BP1ST2 - Details of Fiscal Risks and Contingent Liabilities

Details of Fiscal Risks and Contingent Liabilities

Fiscal risks and contingent liabilities with a possible impact on the forward estimates greater than $20 million in any one year or $40 million over the forward estimates period are listed below. Information on fiscal risks takes account of decisions of Parliament and other developments up to the close of parliamentary business on 31 March 1997. Information on contingent liabilities is based on information provided by departments and agencies and is current to 31 March 1997.

This is the second Statement of Risks for the Commonwealth General Government Sector, following that published in the MYEFO. Information on contingent liabilities is provided in annual financial statements of departments and non-budget entities.

Fiscal Risks

Outlays

Hospital Funding under Current Medicare Agreements - Two Per Cent Review

In accordance with the current Medicare Agreements, a review is currently being conducted by the Commonwealth, in consultation with the States, as a result of a decline of more than two percentage points in the private health insurance participation rate since September 1994. The cost of the resultant demand transfer to public hospitals has been estimated to be in the range of $38 million to $124 million per annum. The review will consider the demand transfer estimate in the context of overall changes in Commonwealth and State outlays on hospital services and other relevant factors and is expected to be finalised in 1996-97. A similar review in respect of the 2.1 per cent decline in the private health insurance participation rate from June 1993 to September 1994 did not result in an increase in Commonwealth outlays.

Renegotiation of Medicare Agreements

The current Medicare Agreements between the Commonwealth and the States for the provision of hospital funding grants expire on 30 June 1998. The basis for Commonwealth and State cost sharing beyond 1997-98 is to be renegotiated. This will involve a reassessment of the basis on which the Commonwealth and States currently share the risk of demand and cost for hospital services and may therefore result in a change to the Commonwealth funding contribution. The magnitude and direction of any such change in funding arrangements is unknown at this stage.

Pharmaceutical Benefits Scheme - Major New Listings

Cabinet approval is required when the cost of the listing of new drugs under the Pharmaceutical Benefits Scheme is over $10 million. New drugs can only be listed after an assessment of comparative effectiveness and value for money. The listing of these high-cost new drugs between now and 2000-01 has the potential to add up to $200 million in total over four years to Commonwealth outlays.

Industry Commission Report into Private Health Insurance

In September 1996, the Government commissioned the Industry Commission to conduct an inquiry into private health insurance and report its findings by the end of February 1997. The Commission's final report includes twenty-two recommendations which may impact on the competitiveness, productivity, efficiency and cost effectiveness of the private health insurance industry in the short to medium-term, resulting in a net increase in the proportion of the population covered by private health insurance. Although the Government has issued an interim response, the Government is still considering its final response to these recommendations. However, there is a potential impact on Commonwealth health outlays if some of the recommendations are adopted. The magnitude and direction of any change in Commonwealth health expenditure is unknown at this stage.

National Measles Eradication Programme

On 25 February 1997, the Minister for Health and Family Services foreshadowed the development of a one-off school based catch-up programme for measles immunisation. Feasibility studies are expected to be finalised by the end of 1997. The programme could be implemented in late 1998. Detailed costings are not available at this stage. However, it is estimated that a programme of this type could cost around $30 million.

Mortimer Review of Business Assistance

In November 1996, the Government asked Mr David Mortimer to undertake a comprehensive review of business assistance programmes with a view to ensuring that industry has available a targeted and effective suite of programmes which best meets its needs. The Mortimer Review of Business Assistance is expected to report to the Government in June 1997. The likely fiscal impacts of the Review are not known at this stage.

Native Title Cost Sharing

The Commonwealth has offered to assist States and Territories in meeting costs associated with their validation of past Acts under legislation complementary to the Native Title Act 1993. The extent of Commonwealth payments to the States pursuant to this offer will depend largely on the States' own liabilities to pay compensation to native title holders. Those liabilities cannot be quantified at this time. The Commonwealth has also offered to assist States and Territories with the costs of alternative arbitral bodies and regimes approved under the Act. The extent of this assistance will depend on decisions to establish such bodies and regimes, the timing of their recognition and the extent of their use.

