Commonwealth of Australia Explanatory Memoranda

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APPROPRIATION BILL (NO. 4) 2016-2017

                            2016-2017



THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




               HOUSE OF REPRESENTATIVES




         APPROPRIATION BILL (NO. 4) 2016-2017


              EXPLANATORY MEMORANDUM




     (Circulated by the authority of the Minister for Finance,
           Senator the Honourable Mathias Cormann)


Table of Acronyms and Defined Terms AAO Administrative Arrangements Order AFM Advance to the Finance Minister AI Act Acts Interpretation Act 1901 Commonwealth An entity as defined in section 10 of the PGPA Act entity CRF Consolidated Revenue Fund Finance Minister Minister for Finance GST Goods and Services Tax non-corporate Non-corporate Commonwealth entities as defined in entities the PGPA Act or the High Court PGPA Act Public Governance, Performance and Accountability Act 2013 PGPA Rule Public Governance, Performance and Accountability Rule 2014 portfolio Portfolio Budget Statements and Portfolio statements Additional Estimates Statements Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 1


Outline Appropriation Bill (No. 4) 2016-2017 General Outline 1 This Explanatory Memorandum accompanies the Appropriation Bill (No. 4) 2016-2017 (the Bill). 2 The main purpose of the Bill is to propose appropriations from the Consolidated Revenue Fund (CRF) for services that are not the ordinary annual services of the Government in addition to amounts appropriated through the Appropriation Act (No. 2) 2016-2017 and the Supply Act (No. 2) 2016-2017. 3 Appropriations for the ordinary annual services of the Government must be contained in a separate Bill from other appropriations in accordance with sections 53 and 54 of the Australian Constitution (the Constitution). Consequently, the Bill proposes appropriations that are not for the ordinary annual services of the Government. Annual appropriations that are for the ordinary annual services of the Government are proposed in the Appropriation Bill (No. 3) 2015-2016. Together these two Bills are termed the Additional Estimates Appropriation Bills. 4 The Portfolio Additional Estimates Statements are published and tabled in the Parliament in relation to the Bill. This Explanatory Memorandum should be read in conjunction with the various 2016-17 portfolio statements (being the Portfolio Budget Statements 2016-17 and the Portfolio Additional Estimates Statements) which contain details on the appropriations set out in the Schedules of the Bills. Structure of appropriations in the Bill 5 The Bill provides for the appropriation of specified amounts for expenditure by Australian Government entities, primarily being non-corporate Commonwealth entities (non-corporate entities) under the Public Governance, Performance and Accountability Act 2013 (PGPA Act). 6 Part 1 of the Bill deals with definitions, the interpretative role of the portfolio statements and the concept of notional transactions. Part 2 of the Bill proposes appropriations to make payments of the amounts in Schedule 2 for State, ACT, NT and local government items (clause 7), administered items (clause 8), administered assets and liabilities items (clause 9), other departmental items (clause 10) and corporate entity items (clause 11). Part 3 of the Bill specifies a way in which the amounts in Schedule 2 may be adjusted (clause 12). 7 Part 4 deals with credits to special accounts (clause 13), the conditions that apply to payments of State, ACT, NT and local government items (clause 14 and Schedule 1), provides for amounts to be appropriated as necessary (clause 15) and specifies when the Bill is repealed (clause 16). In addition to the adjustment provision in Part 3, clause 15 of the Bill recognises that the appropriations proposed in the Bill may also be varied by the PGPA Act. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 2


Outline Financial Impact 8 The Bill, if enacted, would appropriate the amounts specified in Schedule 2. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 3


Statement of compatibility with human rights Statement of compatibility with human rights 1 The Bill seeks to appropriate money for services that are not considered to be the ordinary annual services of the Government. 2 Accordingly, the Bill performs an important constitutional function, by authorising the withdrawal of money from the CRF for the broad purposes identified in the Bill. 3 However, as the High Court has emphasised, beyond this, the Appropriation Acts do not create rights and nor do they, importantly, impose any duties. 4 Given that the legal effect of Appropriation Bills is limited in this way, the Bill is not seen as engaging, or otherwise affecting, the rights or freedoms relevant to the Human Rights (Parliamentary Scrutiny) Act 2011. 5 Detailed information on the relevant appropriations, however, is contained in the portfolio statements. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 4


