Expenses and Net Capital Investment
Reconciliation of expenses since the 2009‑10 Budget
Table 2 provides a reconciliation of expenses estimates between the 2009‑10 Budget, Mid‑Year Economic and Fiscal Outlook 2009‑10 (MYEFO) and the 2010‑11 Budget showing the effect of policy decisions, and economic parameter and other variations.
Table 2: Reconciliation of expense estimates
- Excludes secondary impacts on public debt interest of policy decisions.
- The amounts in all years relate to the delay in Private Health Insurance reform due to the rejection of legislation by the Senate.
Box 1: The Government's economic stimulus packages
In response to the global financial crisis, the Government implemented a number of economic stimulus measures. During 2008‑09, the Government announced the Economic Security Strategy and the Nation Building and Jobs Plan and supplemented this in the 2009‑10 Budget with further investment in nation building infrastructure.
The temporary and targeted nature of the packages resulted in the impact being primarily directed at 2008‑09 and 2009‑10.
As the economy recovers, these packages are, by design, being withdrawn. As a result, real growth in those targeted functions shows a relative decline over the forward estimates. This can mask the Government's underlying commitment to these functions. For example, real spending in education is declining by 12.0 per cent on average between 2010‑11 and 2013‑14. However, abstracting from the impact of the stimulus, real spending on education over that period is expected to rise by 8.8 per cent per annum on average.
The major components of the stimulus packages that remain in the 2010‑11 estimates include:
- Building the Education Revolution (education function);
- investment in social housing (housing and community amenities function); and
- Nation Building Plan for the future (transport and communication function).
Estimated expenses by function
Table 3 sets out the estimates of Australian Government general government sector expenses by function for the period 2009‑10 to 2013‑14.
Table 3: Estimates of expenses by function
Major expense variations between 2009‑10 and 2010‑11 and across the forward estimates include movements in the following functions:
- other purposes — an increase of $8.6 billion in 2010‑11 arising primarily from additional forecast expenses under General Revenue Assistance to the States and Territories and an expected increase in public debt;
- social security and welfare — an increase of $5.3 billion in 2010‑11 largely due to the indexation of personal benefits and income support payments, such as the age pension, and demographic and social factors such as the ageing population, which will continue to influence growth over the forward years;
- health — an increase of $4.1 billion in 2010‑11 largely due to the agreement to establish a National Health and Hospitals Network (NHHN). This includes payments made as part of the additional investments package in 2010‑11 which will deliver a better health and hospital system for all Australians;
- housing and community amenities — a decrease of $3.8 billion in 2010‑11 primarily reflecting the phasing down of the investment in social housing stimulus measure; and
- transport and communication — a decrease of $1.9 billion in 2010‑11 reflects Government decisions to bring forward funding to 2009‑10 for high priority road infrastructure projects.
The estimates presented in Table 3 are explained in greater detail for each individual function in the following pages.
The Government introduced new program reporting arrangements from 2009‑10, following a review during 2008‑09 of the functional classification of expenses by program. The result is improved allocation of expenses by function, more robust functional expenses data, and consistency of reporting across government.
Implementation of these new reporting arrangements identified additional programs requiring reclassification from 2010‑11 onwards. Table 3.1 provides the estimated impact of these reclassifications on the functional reporting of expenses between 2009‑10 and 2010‑11.
Table 3.1: Estimated impact of reclassifications on the functional reporting of expenses
The Government's Operation Sunlight classification changes took effect from 2009‑10, with these additional changes above taking effect from 2010‑11. Caution should therefore be exercised in making comparisons with 2008‑09 and earlier years. Table 3.1 should assist in reconciling changes between 2009‑10 and 2010‑11.
The new requirement in 2009‑10 for agencies to disclose program data in their Portfolio Budget Statements using the new structure provided greater transparency on expected expenses within the general government sector.
Table 3.2 reports the top 20 programs in terms of expenses in the 2010‑11 financial year. These programs represent 61.8 per cent of total expenses in that year. The revenue assistance to the States and Territories program comprises 13.7 per cent of total expenses for 2010‑11. Of the remaining programs in the top 20, more than half provide services to seniors, families, the sick and disabled, students, carers and the unemployed.
Table 3.2: Top 20 programs by expenses in 2010‑11
^ This is a combination of public sector superannuation nominal interest and benefits programs.
# There is a total of 536 programs.
Note: Details of the Commonwealth debt management program can be found in Table 17.
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 management of public funds and debt; assistance to developing countries to reduce poverty and achieve sustainable development, particularly countries in the Pacific region; 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 as well as 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 4.8 per cent, or 1.6 per cent per annum on average, over the forward years.
The most significant increase is in the foreign affairs and economic aid sub‑function, demonstrating the Government's commitment to raise the level of Australia's Official Development Assistance (ODA) over the long term.
Table 4.1: Trends in the major components of foreign affairs and economic
aid sub‑function expenses
- 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).
- Some minor ODA delivered by other government departments may be classified to other programs or functions.
- 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 (0.33 per cent of Gross National Income in 2010‑11).
Expenses relating to the financial and fiscal affairs sub‑function are also forecast to grow over the forward years, with a slight decrease in 2010‑11. This is largely a result of a number of new initiatives which will strengthen the ATO's compliance and enforcement activities.
The national census on 9 August 2011 will result in an increase in expenses for the Australian Bureau of Statistics in 2010‑11 and 2011‑12. Expenses will return to trend from 2012‑13 onwards.
Increased expenses are also anticipated in the government superannuation benefits sub‑function. This 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 forecast to increase in 2010‑11 and again in 2013‑14 as a result of scheduled federal general elections in those financial years.