Delay in Senate Consideration of Social Security 1996-97 Budget Measures

Loss of savings may result from delay in passage or amendment of the Minister for Social Security's revised proposals to change the Newstart Allowance activity test penalty provisions and to introduce new impairment tables for use in the assessment of Disability Support Pension.

R G Casey Building, York Park

The Commonwealth is currently in litigation with the Stage 1 contractor for the R.G. Casey Building, York Park. The contractor filed a Statement of Claim before the Federal Court in 1995 totalling $26.1 million. It is expected the case will not be heard by the Court until late 1998.

Litigation Cases in Train - Department of Health and Family Services

The Department of Health and Family Services is involved in around 100 cases covering a wide range of litigation, in which the cases have yet to be resolved or cases have been heard but damages and costs have yet to be awarded. The litigation involves: Creutzfeldt-Jakob disease; Acquired Immune Deficiency Syndrome; tobacco; Rehabilitation Services; benefit payments; defective products; and the Department as an employer. It is not possible to quantify the liability arising from these cases.

Litigation by Western Mining Corporation (WMC)

WMC won a Federal Court case challenging the Commonwealth for loss of property rights in relation to its loss of permit for oil exploration in the Timor Gap (following a rezoning of the area). The Commonwealth has been granted leave to appeal the decision by the High Court and the case is expected to be heard around mid 1997, with a decision by the end of 1997.

Compensation claims - Finalisation of Acquisition of Properties for the Second Sydney Airport at Badgerys Creek

Compensation claims relating to properties acquired for the proposed second Sydney Airport at Badgerys Creek which have not been finalised at 31 March 1997 give rise to a risk of $41.1 million. The properties were acquired under the Lands Acquisition Act 1989.

Separation of Aboriginal Children from their Families in the Northern Territory

Earlier laws, policies and practices led to the separation of many Aboriginal and Torres Strait Islander families. Legal actions are under way against the Commonwealth concerning the separation of Aboriginal children from their families in the Northern Territory. The plaintiffs are claiming damages and if any or all of the actions are successful, the Commonwealth may be liable for payments.

Australian Nuclear Science and Technology Organisation (ANSTO) Spent Fuel Elements

There are in excess of 1600 spent nuclear fuel elements stored at Lucas Heights and storage is reaching capacity. The cost of disposition of current holdings, beyond what is already provided for in the estimates for storage relief, is in the order of $80 million.

Diesel Fuel Rebate Scheme - Major Litigation

Legal action through the Administrative Appeals Tribunal and the Federal Court is being pursued by a range of companies involved in quarrying activities for payment under the Diesel Fuel Rebate Scheme in respect of diesel fuel used in the extraction of sand and rock undertaken prior to 1 July 1995. Possible claims on the Commonwealth from a successful legal challenge could amount to some $90-$100 million. The Excise Act 1901 and the Customs Act 1901 were amended with effect from 1 July 1995 to remove sand and rock extraction from eligibility under the Scheme.

AUSTUDY/ABSTUDY Supplement Loan

The Commonwealth currently has an agreement with the Commonwealth Bank of Australia to provide loans to tertiary students under the AUSTUDY/ABSTUDY Supplement Loan scheme. The agreement expires on 31 December 1997. Should the agreement not be renewed, AUSTUDY/ABSTUDY outlays would increase as a result. The scheme will be reviewed in the coming months with the outcomes, including any fiscal implications, to be considered by Cabinet before December 1997.

Revenue

General Risks

The forward estimates of revenue are subject to a number of general pressures or risks. These general pressures or risks include: tax minimisation and avoidance; financial innovation; internationalisation; developments in communications technology; changes in PAYE arrangements and personal services income; the treatment of trusts; changes in community expenditure patterns; taxpayer behavioural responses; and court decisions. Tax concessions (or 'tax expenditures') are particularly susceptible to these pressures and risks. These general risks may result in a shift in the composition of revenue collected from the various tax bases and/or an erosion of the tax base.

