Statement 8: Statement of Risks
The forward estimates of revenue and expenses in the 2008‑09 Budget incorporate assumptions and judgments based on the best information available at the time of publication. A range of factors may influence the actual budget outcome in future years. The disclosure of these factors in this statement increases the transparency of the fiscal projections.
Events that could affect fiscal outcomes include:
- changes in economic and other parameters;
- matters not included in the fiscal forecasts because of uncertainty about their timing, magnitude and/or likelihood; and
- the realisation of contingent liabilities and/or assets.
Risks to the Budget — overview
The revenue and expense estimates and projections are based on a range of economic and other parameters. If the economic outlook were to differ from that presented in the Budget, the revenue and expense estimates and projections would also change. This sensitivity of budget estimates to changes in economic assumptions is discussed in Appendix B to Statement 3.
Other fiscal risks comprise general developments or specific events that may affect the fiscal outlook. Some developments or events simply raise the possibility of some fiscal impact. In other cases, fiscal impacts may be reasonably certain, but will not be included in the forward estimates because their timing or magnitude is not known. Fiscal risks can have an impact on the budget balance. Contingent liabilities and assets are a specific category of fiscal risks. Contingent liabilities and contingent assets are defined by the accounting standard AASB 137, which came into effect on 1 July 2005. Broadly, they represent possible costs or gains to the Australian Government arising from past events which will be confirmed or otherwise by the outcome of future events that are not within the Government's ability to control.
Contingent liabilities include loan guarantees, non‑loan guarantees, warranties, indemnities, uncalled capital and letters of comfort. These possible costs are in addition to those recognised as liabilities in the consolidated financial statements of the Australian Government general government sector.
The Australian Government's major exposure to contingent liabilities arises from legislation guaranteeing certain liabilities of Australian Government controlled financial institutions (the Reserve Bank of Australia and the Export Finance and Insurance Corporation). To help manage these exposures, strategies are in place which aim to ensure the underlying strength and viability of the entities, so that the guarantees are not triggered.
Another class of contingent liability is uncalled capital, which reflects a financial commitment to an institution where no promissory note is issued by the Australian Government. Uncalled capital is primarily associated with international financial institutions such as the International Bank for Reconstruction and Development, the Asian Development Bank, the European Bank for Reconstruction and Development and the Multilateral Investment Guarantee Agency. When promissory notes are issued, such as in the case of the International Monetary Fund, the amounts are recorded in the general government balance sheet, so contingent liabilities (or assets) are not shown for those amounts.
Contingent assets include claims that the Australian Government is pursuing through legal processes, where the outcome is uncertain.
Contingent liabilities, contingent assets and other fiscal risks with a possible impact on the forward estimates greater than $20 million in any one year, or $40 million over the forward estimates period, are listed in this statement.
Information on fiscal risks takes account of Parliament's decisions and other developments until the close of parliamentary business on 30 April 2008. In general, information on contingent liabilities and assets is based on information provided by Australian Government departments and agencies and is current to 31 March 2008. However, in some cases other dates are used and are noted in the relevant section.
Information on contingent liabilities is also provided in the annual financial statements of departments and non‑budget entities.
Table 1: Summary of material changes to Statement of Risks since the 2007‑08 Budget and
Mid‑Year Economic and Fiscal Outlook 2007‑08(a)
| CONTINGENT LIABILITIES — QUANTIFIABLE | |
|---|---|
| Defence and Defence Materiel Organisation | |
| Indemnities | Modified |
| Environment, Heritage and the Arts | |
| Potential claims relating to the Great Barrier Reef Marine Park Structural Adjustment Package | New |
| Finance and Deregulation | |
| Australian Industry Development Corporation | Modified |
| Potential claims relating to superannuation benefits | Deleted |
| Sale of Sydney Airports Corporation Ltd | Modified |
| Foreign Affairs and Trade | |
| Export Finance and Insurance Corporation | Modified |
| Immigration and Citizenship | |
| Immigration detention services | Modified |
| Infrastructure, Transport, Regional Development and Local Government | |
| Code Management Company — indemnity for the Code of Practice for the Defined Interstate Rail Network(b) | Modified |
| Treasury | |
| Guarantees under the Commonwealth Bank Sale Act | Modified |
| International financial institutions — uncalled capital subscriptions | Modified |
| Reserve Bank of Australia — guarantee | Modified |
| CONTINGENT LIABILITIES — UNQUANTIFIABLE | |
| Agriculture, Fisheries and Forestry | |
| Compensation claims arising from Equine Influenza Outbreak | Modified |
| Broadband, Communications and the Digital Economy | |
| National Broadband Network Panel of Experts — indemnities | New |
| Climate Change and Water | |
| Risk Assignment under the National Water Initiative | New |
| Defence | |
| HMAS Melbourne and HMAS Voyager damages claims | Modified |
| Litigation cases | Modified |
| Environment, Heritage and the Arts | |
| Art Indemnity Australia(b) | Modified |
| Finance and Deregulation | |
| Tuggeranong Office Park (TOP) Sinking Fund approved expenses | Deleted |
| Industrial Waste Commission (IWC) Cleanaway | Modified |
| Telstra Sale Company Ltd — indemnities | Modified |
| Telstra Corporation Ltd — company, directors and senior executives' indemnities | Deleted |
| Telstra Corporation Ltd — indemnity for unauthorised disclosure of confidential information | Deleted |
| Future Fund Board of Guardians — indemnity | Modified |
| Health and Ageing | |
| CSL Ltd | Modified |
| Indemnity relating to H5N1 vaccine | New |
| Innovation, Industry, Science and Research | |
| Australian Nuclear Science and Technology Organisation — indemnity(b) | Modified |
| Liability for damages caused by space activities(b) | Modified |
| Liability for damages caused by Kistler space activities(b) | Modified |
| Resources, Energy and Tourism | |
| Snowy Hydro Ltd — directors' indemnities(b) | Modified |
| Snowy Hydro Ltd — water releases(b) | Modified |
| Liability for costs incurred in a National Liquid Fuel Emergency(b) | Modified |
| Treasury | |
| Terrorism insurance — commercial cover | Modified |
| CONTINGENT ASSETS — UNQUANTIFIABLE | |
| Innovation, Industry, Science and Research | |
| Wireless Local Area Network — contingency asset | New |
- Risks appearing in this Statement but not listed in the table above are substantially unchanged since disclosed in Budget Paper No. 1, Budget Strategy and Outlook 2007‑08, Statement 11 or in Mid‑Year Economic and Fiscal Outlook 2007‑08, Appendix D, with the exception of the list of specific fiscal risks, which have been replaced with a more general statement.
- Risks appearing in this Statement that have changed portfolios due to Administrative Arrangements Orders.
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