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. The table below sets out the major components of general research sub‑function expenses.
Table 4.2: Trends in the major components of general research
Total expenses within the general research sub‑function are forecast to increase by 7.1 per cent in real terms in 2010‑11. The estimated increase in expenses in 2010‑11 is due primarily to the science and research capacity program, with $68 million for the establishment of the Commonwealth Strategic Relationship with the Australian National University and $79 million for a number of Education Investment Fund (EIF) projects being brought forward from 2011‑12 to 2010‑11. The other key driver of the estimated increase in expenses in 2010‑11 is the increase in the Discovery scheme, predominantly as a result of funding for the Future Fellowship scheme rising by $32 million in 2010‑11 compared to 2009‑10.
Expenses for research grants administered by the Australian Research Council are expected to grow by an annual average of 4.6 per cent in real terms for the Discovery — Research and Research Training scheme and 2.3 per cent per annum in real terms for the Linkage — Cross Sector Research Partnerships scheme.
The profile of expenses for the science and research capacity program reflects payments made from the National Collaborative Research Infrastructure Strategy (NCRIS), which is due to terminate in 2010‑11, and investments from the EIF. These latter expenses form part of the Government's response to the Review of the National Innovation System and includes the three components of the Super Science Initiative — Future Industries; Marine and Climate; and Space and Astronomy.
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 those incurred by the Department of Veterans' Affairs, superannuation payments to retired military personnel, and housing assistance provided through Defence Housing Australia. These expenses are reported under the social security and welfare, other purposes, and housing and community amenities functions, respectively.
Table 5: Summary of expenses — defence
Defence function expenses are estimated to increase by $380 million in 2010‑11, reflecting the guaranteed funding under the 2009 Defence White Paper less the recent movements in foreign exchange rates and the treatment of funding for Defence operations. The Government funds these operations on a year‑by‑year basis and on a no win/no loss 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.
In 2010‑11, additional funding of $1.1 billion is being provided to support Defence overseas operations in the Middle East, East Timor and the Solomon Islands. The Government will also provide $20 million in 2010‑11 to enable the Australian Defence Forces to provide security and support to other Australian Government agencies operating in Afghanistan.
Box 4: Defence funding
Total Defence expenditure is estimated to increase by $1.6 billion in 2010‑11 (6.6 per cent in 2010‑11 — see Table 5.1). Such 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 5.1: Total defence expenditure
- Over the period 2009‑10 to 2013‑14.
Investment spending in the defence function is proportionately higher than that for other functions, due to the acquisition of large and complex platforms and military equipment, and the construction of support facilities.
The growth of investment spending can experience significant annual fluctuations, including the result of slippage in expenditure from one year to the next year (or to later years), foreign exchange rate fluctuations, and in response to additional supplementary funding decisions of Government. Further details of defence investment spending are provided in the net capital investment section of this statement at page 6‑47.
Military equipment projects usually involve uneven expenditures throughout their development and life cycle extending over long periods of time, which may lead to fluctuations in levels of net capital investment from year to year. Expenditure is also subject to slippage if project timelines are not met.
The funding model from the 2009 Defence White Paper will drive Defence spending in years beyond the forward estimates period. Under the Strategic Reform Program (SRP) $20 billion in savings will be identified and reinvested within Defence to 2020. The SRP will drive the reforms needed to deliver and sustain Defence's planned Force 2030, as set out in the White Paper, within the funding envelope agreed by Government.
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, and 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 4.9 per cent in real terms from 2010‑11 over the forward years, or by 1.7 per cent per annum on average in real terms.
Expenses within the courts and legal services sub‑function are expected to decrease by 6.1 per cent in real terms from 2010‑11 over the forward years, or by 2.1 per cent per annum on average. These decreases are the result of efficiencies within the federal justice system, along with the termination of programs requiring funding for public prosecutions.
Expenses for the other public order and safety sub‑function are expected to decrease by 4.6 per cent in real terms from 2010‑11 over the forward years, or by 1.6 per cent per annum on average. The decrease in expenses in 2011‑12 results from efficiency gains in the delivery of security programs and stabilisation of expenses after significant increases in this sub‑function in the preceding years. There has been a partly offsetting increase in expenses from 2011‑12 representing the Government's previously announced commitment to deliver additional sworn Australian Federal Police officers to work on high impact criminal investigations and its continued investment in intelligence capabilities and combating organised crime.
Education expenses support the delivery of education services through higher education institutions; vocational education and training (VET) 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
The profile of total expenses in the education function reflect the conclusion of the $16.2 billion Building the Education Revolution (BER) package, which peaked at $9.1 billion in 2009‑10. BER expenses are expected to be $5.4 billion in 2010‑11 and then further decline to comprise a relatively minor part of total education expenses in 2011‑12. Abstracting from the impact of the stimulus, real spending on education is expected to rise by 8.8 per cent per annum on average between 2010‑11 and 2013‑14.
Expenses relating to the higher education sub‑function are expected to increase by 4.0 per cent in real terms over the forward years. This primarily reflects the impact of major reforms to higher education, including the introduction of a demand driven student enrolment system. The significant rise in expected expenses in 2010‑11 (4.8 per cent in real terms) reflects a large increase in the number of higher education enrolments in 2009 and 2010, following the Government's decision to lift the cap on funding for over‑enrolment from 5 per cent to 10 per cent in 2010 and 2011. This is expected to moderate from 2011‑12.
