Australian Government, 2008‑09 Budget

Appendix B: The Contingency Reserve

The Contingency Reserve (other purposes function) is an allowance, included in aggregate expenses, to reflect anticipated events that cannot be assigned to individual programs in the preparation of the Australian Government budget estimates. The reserve ensures that the budget estimates are based on the best information available at the time of the Budget. It is not a general policy reserve.

While the reserve ensures that aggregate estimates are as close as possible to expected outcomes, it is not appropriated. Allowances that are included in the reserve can only be drawn upon once they have been appropriated by Parliament. These allowances are removed from the reserve and allocated to specific agencies for appropriation and for outcome reporting closer to the time when the associated events eventuate.

The Contingency Reserve makes allowance in 2008‑09 and the forward years for anticipated events, including the following:

  • an allowance for the tendency for estimates of expenses for existing Government policy to be revised upwards in the forward years. This allowance is known as the conservative bias allowance. It is set at 2½ per cent of total general government sector expenses (excluding Goods and Services Tax payments to the states) in the third year of the forward estimates period (2011‑12); 1½  per cent in the second year (2010‑11); and 1 per cent in the first forward year (2009‑10). This allowance is periodically reviewed and will be next reviewed following the publication of the Final Budget Outcome 2007‑08;
  • a provision for underspends in the current year reflecting the tendency for the expenses of some specific agencies or functions to be overstated in the year because expenditure targets are not all met;
  • commercial‑in‑confidence and national security‑in‑confidence items that cannot be disclosed separately and programs that are yet to be renegotiated with State and Territory governments;
  • decisions made too late for inclusion against individual agency estimates;
  • the effect on the Budget and forward estimates of economic parameter revisions received late in the budget process and hence not able to be allocated to individual agencies or functions; and
  • provision for events and pressures that are reasonably expected to affect the budget estimates. For example, the Contingency Reserve makes provision for the continuation of the Government's support for the Northern Territory Emergency Response (NTER) beyond 2008‑09. However, the allocation of funding to individual programs will be subject to an evaluation of the NTER later in 2008. In the meantime, the Contingency Reserve includes provision for expenses of $240 million in 2009‑10; $300 million in 2010‑11; and $300 million in 2011‑12. The provision is lower in 2009‑10 because around $95 million in funding for that year has already been allocated to specific programs.

The Contingency Reserve may also include any expenses associated with the Government's major asset sales and associated administration costs and major capital projects for which detailed planning approval has been given.

The Contingency Reserve also makes provision for future increases in Australia's official development assistance not yet allocated to specific aid programs. However, in this budget statement those expenses are allocated to the foreign affairs function (see Page 6‑9 for further information).

The Contingency Reserve also includes a provision for anticipated expenditure from the new funds established in the 2008‑09 Budget: the Building Australia Fund, the Health and Hospitals Fund and the Education Investment Fund. The funding to be provided from these funds will be dependent on future budget consideration in line with prevailing macroeconomic conditions. Projects will be selected according to rigorous evaluation criteria and may depend on negotiations with State and Territory governments.

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