Statement 8: Statement of Risks (Continued)
Contingent liabilities — quantifiable
Broadband, Communications and the Digital Economy
NBN Co Limited — Equity Agreement
The Australian Government has entered into an Equity Funding Agreement with NBN Co. The Agreement formalises the Australian Government's intention to provide equity to fund the roll out of the National Broadband Network (NBN), with such funding being conditional on the annual appropriation processes. It also commits the Australian Government, in the event of a termination of the NBN roll out, to provide sufficient funds to NBN Co to meet its direct costs arising from the termination. The NBN Co Equity Agreement terminates in 2021. As at 31 March 2012, NBN Co's termination liabilities were estimated at $1.8 billion.
Telstra Financial Guarantee
The Australian Government has provided a guarantee to Telstra in respect of NBN Co's financial obligations to Telstra under the Definitive Agreements. The Definitive Agreements are long term contracts and, in the case of the infrastructure component, involve terms of at least 35 years. The liabilities under the Definitive Agreements arise progressively during the roll out of the network as infrastructure is accessed and subscribers to Telstra's existing network are disconnected. As at 31 March 2012, NBN Co had generated liabilities covered by the Guarantee estimated at $209 million. The Guarantee will terminate when NBN Co achieves specified credit ratings for a period of two continuous years and either:
- the company is fully capitalised; or
- the Minister for Communications declares, under the National Broadband Network Companies Act 2011, that, in his or her opinion, the National Broadband Network should be treated as built and fully operational.
Defence and Defence Materiel Organisation
Indemnities and remote contingencies
As at 31 March 2012, Defence had quantifiable significant remote contingent liabilities with a nominal value of $2.5 billion. These significant remote contingent liabilities are restricted in nature and details are not published because of commercial‑in‑confidence and/or national security reasons. The Defence Materiel Organisation carries 92 contingencies that are quantifiable, to the value of $3.15 billion. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Education, Employment and Workplace Relations
Comcare liability for additional workers' compensation payments
Comcare has a quantifiable contingency in respect of future statutory workers' compensation claims for asbestos related diseases amounting to $45.6 million. This contingency relates to a decision in the Federal Court, Comcare v Etheridge (2006) Federal Court of Australia Full Court decision number 27.
Finance and Deregulation
Sale of Sydney Airports Corporation Limited
An indemnity was provided to Southern Cross Airports Corporation as the purchaser of the Sydney Airports Corporation Limited (SACL) in the event of a liability arising under Chapter 3 of the Duties Act 1997 (NSW) by reason of the sale of shares in SACL constituting a relevant acquisition in a land‑rich private corporation. The New South Wales (NSW) Office of State Revenue issued a notice of assessment on 17 November 2006. The Australian Government maintains that there are no grounds for the assessment and action has been initiated in the NSW Supreme Court to overturn the assessment. The amount disputed is estimated at $590.2 million as at 31 March 2012.
Foreign Affairs and Trade
Export Finance and Insurance Corporation
The Australian Government guarantees the due payment of money that is, or may at any time become, payable by the Export Finance and Insurance Corporation (EFIC) to anybody other than the Government. The Government also has in place a $200 million callable capital facility available to EFIC on request to cover liabilities, losses and claims. As at 31 March 2012, the Government's total contingent liability with EFIC was $3.4 billion, unchanged from the 2011‑12 MYEFO. This liability comprises EFIC's liabilities to third parties ($2.7 billion) and EFIC's overseas investment insurance, contracts of insurance and guarantees ($0.7 billion). Of the total $3.4 billion liability, $2.8 billion relates to EFIC's Commercial Account and $0.6 billion relates to the National Interest Account.
Health and Ageing
Guarantee Scheme for aged care accommodation bonds
A Guarantee Scheme has been established through the Aged Care (Bond Security) Act 2006 and Aged Care (Bond Security) Levy Act 2006. Under the Guarantee Scheme, if a provider becomes insolvent or bankrupt and is unable to repay outstanding bond balances to aged care residents, the Australian Government will repay the bond balances owing to each resident. In return, the resident's rights to pursue the defaulting provider to recover the accommodation bond money transfers to the Government. In the event the Government cannot recover the full amount from the defaulting provider, it may levy all providers holding accommodation bonds to recoup the shortfall. On 30 June 2011, the maximum contingent liability, in the very unlikely event that all providers defaulted, was $12.1 billion.