Expenses under the vocational and other education sub‑function are expected to remain largely stable from 2009‑10 to 2012‑13. While the Government's 2010‑11 Budget decision to expand its higher education loans program (VET FEE‑HELP) is expected to significantly increase expenses from 2010‑11, this is partly offset by a reduction in expenses from National Partnership payments for vocational and other education. This decrease in expenses is due to the completion of TAFE projects funded from the Tertiary Learning and Capital Fund for VET, which was announced as part of the December 2008 Nation Building package. The significant decline in expected expenses in 2013‑14 reflects the Government's redirection of funding from the Productivity Places Program to support the Skills for Sustainable Growth package (further details are provided in the other economic affairs function at page 6‑39).
The major components of this sub‑function are set out in Table 7.1.
Table 7.1: Trends in the major components of vocational and other
education sub‑function expenses
While total expenses within the schools sub‑function are expected to decline in both 2010‑11 and 2011‑12 with the completion of the BER stimulus package, the Government's ongoing funding to schools is expected to continue to increase. Within the schools — government schools component, core funding for schools is expected to increase at a real average annual rate of 4.3 per cent over the forward estimates.
Expenses under the student assistance sub‑function are expected to rise by 17.8 per cent in real terms in 2010‑11. This is driven primarily by a rise in expenses in the tertiary student assistance program, reflecting the impact of student income support reforms, including the introduction of the Student Start‑Up Scholarship and Relocation Scholarship for university students from 1 April 2010, and by changes to the parental income test for Youth Allowance from 1 July 2010. The forecast increase in expenses also reflects the impact of transitional arrangements for 2009 'gap year' students and rural and regional students.
After the initial increase in expenses in 2010‑11, the impact of savings in the tertiary student assistance program announced in the 2009‑10 Budget are expected to result in a reduction in expenses in real terms over the forward estimates. These savings will gradually increase over this period as the grandfathering arrangements for existing recipients expire.
Expenses within the student assistance sub‑function are also driven by costs associated with providing concessional loans under the Higher Education Loan Program (HELP). These costs reflect estimates of debt not expected to be repaid and deferral costs associated with providing concessional loans to students. HELP expenses are expected to be $1.0 billion in 2010‑11 and then rise by 11.7 per cent in real terms from 2010‑11 to 2013‑14. This primarily reflects the impact of the Government's 2009‑10 Budget decision to introduce a demand driven student enrolment system.
The major components of the student assistance sub‑function are set out in Table 7.2.
Table 7.2: Trends in the major components of student assistance
Expenses under the school education — specific funding sub‑function will be relatively volatile over the forward estimates. This is due to the sub‑function containing several large‑scale programs with different expected termination and expense profiles. The major components of the sub‑function are the Digital Education Revolution package; the National Partnership for Early Childhood Education — Universal Access to Early Childhood Education (Universal Access); Trade Training Centres in Schools; and a number of elements of the Closing the Gap package. The initial decrease between 2009‑10 and 2010‑11 is due to the reduction of Digital Education Revolution expenses following the upfront funding for capital investment. Expenses in 2011‑12 and 2012‑13 are expected to increase largely as a result of additional funding for Universal Access in those years.
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; the Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes; blood and blood products; population health initiatives; and health education and training services.
Table 8: Summary of expenses — health
- 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.
- The name of this sub‑function has been changed from 'National Healthcare Specific Purpose Payment' to better reflect the 2010 COAG health and hospitals reform. However, the National Healthcare Specific Purpose Payment will remain in place for the 2009‑10 and 2010‑11 years. Western Australia will continue to receive the National Healthcare Specific Purpose Payment whilst it is not a signatory to the National Health and Hospitals Network.
The major purpose of expenses under the health function is to ensure that all Australians have access to essential health services through a range of providers and without excessive price barriers. Expenses relating to health are projected to be a major contributor to the growth in Commonwealth Government spending in future decades. At the time of this Budget, total expenses for this function are estimated to increase by 30.7 per cent in real terms from 2010‑11 over the forward years, or by 9.3 per cent per annum on average in real terms. These growth estimates include the impact of retaining and dedicating an agreed proportion of the GST to health and hospital services as part of the National Health and Hospitals Network (NHHN) reforms.
The NHHN reforms, together with other new expense measures, have resulted in substantial change to the projected level and pattern of expenses in several health sub‑functions. A new sub‑function, National Health and Hospitals Network, has been created to account for the Government's spending through the NHHN Fund. The reforms announced in A National Health and Hospitals Network for Australia's Future mean the Commonwealth Government will become the dominant funder of the hospital system and have full funding responsibility for general practitioner and primary care. Further details of the expenses associated with these reforms, which were agreed to by COAG on 20 April 2010, with the exception of Western Australia, is provided in Box 5.
Medical services and benefits, which primarily include Medicare and the Private Health Insurance Rebate expenses, make up approximately 40.2 per cent of total health expenses in 2010‑11. Expenses in this sub‑function are forecast to grow by 3.6 per cent from 2010‑11 in real terms over the forward years, or by 1.2 per cent per annum on average in real terms.
Medicare expenses are the major driver of growth in this sub‑function, expected to increase in real terms by 10.1 per cent over the forward estimates period, or by an average annual increase of 3.3 per cent. Medicare expenses over the forward estimates are linked closely to the increase in the Australian population, and particularly the increasing proportion of older Australians. This growth in real terms is offset by the effect of the Government's policy to introduce means testing of the Private Health Insurance Rebate.
The major components of the medical services and benefits sub‑function are set out 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 includes support for veterans' hospital services and payments to the States and Territories through a range of existing and new national partnership agreements. Substantial additional expenses in this sub‑function from 2010‑11 include additional investment announced at COAG on 20 April 2010 to meet the emergency department targets, and the elective surgery target and guarantee, as well as funding for capital investments for new emergency and elective surgery facilities, which will have greatest impact in the initial years of the forward estimates. As a result, the estimates for this sub‑function are expected to reduce by 17.1 per cent in real terms over the forward estimates.
