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Statement 6: Expenses and
Net Capital Investment

General government sector expenses

Reconciliation of expenses since the 2008‑09 Budget

Table 2 provides a reconciliation of expenses estimates between the 2008‑09 Budget, Mid‑Year Economic and Fiscal Outlook 2008‑09 (MYEFO), February 2009 Updated Economic and Fiscal Outlook (UEFO 2009) and the 2009‑10 Budget, showing the effect of policy decisions and economic parameter and other variations.

Table 2: Reconciliation of expense estimates

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

A more detailed discussion of the major changes between UEFO 2009 and the 2009‑10 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 2009‑10.

Since October 2008, the Government has introduced a number of fiscal stimulus packages. Details of the effect of the largest such package, the Nation Building and Jobs Plan, on the allocation of expenses by function, is explained in further detail below in Box 1.

Estimated expenses by function

Table 3 sets out the estimates of Australian Government general government sector expenses by function for the period 2008‑09 to 2012‑13.

Table 3: Estimates of expenses by function

Major movements between 2008‑09 and 2009‑10 and across the forward estimates include movements in the following functions:

• Education — an increase of $13.7 billion in 2009‑10 largely due to increased investment on school infrastructure provided under Building the Education Revolution initiative, together with an increase in funding for government schools under the new National Education Agreement and a significant increase in expenses for higher education associated with the Government's response to the Review of Australian Higher Education (the Bradley review);
• Other purposes — an increase of $3.4 billion in 2009‑10 largely due to growth in general revenue assistance payments to the States and Territories, higher interest payments on public debt and the profile of the contingency reserve over the forward estimates;
• Housing and community amenities — an increase of $4.7 billion in 2009‑10 largely due to a number of one‑off stimulus measures including investment in social housing;
• Defence — an increase of $2.2 billion in 2009‑10, partly as a result of increased funding for defence operations;
• Fuel and energy — an increase of $2.1 billion in 2009‑10 primarily as a result of increased expenditure on energy efficiency programs, particularly under the Government's Energy Efficient Homes package announced as part of the Nation Building and Jobs Plan, and the Clean Energy Initiative;
• Health — an increase of $1.9 billion in 2009‑10, and sustained growth over the forward estimates, reflecting the continued growth in the use of medical services and the effect of the indexation of health related payments to the States and Territories; and
• Social security and welfare — a decrease of $13.9 billion in 2009‑10 following the one‑off lump sum payments delivered to pensioners, families and other Australians in 2008‑09 as part of the Economic Security Strategy and the Nation Building and Jobs Plan stimulus packages. Sustained growth is expected over the forward estimates period.

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

General public services

The general public services function includes expenses relating to the organisation and operation of government such as those related to the Parliament, the Governor‑General and conduct of elections; 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 those associated with 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).

Table 4: Summary of expenses — general public services

Total general public services expenses are estimated to increase in real terms by 7.6 per cent, or 2.5 per cent per annum on average, over the forward years.

The most significant increase in expenses is in the foreign affairs and economic aid sub‑function, reflecting the Government's commitment to increase Australia's diplomatic engagement with the world, and its commitment to raise Australia's overseas development assistance over the long term. 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 (see Table 4.1 for detailed information). The increase in the 'other' component of Official Development Assistance (ODA) reflects the unallocated funds held in the Contingency Reserve in line with the Government's commitment to increase ODA. These amounts are available for allocation to specific aid projects and programs in the future.

Table 4.1: Trends in the major components of foreign affairs and economic
aid sub‑function expenses

1. The difference between these figures and the Government's ODA target is due primarily to the way multilateral replenishments are recorded for ODA purposes. Expenses relating to multilateral replenishments are recognised in accrual terms when initial commitments are made. However, ODA targets are measured in cash terms and reflect the timing of actual cash payments (which, in the case of multilateral replenishments, can be spread over several years).
2. Some minor ODA delivered by other government departments may be classified to other programs or functions.
3. Other includes AusAID's departmental expenses and the provision available for future aid spending in the ODA Contingency Reserve (CR) in the Budget and forward years. The ODA CR represents the difference between the amount of ODA already committed by Australia and the Government's target levels of ODA (0.34 per cent of Gross National Income in 2009‑10).

Expenses relating to the financial and fiscal affairs sub‑function are also forecast to grow solidly, largely as a result of forecast increases in the Australian Taxation Office's (ATO's) penalty remission expenses (a concession whereby the Commissioner of Taxation can release a taxpayer from having to pay penalties raised) and new measures strengthening the ATO's compliance and enforcement activities. Investment expenses for the Future Fund Management Agency are also expected to increase as financial assets accumulate in the Future Fund.

Increased expenses are also anticipated in the government superannuation benefits sub‑function. This growth largely reflects higher public service and military superannuation benefits due to increases in the average salary on which benefits are determined.

Total expenses within the legislative and executive affairs sub‑function are expected to experience a temporary increase in 2010‑11 partly as a result of the assumed timing of the next federal general election.

The general research sub‑function incorporates expenses incurred by the Commonwealth Scientific and Industrial Research Organisation, the Australian Nuclear Science and Technology Organisation, the Australian Institute of Marine Science and the Australian Research Council. Expenses for this sub‑function from 2009‑10 have been affected by the reclassification of a number of programs administered by the Department of Innovation, Industry, Science and Research from within this sub‑function to the higher education sub‑function as a result of improved reporting under the Operation Sunlight reforms. The effects of this reclassification (around $470 million in 2009‑10) have been largely offset by the additional funding provided through the Government's response to the Review of the National Innovation System.

