Australian Government, 2011‑12 Budget
Budget

Statement 6: Expenses and Net Capital Investment (Continued)

General government sector expenses

Reconciliation of expenses since the 2010‑11 Budget

Table 2 provides a reconciliation of expense estimates between the 2010‑11 Budget, the Mid‑Year Economic and Fiscal Outlook 2010‑11 (MYEFO) and the 2011‑12 Budget showing the effect of policy decisions, and economic parameter and other variations.

Table 2: Reconciliation of expense estimates

Table 2: Reconciliation of expense estimates

  1. Excludes secondary impacts on public debt interest of policy decisions and offsets from the Contingency Reserve for decisions taken.

Economic parameter variations are forecast to reduce expenses in 2011‑12 and over the forward estimates. This is mostly due to a reduction in Goods and Services Tax (GST) payments to the States and Territories consistent with a reduction in GST revenue collections. Partly offsetting these reductions, expected increases in prices and wages over the forward estimates will increase expenses, reflecting the indexation of many government payments including social security payments. Similarly, an upwards revision in the estimated number of unemployment benefit recipients is expected to increase expenses in 2011‑12 compared to MYEFO, although this is partly unwound by a reduction in the forecast of the number of unemployment benefit recipients in 2012‑13.

Program specific parameter variations are expected to increase expenses over the next four years. These variations include adjustments in the timing of infrastructure investment and changes in the number of people who claim government support payments. Other parameter variations are expected to reduce expenses in 2010‑11 but increase expenses in 2011‑12 and 2012‑13.

Estimated expenses by function

Table 3 sets out the estimates of Australian Government general government sector expenses by function for the period 2010‑11 to 2014‑15.

Table 3: Estimates of expenses by function*

Table 3: Estimates of expenses by function

* The data in this table have been amended from the published Budget Papers to correct for a misallocation of expenses between the education and housing and community amenities functions.

Major expense variations between 2010‑11 and 2011‑12 and across the forward estimates include movements in the following functions:

  • other purposes — expenses are expected to increase under the Natural Disaster Relief and Recovery Arrangements and the Disaster Income Recovery Subsidy following the Australian floods and Cyclone Yasi in 2010‑11. Since MYEFO, there has also been an increase of $12.2 billion in 2011‑12, due to an increase in general revenue assistance to the States and Territories as a result of not proceeding with the proposal to dedicate GST revenue for the purpose of funding public hospital services under the health function;
  • social security and welfare — an increase of $5.2 billion in 2011‑12 is due to the indexation of personal benefits and income support payments, particularly in income support for seniors. Other demographic and social factors, such as the ageing population, will continue to influence growth over the forward estimates;
  • health — an increase of $2.6 billion in 2011‑12 is primarily due to an increase in the Commonwealth's contribution to fund additional health and hospital investment. Health expenses are significantly lower than forecast at MYEFO, reflecting the changed funding arrangements for public hospitals and the resultant reporting of what was dedicated GST under the previous arrangements as general revenue assistance (under the other purposes function rather than under the National healthcare specific purpose payment in the health function);
  • transport and communication — an increase of $2.2 billion in 2011‑12 is primarily due to higher funding for rail and road infrastructure projects;
  • education — a decrease of $2.7 billion in 2011‑12 is due to the conclusion of national partnership payments under the Building the Education Revolution (BER) package; and
  • housing and community amenities — a decrease of $1.1 billion in 2011‑12 reflects the conclusion of the housing initiatives introduced as part of the Government's response to the global financial crisis.

The Government is making significant investments in this Budget to improve the skills of the Australian workforce and to encourage, through a combination of incentives and support programs, greater engagement in the workforce by those who face significant barriers to participation.

Investment in skills development will be made to: give industry a more central role in the training system through the establishment of a National Workforce Development Fund; improve the apprenticeship system; ensure the Vocational Education and Training system is more transparent and productive through a new National Partnership with the States and Territories; and build better skills for workforce participation.

In addition, the Government is making changes to the system to improve incentives for people to work and is introducing a range of measures to encourage greater workforce participation by young people, people with a disability, the very long‑term unemployed, single parents and jobless families, and will focus on a number of disadvantaged locations.

Government expenses are strongly influenced by underlying trends in spending in the social security and welfare and health functions. Together, these functions account for nearly half of all Government expenses as well as just over half of total expenses growth over the forward estimates. Health spending has grown faster than social security and welfare spending over this period and is expected to increase its share of total expenses from around 14 per cent in 2000‑01 to over 16 per cent in 2014‑15.

Growth in these functions over the medium‑term reflects not only policy decisions (for instance, the increase to age pension benefit levels in 2009‑10), but also the impact of total population growth, the increasing share of older age groups in the population, and benefit indexation rates above Consumer Price Index (CPI) and cost growth in services subsidised by the Government.

Based on the arrangements in place in 2010‑11, a number of the major programs in these two functions are expected to continue to experience high real growth beyond the forward estimates. The Government's human capital, participation and productivity agendas will all play important roles in moderating growth in the cost of government programs, and improving the economy's capacity to sustain activity and increase growth, and therefore to fund government services.

Further details of medium‑term pressures under these functions are set out in Boxes 4 and 5.

Box 1: Where does government spending go?

Government spending provides a wide range of services to the community. The most significant component of government spending relates to social security and welfare, with around one third of total expenses providing support to the aged, families with children, the sick and disabled, veterans, carers and income support payments.

Another one sixth of government expenses occur in health services, including the Medicare Benefits Schedule and Pharmaceutical Benefits Scheme payments. A similar amount is also transferred to the States and Territories in general revenue assistance under the other purposes function.

The Government also provides significant investment under the education function, supporting government and non‑government schools, as well as higher education and vocational education and training. The remainder is spent on defence and a range of other public services.

This chart shows the percentage of government expenses directed to specific functions in 2011-12. Roughly one-third of government expenses relate to social security and welfare. Other significant expense areas include General revenue assistance (or Goods and Services Tax payments) to the States and Territories and expenses for health and education.

The estimates presented in the chart above are explained in greater detail under each individual function in the following pages.