The majority of NHHN expenses are reported through the National Health and Hospitals Network sub‑function. This sub‑function includes expenses previously reported against the National Healthcare Special Purpose Payment (SPP) sub‑function, although this SPP will continue for the 2009‑10 and 2010‑11 financial years. The large increase in estimated expenses in 2011‑12 is the result of the inclusion of an agreed proportion of GST funding that will be retained and dedicated specifically to health and hospital services. Through the years 2011‑12 to 2013‑14, the amount of retained and dedicated GST will be determined annually based on actual health expenditure of the States and Territories. Indicative estimates of these expenses have been included in the forward years with the exception of Western Australia.
Box 5: Health reform
National Health and Hospitals Network
The reforms to roles and responsibilities under the NHHN Agreement are funded through the National Healthcare Specific Purpose Payment and the retention and dedication of approximately one third of GST over the forward estimates. These reforms are budget neutral to the Commonwealth and the States and Territories across the forward years but transfer the majority of funding responsibility for health to the Commonwealth.
From 2014‑15, the Commonwealth will provide an additional top‑up payment to reflect its greater responsibility for financing growth in health costs.
Table 8.2 outlines the sub‑functions in which the Commonwealth has invested additional expenses of $52.1 billion over five years as part of the health reforms.
Statement 1 provides a more detailed overview of the Commonwealth's expenses relating to health reforms.
Table 8.2: Estimated Commonwealth expenses in the National Health and
- The amount of GST retained by the Commonwealth and allocated to health care will reflect actual expenditure on health not covered by the NHHN payment.
- The name of this sub‑function has been changed from 'National healthcare specific purpose payment' to better reflect the 2010 COAG health and hospitals reform. However, the National healthcare specific purpose payment will remain in place for the 2009‑10 and 2010‑11 years. Western Australia will continue to receive the National Healthcare Specific Purpose Payment whilst it is not a signatory to the National Health and Hospitals Network.
- 'Other sub‑functions' includes social welfare — assistance to the aged, assistance to veterans and dependants (social security and welfare function) and financial and fiscal affairs (general public services function).
The real growth over the forward estimates period for the pharmaceutical services and benefits sub‑function is lower than that forecast in the 2009‑10 Budget. This is attributable to the savings realised in new measures, namely the Fifth Community Pharmacy Agreement and Pharmaceutical Benefits Scheme — further pricing reforms. Estimated growth is expected to be 6.4 per cent in real terms over the forward years from 2010‑11, or 2.1 per cent per annum on average in real terms over the forward estimates period.
For details on the relevant measures, refer to Budget Paper No. 2, Budget Measures 2010‑11, Health and Ageing portfolio.
The major components of the pharmaceutical services and benefits sub‑function are set out in Table 8.3.
Table 8.3: Trends in the major components of pharmaceutical benefits and
services sub‑function expenses
- Concessional benefits are those provided through community pharmacies for Centrelink concession card holders.
- General benefits are those provided through community pharmacies for people without concession cards.
- Highly specialised drugs are subsidised by the Commonwealth Government through hospitals.
- Includes some essential vaccines. The majority of essential vaccines is included in the health services sub‑function.
Expenses in the Aboriginal and Torres Strait Islander health sub‑function are expected to fall to 2012‑13 as expenditure under the Northern Territory Emergency response declines, with further funding to be considered at a future date. The increase in 2013‑14 reflects underlying growth in funding for Indigenous‑specific health services. Aboriginal and Torres Strait Islander people access mainstream health services as well as Indigenous‑specific health services. As a result, substantial investment in Indigenous health is also being made through other health sub‑functions — in particular, medical services and benefits.
Expenses in the health services sub‑function include Commonwealth expenses associated with the delivery of population health, research and other allied health services and blood and blood products. Expenses in this sub‑function will fund initiatives such as the prevention of binge drinking and the reduction of smoking rates, and new expenses for individual electronic health records. The projected growth in these expenses will partly be offset by declining expenses resulting from the completion of infrastructure projects announced in the 2009‑10 Budget, funded through the Health and Hospital Fund.
The general administration — health sub‑function includes expenses incurred by the Government to support capital investments in population health, non medical benefit components of primary care, rural health care and targeted workforce initiatives. Substantial new investment in 2012‑13 and 2013‑14 for primary care, including provision for after hours services and additional GP Super Clinics will underpin expected growth in expenses of 23.5 per cent in real terms over the forward estimates from 2010‑11.
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
Social security and welfare function expenses are estimated to grow at 5.4 per cent in real terms from 2010‑11 over the forward years and at an average annual rate of 1.8 per cent. 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 ageing of the population.
The sub‑functions contributing most to the growth over the forward estimates are assistance to the aged (with an average annual growth rate of 3.7 per cent in real terms from 2010‑11 over the forward estimates period), and assistance to people with disabilities (average annual real growth of 3.2 per cent over the forward estimates period).
The principal driver of growth over the forward estimates for the assistance to the aged sub‑function is the income support for seniors program. This program's major component, the age pension, is linked to a fixed proportion of Male Total Average Weekly Earnings (MTAWE) and therefore will grow in direct relationship with projected MTAWE growth. The growth also reflects demographic factors, with an estimated 265,000 additional aged pensioners over the forward estimates.
The major components of the assistance to the aged sub‑function are outlined below in Table 9.1.
