, Australia's Federal Relations 2008‑09 for more information on Australian Government assistance to local governments).

Of the other major items, nominal superannuation interest expenses are projected to grow over time reflecting the growth in the Government's superannuation liability.

The increase in expenses in the Contingency Reserve sub‑function from 2008‑09 over the forward years is largely due to the conservative bias allowance — an allowance that compensates for the trend in expenses on existing Australian Government programs to be underestimated by agencies in the forward years. The nature of the Contingency Reserve is discussed in more detail at Appendix B.


1 This statement provides information on expenditure by function in accrual terms. More detailed information on defence expenditure and funding is provided in the Defence Portfolio Budget Statements 2008‑09.

2 Total departmental funding appropriated to the Department of Defence is estimated to grow on average by 4.0 per cent per annum in real terms over the four years from 2007‑08. The real increase in appropriated funding in 2008‑09 is 0.8 per cent measured relative to the non-farm GDP deflator, and 3.6 per cent measured relative to the Consumer Price Index. The difference between the 2008‑09 real growth rate of appropriated funding and the 2008‑09 growth rate of 3.9 per cent in Box 3 principally reflects the fact that funding for the Defence Joint Operations Command and single living accommodation project will be appropriated over a period of 30 years , while the accrual expenditure is recognised in 2008‑09.

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