Major savings

As part of the Government's commitment to bring the budget back into surplus by 2012‑13, the Government has identified around $22 billion of savings in this Budget over the five years to 2014‑15, of which $14.8 billion relates to savings in expenses and net capital investment. These savings reduce expenses and net capital investment across a range of functions.

Significant savings measures totalling $2.7 billion in the defence function over the forward estimates will result in a reduction in expenses through improved performance of the initiatives associated with the Strategic Reform Program, the higher efficiency dividend and net capital investment reprogramming to better align capital expenditure with strategic requirements.

In social security and welfare, $2.3 billion in savings will also be achieved over the forward estimates. Of this, $1.9 billion is due to extending the temporary pause in the indexation of the Family Tax Benefit (FTB) Part A higher income free area for a further two years and pausing indexation of FTB supplements for three years.

A saving of $1.5 billion in expenses over five years will be made across a range of programs under the health function, including from efficiencies agreed with the pathology sector and as a result of the Department of Human Services service delivery reform.

The deferral of Commonwealth funding for road and rail infrastructure investment will reduce expenses by $1.0 billion over three years under the transport and communication function. The deferred projects include Victorian regional rail program, the Northern Sydney Freight Corridor rail project and reductions in the cost of major road investment in Queensland.

The Government has also increased the rate of the efficiency dividend that applies to Commonwealth entities. This measure is expected to reduce Commonwealth operating expenses by approximately $1.1 billion over the forward estimates across all functions. Further details of all savings measures are available in Budget Paper No. 2, Budget Measures 2011‑12.

Program expenses

Table 3.1 reports the top 20 expense programs in the 2011‑12 financial year. These programs represent 62.4 per cent of total expenses in that year. The revenue assistance to the States and Territories program comprises 13.5 per cent of total expenses for 2011‑12. Of the remaining programs in the top 20, more than half provide financial assistance or services to seniors, families, the sick and disabled, students, carers and the unemployed.

Table 3.1: Top 20 programs by expenses in 2011‑12

Table 3.1: Top 20 programs by expenses in 2011‑12

^ This is a combination of public sector superannuation nominal interest and benefits programs.

* Department of Human Services running costs also includes Medicare and Centrelink funding in 2010‑11.

SSW — Social Security and Welfare

Box 2: Withdrawal of the Government's economic stimulus measures

The Government responded to the global financial crisis by implementing several fiscal stimulus measures during 2008‑09 and 2009‑10. The temporary and targeted nature of these measures means that the impact is progressively declining over time.

As of 2011‑12, the vast majority of the budget stimulus funding has been paid out by the Commonwealth. The remaining amounts mostly relate to medium‑term infrastructure investment projects being funded through the:

  • Building the Education Revolution (education function);
  • Building Australia Fund (transport and communication function);
  • Health and Hospitals Fund (health function);
  • Clean Energy Initiative (fuel and energy function); and
  • Education Investment Fund (education and general public services functions).

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

Table 4: Summary of expenses — general public services

Total expenses under the foreign affairs and economic aid sub‑function are forecast to increase by 31.8 per cent in real terms from 2011‑12 to 2014‑15. This significant increase is due to the Government's commitment to increase the level of Official Development Assistance (ODA) to 0.5 per cent of Gross National Income by 2015‑16. The purpose of ODA is to provide assistance to developing countries to alleviate poverty and assist them in achieving economic stability in line with Australia's national interest.

The uneven profile of expenses under the legislative and executive affairs sub‑function largely reflects the federal election in 2010‑11 and the scheduled election in 2013‑14. Similarly, while the underlying level of expenses in the financial and fiscal affairs sub‑function is broadly stable, the profile reflects the timing of specific events such as the 2011 National Census, which is increasing expenses in 2010‑11 and 2011‑12.

Expenses under the government superannuation benefits sub‑function have fallen since the 2010‑11 Budget, reflecting revised actuarial estimates of the Government's superannuation liabilities.

Table 4.1 sets out the major components of foreign affairs and economic aid sub‑function expenses.

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

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 estimates. The ODA CR represents the difference between the amount of ODA already committed and the Government's target levels of ODA.

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.

Total expenses in this sub‑function and in particular the science and research capacity program are forecast to decrease over the forward estimates, largely due to the completion of a number of projects funded under the Education Investment Fund. Apart from these projects, other research expenses are forecast to increase over the forward estimates, including increases in expenses on national research flagships, and core research and services.

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
sub‑function expenses

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

Defence

The defence function includes expenses incurred by 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 the acquisition and through‑life support of military equipment and supplies.

This function records the majority of expenses incurred by the Defence portfolio but does not include the expenses 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 in the social security and welfare, other purposes, and housing and community amenities functions, respectively.

Table 5: Summary of expenses — defence

Table 5: Summary of expenses — defence

Total expenses for the defence function are estimated to decrease by 1.1 per cent in real terms from 2011‑12 over the forward estimates, or by 0.4 per cent per annum on average in real terms. This largely reflects funding decisions flowing from the 2009 Defence White Paper and funding provided in 2011‑12 for Defence operations. The forward estimates of expenses do not provide for extensions of currently approved operations beyond 2011‑12. Such funding is considered on a year‑by‑year basis and is subject to future decisions of the Government.

From 2011‑12, additional funding of $1.4 billion is being provided to support Defence overseas operations in the Middle East, East Timor and the Solomon Islands. See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

The Government will realise efficiencies in corporate and support functions in the Defence portfolio, including through reductions in duplication and increased use of shared services. These measures will result in savings of $1.2 billion over the forward estimates. These savings are in addition to savings to be realised as part of the Defence Strategic Reform Program (SRP). In the SRP, $20.6 billion in savings are being 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.

Further details on the capital reprogramming and additional efficiencies can be found in Budget Paper No. 2, Budget Measures 2011‑12.

The acquisition of defence capital items is reported in the net capital investment section of this Statement and in Box 3 below.

Box 3: Defence funding

Total Defence expenditure is estimated to increase by $1.4 billion (2.4 per cent in real terms) in 2011‑12. This includes both 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: Trends in the major components of defence function expenses
and net capital investment

Table 5.1: Trends in the major components of defence function expenses and net capital investment

Investment spending in the defence function is for the acquisition of large and complex platforms and military equipment, and the construction of support facilities linked to capability. Investment spending can experience significant annual fluctuations, including as 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 6‑46.