Table 9.1: Trends in the major components of assistance to the aged
Expenses for the assistance to veterans and dependants sub‑function are estimated to decrease slightly over the forward estimates as a result of the declining number of veterans.
The increase in projected expenses in the assistance to people with disabilities sub‑function from 2010‑11 is primarily driven by two programs — the Disability Support Pension (DSP) and income support for carers. DSP expenses are estimated to grow at 0.9 per cent per annum in real terms over the forward years, driven by benchmarking of DSP to a proportion of MTAWE, and partially offset by the implementation of assessment arrangements requiring new DSP claimants without sufficient evidence of a future work capacity of less than 15 hours per week being referred to an alternate income support payment and offered employment assistance from 1 January 2012.
Streamlined assessment processes for job seekers and DSP claimants are expected to reduce the growth in the DSP over the forward estimates. For details on the relevant measures, refer to Budget Paper No. 2, Budget Measures 2010‑11, Education, Employment and Workplace Relations portfolio.
Benchmarking of the carer payment to a proportion of MTAWE also drives growth in the income support for carers program. The growth also reflects demographic factors, with an estimated additional 92,000 carer payment recipients expected over the forward estimates.
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
Growth in expenses in the assistance to families with children sub‑function is projected to be relatively flat. The main component of this sub‑function is the family tax benefit program, expenses against which are expected to decrease slightly by 0.8 of a percentage point in real terms from 2010‑11 over the forward estimates, following changes to family payments announced in the 2009‑10 Budget.
Other programs affecting the trend to assistance to families with children expenses include child care fee assistance and parental payments and care incentives. Child care fee assistance is projected to grow in real terms by 8.3 per cent from 2010‑11 over the forward estimates (at an annual average real rate of 2.7 per cent). This reflects expenses associated with the increased use of child care services, indexation of child care benefit expenses, and additional child care rebate expenses as a result of implementation of the National Partnership Agreement on the Quality Agenda for Early Childhood Education and Care.
The increase in expenses for the parental payments and care incentives program from 2010‑11 (30.3 per cent in real terms over the forward estimates) reflects the introduction of the paid parental leave scheme from 1 January 2011, as announced in the 2009‑10 Budget.
The major components of the assistance to families with children sub‑function are set out in Table 9.3.
Table 9.3: Trends in the major components of assistance to families with
children sub‑function expenses
Expenses for the assistance to the unemployed sub‑function are estimated to grow at 7.3 per cent in real terms from 2010‑11 over the forward estimates. The main driver of this sub‑function is newstart allowance expenses. The estimated increase for this program from 2011‑12 partly reflects the new assessment arrangements for job seekers and DSP claimants (see page 6‑23). Further information on this measure is presented in Budget Paper No. 2, Budget Measures 2010‑11, Education, Employment and Workplace Relations portfolio.
Expenses for the other welfare programs sub‑function are projected to decrease from $1.7 billion in 2009‑10 to $1.3 billion in 2011‑12 due to the impact of previous Budget announcements, including incorporating the utilities allowance into the new pension supplement for eligible pensioners, as announced as part of the Secure and Sustainable Pensions package in the 2009‑10 Budget, with a commensurate increase in related sub‑functions, in particular assistance to people with disabilities. Superannuation co‑contribution scheme expenses are expected to remain stable over 2009‑10 and 2010‑11 with a slight decrease from 2011‑12 onwards due to fewer expected eligible claimants. The trend in expenses for the superannuation co‑contribution scheme is attributable to the 2010‑11 Budget measure Superannuation — permanent reduction to the superannuation co‑contribution matching rate and maximum payable.
The decrease in expenses in the Aboriginal advancement not elsewhere classified sub‑function from 2009‑10 to 2010‑11 is a result of the new arrangements for funding of government jobs created through the reform to the Community Development Employment Projects (CDEP) program. Funding for these jobs was previously administered under the Families, Housing, Community Services and Indigenous Affairs portfolio but, from July 2010, will be appropriated to each of the agencies across government which have converted CDEP positions into government jobs. The new arrangements result in a transfer of expenses from the Aboriginal advancement sub‑function to various other sub‑functions. The decrease in expenses from 2010‑11 to 2011‑12 is due to the cessation of CDEP wages from 1 July 2011, as announced in the 2009‑10 Budget, with expenses previously assigned to this program redirected to assist Indigenous jobseekers and classified in the assistance to the unemployed sub‑function.
The reduction in the general administration sub‑function expenses in 2010‑11 and the forward estimates is the result of a reduction in the cost of services that Centrelink will help deliver on behalf of the Departments of Families, Housing, Community Services and Indigenous Affairs, and Education, Employment and Workplace Relations, and a downwards revision in the levels of unemployment, resulting in lower levels of Centrelink's administrative work.
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, the expenses of Defence Housing Australia (DHA), and various regional development and environmental protection programs.
Table 10: Summary of expenses — housing and community amenities
After substantial growth in expenses in 2009‑10, total expenses under the housing and community amenities function are estimated to decrease by 28.7 per cent in real terms from 2010‑11 over the forward estimates, or by 10.6 per cent per annum on average. This largely reflects the phasing down or cessation of various economic stimulus measures and other one‑off projects.
Housing sub‑function expenses are expected to decrease from $8.0 billion estimated in 2009‑10 to $4.1 billion in 2010‑11, with a further decrease to $3.3 billion in 2011‑12. This is mainly due to the phasing down of the housing initiatives introduced as part of the Government's response to the global financial crisis with the Economic Security Strategy and the Nation Building and Jobs Plan. These include:
- the cessation of the first home owners boost, which was extended as part of the 2009‑10 Budget and provided an additional grant for eligible first home buyers entering into contracts on or before 31 December 2009; and
- investment in Social Housing, announced as part of the Nation Building and Jobs Plan, which provided funding for additional public and community housing dwellings to meet priority social housing needs. This program is projected to decrease from $3.8 billion in 2009‑10 to $1.3 billion in 2010‑11 and then to $162 million in 2011‑12.