Tax minimisation and avoidance involves the use of provisions and 'loopholes' in the tax law which were not intended by policy-makers. With evidence of greater taxpayer focus on tax avoidance and minimisation schemes, and in the absence of closing these off, the revenue base will shrink relative to that projected in the forward estimates. The Government will continue to take legislative action to close off such schemes as they are identified. In addition, the Australian Taxation Office (ATO) will continue to undertake extensive compliance enforcement work, including pursuing matters through the courts, to maintain the integrity of the tax system.

Financial innovation has increased dramatically during the past two decades and the tax system has generally not kept pace with these innovations. As a result, uncertainty has arisen over the application of existing laws to new and often complex financial arrangements and the scope for tax minimisation and avoidance through the application of financial arrangements has expanded. Ideally, the tax laws relating to financial arrangements should not create uncertainty and anomalies, should not inhibit innovation or the capacity of industry to efficiently and effectively manage risks, and should not facilitate tax minimisation and avoidance. An issues paper on the taxation of financial arrangements was released by the Treasury and the ATO in late 1996 and public discussion and submissions from interested groups on the proposals are ongoing.

The internationalisation of the Australian economy also introduces a general risk to the forward estimates of revenue. Income tax collections from capital are subject to increasing downward pressure due to the relatively free international flow of capital, intra-corporate transfer pricing and 'tax competition' among jurisdictions. Similarly, income tax collections from labour are coming under increasing downward pressure as labour becomes more internationally mobile and subject to tax competition. The increasing global integration of economies also means the integrity of each country's tax system will increasingly rely on international co-operation on tax matters.

Developments in communications technology, such as the Internet, also raise a general risk to the forward estimates of revenue. Such developments may allow the purchase or sale of an increasing number of goods and services - including the provision of labour services - in a way which avoids the traditional tax bases (and indeed most alternative, reasonably sophisticated, tax bases). Such developments pose a major challenge in tax system design in most countries.

Changing taxpayer practices affecting PAYE arrangements and personal services income could also have significant consequences for the revenue estimates. Certain labour market practices involving the replacement of traditional common law employer/employee relationships with labour or result-based contracts are outside the scope of the PAYE provisions in the income tax law and must be taxed through other arrangements. In other cases, individuals may interpose an entity (eg a company) through which they provide personal services with the intention of 'alienating' the personal services income received. Alienation occurs where an individual performs work (personal service) but the relevant income is received by the interposed entity and either retained in the entity or distributed to other individuals (eg family members) who did not contribute to the work. In response to these trends, the Commissioner of Taxation will take the necessary steps to safeguard the intended operation of the law in these areas, including, where necessary, testing the law in the courts.

The tax treatment of trusts is another area of significant revenue risk, given the scope for trusts to be used to reduce tax liabilities and the reality of their modern day usage. As announced in the Budget, the Government will be reviewing the taxation of trusts.

Changes in community expenditure patterns are a further general risk in any tax system with differing tax rates. For example, the trend decline in expenditure on goods relative to services, moderate growth in alcohol and tobacco consumption and less intensive use of petroleum products exert downward pressure on the forward estimates of indirect tax revenue. These trends are allowed for in the estimates - it is only departures from the assumed trends that pose a risk.

Court decisions also increase the risk that revenue will be lower or higher than anticipated. Court decisions can affect the interpretation of tax legislation and, in the absence of Government action, can significantly change the level of revenue collected under that legislation.

Tax expenditures are particularly at risk of being exploited in an inappropriate manner, which can also have a significant effect on the forward estimates of revenue. The Government receives a steady stream of calls for new tax expenditures to be granted. If further tax expenditures are granted, the forward estimates of revenue will be adjusted downwards. Equally, if any existing tax expenditures are wound back, the forward estimates of revenue will be adjusted upwards. The Government has indicated that all tax expenditures will be subject to ongoing monitoring and evaluation to determine whether they remain relevant to meeting the Government's priorities.

Apart from the above-mentioned general risks which could have a cumulative impact over time, there are general risks to the forward estimates which could have a significant effect in any one year but not necessarily a cumulative effect over time. In any one year revenue will be influenced by a number of factors, including, for example, the degree to which companies and individuals realise losses and capital gains, the valuation of stock, the utilisation of specific tax expenditures and taxpayer behavioural responses to revenue measures. Such factors can have a particularly significant effect on company tax collections and the revenue forgone through tax expenditures. Generally, such factors are not, by their nature, able to be forecast with a high degree of certainty.