Aged care providers will be required to insure any accommodation bonds that they will hold in respect of care recipients who enter care on or after 1 July 2014.
Treasury
Australian Taxation Office — tax disputes
At any point in time the Australian Taxation Office is involved in a range of dispute resolution processes, including litigation, relating to tax disputes.
Outcomes of dispute resolution processes, including objections, settlements and court and tribunal decisions, are set out in the Commissioner of Taxation's Annual Report each year. In addition, amounts owed by taxpayers that are subject to dispute, including objections and appeals, are also disclosed in the Commissioner of Taxation's Annual Report each year. The estimated aggregate value of tax in dispute is $8.8 billion as at 20 April 2012.
Details of the outcome of dispute resolution processes are uncertain until a court ruling is made and/or an agreement is reached with the taxpayer at some future date. As a result, it is not possible to estimate with any reliability the likely financial impact of current disputes.
Guarantees under the Commonwealth Bank Sale Act 1995
Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various superannuation and other liabilities amounting to $4.5 billion as of 31 December 2011. Of this amount, $0.8 billion is attributable to liabilities of the Commonwealth Bank of Australia and $3.7 billion is attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation.
International financial institutions — uncalled capital subscriptions
The Australian Government has held uncalled capital subscriptions in the International Bank for Reconstruction and Development (IBRD) since 1947. The Government will contribute additional resources to the IBRD as part of the general capital increase agreed during 2010. The paid‑in component of Australia's contribution was a measure in the 2010‑11 Budget. As part of this process, Australia will increase its uncalled capital subscription to US$3.6 billion (estimated value A$3.4 billion as at 30 March 2012).
Australia has also held uncalled capital subscriptions in the European Bank for Reconstruction and Development (EBRD) since 1991. The Government increased its uncalled capital subscription (effective 20 April 2011) to the EBRD as part of its 2010 general capital increase so that it totals EUR237.5 million (estimated value A$305.0 million as at 30 March 2012). The financial implications of the paid‑in component were reported as a measure in the 2010‑11 MYEFO.
The Australian Government also holds uncalled capital subscriptions in the Asian Development Bank of US$7.0 billion (estimated value A$6.8 billion as at 30 March 2012), and the Multilateral Investment Guarantee Agency of US$26.5 million (estimated value A$25.4 million as at 30 March 2012).
None of these international financial institutions has ever drawn on Australia's uncalled capital subscriptions.
International Monetary Fund
Australia has made a line of credit available to the International Monetary Fund (IMF) under its New Arrangements to Borrow (NAB) since 1998. In line with G20 Leaders' commitments, Australia joined with other countries to increase its credit line under an expanded NAB. When the expanded NAB came into effect on 11 March 2011, Australia's NAB credit arrangement increased from SDR801.3 million (an estimated value of A$1.2 billion as at 30 March 2012) to SDR4.4 billion (an estimated value of A$6.5 billion). This is a contingent loan to help ensure that the IMF has the resources available to maintain stability and support recovery in the global economy. As agreed by G20 Finance Ministers and IMF Governors in late 2010, the credit arrangements of all NAB participants, including Australia, will be reduced when the increase in IMF quotas comes into effect. This is likely to occur in 2012‑13.
On 20 April 2012, as part of a broad international effort to increase the resources available to the IMF, Australia committed to provide a US$7.0 billion (estimated value A$6.7 billion) contingent bilateral loan to the IMF, subject to domestic legislative processes. The contingent loan would be on terms consistent with separate bilateral loan and note purchase agreements to be concluded between the IMF and all contributing countries. It would be drawn upon by the IMF only if needed to supplement the IMF's quota and NAB resources and would be repaid in full with interest. The increase in the IMF's resources will help ensure that it has the capability to address any potential vulnerability facing the global economy.
Reserve Bank of Australia — guarantee
This contingent liability relates to the Australian Government's guarantee of the liabilities of the Reserve Bank of Australia. It is measured as the Bank's total liabilities excluding capital, reserves, and Australian Government deposits. The major component of the Bank's liabilities is notes (that is, currency) on issue. Notes on issue amount to $53.1 billion as at 28 March 2012, and the total guarantee is $62.0 billion, up from $56.7 billion at the 2011‑12 MYEFO.
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