The expected decrease in defence funding in 2012‑13 is due to fluctuations in capital acquisitions, the practice of funding overseas operations on a year‑by‑year basis and the additional efficiencies in defence which take full effect in that year.

The Government will reprogram $1.3 billion of funding over the forward estimates for the Defence capital investment program to better align it with Defence's strategic requirements. The reprogramming will support the Department of Defence in delivering the military capabilities set out under Force 2030, the 2009 Defence White Paper.

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

Table 6: Summary of expenses — public order and safety

Expenses within both the courts and legal services and other public order and safety sub‑functions are expected to remain broadly stable in nominal terms over the forward estimates. Expenses in this function increased significantly in the decade to 2006‑07 and have grown at more modest levels since then, reflecting the stabilisation of anti‑terrorism and law enforcement activities.

Real funding is expected to decline from 2011‑12 over the forward estimates reflecting efficiencies within the federal justice system and in the delivery of law enforcement and intelligence activities.

Education

The education function includes expenses to 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*

Table 7: Summary of expenses — education

* The data in this table have been amended from the published Budget Papers to correct for a misallocation of expenses between the education and housing and community amenities functions.

Total expenses under the education function are estimated to decrease in 2011‑12 before increasing slightly in real terms over the forward estimates. The estimated decrease in 2011‑12 reflects the completion in 2010‑11 of the majority of spending under the Building the Education Revolution (BER) package. The estimated increase in expenses from 2011‑12 is mostly attributable to growth in funding for higher education and for both government and non‑government schools.

Expenses under the higher education sub‑function are expected to increase by 5.0 per cent in real terms over the forward estimates, or 1.6 per cent per annum on average. This primarily reflects the cost of previous major reforms to higher education, including the introduction of demand driven student enrolment and an increase in higher education research funding.

Demand driven enrolment is the main contributor to a 3.2 per cent real increase in the Higher Education Support program over the forward estimates. As part of the transition to a fully demand driven enrolment system, universities have responded to an increase in the cap on funding for over‑enrolment in 2010 and 2011 by expanding enrolments to a level above the original forecasts. The estimated increase in expenses over the forward estimates reflects the updated assessment of growth within the sector following on from increased enrolments in 2010 and 2011.

Investment in higher education research is expected to increase from $1.5 billion in 2010‑11 to $2.0 billion in 2014‑15. This reflects a 14.4 per cent rise in real terms in expenses from 2011‑12 over the forward estimates arising from the 2009‑10 measure Sustainable Research Excellence in Universities.

Strong growth in expenses is estimated for both government and non‑government schools due to the level of indexation applied to schools funding together with population growth. The indexation of schools funding is calculated based on average government school recurrent costs and is well above the CPI. However, growth in government schools funding is partially offset by the conclusion and winding down of several national partnerships over the forward estimates. Excluding these national partnerships, assistance to states for government schools is estimated to increase from $3.8 billion in 2011‑12 to $4.6 billion in 2014‑15, which is an average increase of 4.2 per cent per annum in real terms. Real spending on non‑government schools is expected to rise by 5.1 per cent per annum over the forward estimates.

The profile of expenses under the vocational and other education sub‑function reflects a redirection of the Productivity Places Program to support measures in the Skills for Sustainable Growth package announced in the 2010‑11 Budget and the Building Australia's Future Workforce initiatives announced in this year's Budget. The expenses are included in the vocational and industry training sub‑function within the other economic affairs function (see page 6‑42). The profile incorporates a proposed new five‑year national partnership for vocational education and training reform, which will provide $1.75 billion in total over five years from 2012‑13. See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

Future funding arrangements beyond 1 January 2014 for government and non‑government schools are currently subject to review.

The major components of the vocational and other education 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*

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

* The data in this table have been amended from the published Budget Papers to correct for a misallocation of expenses between the education and housing and community amenities functions.

Expenses under the student assistance sub‑function are expected to decrease by 10.1 per cent in real terms from 2011‑12 over the forward estimates, or by 3.5 per cent per annum on average in real terms. This profile is underpinned by an estimated 19.0 per cent decrease in tertiary student assistance and an estimated 10.8 per cent increase in expenses under the Higher Education Loan Program (HELP).

The 2010 election commitment, Supporting Families with Teenagers, will shift the payment of benefits for dependent 16 to 19 year olds in secondary full‑time study from Youth Allowance to Family Tax Benefit Part A, reported under the social security and welfare function. This change reduces expenses reported as tertiary student assistance. The expected increase in HELP expenses reflects the introduction of a demand driven student enrolment system, which will increase the number of students accessing a HELP loan. The expenses for HELP reflect the estimated cost to the Government of providing concessional loans as well as the cost of providing incentives for students to pay university fees up‑front and to make early repayments on their HELP debts.

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
sub‑function expenses

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

The major components of the school education — specific funding sub‑function are the National Partnership Agreements on the BER; Digital Education Revolution; Early Childhood Education; Trade Training Centres in Schools; Youth Attainment and Transitions; and a number of elements of the Closing the Gap package. Variations in expenses between years is predominantly attributed to the terms of these national partnerships. In particular, the reduction in expenses from 2010‑11 to 2011‑12 is due to the completion of most BER projects by the end of 2010‑11.

This sub‑function also includes the Schools Support Program (SSP), which is expected to rise from $235 million in 2010‑11 to $455 million in 2014‑15 due to several new measures. The most significant measures contributing to the increase in the SSP over the forward estimates are election commitments, including the National School Chaplaincy Program — extension and expansion, National Incentives for Great Teachers and Reward Payments for School Improvements. See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

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, including public hospitals; 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

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.

Health expenses are expected to continue to grow over the forward estimates (by 4.6 per cent in real terms from 2011‑12) and to make up an increasing share of total government expenses over the medium term. This increase is expected to be driven by the combination of technology, social factors (that result in an increased demand for health services), and the effects of an ageing population. These issues are covered in more detail in the 2010 Intergenerational Report.