Notes on clauses Notes on clauses Part 1--Preliminary Clause 1--Short title 1 This clause specifies that the short title of the Bill, once enacted, will be the Appropriation Act (No. 4) 2016-2017. Clause 2--Commencement 2 Clause 2 provides for the Bill to commence as an Act on the day of the Royal Assent. Clause 3--Definitions 3 Clause 3 defines the key terms used in the Bill, such as "administered item", "corporate entity", "non-corporate entity", "other departmental item", and "State, ACT, NT and local government item". Clause 4--Portfolio statements 4 Clause 4 declares that the portfolio statements are relevant documents under paragraph 15AB(2)(g) of the Acts Interpretation Act 1901 (AI Act). Paragraph 15AB(2)(g) provides for material to be considered in the interpretation of an Act if the material is declared by the Act to be relevant material for the purposes of Section 15AB of the AI Act. 5 The purpose of the portfolio statements is to provide information on the proposed allocation of resources to Government outcomes by Commonwealth entities within each portfolio. The term "portfolio statements" is defined in the Bill, at clause 3, to mean the Portfolio Budget Statements 2016-17 and the Portfolio Additional Estimates Statements (tabled with the Bill). Clause 5--Notional transactions between entities that are part of the Commonwealth 6 Clause 5 provides that notional transactions between non-corporate entities are to be treated as if they are real transactions. Notional transactions, therefore, require the debiting of an appropriation made by Parliament. The payments of the amounts in Schedule 2 from one non-corporate entity to another do not require, in a constitutional sense, an appropriation, because both non-corporate entities operate within the CRF. For reasons of financial discipline and transparency, the practice has arisen for these payments between non-corporate entities to be treated as though they required an appropriation, and to debit an appropriation when such notional payments are made. This is consistent with section 76 of the PGPA Act. 7 When a non-corporate entity makes a payment, whether to another non- corporate entity or another part of the same non-corporate entity (such as a Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 5


Notes on clauses different "business unit" within the entity), it is to be treated as a "real" payment. This means that the appropriation made by Parliament is extinguished by the amount of the notional payment, even though no payment is actually made from the CRF. Similarly, a notional receipt in such a situation is to be treated by the receiving non-corporate entity (where relevant) as if it were a real receipt. This does not mean every internal transfer of public money involves a notional payment and receipt. Part 2--Appropriation items Clause 6--Summary of appropriations 8 Clause 6 sets out the total of the appropriations in Schedule 2 of the Bill. The amounts in Schedule 2 may be adjusted under Part 3 of the Bill. Items may be increased by a determination under clause 12 (Advance to the Finance Minister). 9 The amounts in Schedule 2 of the Bill may be adjusted further in accordance with sections 74 to 75 of the PGPA Act. Specifically:  Section 74 of the PGPA Act, when read with Rule 27 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), permits non-corporate entities to retain certain types of receipts by adding them to their most recent departmental item or other type of appropriation in an Appropriation Act when prescribed.  Appropriations may be adjusted by amounts recoverable by a non-corporate entity from the Australian Taxation Office for Goods and Services Tax (GST), in accordance with section 74A of the PGPA Act. The amounts specified in Schedule 2 exclude recoverable GST. The appropriations shown represent the net amount that Parliament is asked to allocate to particular purposes. Section 74A has the effect of increasing an appropriation by the amount of the GST qualifying amount arising from payments in respect of the appropriation. As a result, there is sufficient appropriation for payments under an appropriation item, provided that the amount of those payments, less the amount of recoverable GST, can be met from the initial amount shown against the item in Schedule 2. Section 74A also applies to notional transactions between and within non-corporate entities.  Items may be adjusted to take into account the transfer of functions between non-corporate entities, in accordance with section 75 of the PGPA Act. It is possible that adjustments under section 75 may result in new items and/or outcomes being created in an Appropriation Act. Clause 7--State, ACT, NT and local government items 10 Clause 7 provides administered appropriations for financial assistance to the States, ACT, NT and local governments. State, ACT, NT and local government items are appropriated separately for outcomes, making it clear what the funding is intended to achieve. The amount specified in Schedule 2 for an outcome may be Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 6