Specific Risks

There are also a number of specific risks to revenue that are currently the subject of ongoing analysis and evaluation by the Treasury and the ATO. Such risks can include, for example, specific tax minimisation and avoidance schemes. Early detection and Government response to such risks is desirable. It would be inappropriate to explicitly identify such current specific risks until the Government is in a position to respond to the risks. To do so may compromise the Government's policy response and magnify the downside risks to the forward estimates of revenue.

The Government has announced a number of measures to date which have already been factored into the forward estimates of revenue but are yet to be passed by Parliament. Should the passage of legislation relating to these measures be delayed, amended or rejected, the forward estimates will need to be appropriately adjusted. Legislation relating to some of these measures is discussed below.

The Taxation Laws Amendment (Infrastructure Borrowings) Bill 1997 was introduced into Parliament on 26 March 1997. The Bill prevents, with effect from 12.00 pm, 14 February 1997: the lodging of any new Infrastructure Borrowings (IBs) applications; the issue of any further IB certificates (except where, prior to that time, the Development Allowance Authority had given a written undertaking to issue a certificate); and re-engineering (including amendment) in respect of existing certificates to increase tax benefits. If this legislation is rejected or substantially amended, a cost to revenue of over $4 billion may be involved over the three years 1996-97 to 1998-99.

The Government has decided to implement its commitment to provide eligible taxpayers a choice between accelerated deductions for Landcare works under sections 75B and 75D of the Income Tax Assessment Act 1936 or a tax rebate/credit set at the marginal tax rate of 34 cents in the dollar for qualifying expenditure. This will be implemented through the establishment of the Natural Heritage Trust of Australia Reserve arising from the partial privatisation of Telstra.

In the 1996-97 Budget, the Government introduced a surcharge on superannuation contributions of high income earners The surcharge, of up to 15 per cent on all employer and tax deductible personal contributions made to superannuation funds or Retirement Savings Accounts, will be phased in over the income levels of $70,000 to $85,000. The surcharge will effectively increase by 1 percentage point for each additional $1,000 of income from $70,000.

As the legislation to introduce the superannuation surcharge has not yet been passed by the Parliament, there remains a risk that the measure will not progress to implementation. If this were to occur, the total cost to revenue over the next three years would be $1,480 million. There is also the risk that the provision for advance instalment of surcharge liabilities may be opposed. If this occurred, the total cost to revenue would be $240 million over the next three years. Some revenue may also be at risk if amendments to the legislation make it limited in application or workability.

Contingent Liabilities

Quantifiable

Commonwealth Indemnity Scheme

The Commonwealth has provided indemnities to the owners of artworks against loss of, or damage to, those artworks whilst they are on loan to galleries participating in exhibitions organised under the Scheme. The global limit on indemnities as at 31 March 1997 was $1,000 million and the actual amount indemnified was approximately $345.6 million.

Telstra Corporation Ltd - Loan Guarantee

The Commonwealth has guaranteed loans taken out by Telstra Corporation Ltd. The principal amount covered by the guarantee as at 31 March 1997 was $379 million.

Australian Broadcasting Corporation

The Commonwealth has guaranteed loans totalling $206.5 million drawn by the Corporation. These loans were largely used to meet costs relating to the construction of premises for the Corporation at Southbank (Melbourne) and Ultimo (Sydney).

Special Broadcasting Service

The Commonwealth has guaranteed loans totalling $39 million drawn by the Corporation. These loans were used to pay for refurbishment and enhancement of the Corporation's premises at Artarmon in Sydney.

Defence Housing Authority

Private sector borrowing by the Defence Housing Authority is explicitly guaranteed by the Commonwealth under Section 38 of the Defence Housing Authority Act 1987. The value of loans guaranteed at 31 March 1997 was $534 million, but after the repayment of $189 million on 1 April 1997 this fell to $345 million.