The Commonwealth's contribution to funding under the new proposed National Health Reform Agreement (NHRA) is reported through the national healthcare specific purpose payment (to the States) sub‑function (previously called the National Health and Hospitals Network sub‑function). The increase in expenses over the forward estimates for this sub‑function reflects indexation of the Commonwealth's contribution to the provision of hospital services, growth in the volume of services, and changes in the efficient price. In 2014‑15, the Commonwealth has undertaken to contribute 45 per cent of the growth in the efficient price, as calculated by the Independent Hospital Pricing Authority.

The expense estimates over the forward years for this sub‑function are lower than forecast in the 2010‑11 Budget, as a result of changes to the health financing arrangements previously agreed under the National Health and Hospitals Network Agreement. The States and Territories signed a Heads of Agreement with the Commonwealth in February 2011 to form the basis of the new NHRA. Under this agreement, the earlier agreement with all states and territories, other than Western Australia, to dedicate a portion of GST revenue to fund public hospital and primary care services will not proceed. Funding for hospitals will be provided on an activity basis from 1 July 2012. Primary care services will continue to be funded through Medicare, and the States and Territories will continue to provide some primary care services, such as community health centres.

The medical services and benefits sub‑function, which primarily consists of Medicare and Private Health Insurance Rebate expenses, make up 37.5 per cent of total health expenses for 2011‑12. Medicare expenses are the major driver of growth in this sub‑function, and are expected to increase over the forward estimates as a direct result of the increase in the Australian population — and in particular, the number of Australians aged over 65 — as well as technology and social factors. The decrease in expenses between 2010‑11 and 2011‑12 is a result of the Government's policy to introduce means testing for the Private Health Insurance Rebate.

Expenses for pathology service items under the Medicare Benefits Schedule will decline by $550 million over five years ($419 million over the forward estimates) due to reforms the Government has agreed with the pathology sector. Under the new Pathology Funding Agreement, the sector will benefit from predictable growth in Government outlays.

A significant component of the expenses for this sub‑function in 2010‑11 and 2011‑12 is related to the Chronic Disease Dental Scheme ($1.6 billion over two years). It is current Government policy to cease operation of the scheme on 31 December 2011.

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

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

The general administration — health sub‑function includes expenses incurred by the Government to support capital investments and new initiatives in areas such as primary care education and training; policy, innovation and research; and rural health services. The substantial increase in expenses between 2010‑11 and 2011‑12 is due to the inclusion of operating expenses in this sub‑function for the Department of Human Services which, from 2011‑12 also incorporates those of Medicare Australia, as well as the implementation of the Practice Nurse Incentives program and the continuation of General Practice (GP) Super Clinics. It is anticipated that efficiencies from the amalgamation of the Department of Human Services and Medicare Australia will result in reductions in expenses from 2012‑13 onwards.

Growth in the pharmaceutical benefits and services sub‑function over the forward estimates is mainly driven by increasing demand for pharmaceutical benefits, and Government decisions on new drug listings. This sub‑function makes up 18 per cent of total health expenses for 2011‑12.

The major components of the pharmaceutical benefits and services sub‑function expenses are set out in Table 8.2.

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

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.
  4. Includes some essential vaccines. The majority of essential vaccines is included in the health services sub‑function.

Government expenditure on the Pharmaceutical Benefits Scheme (PBS) has been increasing since 2007‑08, from $7.0 billion to an estimated $9.0 billion in 2010‑11. Growth in the Scheme is driven by the demand for previously listed medicines as well as new listings on the PBS agreed by the Government. The estimated financial impact of new PBS listings in the four years from 2007‑08 to 2010‑11 was $2.1 billion, as illustrated in Chart 8.1.

Each year, in addition to agreeing new listings on the PBS, the Government can make decisions to list new medicines for veterans' pharmaceutical benefits, the Life Saving Drugs Program and the National Immunisation Program, as well as price changes to already listed medicines. The estimated five year impacts of all these changes between 2007‑08 and 2011‑12 is in the order of $4 billion.

Chart 8.1: Growth trends in PBS expenditure

Chart 8.1: Growth trends in PBS expenditure

Expenses in the health services sub‑function include Commonwealth expenses associated with the delivery of population health, blood and blood products, research and other allied health services, e‑Health, and health infrastructure funding through the Health and Hospitals Fund (HHF). The increase in expenses between 2010‑11 and 2011‑12 reflects the funding of projects through the HHF. Key projects include the Royal Hobart Hospital redevelopment (Tasmania); the Bega Valley Health Service development (New South Wales); the Port Macquarie Base Hospital expansion (New South Wales); the Tamworth Hospital redevelopment stage two (New South Wales); the Palmerston Hospital (Northern Territory); the Albury‑Wodonga Regional Cancer Centre (New South Wales/Victoria); and improving Aboriginal access to primary health care in remote areas (Northern Territory). See Budget Paper No. 2, Budget Measures 2011‑12 for more details on the package of measures funded from the HHF.

The other main driver of growth in health services is an increase in funding for mental health from 2011‑12 onwards, including the Taking Action to Tackle Suicide package in the 2010‑11 MYEFO and additional funding for new mental health initiatives in the Budget, with a gross cost of $1.5 billion over five years from 2011‑12 (and a net cost of $0.9 billion). See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

The hospital services sub‑function includes payments to the States and Territories through a range of existing and new national partnership agreements, and support for veterans' hospital services. The initial years of the forward estimates include funding for emergency departments and elective surgery investment as part of national health reform.

Expenses in the Aboriginal and Torres Strait Islander health sub‑function are expected to remain steady over the forward estimates. Aboriginal and Torres Strait Islander people are able, and encouraged, to access mainstream services as well as Indigenous‑specific services. As a result, substantial investment in Indigenous health is also being made through other health sub‑functions — in particular, medical services and benefits.