The selection of projects in the areas of space science, marine and climate change, and future technologies for funding under the Education Investment Fund as part of the Government's response to the Review of the National Innovation System has resulted in growth in expenses for the general research sub‑function. Other initiatives resulting in increases in expenses in this sub‑function include the increase in support to universities to cover the indirect costs of research, and the decision to provide increased funding for an additional 100 research places through the Super Science Fellowship Program. Further information on this sub‑function is provided in Table 4.2 below.

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

The profile of expenses for the science and research capacity component of the general research sub‑function reflects payments made from the Education Investment Fund. These payments are concentrated in 2009‑10 and 2010‑11, explaining the reduction in projected expenses in 2011‑12 and 2012‑13.

As a result of improved reporting under the Operation Sunlight reforms, departmental expenses associated with various programs administered by the Attorney‑General's Department (approximately $115 million in 2009‑10) have been reclassified from the general services sub‑function (general public services function) to the urban and regional development sub‑function (housing and community amenities function).

Components of expenses administered by the ATO have also been reclassified, from the financial and fiscal affairs sub‑function (general public services function) to the natural resources development sub‑function (agriculture, forestry and fishing function) and the housing sub‑function (housing and community amenities function).

Defence

Agencies covered by the defence function include the Department of Defence (Defence) and the Defence Materiel Organisation (DMO). Defence expenses support Australian military 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 contributes to the preparedness of the Australian defence organisation through acquisition and through‑life support of military equipment and supplies.

The defence function records the majority of expenses incurred by the Defence portfolio, except for the Department of Veterans' Affairs, superannuation payments to retired military personnel, and housing assistance provided through Defence Housing Australia, which are reported under the social security and welfare, other purposes, and housing and community amenities functions, respectively.

Total defence expenditure (measured in accrual fiscal balance terms) comprises expenses and net capital investment. Expenses for the defence function are those incurred in undertaking its day‑to‑day activities. Net capital investment represents expenditure to acquire capital items in the form of equipment, buildings and land, less depreciation expenses.

Table 5: Summary of expenses — defence

Defence function expenses are estimated to increase by $2.2 billion in 2009‑10. The reduction in estimated expenses from 2009‑10 to 2010‑11 reflects the treatment of funding for Defence operations. These operations are generally funded on a year‑by‑year basis, and the forward estimates of expenses do not provide for extensions of currently approved operations. These extensions are instead subject to future Government policy decisions.

Defence expenses in the forward years beyond 2009‑10 are projected to remain broadly unchanged, reflecting the impact of the savings to be achieved in these years. These savings will be reinvested in defence functions when major new capabilities foreshadowed in the Government's Defence White Paper are implemented.

In 2009‑10, additional funding of $1.4 billion is being provided to support Defence overseas operations in the Middle East, East Timor and the Solomon Islands and for the continuation of coastal surveillance. Total operations funding in 2009‑10 is $1.6 billion. Operations funding is provided on a 'no win, no loss' basis.

Investment spending in the defence function is proportionately larger than for other functions, as a consequence of the acquisition of military equipment and the construction of support facilities.

The growth of investment spending can 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 decision. Details of defence investment spending are provided in the net capital investment estimates by function section of this statement at page 6‑46.

Large military equipment projects usually involve uneven expenditures throughout their life that may lead to fluctuations in levels of net capital investment from year to year. Expenditure is also subject to slippage when project timelines are not met. For example, in the 2008‑09 Budget and the Mid‑Year Economic and Fiscal Outlook 2008‑09, amounts in excess of $1 billion and $0.5 billion, respectively, were reprogrammed into future years to reflect changes in the timing of expected payments for military equipment.

Defence spending in later years beyond the forward estimates period will be driven by changes in Defence funding arising from the new funding model that has been decided in the context of the Government's Defence White Paper (see Box 5).

Public order and safety

Expenses under 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.

Table 6: Summary of expenses — public order and safety

Total expenses for the public order and safety function are estimated to decrease by 7.6 per cent in real terms from 2009‑10 over the forward years, or by 2.5 per cent per annum on average in real terms. This decrease reflects stabilisation after rapid growth in preceding years that arose from major initiatives such as one‑off investments in the family law system, implementation of anti‑terrorism legislation and investment in aviation security, intelligence capabilities and measures to counter illegal foreign fishing.

Expenses within the courts and legal services sub‑function decrease over the period 2008‑09 to 2009‑10 due to the reclassification of expenses under Operation Sunlight and the termination or planned reduction in expenses for some programs. This includes the cessation of several inquiries (for example, equine influenza) and the winding‑down of several one‑off public education activities focused on new initiatives (for example, national human rights consultation).

Expenses for the other public order and safety sub‑function include border protection and enforcement, aviation security services, detecting and responding to illegal foreign fishing, intelligence services, criminal investigations and processing of passengers arriving in Australia. Expenses included in this sub‑function increase over 2008‑09 to 2009‑10. While some of this movement relates to reclassifications under Operation Sunlight, increases are also due to additional measures to respond to resurgent people smuggling activities. Contributions to the increase also result from the sustained investment in intelligence capabilities to manage risks and threats arising from the global security environment.