AUSTUDY/ABSTUDY Supplement Loan

The AUSTUDY Loans Supplement is a voluntary loan scheme which enables tertiary students to obtain additional financial assistance to enable them to meet their living expenses while studying. The loans are negotiated with the Commonwealth Bank of Australia and guaranteed by the Commonwealth. As at 31 March 1997, the value of such loans was $927.9 million.

Sale of Snowy Mountains Engineering Corporation (SMEC)

An indemnity has been given to SMEC in a Deed of Undertaking from the Commonwealth to Tinbury Ltd. The Deed provides an undertaking by the Commonwealth to Tinbury Ltd that if within five years of the sale of SMEC, SMEC goes into liquidation, the Commonwealth will pay $1 million to Tinbury Ltd. This indemnity was issued on 9 November 1993 and will terminate on 8 November 1998.

Northern Territory Government Loans

Loans of the Northern Territory Government (Private Treaty Loans, Public Loan Flotations, and Private Placement of Northern Territory Stock) are covered by Commonwealth guarantee under sections 47 and 47A of the Northern Territory Self Government Act 1978. As at 31 March 1997 the value of these loans was $202.8 million.

The payment of interest on the money borrowed by the Northern Territory Government is also guaranteed. At 31 March 1997 no interest payments were overdue.

Australian Industry Development Corporation (AIDC)

As at 31 March 1997, AIDC contingent liabilities totalled $4,005 million comprising $909 million in respect of guarantees and credit risk facilities and $3,096 million in respect of borrowings by the Corporation which are subject to a Commonwealth guarantee. Of the AIDC's borrowings, $168 million is invested in Commonwealth assets. These assets have been netted off the gross borrowings in determining the above liabilities.

Export Finance and Insurance Corporation (EFIC)

The Commonwealth guarantees the due payment by EFIC of money that is, or may at any time become, payable by EFIC to any person other than the Commonwealth. As at 31 March 1997 the contingent liability totals $7,401 million comprising contracts of insurance and guarantees ($2,978 million), loans ($2,718 million) and national interest provisions ($1,705 million).

Snowy Mountains Hydro-electric Authority

The Snowy Mountains Hydro-electric Power Act 1949 provides that borrowings by the Snowy Mountains Hydro-electric Authority may be guaranteed by the Commonwealth. The Authority has issued inscribed stock at a discount to finance capital works of the Scheme. The borrowings are subject to explicit Commonwealth guarantees. At 31 March 1997 the face value of guaranteed borrowings was $212.5 million, with the net amount guaranteed (excluding unamortised discount on the issue of inscribed stock) being $105.8 million.

Wool International

Under Section 53(7) of the Wool International Act 1991 the Commonwealth underwrites borrowings of Wool International for the management of the wool stockpile, contingent liabilities to Wool International total $762 million at 31 March 1997. Sources of borrowings include domestic and overseas commercial borrowings. Wool International is reducing this debt through the sale of the stockpile. The target date for the payout of debt is 1998.

Australian Wheat Board

Under the Wheat Marketing Act 1989 the Commonwealth underwrites borrowings by the Australian Wheat Board that fund advance and related payments from the wheat pool totalling $3,455 million at 31 March 1997. Borrowings are repaid as the wheat pool is sold. The percentage underwritten by the Commonwealth is set at 85 per cent of the estimated aggregate net return on the wheat pool. The Commonwealth's responsibility for the underwriting of borrowings ceases in 1999.

Queensland Fish Management Authority

The Commonwealth has guaranteed a loan up to a maximum of $40.9 million to encourage the restructuring of the Northern Prawn Fishery. The loan was taken out by the Queensland Fisheries Management Authority on behalf of the Commonwealth to buy back surplus boat units from the fishery with repayment to be made by the industry through levies.

Australian National Line (ANL) Ltd - $100 million Promissory Note Facility

In order to enable ANL to trade in an orderly fashion, the Commonwealth has guaranteed access to a promissory note facility of up to $100 million. Only $45 million has been drawn down by ANL under this facility. Therefore, the maximum exposure for the Commonwealth is $45 million, unless a further draw down/note issue is approved by the shareholder (ie the Commonwealth).