Notes on clauses applied by a non-corporate entity for the purpose of making payments to any of the States, ACT, NT or local government authorities for the purpose of achieving that outcome. 11 Clauses 7 and 14 delegate Parliament's power under section 96 of the Constitution to impose terms and conditions on payments of financial assistance to the States to the responsible Ministers listed in Schedule 1 of the Bill. Schedule 1 also lists the Ministers who may determine the amounts and timing of those payments. These payments are usually made pursuant to eligibility rules and conditions established by the Government or Parliament. 12 Specifically, the Finance Minister manages payments to State, ACT, NT and local governments using a discretionary power under section 51 of the PGPA Act. Section 51 allows the Finance Minister to manage the timing and the amount of appropriated money to be made available to State, ACT, NT and local governments, except as required by law. Clause 8--Administered items 13 Subclause 8(1) provides for the appropriation of new administered outcome amounts to be applied by a non-corporate entity for the purpose of contributing to the outcome for a non-corporate entity. An "administered item" is defined in clause 3 to be an amount set out in Schedule 2 opposite an outcome for a non-corporate entity under the heading "New Administered Outcomes". New Administered Outcomes are those administered by a non-corporate entity on behalf of the government (e.g. certain grants, benefits and transfer payments). 14 As with administered items in the Appropriation Bill (No. 3) 2016-2017, New Administered Outcomes are appropriated separately for outcomes. The split across outcomes is not notional, unlike departmental items, and makes it clear what the funding is intended to achieve. Schedule 2 specifies how much can be expended on each outcome. 15 New Administered Outcomes are typically proposed when:  a non-corporate entity seeks administered operating appropriations for the first time (including existing non-corporate entities that have received departmental operating appropriations in the past);  annual administered operating appropriations are proposed for the first time, for program previously funded by special appropriations; and  a non-corporate entity's outcomes are changed to reflect new program objectives, strategies and/or activities. 16 The purposes for which each administered item can be spent are further set out in subclause 8(2). Subclause 8(2) provides that where the portfolio statements indicate a particular activity is in respect of a particular outcome, then expenditure on that activity is taken to be expenditure for the purpose of contributing to achieving that outcome. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 7


Notes on clauses 17 New Administered Outcomes are those administered by a non-corporate entity on behalf of the Government (e.g. certain grants, benefits and transfer payments). These payments are usually made pursuant to eligibility rules and conditions established by the Government or the Parliament. Specifically, administered items are tied to outcomes (departmental items are not). 18 The Finance Minister manages payments from administered items by non-corporate entities using a discretionary power under section 51 of the PGPA Act. Section 51 allows the Finance Minister to manage the timing and the amount of appropriated money to be made available to a Commonwealth entity, except as required by law. Clause 9--Administered assets and liabilities items 19 Clause 9 provides amounts in Schedule 2 to acquire administered assets, enhance existing administered assets and/or discharge administered liabilities relating to activities administered by non-corporate entities on behalf of the Government. Administered assets and liabilities appropriations are provided for functions managed by a non-corporate entity on behalf of the Government. Administered assets and liabilities items can be applied for any outcomes of the non-corporate entity in Schedule 2 of the Bill, or Schedule 1 to the Appropriation Bill (No. 3) 2016-2017. 20 The Finance Minister manages payments from administered assets and liabilities items by non-corporate entities using a discretionary power under section 51 of the PGPA Act. Section 51 allows the Finance Minister to manage the timing and the amount of appropriated money to be made available to a Commonwealth entity, except as required by law. Clause 10--Other departmental items 21 Clause 10 appropriates departmental non-operating appropriations in the form of equity injections, over which the non-corporate entity also exercises control. This clause provides that the amount specified in other departmental items for a non-corporate entity may be applied for the departmental expenditure of the entity. In short, "equity injections" can be provided to non-corporate entities to, for example, enable investment in assets to facilitate departmental activities and for designated collecting institutions to purchase heritage and cultural assets. 22 Other departmental items are not expressed in terms of a particular financial year. For example, equity injection appropriations provide funding to meet the cost expected to be incurred in the Budget year to acquire a new asset, however, for a number of reasons, some part of the appropriation might not be required until a later financial year. Other departmental items are available until they are spent, or the Act through which they were appropriated is repealed. Annual Appropriation Acts have a lifespan of up to three years after which they automatically repeal. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 8