Education

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.

Table 7: Summary of expenses — education

Total expenses in the education function are expected to increase by 60.9 per cent in real terms in 2009‑10. The primary factors driving this growth are spending on school infrastructure as part of the Nation Building and Jobs Plan fiscal stimulus package, the Government's response to the Review of Australian Higher Education, and the reclassification of tertiary student assistance from the social security and welfare function. Education function expenses are forecast to decrease in 2010‑11 and 2011‑12, largely reflecting step downs in expenses as the temporary investment in schools infrastructure ends, offset to some extent by projected strong annual growth in spending on schools. As a result, total education function expenses in 2012‑13 are projected to be 28.6 per cent higher in real terms than in 2008‑09. If the estimated expenses are adjusted to take account of the amounts, totalling $3.0 billion, being reclassified to education, this real growth declines to approximately 15 per cent.

Expenses relating to the higher education sub‑function are expected to increase significantly in 2009‑10, primarily reflecting the Government's response to the Review of Australian Higher Education (the Bradley review) and infrastructure spending from the Education Investment Fund (EIF). The overall impact of the Bradley review measures is sustained growth in expenses over the forward estimates period. However, the profile over the forward estimates is also influenced by the expected tailing off of expenditure from Round 2 and Round 3 EIF projects in 2011‑12 and 2012‑13, respectively.

Vocational and other education sub‑function expenses are estimated to increase by 32.9 per cent in real terms from 2008‑09 to 2009‑10 (see Table 7). This is driven by the Nation Building and Jobs Plan, which provides $500 million in 2009‑10 for the Teaching and Learning Capital Fund to improve and modernise the quality of teaching and learning across the vocational education and training sector. The 2009‑10 Budget incorporates a number of measures which support maintaining the development of the skill base of the Australian population, including an extra 10,000 places available under the Productivity Places Program, an additional 5,500 Apprenticeships Access places, and additional incentive payments to secure recommencement and completions for Australian apprentices. For further information on these measures, refer to Budget Paper No. 2, Budget Measures 2009‑10, Education, Employment and Workplace Relations portfolio.

Table 7.1: Trends in the major components of vocational and other education
sub‑function expenses

Total expenses for the government and non‑government schools sub‑functions are expected to increase by 5.4 per cent in real terms from 2008‑09 to 2012‑13, or 1.3 per cent annually on average. Funding under this sub‑function includes the new National Education Agreement, which will see total funding for government and non‑government schools of around $42 billion between 2009 and 2012, compared to $33.5 billion under the previous schools agreement (excluding Indigenous funding). Schools expenses in the future will be complemented by over $1.9 billion of additional funding over the period of the agreement, comprising National Partnerships for literacy and numeracy, improving principal leadership development and teacher quality, and improving educational outcomes in low socio‑economic status school communities.

Expenses under the student assistance sub‑function have been the subject of a reclassification under the improved reporting made possible by the Operation Sunlight changes. As a result, there is a substantial increase in education function expenses in 2009‑10 (and a corresponding decrease in estimated expenses reported in the social security and welfare function). The increase in estimated expenses for the Higher Education Loan Program (HELP) over the forward estimates reflects decisions to increase the annual contribution for nursing and teaching courses, together with a repayment reduction for nursing and teaching graduates working in their chosen profession and the removal of the loan fee on OS‑HELP loans (loans for overseas students). The expenses recorded in Table 7.2 reflect the deferral costs arising from the accounting treatment of concessional loans.

Table 7.2: Trends in the major components of student assistance sub‑function
expenses

Expenses in the school education — specific funding sub‑function will increase substantially in 2009‑10, reflecting the measures announced as part of the Government's Nation Building and Jobs Plan to build or renew infrastructure in all Australian schools under the Building the Education Revolution program. Additional funding has also been provided for the additional costs of implementing the National Secondary Schools Computer Fund in 2008‑09 as part of Digital Education Revolution program.

Health

The health function includes expenses relating to: medical services funded through Medicare and the Private Health Insurance Rebate; payments to the States and Territories to deliver essential health services; Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes; blood and blood products; population health measures; and health education and training services. Expenses relating to the new healthcare arrangements between the Australian Government and the States and Territories which take effect on 1 July 2009 are reflected against the national healthcare specific purpose payment sub‑function. Funding for the previous healthcare arrangements is captured in the health care agreements sub‑function, and represented funding of $10.3 billion in 2008‑09.

Table 8: Summary of expenses — health

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. 'Health assistance to the aged' sub‑function has been reclassified as 'assistance to the aged' sub‑function (social security and welfare function) from 2009‑10 onwards.

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 projected to be a major contributor to the growth in Australian Government spending in future decades. At the time of this Budget, total expenses for this function are estimated to increase by 6.0 per cent in real terms from 2009‑10 over the forward years, or on average by 2.0 per cent per annum in real terms.

Medical services and benefits, funded through Medicare and the Private Health Insurance Rebate, make up 41 per cent of total health expenses in 2009‑10 and 40 per cent across the forward estimates period. Expenses in this sub‑function are forecast to remain relatively stable over the forward estimates with growth of 1.3 per cent in real terms from 2009‑10 over the forward years, or 0.4 per cent per annum on average in real terms. However, there are significant movements in the components of the sub‑function.