Guarantees under the Commonwealth Bank Sale Act 1995

Under the terms of the Commonwealth Bank Sale Act 1995, the Commonwealth has guaranteed various liabilities of the Commonwealth Bank of Australia, the Commonwealth Bank Officers' Superannuation Corporation (CBOSC) and the Commonwealth Development Bank.

The guarantee for the Commonwealth Bank of Australia relates to both on and off balance sheet liabilities. Of the existing contingent liability, 72 per cent involves off balance sheet liabilities. As at 30 June 1996, the balance of the guarantee was $325,004.7 million. The Commonwealth's contingent liability will decline considerably by 30 June 1997 as $280,407.5 million of the contingent liability (or 86 per cent) is due to be retired during 1996-97.

The assets of the CBOSC ($4,934.7 million at 30 June 1996) substantially exceed existing liabilities. The stock of CBOSC liabilities subject to the Commonwealth guarantee will decline gradually as relevant CBOSC officers retire. As at 30 June 1996, the balance of the guarantee was $96.6 million.

As of 1 July 1996, the Commonwealth Development Bank ceased to write new business and no additional liabilities are being incurred. The existing contingent liability will gradually decline with the retirement of existing loans and exposures. The revised estimate for the balance of this guarantee was $1,793.2 million as at June 1996.

Reserve Bank of Australia (RBA) Guarantee

This contingent liability relates to the Commonwealth's guarantee of the liabilities of the RBA. The major component of RBA liabilities relates to Notes (ie currency) on Issue. This treatment of Notes largely relates to the historical convention of the convertibility of Notes to gold - coins are not treated as a liability in the Commonwealth's accounts. At 9 April 1997, Notes on Issue totalled $19,842 million.

The other major liability consists of deposits with the RBA by the banking sector, including the Commonwealth Bank. At 9 April 1997 these deposits amounted to $12,008 million. The large increase from 30 June 1996 (when deposits amounted to $3,931.6 million) is principally due to the abolition of the Authorised Money Market Dealers in July 1996 and the resulting increase in the value of exchange settlement accounts held with the RBA by the banking sector. In total, the guarantee for the RBA was $36,011.5 million as at 9 April 1997.

Uncalled Capital Subscriptions - International Financial Institutions

The liability relates to the value of the uncalled portion of the value of the Commonwealth's shares in the International Bank for Reconstruction and Development (estimated value $3,086 million at 30 June 1996), the Asian Development Bank (estimated value $3,200 million), and the European Bank for Reconstruction and Development (estimated value $103 million).

Unquantifiable

Australian Trade Commission

Under the Australian Trade Commission Act 1985 the Commonwealth guarantees payment by the Australian Trade Commission (AUSTRADE) of money that is payable to any person other than the Commonwealth.

Telstra Corporation Ltd - Superannuation Guarantee

The Commonwealth has guaranteed payments from Telstra Corporation Ltd to the Telstra Superannuation Scheme. The Commonwealth has guaranteed that it will cover any benefits that may have to be paid from the Fund in the event that the Telstra Superannuation Scheme or Telstra is ever bankrupted and wound up.

Superannuation Act 1976 and the Public Sector Superannuation Scheme (PSS)

Under the Superannuation Act 1976 and the PSS Trust Deed and Rules and determinations made under them, the Commonwealth guarantees payment of the amounts of members' contributions and productivity contributions with interest allocated to those amounts by respective Boards of Trustees.

The Commonwealth Superannuation Scheme and the PSS guarantee the accrued contributions and interest so there cannot be a negative rate of return on invested funds. The funds maintain a reserve which covers the possibility of negative returns and allows for 'topping up' by the Commonwealth if that should ever occur. The Commonwealth has not had to make a payment in relation to this guarantee.

Sale of Australian Airlines Ltd

The Commonwealth has given an indemnity to Australian Airlines Ltd to protect Australian Airlines Board members and officials against false or misleading information relating to the airline's operation resulting in litigation from prospective purchasers. This indemnity is open-ended and was issued on 28 May 1991.

The Commonwealth has also given an indemnity to Australian Airlines Ltd to protect employees from civil action arising out of disclosure of information. This indemnity is open-ended and was issued on 19 November 1991.

Australian Maritime Safety Authority (AMSA) - in Relation to Ship-sourced Marine Pollution.

