Appropriation Bill (No. 4) 2004-05

Bills Digest No. 62 2004–05

AppropriationBill(No. 4) 2004-05

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

No money shall be drawn from the Treasury of the
Commonwealth except under appropriation made by law.

There are two broad categories of appropriations:

annual appropriations. There are usually six annual
appropriation Bills. They authorise about 25 per cent of annual
Commonwealth spending, and

special (or standing) appropriations. Special (or standing)
appropriations the terms are often used interchangeably authorise
about 75 per cent of spending. An example is the Social
Security (Administration) Act 1999 under which age pensions,
Austudy payments and other social security payments are made.

Three annual appropriations Bills are introduced when the Budget
is brought down. They are:

Appropriation Bill (No. 1)

Appropriation Bill (No. 2 ), and

Appropriation (Parliamentary Departments) Bill (No. 1).

These Bills are reproduced in Budget Paper No. 4.

The Bills authorise the payment of specified amounts for
particular purposes. Appropriation Bill (No. 1) provides for the
appropriation of money from the Consolidated Revenue Fund for the
ordinary annual services of government. Appropriation Bill
(No. 2) provides for the appropriation of money from the
Consolidated Revenue Fund for purposes other than the ordinary
services of government. The division of items between the two Bills
accords with the 1965 compact between the House of Representatives
and the Senate.

Appropriation Bill (No. 1) appropriates amounts according to
whether they are departmental or administered expenses.
Departmental expenses are those that agencies
control.(1) Examples are salaries, other cash expenses,
and non-cash expenses such as accruing employee entitlements and
depreciation. Administered expenses are those that agencies
administer on behalf of the government. (While some administered
expenses are paid under Appropriation Bill (No. 1), the bulk are
paid under special appropriations).

Appropriation Bill (No. 2) provides appropriations for:

administered expenses, and

non-operating costs.

Administered expenses include:

grants to the States and Territories (sometimes called section
96 grants)(2), and

new administered outcomes.

Non-operating costs sometimes called capital costs include:

equity injections which are provided to agencies to enable
investment in new capacity when normal cash flows are
insufficient

loans which are provided to agencies and used when an investment
is expected to result in a direct return such as an efficiency
saving

previous years outputs appropriations: these provide funding for
outputs that were delivered in a previous year. This can occur, for
example, when a decision is made to implement a new activity after
the date for inclusion in the additional appropriation Bills. Such
activities are funded initially from cash balances, which are then
replenished by the previous years outputs appropriation, and

administered assets and liabilities appropriations: they provide
funding for acquiring new assets, extending existing assets, and
discharging administered liabilities relating to activities
administered by agencies in their fiduciary capacity on behalf of
the Government.(3)

The Parliamentary Departments have a separate Appropriation Bill
because Parliament is constitutionally separate and independent of
the Executive.

Funding requirements often change after the Budget is brought
down. Governments make new policy commitments which have to be
funded. Agencies reassess their requirements and, if necessary,
submit requests for additional funding. The Government may agree to
additional funding if the amounts in the Appropriation Acts are
inadequate. The process whereby additional funds are provided is
called
additional estimates, and begins
around November. The approved additional estimates are incorporated
into Appropriation Bill (No. 3), Appropriation Bill (No. 4), and
Appropriations (Parliamentary Departments) Bill (No. 2). These
Bills are the counterparts of Appropriation Bill (No. 1),
Appropriation Bill (No. 2) and Appropriations (Parliamentary
Departments) Bill (No. 1) respectively.

New policy proposals should not be included in Appropriation
Bill (No. 3) because they do not fall with the classification of
ordinary annual services. New policy measures are funded either
through Appropriation Bill (No. 4) or special appropriations.(if
any)

The
Advance to the Finance Minister (AFM) provides flexibility to
the system of appropriating funds. The AFM is a contingency fund
from which the Minister for Finance can spend for emergency or
unforeseen circumstances. Authority for payments derives from the
annual Appropriation Acts. According to Department of Finance and
Administration guidelines, funding is available only if agencies
meet two tests:

the need for funding must be urgent, and

the need was unforeseen or arose because of erroneous omission
or understatement.

The Appropriation Acts also require the Finance Minister to
account to Parliament for spending from the AFM, which the Minister
does by tabling monthly and annual statements. Whereas in the past,
these reports were virtually useless in finding out the purposes
for which funds were expended, their content has improved
dramatically and they now contain plain English explanations.

The Bill refers to Special Accounts. In essence, they are
ledgers in the Consolidated Revenue Fund that are used to record
all spending and revenue relevant to a particular activity. Special
accounts are thus a means of simplifying the recording and keeping
track of amounts of money associated with that activity.