The urban and regional development sub‑function comprises regional development programs and the services to territories program. Expenses for regional development programs are estimated to reduce from 2011‑12 onwards, driven largely by: the one‑off nature of the Better Regions initiative, which was established as part of the Government's 2007 election commitments; the completion of the Jobs Fund — Infrastructure Employment Projects, a component of the Jobs Fund, which was created to mitigate the impact of the global financial crisis in regional areas; and cessation of the East Kimberley development package, announced as part of the Government's nation building stimulus initiative. The services to territories program is expected to decrease by 13.6 per cent in real terms from 2010‑11 over the forward years, or by an average annual rate of 4.8 per cent. This reflects the completion of infrastructure upgrades associated with the Christmas Island Strategy, with expenses expected to return to trend for the remaining forward years.
The environment protection sub‑function includes expenses for a variety of initiatives including the protection and conservation of the environment, water and waste management, pollution abatement and environmental research. Estimated expenses for this sub‑function are expected to reduce from 2009‑10 primarily due to the deferral of the Carbon Pollution Reduction Scheme and the associated administrative costs. Part of the reduction in estimated expenses between 2011‑12 and 2012‑13 reflects the currently scheduled cessation of the National Water Commission under the sunset provision in its legislation.
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 9.9 per cent in real terms from 2010‑11 over the forward years, or by 3.4 per cent per annum on average in real terms. This decrease largely reflects the conclusion of funding for a number of programs in the sport and recreation and national estate and parks sub‑functions.
Broadcasting sub‑function expenses will continue to increase up to and including 2011‑12, before falling in 2012‑13 due to the cessation of funding for the digital switchover initiatives in 2011‑12. For further information on related measures, refer to Budget Paper No. 2, Budget Measures 2010‑11, Broadband, Communications and the Digital Economy portfolio.
Table 11.1 provides data on the most significant components of the broadcasting sub‑function.
Table 11.1: Trends in the major components of broadcasting
The arts and cultural heritage sub‑function includes government arts expenses. The forecast decrease in expenses from 2010‑11 to 2011‑12 is primarily due to an expected reduction in claims for the Refundable Film and Television Tax Offsets program.
The sport and recreation sub‑function includes government expenses to improve participation in sport and recreational activities, and achieve excellence in high performing athletes. The forecast decrease in expenses after 2010‑11 is due to the expected conclusion of time limited funding.
Expenses under the national estate and parks sub‑function are expected to decrease in 2010‑11, primarily due to the conclusion of the Government's stimulus funding in 2009‑10 for the preservation of national heritage listed buildings and historic properties.
Fuel and energy
This function comprises a range of fuel and energy expenses administered across a number of portfolios. It includes expenses for the Fuel Tax Credits, Cleaner Fuels and Product Stewardship Waste (Oil) Schemes, administered by the Australian Taxation Office. It also includes expenses related to climate change, resources and energy related initiatives and management programs, and programs to support the 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 decline significantly in 2010‑11 driven by a reduction in energy efficiency program expenses from their peak in 2009‑10. Under the Government's Energy Efficient Homes package, funding increased to $2.0 billion in 2009‑10, including net funding brought forward from 2010‑11 ($366 million) and 2011‑12 ($290 million) to meet the increased demand for rebates under the package. Expenses under the Fuel Tax Credits Scheme are also expected to increase progressively across the budget and forward years.
Since the 2009‑10 Budget, additional expenses of $411 million in 2009‑10 and $100 million in 2010‑11 are expected to be incurred to meet commitments under the Solar Homes and Communities Plan, and a further $109 million in 2010‑11 for additional home assessments under Green Loans.
The conclusion of the Home Insulation Safety Program, Foil Insulation Safety Program, Green Loans, and the Solar Homes and Communities Plan is expected to result in reduced expenses in 2011‑12.
Cleaner fuels scheme expenses are expected to increase from 1 July 2011, due to the commencement of payments in relation to gaseous fuels, particularly LPG, made as part of the phase‑in of effective fuel taxation. The expenses then decrease as the assistance is phased out in the period to 1 July 2015.
Table 12.1 provides further details of fuel and energy sub‑function expenses.
Table 12.1: Trends in the major components of fuel and energy
- As a result of a change in administrative order arrangements, the associated expenses were transferred between the two programs during 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
Total expenses under this function are estimated to decrease by 39.4 per cent in real terms from 2010‑11 over the forward years, or by 15.4 per cent per annum on average in real terms.
The decrease over the forward estimates largely reflects a reduction in expenses for drought‑related initiatives within the rural assistance sub‑function. This is due to an assumed return to normal seasonal conditions in affected parts of Australia and a consequent reduction in drought assistance outlays.
The expected increase in expenses in the natural resources development sub‑function in 2010‑11 is driven by the Water for the Future package, particularly the Sustainable Rural Water Use and Infrastructure and the National Urban Water and Desalination Plan components. The subsequent decrease in expenses mainly reflects the completion of a range of water initiatives, including Water Smart Australia, the National Urban Water and Desalination Plan, and the National Water Security Plan for Cities and Towns.
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 expected to increase by 14.5 per cent in 2010‑11 in real terms before increasing by 20.1 per cent in real terms over the forward years, or by about 6.3 per cent per annum on average in real terms.