Box 4: Health spending trends

A number of major health programs have seen, and will continue to see, strong expenditure growth, including the Medicare Benefits Schedule (MBS), the Pharmaceutical Benefits Scheme (PBS), and payments to the States and Territories under the Australian Health Care Agreement and the National Health Reform Agreement. Over the period from 2000‑01 to 2009‑10, average real expenditure growth for the MBS was 5.8 per cent per annum, 5.5 per cent per annum for the PBS, while growth in health payments to the States and Territories have averaged 3.6 per cent per annum. The Private Health Insurance Rebate also experienced strong real growth of 6.3 per cent per annum.

Spending on the MBS and PBS is affected by population growth and, to some extent, by the ageing of the population. However, spending is also influenced by developments in health technology and listings of new products and services. These non‑demographic influences are stronger than the demographic impacts, with real growth expected to remain at around 3 to 5 per cent per annum over the medium term. Payments to the States and Territories for healthcare under the National Health Reform Agreement will grow relatively quickly (at around 8 per cent per annum in real terms from 2014‑15), in large part due to volume growth and the Commonwealth's commitment to meet 45 per cent of the growth in the efficient price of hospital services, rising to 50 per cent of the growth from 2017‑18.

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

Table 9: Summary of expenses — social security and welfare

Social security and welfare function expenses are estimated to grow at 5.5 per cent in real terms from 2011‑12 over the forward estimates, with an average annual real growth rate of 1.8 per cent over that period. The sub‑functions contributing most to the growth are assistance to the aged, assistance to families with children, and assistance to people with disabilities.

The continuing demographic shift to an older population, as outlined in the 2010 Intergenerational Report, is contributing to increased social security and welfare expenses as more Australians become eligible for the Age Pension and begin to enter residential and community care facilities. The ageing of the population is also leading to an increase in the number of people caring for senior Australians and becoming eligible for carer payments. The Secure and Sustainable Pensions package announced in the 2009‑10 Budget is also a major contributor to increased expenses across the function as it provides better indexation of, and higher rates for, many pensions and payments.

The Building Australia's Future Workforce initiatives announced in this Budget will also have an impact on expenses by enhancing services for disadvantaged groups to improve engagement in the labour market. These groups include people with a disability, single parents, very long‑term unemployed, and young people. These measures specifically target those living in areas of concentrated socio‑economic disadvantage. See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

The principal driver of growth over the forward estimates for the assistance to the aged sub‑function is income support for seniors. This program's major component, the Age Pension, contributes significantly to growth in expenses as the ageing of the population will result in more people becoming entitled to receive the Age Pension over this period. This increase in eligible people is partially reduced by the increase in the qualifying age for the Age Pension for females on 1 July 2012.

A secondary contributor to growth is the increased funding required by the community aged care and the residential aged care programs. From 1 July 2012, as part of the national health reform agenda, community aged care will increasingly be funded directly by the Commonwealth Government, with less funding being provided to the States and Territories under the Assistance to the Aged National Partnership agreement. Total expenses for aged care are also estimated to increase due to the same demographic factors driving the increased expenses for the Age Pension. In addition, senior Australians are preferring to remain in their homes for as long as possible, increasing the use of community aged care, and when they do enter residential aged care facilities, they do so at a later age and with more complex health requirements.

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
sub‑function expenses

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

The main components of the assistance to families with children sub‑function are family tax benefit payments, with the estimated increase in expenses largely due to indexation of the value of these payments. The increase in expenses is also driven by the growing use of child care services, indexation of child care benefit expenses, and additional child care rebate expenses due to the implementation of the National Partnership Agreement on the Quality Agenda for Early Childhood Education and Care. The growth also reflects the introduction of the Paid Paternity Leave scheme from 1 January 2013.

The major components of the assistance to families with children sub‑function are set out in Table 9.2.

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

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

  1. The rise in 2012‑13 against 'Other' is due to the reclassification of $1 billion for the Low Income Earner's Superannuation Co‑Contribution program from revenue to expenses.

Expenses under the assistance to people with disabilities sub‑function will increase primarily because of strong anticipated growth in people receiving carer payments. It is estimated there will be a significant rise in the number of carers who receive income support, with this steady increase attributable to the increasing number of senior Australians receiving care and assistance.

The main component of this sub‑function is the Disability Support Pension, with expenses estimated to grow due to increases in the real value of the pension as a result of the Secure and Sustainable Pension package announced in the 2009‑10 Budget. This growth in expenses is tempered as the number of Disability Support Pension recipients is expected to remain stable as a result of the 2010‑11 Budget measure Job Capacity Assessment — more efficient and accurate assessments for Disability Support Pension and employment services.

The major components of the assistance to people with disabilities sub‑function are outlined below in Table 9.3.

Table 9.3: Trends in the major components of assistance to people with
disabilities sub‑function expenses

Table 9.3: Trends in the major components of assistance to people with disabilities sub‑function expenses

The assistance to the unemployed and sick sub‑function is forecast to increase over the forward estimates. This increase reflects the technical assumption used for medium term projections of unemployment.

Expenses under the other welfare programs sub‑function were significantly higher than usual in 2010‑11 as a result of $1.1 billion in assistance provided to people affected by the 2010‑11 summer natural disasters under the Australian Government Disaster Recovery Payment.

The decrease in expenses in the Aboriginal advancement not elsewhere classified sub‑function is the result of the lapsing of funding for a number of program components as well as funding for the Northern Territory Emergency Response ceasing in June 2012.

Expenses for the general administration sub‑function are estimated to decrease over the forward estimates due to administrative efficiencies following the integration of Centrelink and Medicare Australia with the Department of Human Services.

Expenses for the assistance to veterans and dependants sub‑function are estimated to decrease in real terms as a result of the continuing decline in the veteran population.

Box 5: Social security and welfare spending trends

The social security and welfare function includes a number of major programs including the Age Pension, Residential Aged Care, Disability Support Pension (DSP), Family Tax Benefit and Child Care Fee Assistance. From 2000‑01 to 2009‑10, the Age Pension and DSP had significant real growth of around 4 per cent per annum and 6 per cent per annum respectively, while Residential Aged Care had growth of 3.8 per cent and Family Tax Benefit had growth of 3.5 per cent.

Past growth in these programs reflects increases in the number of beneficiaries arising from population growth and changing composition of the population. It also reflects the indexation of benefit payments and changes in the price of services provided, as well as policy changes such as the increase to the value of age pensions in 2009‑10.