Medicare expenses are expected to grow by 8.7 per cent from 2009‑10 over the forward estimates, or by an annual average of 2.8 per cent. This growth primarily reflects increases in the number of services provided by general practitioners. It also reflects a shift to collaborative models of primary health care, which provide patients with access to a broader range of health services, including allied health. A reduction in Private Health Insurance Rebate expenses from 2010‑11 reduces the level of funding in this sub‑function from 2010‑11 onwards. This is a result of the introduction from 1 July 2010 of lower rebates for higher income groups announced in this Budget.

The major components of the medical services and benefits sub‑function are outlined in further detail below in Table 8.1.

Table 8.1: Trends in the major components of medical services and benefits
sub‑function expenses

The hospital services sub‑function is comprised of veterans' hospital services and payments to the states and territories under the COAG National Partnership Agreement on Hospital and Health Workforce Reform. Expenses in 2008‑09 reflect $1.3 billion in one‑off payments to the states and territories provided for emergency departments, and extra sub‑acute care beds as announced by COAG in November 2008. Expenses in this sub‑function are not expected to grow in real terms from 2009‑10 due to declining veteran client numbers.

The decrease in expenses for the health care agreements sub‑function between 2008‑09 and 2009‑10 is due to the creation of the national healthcare specific purpose payment sub‑function and subsequent reclassification of the National Healthcare Agreement to the new sub‑function. The decrease in expenses for health care agreements in 2011‑12 is mainly due to the expected completion of one‑off funding provided to states and territories to help address waiting lists for elective surgery in public hospitals. The further decline that is expected to occur in 2012‑13 is due to the expected completion of funding to States and Territories for public dental services under the Commonwealth Dental Health Program.

The projected growth in expenses for the national healthcare specific purpose payment sub‑function relates to increased funding to be provided to the States, through the indexation component of the National Healthcare Agreement, taking the estimated real growth from 2009‑10 over the period to 15.4 per cent, or an annual average of 4.9 per cent. This increase in funding was agreed by COAG in November 2008. This growth has occurred off a higher base due to a $500 million increase in the base funding for the Agreement in 2008‑09. Further information about the National Healthcare Agreement is provided in Budget Paper No. 3, Australia's Federal Relations 2009‑10 and further detail on the COAG reforms is available at page 6‑6.

The increase in expenses in the pharmaceutical services and benefits sub‑function is attributable to new high cost drug listings on the Pharmaceutical Benefits Scheme, combined with increased use of drugs associated with an ageing population. Estimated growth is expected to be 5.9 per cent in real terms over the forward years from 2009‑10, or 1.9 per cent per annum on average in real terms over the forward estimates. These estimates have, in previous years, increased significantly as new drugs are listed. The major components of the pharmaceutical services and benefits sub‑function are outlined in further detail below in Table 8.2.

Table 8.2: Trends in the major components of Pharmaceutical Benefits and
Services sub‑function expenses

1. Concessional benefits are those provided through community pharmacies for Centrelink concession card holders.
2. General benefits are those provided through community pharmacies for people without concession cards.
3. Highly specialised drugs are subsidised by the Commonwealth Government through hospitals.

Expenses in the Aboriginal and Torres Strait Islander health sub‑function are for Indigenous‑specific health services. A significant increase in expenses is forecast to occur between 2008‑09 and 2011‑12, with real growth of 26.1 per cent over this period, or annual average growth of 8.0 per cent. Expenses in this sub‑function are forecast to decline in 2012‑13 as funding for the Northern Territory Emergency Response, in this year is yet to be considered. Because Aboriginal and Torres Strait Islander people do not just access Indigenous‑specific services, substantial investment in Indigenous health is also being made through other sub‑functions, including as part of the National Partnership Agreement on Closing the Gap in Indigenous Health Outcomes as described below.

Expenses in the health services sub‑function are largely comprised of population health programs, the provision of blood and blood products, and health infrastructure funding through the Health and Hospitals Fund. The increase in expenses between 2008‑09 and 2009‑10 is primarily due to the $465.7 million projected to be funded in 2009‑10 from the Health and Hospitals Fund. Further information on the package of measures funded from the Health and Hospitals Fund is presented in Budget Paper No. 2, Budget Measures 2009‑10, Health and Ageing portfolio. The other main driver of growth from 2009‑10 onwards is the cost for blood and blood products, which is $1.5 billion in 2009‑10 and is estimated to grow by 24.5 per cent in real terms, or an average of 7.6 per cent annually over the forward estimates period due to an increased demand for blood and specific blood products.

Health assistance to the aged sub‑function ($107 million in 2008‑09) has been reclassified to the assistance to the aged sub‑function in the social security and welfare function from 2009‑10. This sub‑function includes community nursing services to assist veterans and war widows and widowers.

Social security and welfare

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

Table 9: Summary of expenses — social security and welfare

1. 'Common youth allowance' sub‑function has been reclassified and split between the 'student assistance' sub‑function (education function) and 'assistance to the unemployed' sub‑function (social security and welfare function), as appropriate, from 2009‑10 onwards.

Social security and welfare function expenses are estimated to grow at 5.2 per cent in real terms from 2009‑10 over the forward estimates and at an average annual rate of 1.7 per cent over that period. A significant driver of growth in expenses for the majority of the sub‑functions is the indexation of personal benefits and income support payments, and demographic and social factors such as the ageing of the population.