The second component of the payments to the states and
territories is $17.7 million to the Department of Industry,
Tourism and Resources for additional compensation to Victoria and
New South Wales for company taxes paid through Snowy Hydro
Limited.

$84.6 million to the Department of Industry, Tourism and
Resources to pay the Government s loan guarantee for the Australian
Magnesium Corporation ahead of schedule, extinguishing the $90
million liability

a net $76.5 million to the Department of Defence, which is
largely related to reclassifying the logistics support budget from
maintenance related expenses to the purchase of repairable
items

$72.2 million to the Department of Transport and Regional
Services to reclassify capital works in the Indian Ocean
Territories from departmental to administered appropriations

$65.8 million to the Department of Foreign Affairs and Trade and
Austrade to enhance security in Australian diplomatic missions,
including blast-proofing windows, and

$25.7 million to the Department of Employment and Workplace
Relations to address the cash requirements of expenses incurred in
relation to the Job Network in 2003-04, reflecting the high levels
of activity and outcomes under Employment Services Contract 3.

The Bill includes $50 million for a new administered expense for
the National Water Commission. These grant and program funds
represent the first part of the Government s election policy to
establish the Australian water fund.

Proposed laws appropriating revenue or moneys, or imposing
taxation, shall not originate in the Senate. But a proposed law
shall not be taken to appropriate revenue or moneys, or to impose
taxation, by reason only of its containing provisions for the
imposition or appropriation of fines or other pecuniary penalties,
or for the demand or payment or appropriation of fees for licences,
or fees for services under the proposed law.

The Senate may not amend proposed laws imposing taxation, or
proposed laws appropriating revenue or moneys for the ordinary
annual services of the Government.

The Senate may not amend any proposed law so as to increase any
proposed charge or burden on the people.

The Senate may at any stage return to the House of
Representatives any proposed law which the Senate may not amend,
requesting, by message, the omission or amendment of any items or
provisions therein. And the House of Representatives may, if it
thinks fit, make any of such omissions or amendments, with or
without modifications.

Except as provided in this section, the Senate shall have equal
power with the House of Representatives in respect of all proposed
laws.

In short, the Senate cannot amend any laws for appropriating
monies for the ordinary annual services of the government. The
Senate can, however, amend any appropriations for other
purposes.

The clauses in the Bill are largely identical to the provisions
of Appropriation Act (No. 4) 2003 04 (the Act). The
following focuses on the provisions in the Bill that are not in
this Act.

Clause 3 of Part 1 contains
definitions. Clause 3 extends the definition of agency to include
the High Court, and the definition of entity to include the
Australian National Training Authority.

Part 2 deals with basic appropriations.
Clause 6 of Part 2 specifies a total of about $553
million for basic appropriations. The amounts for each agency are
contained in Schedule 2.

Clause 7 deals with payments to the states and
territories. Subclause 7(1) empowers the Finance
Minister to make a determination on the amounts to be issued from
the Consolidated Revenue Fund, while limiting the amount that can
be issued to the lesser of the amount specified in the state
payment [paragraph 7(1)(a)] and the amount
determined by the Finance Minister in relation to the state
payment, having regard to the expenses the entity incurred in
relation to the payment [paragraph 7(1)(b)].
Subclause 7(3) provides that a determination
issued under paragraph 7(1)(b) is not a legislative instrument for
the purposes of the LegislativeInstrumentsAct2003 (Legislative Instruments Act). This
means that the Minister s determination is not required to be
tabled in each House of Parliament, and is not subject to
disallowance. There is no subsection comparable to subclause 7(3)
in the relevant provisions of the Act.

Clause 8 deals with basic appropriations for
administered items. Subclause 8(1) provides that,
for an administered item, the Finance Minister may issue amounts
that do not exceed, in total, the lesser of:

the amount specified in the item [paragraph
8(1)(a)], and

the amount the Finance Minister determines having regard to the
expenses the entity incurred in the current year [paragraph
8(1)(b)].

Budget Paper No. 4 contains the following explanation of these
paragraphs:

Appropriations for administered expenses are
subject to a determination by the Finance Minister on the amounts
to be issued. The effect of that determination is to prevent any
part of the appropriation that has not been expensed in the year
from being issued from the Consolidated Revenue Fund. By convention
the Finance Minister issues determinations in relation to
administered expenses appropriations following the completion of
each financial year.(4)

Subclause 8(3) is a provision that was not in
the comparable provisions of the Act. Subclause 8(3) provides that
a determination under paragraph 8(1)(b) is not a legislative
instrument for the purposes of the Legislative Instruments Act.