Notes on clauses 23 The Finance Minister manages the payment from other departmental items by non-corporate entities using a discretionary power under section 51 of the PGPA Act. Section 51 allows the Finance Minister to manage the timing and the amount of appropriated money to be made available to a Commonwealth entity, except as required by law. Clause 11--Corporate entity items 24 Clause 11 provides for appropriations of money for corporate entities to be paid from the CRF by the relevant Department. Clause 11 provides that payments for corporate entities must be used for the purposes of those entities. 25 A "corporate entity" is defined in clause 3 to be a corporate Commonwealth entity or a Commonwealth company within the meaning of the PGPA Act. Many corporate entities receive funding from appropriations. However, these entities are legally separate from the Commonwealth, and as a result, do not debit appropriations or make payments from the CRF. 26 Corporate entity payments are initiated by requests to the relevant portfolio Departments from the corporate entities. The Finance Minister manages appropriations for corporate entities through a discretionary power to control the timing and amount made available under section 51 of the PGPA Act, except as required by law. Corporate entities hold the amounts paid to them on their own account. 27 Subclause 11(2) provides that if a corporate entity is subject to another Act that requires amounts appropriated by Parliament for the purposes of that entity to be paid to the entity, then the full amount of the corporate entity payment must be paid to the entity. The purpose of subclause 11(2) is to clarify that subclause 11(1) is not intended to qualify any obligations in other legislation regulating a corporate entity, where that other legislation requires the Commonwealth to pay the full amount appropriated for the purposes of the entity. 28 In addition to the annual appropriations, some corporate entities may also receive public money from related entities such as a portfolio Department and from special appropriations managed by those Departments. Many corporate entities also receive funds from external sources. Part 3--Advance to the Finance Minister Clause 12--Advance to the Finance Minister 29 Section 12 of the Appropriation Act (No. 2) 2016-2017 and section 12 of the Supply Act (No. 2) 2016-2017 enable the Finance Minister to provide additional appropriations for items when satisfied that there is an urgent need for expenditure, and the existing appropriation is inadequate. This additional appropriation is referred to as the Advance to the Finance Minister (AFM). Subsection 12(3) of the Appropriation Act (No. 2) 2016-2017 provides that the total amount that can be determined under the AFM provisions of the Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 9