The expected increase in expenses for this function in 2010‑11 primarily reflects the impact of the 2009‑10 budget measure, 'An Innovation and Higher Education System for the 21st Century — Research and Development Tax Credit'. This measure replaces the existing Research and Development Tax Concessions with effect from 1 July 2010. The expected increase in expenses in 2010‑11 is also due to the introduction of the Automotive Transformation Scheme (ATS). Further influencing the overall trend is the introduction in 2011‑12 of the Resources Exploration Tax Offset. As part of its response to Australia's Future Tax System Review, the Government will provide a refundable tax offset at the company tax rate for eligible expenditure on exploration carried out in Australia. For further information, refer to Budget Paper No. 2, Budget Measures 2010‑11, Treasury portfolio.
The estimated decline in expenses for the industry development and investment program from 2011‑12 can be attributed to three main drivers: a decline in demand is expected for the Liquefied Petroleum Gas Vehicle Scheme following the ongoing reduction in rebates for the post‑factory conversion element; funding for ATS is expected to peak in 2011‑12, after which a gradual reduction in funding is expected as the industry becomes more sustainable; and expenses for the Textiles, Clothing and Footwear Strategic Investment initiative are projected to decrease from 2011‑12 as the industry structurally adjusts and develops greater innovative capability.
Table 14.1 below provides details of the major components of mining, manufacturing and construction sub‑function expenses.
Table 14.1: Trends in the major components of mining, manufacturing and
construction sub‑function expenses
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
- Most road and rail funding from 2009‑10 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.
Following a reduction in expenses in 2010‑11 due to the winding down of Nation Building stimulus payments, total expenses under this function are estimated to increase by 31.9 per cent in real terms from 2010‑11 over the forward years, or 9.7 per cent per annum on average in real terms.
The decline in estimated expenses in the communication sub‑function between 2010‑11 and 2013‑14 is primarily due to a predicted reduction in demand over this period 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. This sub‑function does not take into account the proposed investment in the National Broadband Network, which is funded by equity investment and for which provisions beyond the Government's initial investment have been included in the contingency reserve (see Appendix B of this Statement).
The increase in estimated expenses in the rail transport sub‑function across the forward estimates is mainly due to the investment in metro rail infrastructure announced by the Government as part of its Nation Building Plan for the Future package in the 2009‑10 Budget. This package includes projects funded from the Building Australia Fund such as a $3.2 billion contribution over six years towards the Regional Rail Express project in Victoria, and $0.6 billion over five years for the Gawler Rail Line Modernisation and Noarlunga to Seaford Rail Extension projects in South Australia. The increased estimate in expenses across the forward estimates for rail also encompasses grants to the Australian Rail Track Corporation.
The expenses in the road transport sub‑function primarily consist of grants provided under the Nation Building program, including funding provided for projects under the nation building stimulus package. Lower expenses in 2010‑11 reflect the Government's decision in December 2008 to bring forward funding from 2010‑11 to 2009‑10 for high priority road construction projects as well as the measure announced in the 2010‑11 Budget to bring forward $977 million from the period 2010‑11 to 2013‑14 into 2009‑10. Of the $977 million that was brought forward, $692 million has been moved from 2010‑11. The bring forward of expenses is for the following road infrastructure projects: Holbrook Bypass in New South Wales; Ipswich Motorway and Douglas Arterial in Queensland; Anthony's Cutting and Western Ring Road in Victoria; Superway and Northern Expressway in South Australia; and Tiger Brennan Drive in the Northern Territory.
The air transport and sea transport sub‑functions predominantly relate to the activities of the safety regulators — the Civil Aviation Safety Authority (CASA) and the Australian Maritime Safety Authority. The increase in estimated expenses in the air transport sub‑function is due to the provision of additional funding to CASA to maintain and enhance aviation safety and funding to the Department of Infrastructure, Transport, Regional Development and Local Government to enhance and strengthen Australia's aviation security arrangements. Further information on these measures can be found in Budget Paper No. 2, Budget Measures 2010‑11, Infrastructure, Transport, Regional Development and Local Government portfolio; and the Attorney‑General's portfolio.
The increase in estimated expenses in the other transport and communication sub‑function reflects the Government's decision to establish an Infrastructure Fund to coincide with the introduction of the Resource Super Profits Tax on 1 July 2012. The Commonwealth's initial funding contribution will be $700 million in 2012‑13, followed by a further contribution of $735 million in 2013‑14.
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 (nec).
Table 16: Summary of expenses — other economic affairs
Total expenses under the other economic affairs function are projected to decrease by 13.9 per cent in real terms from 2010‑11 over the forward years, or by 4.8 per cent per annum on average in real terms.
The sub‑functions contributing most to the forecast decrease in expenses over the forward estimates are immigration (with a decline of 6.7 per cent per annum on average in real terms from 2011‑12), and labour market assistance to job seekers and industry (average annual real decrease of 6.1 per cent over the forward estimates period).
The reduction in the tourism and area promotion sub‑function expenses in 2010‑11 is the result of the bringing forward of tourism industry funding from 2010‑11 to 2009‑10, as a short‑term stimulus initiative.
Expenses under the vocational and industry training sub‑function are expected to decline by 10.7 per cent in real terms from 2010‑11 to 2013‑14. The fall in expenses over the period reflects the completion in 2010‑11 of infrastructure projects under the Teaching and Learning Capital Fund for Vocational Education and Training (VET) initiative, announced as part of the Government's Nation Building package in December 2008, the completion in 2011‑12 of the Apprentice Kickstart program, and the completion in 2012‑13 of the Vocational Education Broadband Network. The fall in expected expenses is also influenced by the ongoing impact of savings decisions from the 2009‑10 Budget package, Reform of Australian Apprenticeships Incentive Funding.