Population growth will continue to contribute to sustained real growth in the cost of these major programs. While the number of beneficiaries is determined in part by eligibility criteria, population growth and the ageing of the population have significant impacts. Both the Age Pension and Residential Aged Care are affected by the increasing growth of older age groups: from 2001 to 2009, the population aged 65 years and over grew by 2.3 per cent per annum, while from 2010 to 2020, the growth is projected to be 3.4 per cent per annum.

For a number of significant programs, such as the Age Pension and Disability Support Pension, payment rates are indexed to wages growth, which is expected to average around 4 per cent per annum in nominal terms over the medium term. Further, other programs are linked to growth in service costs, such as Child Care Fee Assistance which provides payments to cover out‑of‑pocket expenses for approved child care.

Overall, on the basis of arrangements in place in 2010‑11, a number of the significant social security and welfare programs are expected to continue to experience strong real growth. Over the medium term, it is likely that the Age Pension, the Disability Support Pension, Residential Aged Care and Child Care Fee Assistance will see real expenditure growth in the range of 3.5 to 4.5 per cent per annum. The Government's participation agenda will have an important role to play in moderating this growth, including for the Disability Support Pension.

Housing and community amenities

The housing and community amenities function includes the Australian Government's contribution to the National Affordable Housing Specific Purpose Payments and related National Partnerships, 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*

Table 10: Summary of expenses — housing and community amenities

* The data in this table have been amended from the published Budget Papers to correct for a misallocation of expenses between the education and housing and community amenities functions.

Total expenses under the housing and community amenities function are estimated to decrease by 12.4 per cent in real terms from 2011‑12 over the forward estimates, or by 4.3 per cent per annum on average. This largely reflects the cessation of a number of initiatives that were introduced as part of the Government's response to the global financial crisis in the Economic Security Strategy and the Nation Building and Jobs Plan.

The housing sub‑function contains initiatives relating to the Australian Government's contribution to the National Affordable Housing Specific Purpose Payments and related National Partnerships, provision of housing for the general public and people with special needs, and the expenses of the DHA. Expenses for this sub‑function decrease significantly from 2010‑11 to 2011‑12 due to the conclusion of the Social Housing Initiative as part of the Nation Building and Jobs Plan. However, the decline in expenses over the forward estimates is partly offset by increased funding for the Housing Affordability Fund from 2011‑12 until its cessation in 2012‑13.

The urban and regional development sub‑function comprises regional development programs and services to territories, including the Regional Development Australia Fund (RDAF). Expenses are expected to fluctuate over the forward estimates, consistent with the varying nature of the projects being undertaken. The increase in forecast expenses in 2012‑13 and 2013‑14 is primarily due to the funding of $573 million over two years that is being provided under the RDAF which is subject to the passage of the Minerals Resource Rent Tax. Expenses are projected to decrease by $442 million from 2013‑14 to 2014‑15 due to the cessation of the Community Infrastructure Grants and the Regional Infrastructure Fund — dedicated stream element of the RDAF in 2013‑14, along with the reallocation of funding from the Priority Regional Infrastructure Program (now a part of the RDAF) to support flood recovery efforts in regional Australia.

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 2011‑12, due to lower administration costs for the Department of Climate Change and Energy Efficiency arising from a number of programs and the cessation of the Raising National Water Standards program administered by the National Water Commission.

Recreation and culture

The recreation and culture function includes support for public broadcasting and 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

Table 11: Summary of expenses — recreation and culture

Total expenses under the recreation and culture function are forecast to increase slightly in 2011‑12 but remain relatively stable over the forward estimates.

Expenses under the broadcasting sub‑function are expected to increase up to and including 2012‑13, before falling in 2013‑14, reflecting the roll‑out and completion of the Government's national digital television switchover program.

Table 11.1 provides further details of the major components of broadcasting sub‑function expenses.

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

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

Expenses under the arts and cultural heritage sub‑function are expected to remain largely stable over the budget and forward estimates.

The sport and recreation sub‑function includes programs to improve participation in sport and recreational activities, and achieve excellence in high performing athletes. The forecast decrease in expenses from 2012‑13 largely reflects completion of the Active After‑school Communities program, after it was continued for an extra year to December 2012. See Budget Paper No. 2, Budget Measures 2011‑12 for more details.

Expenses under the national estate and parks sub‑function are expected to decrease slightly over the forward estimates. This decrease largely reflects the scheduled reductions in supplementary funding for the Director of National Parks from 2011‑12 and for the Australian Antarctic Program from 2012‑13.

Fuel and energy

The fuel and energy function 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 improving Australia's energy efficiency, resource related initiatives, and programs to support the production or use of alternative fuels, including ethanol and biodiesel.

Table 12: Summary of expenses — fuel and energy

Table 12: Summary of expenses — fuel and energy

The major component of this function is the Fuel Tax Credits Scheme which is expected to increase across the budget and forward estimates, reflecting an increase in business claims consistent with a growing economy. The estimates also reflect the phasing in of fuel tax credits on fuel used in off‑road activities such as construction, manufacturing, wholesale, retail, property management and landscaping.

The increase in Fuel Tax Credits Scheme expenses is partly offset by reductions and deferrals of spending in several environmental programs consistent with the Government's commitment to developing a more unified approach to improving Australia's energy efficiency. The Government will implement a carbon price from 2012, and will be outlining its approach to complementary measures when it announces its detailed policy.

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 function
expenses

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

The expected reduction in expenses under the Improving Australia's Energy Efficiency component of this function is largely driven by the winding down of a number of initiatives. The cessation of the Green Loans and Green Start programs and the expected completion of the Home Insulation Safety Program and Foil Insulation Safety Program are forecast to result in reduced expenses in 2011‑12 and 2012‑13. The redesign of the National Solar Schools Program and the Renewable Energy Bonus Scheme — Solar Hot Water Rebate are expected to further reduce expenses in 2013‑14.