Notes on clauses Appropriation Act (No. 2) 2016-2017 and the Supply Act (No. 2) 2016-2017 is $380 million. 30 Clause 12 of the Bill provides that irrespective of the amounts issued from the AFM before the commencement of the Bill, the amount available under section 12 of the Appropriation Act (No. 2) 2016-2017 will be restored to the original amount of $380 million. The provision has been added to the Bill to ensure that there will be sufficient scope to provide amounts from the AFM for the remainder of the financial year. 31 Subclause 12(1) specifies that if the Finance Minister has determined under subsection 12(2) of the Appropriation Act (No. 2) 2016-2017 or subsection 12(2) of the Supply Act (No. 2) 2016-2017 to increase an amount in Schedule 2 of the Appropriation Act (No. 2) 2016-2017 or Schedule 2 of the Supply Act (No. 2) 2016-2017, respectively, from the AFM, then the amount is to be disregarded for the purposes of subsection 12(3) of the Appropriation Act (No. 2) 2016-2017 when the Bill commences. From the date this Bill commences as an Act the total amount that can be determined under the AFM will again be $380 million. 32 Subclause 12(2) prevents appropriations for the same expenditure from both the AFM and the Bill. Subclause 12(2) ensures that if Schedule 2 of the Bill provides an amount for a particular expenditure and, prior to the commencement of the Bill, the Finance Minister determines an amount from the AFM under section 12 of the Appropriation Act (No. 2) 2016-2017 or section 12 of the Supply Act (No. 2) 2016-2017 for the same expenditure (the advanced amount), then the appropriation in the Bill will be reduced by the amount of the advanced amount. The appropriated amount cannot be reduced below nil. For example if the Bill provides $20 million for a program and an advanced amount of $5 million is determined by the Finance Minister under the Appropriation Act (No. 2) 2016-2017 for a particular payment under that program, then the amount appropriated by the Bill, once enacted, will be reduced by $5 million (i.e. appropriating only $15 million for the program). 33 The Finance Minister may continue to make determinations under subsection 12(2) of the Appropriation Act (No. 2) 2016-2017 to add an amount from the AFM to an item of a Commonwealth entity if the criteria in subsection 12(1) of that Act are satisfied. Part 4--Miscellaneous Clause 13--Crediting amounts to special accounts 34 Clause 13 provides that if the purpose of an item in Schedule 2 is also the purpose of a special account (regardless of whether the item expressly refers to the special account), then amounts may be debited against the appropriation for that item and credited to the special account. Special accounts may be established under the PGPA Act by a determination of the Finance Minister (section 78) that is disallowable by Parliament or by another Act (sections 79 and 80). The Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 10


Notes on clauses determination or Act that establishes the special account will specify the purposes of the special account. Clause 14--Conditions etc. applying to State, ACT, NT and local government items 35 Clause 14 deals with Parliament's power under section 96 of the Constitution to provide financial assistance to the States. Clause 14 delegates the power to the responsible Ministers listed in Schedule 1 of the Bill, by providing the Ministers named in Schedule 1 with the power to determine:  conditions under which payments to the States, ACT, NT and local government may be made: clause 14(2)(a); and  the amounts and timing of those payments: clause 14(2)(b). 36 Subclause 14(4) provides that determinations made under subclause 14(2) are not legislative instruments, because these determinations are not altering the appropriations approved by Parliament. Determinations under subclause 14(2) are administrative in nature and will simply determine how appropriations for State, ACT, NT and local government items will be paid. 37 Determinations under clause 14 or its equivalent are rare. Most payments to the States and Territories are governed by, and appropriated through, the Federal Financial Relations Act 2009. For the payments to the States, ACT, NT and local government in an even-numbered Appropriation Act, generally other legislative or agreed frameworks determine how the payments are made and when, such as the Local Government (Financial Assistance) Act 1995 or a National Agreement. Many of these arrangements can be found on the Federal Financial Relations website (http://www.federalfinancialrelations.gov.au/). 38 Although financial assistance is provided to the ACT, NT and local governments without reference to section 96 of the Constitution, those payments are administered in the same way. Therefore, the Ministers identified in Schedule 1 may set the amounts and timing and impose terms and conditions on those payments. Subclause 14(5) also notes that clause 14 will not limit the powers of the Commonwealth under section 96 of the Constitution to provide financial assistance to a State which is not appropriated by a State, ACT, NT and local government item. 39 In the Bill, appropriations to the States, ACT, NT and local government are sought for the Department of Infrastructure and Regional Development against Outcome 3. Further information may also be found in their portfolio statements. The most recent detailed estimates of Commonwealth payments to the States, Territories and local governments from 2016-17 to 2019-20 may be found in Annex A to Attachment D in Part 3 of Mid-Year Economic and Fiscal Outlook 2016-17 which is available at http://www.budget.gov.au/. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 11