The effect of these expected reductions in expenses is partially offset by increased expenses resulting from some elements of the Government's Skills for Sustainable Growth package. Further information on this decision can be found in Budget Paper No. 2, Budget Measures 2010‑11, Education, Employment and Workplace Relations portfolio.
Expenses for the labour market assistance to job seekers and industry sub‑function are estimated to peak at $2.5 billion in 2010‑11 before reducing to a relatively flat projected trend over the forward estimates from 2011‑12. The anticipated peak in estimated expenses in 2010‑11 is largely the result of job seekers transitioning from Job Network to Jobs Services Australia (JSA). With this transition, expenses in 2010‑11 are expected to increase, as job seekers will be eligible for higher levels of assistance under JSA. The anticipated decrease in expenses from 2011‑12 in the sub‑function is due to the expected reduction in the number of unemployed people in the forward years, and the completion, on 30 June 2011, of the Jobs Fund initiative.
The higher estimated expenses in the industrial relations sub‑function in 2009‑10 and 2010‑11 compared to later years is largely due to the relatively high demand for payments under the General Employee Entitlements and Redundancy Scheme (GEERS). The GEERS scheme assists employees of bankrupt organisations who are owed certain employee entitlements, and recent economic conditions have increased demand for the scheme. It is expected that GEERS will return to historic expense levels in 2011‑12.
The expected increase in expenses in the immigration sub‑function in 2010‑11 is largely due to costs associated with accommodating and processing irregular maritime arrivals. These expenses are expected to decline beyond 2010‑11.
Expenses for the other economic affairs nec sub‑function are estimated to decline in 2010‑11. From 2010‑11 to 2013‑14, expenses are estimated to decrease by 7.6 per cent in real terms, or 2.6 per cent per annum on average in real terms.
The small decline in expenses in 2010‑11 is primarily driven by the innovative industry program. Estimated expenses in that program are expected to fall from $428 million in 2009‑10 to $364 million in 2010‑11 and reflect the winding down of the Commercial Ready and the Clean Business Australia — Climate Ready initiatives, and a decrease in funding for the Green Car Innovation Fund.
The estimated decline in expenses for the sub‑function in 2012‑13 and 2013‑14 is predominantly driven by the Government's decision to reduce funding for the Green Car Innovation Fund, responding to lower than expected demand. Further information on this measure can be found in Budget Paper No. 2, Budget Measures 2010‑11, Innovation, Industry, Science and Research portfolio.
The table below provides details of the major components of other economic affairs nec sub‑function expenses.
Table 16.1: Trends in the major components of other economic affairs nec
The other purposes function includes expenses incurred in the servicing of public debt interest, and assistance to State, Territory and local governments. This function also includes items classified to natural disaster relief, the contingency reserve (see Appendix B for a detailed description), and expenses related to the nominal interest on unfunded liabilities for government superannuation benefits.
Table 17: Summary of expenses — other purposes
Total expenses under the other purposes function are estimated to decrease by 1.9 per cent in real terms from 2010‑11 over the forward years, or by 0.6 per cent per annum in real terms. This decrease is primarily driven by the transfer of a proportion of general assistance revenue assistance payments to the health function (discussed in more detail below), partially offset by an expected increase in public debt interest expenses.
The most significant expenses in this function relate to general revenue assistance paid to State and Territory governments. Nearly all these expenses comprise payments of GST revenue grants to the States and Territories, which are provided on an 'untied' basis. Payments to State and Territory Governments tied to specific purposes (for example, education) are reported under their relevant functions in this Statement.
There is a reduction of $13.7 billion in 2011‑12, rising to $16.3 billion in 2013‑14 in expenses in the general purpose inter‑government transactions sub‑function due to the Government's agreement with the States and Territories (except Western Australia) to retain a third of GST revenue to be allocated to the health and hospitals reform, with the exception of Western Australia. The decrease in this sub‑function is offset by a corresponding increase under the health function. (Refer to Box 5 for further information on the National Health and Hospitals Network reforms.)
The increase in the public debt interest sub‑function is due to the increased issuance of Commonwealth Government bonds reflecting the corresponding interest, while expenses in the nominal superannuation interest sub‑function are projected to increase over time, reflecting the growth in the Government's superannuation liability.
Expenses in the local government assistance sub‑function are predominantly related to the local government program. Lower expenses in 2010‑11 reflect the Government's decision to pay the first instalment of $511.6 million to Local Councils ahead of schedule in the 2009‑10 financial year to ensure they have immediate use of these funds. These expenses increase from 2010‑11 across the forward estimates 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). Also included within this sub‑function are expenses under the Regional and Local Community Infrastructure initiative which is being provided over the period 2009‑10 to 2010‑11. Further information on Commonwealth Government assistance to local governments can be found in Budget Paper No. 3, Federal Financial Relations 2010‑11.
The increase in expenses under the natural disaster relief sub‑function from 2009‑10 to 2010‑11 is due to the increase in Commonwealth payments to the States, primarily arising from the Victorian bushfires and Queensland floods. The lag in payments following a disaster occurs because these payments represent a reimbursement of some of the States' natural disaster costs. From 2011‑12 onwards, expenses under this sub‑function are expected to return to trend, although they remain subject to fluctuations should another major natural disaster occur.
The increase in expenses in the contingency reserve sub‑function from 2010‑11 over the forward years is largely due to the conservative bias allowance — an allowance that compensates for the trend in expenses on existing Government programs to be underestimated by agencies in the forward years. The contingency reserve is discussed in more detail at Appendix B.
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