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 4.4 per cent in real terms from 2009‑10 over the forward estimates period, and assistance to people with disabilities (average annual real growth of 4.6 per cent over the forward estimates period). The major components of the assistance to the aged sub‑function are outlined below in Table 9.1.

The main driver of the increase in the assistance to the aged sub‑function is income support for seniors. The increase in expenses from 2009‑10 is primarily the result of an increase in the base pension rate and an increase in supplementary payments as part of the Government's Secure and Sustainable Pensions package. The Secure and Sustainable Pensions package will provide a $32.49 per week increase for single pensioners and a $10.14 per week increase for pensioner couples (combined). These increases also impact on the assistance to veterans and dependants, and the assistance to people with disabilities sub‑functions as the increases will apply to recipients of the Age Pension, Service Pension, Disability Support Pension, Carer Payment, Bereavement Allowance, Widow B Pension, Wife Pension, and Income Support Supplements and to War Widows.

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

The increase in projected expenses in the assistance to people with disabilities sub‑function from 2009‑10 is primarily driven by the new Carer Supplement payment and increased pension payments introduced as part of the Secure and Sustainable Pensions package. The first payment of the Carer Supplement will be made by 30 June 2009 with subsequent payments starting from July 2010. The Disability Support Pension and carer support payments expenses are the most significant components of this sub‑function. The major components of the assistance to people with disabilities sub‑function are outlined below in Table 9.2.

Table 9.2: Trends in the major components of assistance to people with
disabilities sub‑function expenses

The high level of expenses in 2008‑09 in the assistance to families with children sub‑function reflects the impact of the back to school and single income family bonus payments made in 2008‑09 as part of the Nation Building and Jobs Plan, and payments to families announced in October 2008 in the Economic Security Strategy statement. Growth in expenses in this sub‑function from 2009‑10 is projected to be relatively flat. The major components of the assistance to families with children are outlined below in Table 9.3.

Table 9.3: Trends in the major components of families with children sub‑function
expenses

The main driver of the assistance to the unemployed and sick sub‑function is job seeker income support payments, including Newstart and Partner Allowance, and the reclassification of Youth Allowance (other) to this sub‑function from the common youth allowance sub‑function. Changes over the forward estimates are primarily the result of projected movements in the number of unemployment benefit recipients, consistent with projected economic conditions.

Expenses relating to non‑tertiary youth allowance have been reclassified from the common youth allowance sub‑function to the assistance to the unemployed sub‑function from 2009‑10. Expenses related to youth allowance for students has been reclassified to the education function. A total of $2.4 billion has been reclassified.

Expenses in the other welfare programs sub‑function are higher in 2008‑09 than in subsequent years due to tax bonus payments paid in that year as part of the Government's Nation Building and Jobs Plan.

The trend in estimated expenses from 2009‑10 in the Aboriginal Advancement sub‑function of the social security and welfare function reflects the profile of the increased funding provided as part of the COAG agreement in 2008 to Close the Gap on Indigenous Disadvantage, which prioritised early spending to assist in rapid progress in meeting the Closing the Gap targets. The projected decline in expenses in 2012‑13 relates to resourcing for the Northern Territory Emergency Response. Funding for the Response has been committed from 2009‑10 until 2011‑12, with further funding beyond this period to be considered at a future date.

The increase in the general administration sub‑function expenses in 2009‑10 is due to the reclassification of approximately $0.9 billion in administrative expenses, primarily from the assistance to families with children sub‑function, and an increase in funding to Centrelink, in line with the estimated increase in customers receiving Newstart benefits.

Housing and community amenities

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

Table 10: Summary of expenses — housing and community amenities

After substantial growth in expenses in 2008‑09 and 2009‑10, total expenses under the housing and community amenities function are estimated to decrease by 58.5 per cent in real terms from 2009‑10 over the forward years, or by 25.4 per cent per annum on average in real terms. This largely reflects the phasing down or cessation of various economic stimulus measures (in particular the Nation Building and Jobs Plan — Investment in Social Housing measure) and other one‑off spending.

Housing sub‑function expenses in 2008‑09 have increased from $1.9 billion estimated in the 2008‑09 Budget to $3.2 billion, mainly due to the First Home Owner Grant Boost introduced in October 2008 as part of the Economic Stimulus Package which has been extended in this Budget until 30 December 2009. The further growth to an estimated $7.3 billion in 2009‑10, is principally due to the Nation Building and Jobs Plan — Investment in Social Housing measure. The majority of this funding has been prioritised to produce relatively early spending in 2009‑10, with smaller increases in expenditure in 2010‑11 and 2011‑12.

Other key contributors to housing expenses across the forward estimates period include: the National Partnership Agreement on Social Housing, which provides additional funding of $400 million over 2008‑09 and 2009‑10; First Home Saver Accounts and the National Rental Affordability Scheme, introduced in the 2008‑09 Budget (with expenses increasing over the forward estimates due to the estimated growth in take‑up rates as these programs mature); and the National Partnership Agreement on Homelessness, which will provide $400 million in additional expenditure over four years.