Notes on clauses Clause 15--Appropriation of the Consolidated Revenue Fund 40 Clause 15 provides that the CRF is appropriated as necessary for the purposes of the Bill. Significantly, this clause means that there is an appropriation in law when the Act commences. That is, the appropriations are not made or brought into existence just before they are paid, but when the Act commences. This clause indicates that the amounts appropriated may be affected by the PGPA Act, in particular sections 74 to 75 (see clause 6), after the Act commences. Clause 16--Repeal of this Act 41 Clause 16 specifies that the Bill, once enacted, will repeal at the start of 1 July 2019. Schedule 1--Payments to or for the States, ACT, NT and local government 42 In accordance with clause 14, Schedule 1 lists the Ministers responsible for determinations on payments to or for the States, ACT, NT and local government. Schedule 2--Services for which money is appropriated 43 Schedule 2 specifies the services for which amounts will be appropriated by the Bill. Schedule 2 contains a summary table which lists the total amounts for each portfolio. A separate summary table is included with further detail for each portfolio, with other tables detailing the appropriations for each Commonwealth entity. 44 Schedule 2 includes, for information purposes, the sum of amounts appropriated in the Appropriation Act (No. 2) 2016-2017 and the Supply Act (No. 2) 2016-2017, which is printed in italics and labelled as "Budget Appropriation (italic figures) - 2016-2017". The amount printed as the Budget Appropriation is an estimate that does not affect the amount available at law. That figure provides a comparison with the proposed appropriations for entities receiving appropriations. It is calculated for each item by adding the amounts appropriated in the Appropriation Act (No. 2) 2016-2017 and the Supply Act (No. 2) 2016-2017, amounts adjusted under certain provisions of the PGPA Act plus adjustments such as AFMs. In addition, where a non-corporate entity's outcome structure has changed since the last Appropriation Act, only ongoing outcomes are shown in the Bill. In some instances the figure may also be affected by limits applied administratively by the Department of Finance. 45 Schedule 2 also includes, for information purposes, a figure for the previous financial year printed in light figures labelled the "Actual Available Appropriation (light figures) - 2015-2016". The Actual Available Appropriation is an estimate that does not affect the amount available at law. That figure provides a comparison with the proposed appropriations for entities receiving appropriations. It is calculated for each item by adding the amounts appropriated in the previous year's Appropriation Acts, amounts adjusted under certain provisions of the Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 12


Notes on clauses PGPA Act plus adjustments such as AFMs. In addition, where an entity's outcome structure has changed since the previous year's Appropriation Acts, only ongoing outcomes are shown in the Bill. In some instances the figure may also be affected by limits applied administratively by the Department of Finance. For these reasons, the Actual Available Appropriation figures may be different from the sum of amounts provided in earlier Appropriation Acts. 46 More details about the appropriations in Schedule 2 are contained in the portfolio statements and the second reading speech for the Bill. Machinery of Government changes 47 Since the commencement of the Appropriation Act (No. 2) 2016-2017, there have been changes to a Department and a Commonwealth entity pursuant to the Machinery of Government changes from the Administered Arrangements Order (AAO) amendment made on 27 October 2016. 48 The Governor-General in Council acting under section 65 of the Public Service Act 1999 made an Executive Order on 27 October 2016 to rename the Digital Transformation Office as the Digital Transformation Agency (DTA) and specify the functions of the DTA. 49 The Public Governance, Performance and Accountability Amendment (Digital Transformation Agency) Rule 2016 made on 14 November 2016 and which came into effect on 18 November 2016 renames the DTO as a listed entity under the PGPA Rule as the DTA and specifies its purposes following the Executive Order issued by the Governor General on 27 October 2016. 50 Schedule 2 to the Bill therefore differs to Schedule 2 of the Appropriation Act (No. 1) 2016-2017 in that it refers to the new name of the DTA. 51 The PGPA Rule amendment was implemented through determinations made under section 75 of the PGPA Act which amended references to the name of the DTA. 52 Full details of the changes as expressed in the AAO amendment of 27 October 2016 can be found at https://www.dpmc.gov.au/resource- centre/government/aao-amendment-27-october-2016. Explanatory Memorandum to Appropriation Bill (No. 4) 2016-2017 House of Representatives 13


 


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