The provisions in Clause 11 are identical to
the comparable provisions in the Act except that subsection 11(9)
has been dropped and subclause 11(9) and
subclause 11(10) substituted. Subclause 11(9)
relates to subclauses 11(1) and
11(2). These two subclauses deal with the lapsing
of administered assets and liabilities and departmental items.
Budget Paper No. 4 for 2004 05 explains:

The annual appropriations acts are not expressed
in terms of a particular financial year and so do not automatically
lapse. Amounts appropriated for departmental expenses and for
non-operating costs can be subject to a lapsing process first
introduced in the additional estimates appropriations bills for
2003-2004. Under this process, on request in writing from a
responsible minister for an agency, the Finance Minister may issue
a determination to reduce the agency s departmental expense or
non-operating costs appropriation. Requests for amounts to be
lapsed may arise, for example, because the appropriation is no
longer required. Until the Finance Minister issues a determination
under this process, moneys appropriated for departmental expenses
and non-operating costs may be issued from the Consolidate Revenue
Fund in the budget or later years.(5)

Subclause 11(9) provides that a determination under subclause
11(1) or subclause 11(2) is a legislative instrument for the
purposes of the Legislative Instruments Act and that, despite
subsection 44(2) of the Legislative Instruments Act, section 42
applies to the determination. However, Part 6 of the Legislative
Instruments Act does not apply to the determination.

Comment. Part 6 of the Legislative Instruments
Act deals with the sunsetting of legislative instruments,
subsection 44(2) with legislative instruments that are not subject
to disallowance, and section 42 with the disallowance of
legislation instruments. Thus subclause 11(9) provides that the
sunset provisions do not apply but that the disallowance provisions
do.

Subclause 11(10) provides that a written request under subclause
11(1) or subclause 11(2) is not a legislative instrument for the
purposes of the Legislative Instruments Act.

Part 3 deals with additions to basic
appropriations. The essence of Clause 12 in Part 3
is that it allows the Finance Minister to increase the amounts for
departmental items up to a maximum of $20 million.
Subclause 12(1) allows the Finance Minister to
issue a determination increasing the amount of a departmental item
by the amount specified in the determination. Subclause
12(3) provides that the Finance Minister s determination
in subclause 12(1) is a legislative instrument for the purposes of
the Legislative Instruments Act but that neither section 42 of that
Act nor Part 6 of that Act applies.

Clause 13 deals with the advance to the Finance
Minister. The provisions in Clause 13 are identical to the
comparable provisions in Appropriation Act (No. 3) 2003 04 except
for the dropping of subsection 14(4) and its replacement by
subclause 13(4) and subclause
13(5). Subclause 13(2) provides that,
where the Finance Minister has advanced an amount, Schedule 2 is
taken to be amended to take account of the advance.
Subclause 13(3) limits the amount of the advance
for the financial year ended 30 June 2005 to $215 million.
Subclause 13(4) provides that if an amount set out
in Schedule 2 of the Bill is recovered, then the total the Minister
can advance remains at $215 million. Subclause
13(5) provides that a determination issued under subclause
13(2) is a legislative instrument for the purposes of the
Legislative Instruments Act but that neither section 42 of that Act
nor Part 6 of that Act applies.

Clause 15 deals with the terms and conditions
that apply to Commonwealth payments to the states (such payments
are called specific purpose payments ). These conditions specify
amounts, times when payments are to be made, and other matters.
Schedule 1 lists the agencies responsible for
making the payments, the agency outcomes to which the payments
contribute, the Minister responsible for determining the conditions
attached to the payments, and the Minister responsible for
determining the payments (column four of Schedule 1).
Paragraph 15(2)(a) provides that payments to the
states must conform to any applicable terms and conditions, while
paragraph 15(2)(b) provides that payments must be
made in the amounts and at the times that the Minister, listed in
column four, determines. Subclause 15(4) provides
that a determination under paragraph 15(2)(b) is not a legislative
instrument for the purposes of the Legislative Instruments Act.
Subclause 15(5) contains a definition of
applicable terms and conditions as they relate to payments to the
states. In essence, these are the conditions that the Minister
responsible for determining conditions applicable to payments,
decides upon. Subclause 15(6) provides that a
determination of terms and conditions, mentioned in the definition
of applicable terms and conditions, is not a legislative instrument
for the purposes of the Legislative Instruments Act. Subclause
15(6) seems to be intended to ensure that terms and conditions,
once decided by the Minster, cannot be easily changed.

These are grants provided to the States by the Commonwealth
under section 96 of the Constitution, which permits the
Commonwealth to provide financial assistance to the States on
whatever terms and conditions the Commonwealth Parliament thinks
fit.

Richard Webb
2 March 2005
Bills Digest Service
Information and Research Services

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