Australian Government, 2013-14 Budget

Statement 8: Statement of Risks (Continued)

Contingent liabilities — quantifiable


Northern Maritime Patrol and Response — Ashmore Guardian

The Australian Government has entered into a contractual arrangement with Gardline Australia Pty Ltd until 31 December 2013 for the provision of a vessel to patrol and respond to incursions in the Ashmore Reef National Nature Reserve and the Cartier Island Marine Reserve. The contract with Gardline Australia contains an indemnity clause relating to the use or other operations of armaments and the presence of armaments on the vessel. The indemnity is limited to three times the total amount or otherwise due under the contract.

While a claim on the Commonwealth is unlikely to occur, the maximum potential claim is estimated to be approximately $100 million in 2013‑14 only.

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 Commonwealth's intention to provide equity to fund the roll out of the National Broadband Network, with such funding being conditional on the annual appropriation processes. In addition, it commits the Commonwealth, in the event of a termination of the national broadband network roll out, to provide sufficient funds to NBN Co to meet its direct costs arising from that termination. The NBN Co Equity Agreement terminates in 2021. As at 28 February 2013, NBN Co's termination liabilities were estimated at $3.4 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 28 February 2013, NBN Co had generated liabilities covered by the Guarantee estimated at $896 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 Communications Minister 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 2013, Defence carried 1,364 instances of quantifiable significant remote contingent liabilities with a nominal value of $3 billion. These significant remote contingent liabilities are restricted in nature and details are not given due to reasons of commercial in confidence and/or national security. While these contingencies are considered remote, they have been reported in aggregate for completeness.

Education, Employment and Workplace Relations

Indemnity provided to the Administrator and the Assistant Administrator of the Health Services Union

The Australian Government has provided the Administrator and the Assistant Administrators of the Health Services Union with indemnities associated with their performance, pursuant to section 323 of the Fair Work (Registered Organisations) Act 2009 (Cth).

The Commonwealth will irrevocably indemnify the indemnified parties against any and all demands, claims, suits, actions, liabilities, losses, costs and expenses which may be made or brought against or suffered or incurred by the indemnified parties in respect of the indemnified event or as a direct or indirect result of any claim made or purported to be made in respect of the indemnified event as evidenced in writing up to $20 million. There are three indemnities; each indemnity is to the value of $20 million.

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 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 2013, the Government's total contingent liability was $3.2 billion, up from $3 billion reported in the 2012‑13 MYEFO. The $3.2 billion contingent liability comprises EFIC's liabilities to third parties ($2.4 billion) and EFIC's overseas investment insurance, contracts of insurance and guarantees ($0.8 billion). Of the total contingent liability, $2.6 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 transfer 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 2012, the maximum contingent liability, in the unlikely event that all providers defaulted, was $13 billion.

It is anticipated that amendments will be made to the Guarantee Scheme through the Aged Care (Bonds Security) Amendment Bill 2013 and the Aged Care (Bond Security) Levy Amendment Bill 2013. These bills propose to extend the current guarantee for bonds paid by aged care residents (outlined above), to also cover future lump sum accommodation payments paid by aged care residents. The passing of this legislation would mean that both bonds paid by aged care residents (before 1 July 2014) and refundable accommodation deposits made by aged care residents (after 1 July 2014) are guaranteed by the Government if an aged care provider becomes insolvent or bankrupt.


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 as at 31 March 2013, for which a provision has not been made, is $5.2 billion.

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, in most cases it is not possible to estimate with any reliability the likely financial impact of current disputes.

Contingent liability for the payment of unclaimed monies under the Banking Act, the Life Insurance Act and the Corporations Act

The Australian Securities and Investments Commission (ASIC) is responsible for the administration of unclaimed monies under the Banking Act, the Life Insurance Act and the Corporations Act. Based on historic data it is unlikely that all unclaimed monies will ultimately be refunded to claimants. ASIC has recognised a provision for likely future claims and estimates the residual contingent liability for unclaimed monies administered by ASIC at 31 March 2013 to be $325 million, which includes contingent liabilities considered remote.

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; $0.7 billion is attributable to liabilities of the Commonwealth Bank of Australia, as at 28 March 2013, and $4.2 billion is attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation, as at 31 December 2012.

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 is contributing additional resources to the IBRD as part of the general capital increase agreed in 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 so that it totals US$3.6 billion (estimated value A$3.4 billion as at 28 March 2013).

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$291.3 million as at 28 March 2013). The financial implications of the paid‑in component were reported as a measure in the Mid‑Year Economic and Fiscal Outlook 2010‑11.

The Australian Government also holds uncalled capital subscriptions in the Asian Development Bank of US$7 billion (estimated value A$6.8 billion as at 28 March 2013), and the Multilateral Investment Guarantee Agency of US$26.5 million (estimated value A$25.4 million as at 28 March 2013).

None of these international financial institutions have 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 (estimated value A$1.1 billion as at 28 March 2013) to SDR4.4 billion (estimated value A$6.3 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 was anticipated to occur in 2012‑13, however, due to a delay in the implementation of the above agreement by the United States it is now unlikely until 2013‑14.

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 billion (calculated as SDR4.7 billion or approximately A$6.7 billion) contingent bilateral loan to the IMF, subject to domestic legislative processes. The contingent loan is 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

The Australian Government guarantees 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 $57 billion as at 25 March 2013, and the total guarantee is $65 billion, up from $63.1 billion reported in the 2012‑13 MYEFO.

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