The urban and regional development sub‑function comprises regional development programs and the natural disaster mitigation program. The increase in estimated regional development expenses in 2009‑10 and 2010‑11 is largely a result of one‑off funding for the East Kimberley Development Package announced as part of the Government's Nation Building Package on 12 December 2008, and funding for the Infrastructure Employment Projects element of the Jobs Fund that was announced on 5 April 2009. The decline in projected expenses from 2011‑12 reflects the termination of the Better Regions and Regional Partnerships programs.

Expenses under the environment protection sub‑function will increase in 2009‑10 by $173 million, due to the establishment of the Climate Change Action Fund ($200 million in 2009‑10) under the Carbon Pollution Reduction Scheme. The measure will provide support to businesses and community organisations transitioning to an operating environment that includes a price on carbon. A provision for the forward year funding has been made in the Contingency Reserve.

Recreation and culture

Recreation and culture function expenses support public broadcasting, cultural institutions, funding for the arts and the film industry, assistance to sport and recreation activities, as well as 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.

Table 11: Summary of expenses — recreation and culture

Total expenses under the recreation and culture function are estimated to decrease by 10.5 per cent in real terms from 2009‑10 over the forward years, or by 3.6 per cent per annum on average in real terms. This largely reflects the completion of a number of one‑off activities in the sport and recreation and national estate and parks sub‑functions.

Broadcasting sub‑function expenses will grow substantially in 2009‑10, mainly due to increased resourcing for the Australian Broadcasting Corporation and the Special Broadcasting Service Corporation under their new triennial funding arrangements, and measures to assist Australia's transition from analog to digital television.

Expenses in the broadcasting sub‑function are forecast to fall in 2012‑13, because the initial digital switchover measures for regional areas scheduled to switch early cease in 2011‑12. Funding assistance for the remaining areas of Australia will be considered at a later time, closer to when they are scheduled to switchover. Table 11.1 provides data on the most significant components that make up the broadcasting sub‑function. (For further information on these measures, refer to Budget Paper No. 2, Budget Measures 2009‑10, Broadband, Communications and the Digital Economy portfolio).

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

To assist Australians with the switchover to digital television, the Government will provide: an assistance scheme for eligible households; an information campaign; a national call centre and website; and a retailer accreditation industry training scheme.

The arts and cultural heritage sub‑function includes government arts expenditure. The decrease in expenses in 2009‑10 for this sub‑function primarily reflects an estimated decrease in claims for the Refundable Film and Television tax offset.

The sport and recreation sub‑function includes government expenses relating to sport and recreational activities. The forecast decrease in expenses after 2009‑10 is due to the expected completion of one‑off funding activities delivered by the Australian Sports Commission.

Expenses under the national estate and parks sub‑function are expected to rise in 2009‑10, primarily due to the reclassification of the Australian Antarctic Division to this sub‑function from the housing and community amenities function (approximately $145 million in 2009‑10). The forecast increase also reflects the Government's commitment to provide funding of $60 million for the preservation of national heritage‑listed buildings and historic properties, of which $53.5 million is expected to be spent in 2009‑10.

Fuel and energy

This function comprises a wide range of fuel and energy expenses administered across a number of portfolios. It includes expenses for the Fuel Tax Credits and the Energy Grants (Cleaner Fuels) Schemes, which are administered by the ATO. It also includes expenses related to greenhouse programs and programs to support production or use of alternative fuels, including ethanol and biodiesel.

Table 12: Summary of expenses — fuel and energy

Fuel and energy expenses are expected to increase significantly in 2009‑10 as a result of increased expenditure on energy efficiency programs, particularly under the Government's $3.9 billion Energy Efficient Homes (EEH) package announced as part of the Nation Building and Jobs Plan, and the $4.5 billion Clean Energy Initiative (including infrastructure package). Thereafter total spending declines reflecting the temporary nature of the EEH package.

The EEH will improve the energy efficiency of Australian homes through funding the installation of ceiling insulation and providing increased rebates for solar and heat pump hot water systems. These measures are expected to increase expenses by $1.5 billion in both 2009‑10 and 2010‑11, and by $736 million in 2011‑12, the last year of the package.

The Clean Energy Initiative will encourage further innovation in clean energy generation and low emissions technology by supporting investment in industrial scale carbon capture and storage and industrial scale solar generation projects. This initiative also includes the establishment of Renewables Australia, which will promote the development, commercialisation and deployment of renewable technologies.

Fuel Tax Credit expenses are expected to grow over the period to 2012‑13, reflecting the phase‑in of the fuel tax credit arrangements and the estimated usage of the scheme.

Table 12.1: Trends in the major components of fuel and energy sub‑function
expenses

On a smaller scale, within the Energy and Resources related groups, the commencement of a number of climate change and innovation programs will contribute to additional fuel and energy function expenses. These programs include the Global Carbon Capture and Storage Institute and National Low Emission Coal Initiative, which are all due to commence in 2009‑10.

Agriculture, forestry and fishing

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.

Table 13: Summary of expenses — agriculture, forestry and fishing

After increasing in 2009‑10, total expenses under this function are estimated to decrease by 19.4 per cent in real terms from 2009‑10 over the forward years, or by 6.9 per cent per annum on average in real terms.

The decrease over the forward estimates largely reflects a drop in expenses for drought‑related measures within the rural assistance sub‑function. This reflects an assumed return to normal seasonal conditions in parts of Australia and a consequent reduction in drought assistance outlays.