The fluctuation in annual expenses for the Energy Related Initiatives and Management component is largely driven by the expected timing of projects funded from the Low Emissions Technology Demonstration Fund, the Australian Centre for Renewable Energy and the Solar Flagships program. Expenses under the Cleaner Fuels Scheme reflect the introduction of the Ethanol Production Grants program and changes to the existing scheme. The scheme is being phased out over the forward estimates.

The reduction in expenses in the Resources Related Initiatives and Management component from 2010‑11 to 2012‑13 mainly relates to the progressive completion of the majority of projects funded under the National Low Emissions Coal Initiative and the cessation of the Ethanol Production Grants Program in 2011‑12 as part of the amended taxation arrangements for alternative fuels.

Agriculture, forestry and fishing

The 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

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

Total expenses under this function are estimated to decrease by 36.0 per cent in real terms between 2011‑12 and 2014‑15, or 13.8 per cent per annum on average. The progressive decline primarily reflects reduced expenses within the rural assistance and natural resources development sub‑functions.

The forecast decrease in expenses within the rural assistance sub‑function reflects an expected reduction in spending on drought‑related initiatives. This is due to a general return to normal seasonal conditions across Australia which is assumed to be maintained over the forward estimates.

The expected increase in expenses under the natural resources development sub‑function in 2011‑12 and the subsequent decrease is driven by the Water for the Future package, which comprises urban and rural programs, including funding for water purchasing, irrigation modernisation, desalination, recycling, and stormwater capture. The increase in expenses in 2011‑12 is largely due to the expected achievement of milestones for projects under the Sustainable Rural Water Use and Infrastructure component, which invests in key rural water infrastructure projects that support sustainable irrigation. The expected decrease in expenses in 2012‑13 and 2013‑14 reflects the completion of a range of initiatives such as the National Water Security Plan for Cities and Towns in 2011‑12, the National Urban Water and Desalination Plan in 2012‑13, and a reduction in the Sustainable Rural Water Use and Infrastructure component in 2013‑14. The subsequent increase in 2014‑15 reflects higher expenses under the Sustainable Rural Water Use and Infrastructure component.

The components in the natural resources development sub‑function, including major water initiatives, are set out in Table 13.1.

Table 13.1: Trends in the major components of natural resources
development sub‑function expenses

Table 13.1: Trends in the major components of natural resources development sub‑function expenses

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

The mining, manufacturing and construction function includes expenses designed to assist the efficiency and competitiveness of Australian industries. The major components include the research and development tax offset and programs specific to the automotive, textile, clothing and footwear industries.

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

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

Total expenses under this function are expected to decrease by 9.4 per cent in real terms between 2011‑12 and 2014‑15. This decline is due in part to an expected decrease in spending under the Textiles, Clothing and Footwear Strategic Investment initiative in 2011‑12.

The expected fall in expenses for the industry development and investment component of this function is partly offset by small increases in expenses from 2012‑13 for the Research and Development Tax Offset administered by the Australian Taxation Office. This is due to the expected increase in claims to be processed in 2012‑13 (following falls in recent years reflecting lower levels of activity during the global financial crisis) and an expected return to trend growth over the forward estimates.

Table 14.1: Trends in major components of mining, manufacturing and
construction sub‑function expenses

Table 14.1: Trends in major components of mining, manufacturing and construction sub‑function expenses

Transport and communication

The transport and communication function supports the infrastructure and regulatory framework for Australia's transport and communication sectors.

Table 15: Summary of expenses — transport and communication

Table 15: Summary of expenses — transport and communication

  1. Most road and rail funding in 2014‑15, which is currently classified under the road transport sub‑function, is from the allocation in the Contingency Reserve for the second tranche of the Nation Building program (NB2) and will be reclassified between the road and rail transport sub‑functions as programs of work are determined.

Expenses under this function are forecast to increase in 2011‑12 particularly with the allocation of $7.6 billion for transport infrastructure from the Building Australia Fund (BAF) as part of the Nation Building Plan for the Future package. While spending is reducing over the forward estimates, total expenses remain at an historically high level due to funding being provided for a number of major infrastructure projects with multi‑year construction horizons, such as the Hunter Valley Expressway in New South Wales, the Regional Rail Express project in Victoria and the Ipswich Motorway in Queensland.

The expenses under the road transport sub‑function primarily consist of grants provided under the Nation Building program, including funding provided for projects under the BAF. The decline in estimated expenses from 2012‑13 is largely due to the completion of BAF road projects and the deferral of the F3 to Sydney Orbital feasibility study to 2015‑16.

The next five year Nation Building program (Nation Building 2) begins in 2014‑15. The Government has not yet finalised the details of the program and a provision is recorded against the road transport sub‑function. The program will continue road infrastructure projects with funding for the Government's election commitments to Richmond Bridge in New South Wales, Princes Highway West in Victoria, Calliope Crossroads in Queensland, Great Eastern Highway in Western Australia and Tasman Highway in Tasmania.

The increase in estimated expenses in the rail transport sub‑function to 2013‑14 is mainly due to metro rail infrastructure funding provided as part of the Nation Building Plan for the Future package in the 2009‑10 Budget. This package includes projects funded from the BAF such as a $3.2 billion contribution over six years towards the Regional Rail Express project in Victoria. Nation Building 2 is also expected to continue rail infrastructure investment with funds for preconstruction activities for an inland rail service from Melbourne to Brisbane and continued payments for the Moreton Bay Rail Link project in Queensland.

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, the Australian Maritime Safety Authority (AMSA) and the Australian Transport Safety Bureau (ATSB). The increase in estimated expenses in the sea transport sub‑function is due to the National Transport Reforms which seek to establish national transport safety through expanding ATSB's safety investigation responsibilities and AMSA's maritime safety functions. The decline in expenses in the air transport sub‑function over the forward estimates is primarily due to the winding down of the regional aviation access program in mid 2013.

The increase in estimated expenses in the other transport and communication sub‑function, commencing in 2012‑13 and rising significantly in 2013‑14 and 2014‑15, reflects funding for the Regional Infrastructure Fund (RIF). The RIF will be funded from the Minerals Resource Rent Tax, which is scheduled to commence on 1 July 2012.