The expected increase in expenses in the natural resources development sub‑function in 2009‑10 reflects an increase in expenditure under the Water for the Future package, particularly in the Sustainable Rural Water Use and Infrastructure program, and the Restoring the Balance in the Murray‑Darling Basin program. These programs are designed 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 (reported as part of the housing and community amenities function) and the national estate and parks sub‑function (in the recreation and culture function).

Mining, manufacturing and construction

Expenses under this function relate to the mining, manufacturing and construction sectors, and are designed to assist the efficiency and competitiveness of Australian industries. The major components include programs specific to the automotive and textiles, clothing and footwear industries.

Table 14: Summary of expenses — mining, manufacturing and construction

Total expenses under the mining, manufacturing and construction function are estimated to increase by 6.8 per cent in real terms over the forward years, or by about 2.2 per cent per annum on average in real terms.

Expenses for this function have been affected by the reclassification of a number of programs within this function to the other economic affairs function from 2009‑10, as part of improved reporting under the Operation Sunlight reforms. These programs were reclassified to more closely align with the International Monetary Fund's Government Finance Statistics system. Programs involved in this reclassification have an estimated expense of around $400 million in 2009‑10 and include: assistance to exporters through direct financial assistance for the development of export markets; information and promotional assistance; finance and insurance services; trade policy; research and development assistance grants; and strategic investment incentives.

The effects of this reclassification are expected to be partially offset in 2009‑10 and largely offset from 2010‑11 by a change in the form of government support for research and development activities from tax concessions (that reduce revenue) to tax credits (that impact on expenses) arising from the Government's response to the Review of the National Innovation System.

The expected decline in expenses for this function after 2010‑11 is due primarily to the reduction in rebates for the post‑factory conversion element of the Liquefied Petroleum Gas Vehicle Scheme.

Transport and communication

Transport and communication function expenses support the infrastructure and regulatory framework for Australia's transport and communication sectors.

Table 15: Summary of expenses — transport and communication

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.

Total expenses under this function are estimated to increase by 17.3 per cent in real terms from 2009‑10 over the forward years, or 5.5 per cent per annum on average in real terms.

The decline in estimated expenses in the communication sub‑function between 2009‑10 and 2012‑13 primarily reflects a reduction in demand for the Australian Broadband Guarantee. This reflects the greater availability of metro‑comparable broadband services to residential and small business premises in rural and regional locations, reducing the demand for assistance. The decline in this sub‑function does not take into account the proposed investment in the National Broadband Network.

The Government will establish a new company to build and operate an enhanced National Broadband Network to deliver telephony and high speed broadband to Australian homes and businesses. The preliminary estimate is that the enhanced National Broadband Network will cost up to $43 billion (including private financing) with detailed engineering, commercial and structural issues to be the subject of an implementation study to be completed by early 2010. Further information can be found in the measures: National Broadband Network — initial investment; National Broadband Network — implementation and establishment; and National Broadband Network — regional backbone blackspots program, detailed in Budget Paper No. 2, Budget Measures 2009‑10, Broadband, Communications and the Digital Economy portfolio.

The estimated expenses reported in the road transport and rail transport sub‑functions predominantly relate to continuing implementation of the Nation Building Program to improve the road and rail transport networks and funding announced as part of the Government's Infrastructure Package in the 2009‑10 Budget, which includes $7.7 billion of expense measures that affect these two sub‑functions.

The forecast increase in expenses in the rail transport sub‑function across the forward estimates is due to additional funding being provided from the Building Australia Fund (BAF) component of the Infrastructure Package for a number of major metro rail infrastructure projects, including a $3.2 billion contribution over six years towards the Regional Rail Express project in Victoria. Further information on BAF funding for rail projects can be found in the measure, Infrastructure Package — Building Australia Fund‑Rail Projects, detailed under the Infrastructure, Transport, Regional Development and Local Government portfolio in Budget Paper No. 2, Budget Measures 2009‑10. Increased funding for rail has also been provided through equity injections into the Australian Rail Track Corporation. This is reported in Table 20 of this Statement under the transport and communication function.

The increase in estimated expenses in the road transport sub‑function in 2008‑09 and 2009‑10 is partly due to projects initially scheduled to commence in 2010‑11 and 2011‑12 being brought forward as part of the Government's Nation Building Package that was announced on 12 December 2008. The Government has decided to further assist States to progress projects more quickly, in line with the Government's economic stimulus objective, by making an additional $292.3 million of funds available in 2008‑09 instead of 2009‑10 under the Nation Building Program, predominantly for road projects. The increasing level of expenses from 2010‑11 onwards is, in part, due to funding being provided from the BAF for a number of major road infrastructure projects, including a $1.5 billion contribution over six years towards the Hunter Expressway project in New South Wales, and a $618 million contribution over six years towards the Pacific Highway — Kempsey Bypass project in New South Wales.

Further information on BAF funding for road projects can be found in the measures, Infrastructure Package — Building Australia Fund — Road Projects, Infrastructure Package — Nation Building — bringing forward projects, Infrastructure Package — Nation Building — Bruce Highway and Infrastructure Package — Major Cities Program, detailed under the Infrastructure, Transport, Regional Development and Local Government portfolio in Budget Paper No. 2, Budget Measures 2009‑10.