The decline in estimated expenses in the communication sub‑function between 2010‑11 and 2012‑13 is primarily due to a predicted reduction in demand for the Australian Broadband Guarantee (ABG). This reflects greater availability of metro‑comparable broadband services in rural and regional locations, and phasing out of funding for the ABG program from 2011‑12. It also reflects the planned completion of activities related to the renewal, replanning and sale of radiofrequency spectrum. This sub‑function does not reflect the Government's equity investment in the National Broadband Network.

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

Table 16: Summary of expenses — other economic affairs

Movements in estimated expenses under the other economic affairs function largely reflect changes in the labour market assistance to job seekers and industry and immigration sub‑functions.

The improved economic environment and subsequent reduction in labour market assistance are reflected in the reduction in estimated expenses for the labour market assistance to job seekers and industry sub‑function from a peak of $2.2 billion in 2010‑11 to $2.0 billion in 2012‑13. This reflects a reduction in expenses of Job Services Australia and the completion of the Jobs Fund initiative on 30 June 2011, the National Green Jobs Corps program on 31 December 2011, and the Innovation Fund on 30 June 2012.

Changes in estimated expenses under the vocational and industry training sub‑function largely reflect a redirection of funding from the Productivity Places Program to support measures aimed at addressing skills shortages. The expenses in this sub‑function reflect the Building Australia's Future Workforce initiatives announced in this year's Budget. These initiatives include the establishment of a new National Workforce Development Fund.

The higher expenses under the industrial relations sub‑function in 2010‑11 compared to later years is largely due to the continued high level of claims for the General Employee Entitlements and Redundancy Scheme (GEERS). This Scheme assists employees of bankrupt organisations who are owed certain employee entitlements. Weaker economic conditions in previous years and the recent natural disasters have increased demand for the Scheme. It is expected that the demand for GEERS will return to historic trends in 2011‑12.

The expected increase in expenses in 2011‑12 under the immigration sub‑function is largely due to the costs associated with accommodating and processing irregular maritime arrivals and new policies to support the Regional Cooperation Framework agreed under the Bali Process. These costs are expected to decline over the forward estimates as the Government's policies to combat people smuggling take effect including the commitment to enter into a new cooperative transfer agreement with Malaysia.

Under the other economic affairs nec sub‑function, the small increase in expenses in 2011‑12, followed by an expected decrease in expenses over the forward estimates, is primarily driven by changes in Commercialisation Australia and the Green Car Innovation Fund (GCIF) within the innovative industry program. Demand for Commercialisation Australia support is expected to increase in 2011‑12 and remain constant over the forward estimates, while the Government's decision to close the GCIF to new applicants has resulted in most of the funding being concentrated in 2011‑12, with funding decreasing substantially over the forward estimates. Further information can be found in Budget Paper No. 2, Budget Measures 2011‑12.

Table 16.1 provides further details of trends in major components of the other economic affairs nec sub‑function expenses.

Table 16.1: Trends in major components of the other economic affairs
nec sub‑function expenses

Table 16.1: Trends in major components of the other economic affairs nec sub‑function expenses

Tourism and area promotion sub‑function expenses are expected to be broadly stable over the forward estimates. The estimated increase in expenses from 2011‑12 is driven by a combination of increased funding announced in the 2010‑11 MYEFO associated with the Government's election commitments and the assistance provided in response to the impact of recent natural disasters — for example through the provision of funding for the Queensland tourism industry as part of the Government's assistance package to businesses affected by the Queensland floods.

Other purposes

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

Table 17: Summary of expenses — other purposes

The increase in expenses under the other purposes function is primarily driven by general revenue assistance paid to state and territory governments, nearly all of which comprise payments of GST revenue grants which are provided on an 'untied' basis. Payments to state and territory governments tied to specific purposes are reported under their relevant functions in this Statement. Since the 2010‑11 Budget, general revenue assistance under this function has increased significantly, reflecting the decision not to proceed with the proposal for the Australian Government to dedicate a proportion of GST revenue for the purpose of funding certain health services. This increase is matched by a reduction in expenses under the health function (see page 6‑21).

The increase in expenses under the public debt interest sub‑function to 2013‑14 is due to the increased issuance of Commonwealth Government Securities. Expenses under the nominal superannuation interest sub‑function are projected to increase over time, reflecting the growth in the Government's superannuation liability. The Future Fund was established to assist in meeting the cost of this liability. Further information on the Future Fund can be found in Statement 7.

Expenses in the local government assistance sub‑function are predominantly related to the financial assistance grants made to the States and Territories and consist of a general purpose component and an identified local road component, both of which are untied in the hands of local government, allowing councils to spend the grants according to local priorities. Expenses are higher in 2010‑11 but then lower in 2011‑12 as a result of the Government's decision to pay the first instalment of the expected 2011‑12 local government financial assistance grants of $536.6 million to local councils in 2010‑11. Expenses are expected to increase from 2012‑13 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 2010‑11 to 2011‑12. Further information on Commonwealth Government assistance to local governments can be found in Budget Paper No. 3, Federal Financial Relations 2011‑12.

The increase in expenses under the natural disaster relief sub‑function from 2010‑11 to 2014‑15 is mainly due to the recent major natural disasters. Commonwealth payments provide financial support for the affected States and Territories under the Natural Disaster Relief and Recovery Arrangements.

The increase in expenses in the contingency reserve sub‑function from 2011‑12 is largely due to the conservative bias allowance (CBA) which compensates for the tendency for estimates of expenses for existing Government programs to be revised upwards in the forward estimates.

The CBA is a mechanism used to improve the accuracy of the forward estimates by anticipating the trend for the estimates of existing policy to be revised upwards through time. The allowance is progressively unwound at each MYEFO and budget until it is completely removed for the budget year. This regular drawing down of the CBA reflects the fact that the tendency for underestimating payments diminishes as the forecast year gets closer. The contingency reserve is discussed in more detail at Appendix B.

If www.budget.gov.au responds slowly or you are having trouble downloading a document, try one of the Budget Website Mirrors

Note: Where possible, Budget documents are available in HTML and for downloading in Portable Document Format(PDF). If you require further information on any of the tables or charts on this website, please contact The Treasury.