The estimated expenses for the air transport and sea transport sub‑functions predominantly relate to the activities of the safety regulators— the Civil Aviation Safety Authority and the Australian Maritime Safety Authority. The slight decline in estimated expenses in the air transport sub‑function over the forward estimates is primarily due to the winding down of noise amelioration programs for Sydney and Adelaide airports, and the completion of programs that assisted with the implementation of checked baggage screening and screening for liquid, aerosols and gels at airports.

Other economic affairs

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.

Table 16: Summary of expenses — other economic affairs

Expenses under the other economic affairs function are projected to increase by 14.2 per cent in real terms in 2009‑10. However, the increase in expenses in 2009‑10 is primarily due to the reclassification to this function of approximately $410 million in expenses from the mining, manufacturing and construction function and consolidation of approximately $400 million in expenses from a number of other functions. The increase also results from additional funding provided under the labour market assistance to job seekers and industry sub‑function in response to the expected rise in unemployment. Expenses are projected to decline in 2011‑12 and 2012‑13, as additional expenditure on labour market assistance projects funded through the Jobs Fund does not continue into these forward years, when the economy is projected to be recovering.

Expenses in the vocational and industry training sub‑function are projected to be largely stable over the forward estimates. The estimated growth in 2009‑10 is mainly due to the reclassification of expenses between the other economic affairs function and the education function. The subsequent decrease in 2010‑11 mainly reflects an expected reduction in expenses under the Australian Apprenticeships Workforce Skills Development program as a result of the Reform of Australian Apprenticeships Incentives Funding package which better targets payments to apprentices and employers. Further information on this package of measures is presented in Budget Paper No. 2, Budget Measures 2009‑10.

The main driver of expected growth in the labour market assistance to job seekers and industry sub‑function in 2009‑10 and 2010‑11 is the $650 million Jobs and Training Compact — Jobs Fund measure. Further information on this measure is presented in Budget Paper No. 2, Budget Measures 2009‑10. The anticipated reduction in expenses from 2011‑12, and particularly in 2012‑13, is largely due to a projected reduction in labour market assistance.

In the industrial relations sub‑function, implementation of the Government's Fair Work legislation is expected to result in lower administrative costs associated with the rationalisation of the award system and the transition from Australian Workplace Agreements to collective agreements. The overall decrease in expenses is partially offset by additional funding for implementation of the new workplace relations arrangements under the Fair Work Australia — implementation of workplace relations legislation measure. Further information on this measure is presented in Budget Paper No. 2, Budget Measures 2009‑10.

The expected increase in expenses in the immigration sub‑function in 2009‑10 is largely the result of the reclassification of expenses totalling approximately $190 million relating to settlement services for migrants and refugees from the social security function. The projected decline in 2010‑11 is mainly due to a reduction in expenses associated with the expected completion of the 'Systems for People' IT project in the Department of Immigration and Citizenship. Expenses in the sub‑function are projected to increase in 2012‑13 due to the expected increased processing of short term visas for tourists and international students.

Expenses for the other economic affairs not elsewhere classified sub‑function are estimated to increase substantially between 2008‑09 and 2009‑10. However, this growth is almost entirely due to the reclassification of expenses from other functions, including approximately $410 million in expenses from the mining, manufacturing and construction function for the Export Market Development Grants Scheme and Trade and Investment Development programs. The increase also results from the consolidation in the other economic affairs function of expenses, from a number of other functions, of approximately $400 million related to the Innovative Industry program. The projected decrease in expenses in 2010‑11 is largely due to the Export Market Development Grants Scheme returning to historical funding levels after additional funding in 2009‑10. The expected decrease also reflects the completion of five‑year funding agreements for Cooperative Research Centres and the rationalisation of programs which support the transition of innovative ideas to commercial enterprises under the Innovative Industry program. Expenses are projected to increase again from 2011‑12 due to the implementation of various climate change initiatives.

Other purposes

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, the cost of asset sales, the contingency reserve (refer to Appendix B for a detailed description), and expenses related to nominal interest on unfunded liabilities for government superannuation benefits.

Table 17: Summary of expenses — other purposes

1. Asset sale related expenses are treated as a component of the contingency reserve.

Total expenses under the other purposes function are estimated to increase by 39.4 per cent in real terms from 2009‑10 over the forward years, or by 11.7 per cent per annum in real terms. This increase is primarily driven by the increasing profile of the contingency reserve over the forward years, expected increases in general assistance revenue assistance payments to the States and Territories from 2010‑11 and the expected increase in public debt interest.

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. Payments to the States are expected to fall in 2009‑10 due to the state of the economy but rise from 2010‑11. 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.

Expenditure in the local government assistance sub‑function is predominantly related to Local Government Financial Assistance Grants, which increase across the 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). The increase in estimated expenses in 2008‑09 and 2009‑10 is primarily due to funding being provided for the Regional and Local Community Infrastructure Program ($490 million in 2008‑09 and $310 million in 2009‑10). A significant component of local government assistance is categorised under other expense functions (refer to Budget Paper No. 3, Australia's Federal Relations 2009‑10 for more information on Australian Government assistance to local governments).

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

The increase in the Interest on Commonwealth Government's behalf sub‑function is due to the increased issuance of Commonwealth Government bonds.

The increase in expenses in the Contingency Reserve sub‑function from 2009‑10 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.

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