In the normal course of operations, the Authority is responsible for the provision of funds necessary to meet the clean up costs arising from ship-sourced marine pollution. The Commonwealth has agreed that the Authority's responsibility be limited to a maximum outlay of $10 million. The authority has a stand-by loan facility to address this contingency. In the event of costs above the $10 million limit, funds will be provided by the Commonwealth. The Commonwealth's risk is unquantifiable. In all circumstances, the Authority is responsible for making appropriate efforts to recover the costs of any such incidents.

Australian National Line (ANL) Ltd

The Commonwealth has issued a guarantee for all ANL's major lease facilities. If the risk materialised the full termination value of the leases would be offset by the value of ANL's lessor loans and the value of assets that ANL would assume in the event of termination of the leases. The net value in the event that the leases are paid out may be around breakeven.

Australian National Line (ANL) Ltd Board

An indemnity for ANL Board members was provided to protect against civil claims relating to employment and conduct as a director of ANL Ltd and subsidiary/associated companies. This indemnity is unquantifiable and no expiry date has been set.

Sale of Aerospace Technologies of Australia (ASTA) Pty Ltd

An indemnity has been given to purchasers of ASTA to protect ASTA and the purchaser from any reasonable losses, costs (including legal expenses), liabilities and other outgoings incurred in respect of any asbestos, pollutant or other contaminant on or in the property or buildings of the Avalon property.

An indemnity has been given to purchasers of ASTA to indemnify the purchaser against any reasonable loss, cost or expense sustained or incurred as a result of breach of warranty; any work done or liabilities incurred; liabilities which may occur in the future relating to ASTA Aircraft Services Pty Ltd (ASTAAS), Pacific Aerospace Corporation Ltd (PAC) or ASTA airport (which were not purchased as a part of ASTA); and any taxes incurred or occurring in respect of the period prior to the sale.

An indemnity has been given to purchasers of ASTA to indemnify the purchaser against any payments made by ASTA in respect of indemnities given in connection with the research and development syndications which involve ASTA at or prior to the sale.

An indemnity has been given to purchasers of ASTA to indemnify the purchaser against any loss it suffers as a result of ASTA incurring any tax liability under the Income Tax Assessment Act 1936 as a result of any action or inaction of ASTA in respect of the period prior to the sale, and in respect of any payments made by the Commonwealth to the purchaser.

These indemnities were issued on 20 June 1995 and will not extend to any claim which either accrues or is made more than four years after the closing date or is for an amount less than $100,000.

Sale of Australian Industry Development Corporation (AIDC) Limited

An indemnity has been provided to the Directors and nominated officers of AIDC Ltd and the AIDC Corporation to indemnify them against all actions, suits, claims, demands and reasonable costs and expenses (including costs and expenses incurred as a result of a governmental or parliamentary inquiry and legal costs and expenses certified reasonable by the Attorney-General) in respect of assistance provided to the Privatisation Advisory Committee (PAC), the Commonwealth and the Corporation in respect of the PAC process and the sale of shares. This indemnity was issued on 30 May 1996 and terminates upon the sale of any of the shares. The Commonwealth may also terminate this indemnity upon reasonable notice in writing to the Chairperson of the Corporation.

An indemnity has also been provided to AIDC Ltd to indemnify them against all actions against AIDC by the minority shareholders in the same circumstances as the indemnity discussed above. This indemnity was issued on 30 May 1996 and terminates upon the buyout of the minority shareholders by the Corporation or upon the sale of any of the shares, whichever comes first.

Sale of Commonwealth Funds Management (CFM) and Total Risk Management (TRM)

An indemnity has been provided to the Directors and certain officers of CFM and TRM to indemnify them against all actions, suits, claims, demands and reasonable costs (including legal costs and expenses certified reasonable by the Attorney-General) in relation to assistance given to the Commonwealth in the sale process in relation to provision of information to the Commonwealth or a third party. This indemnity was issued on 28 August 1996.

The Commonwealth has indemnified the purchaser of CFM , the Commonwealth Bank of Australia, from all losses and liabilities which may be suffered as a result of the exercise of powers under the CFM Sale Act. These powers relate to the transfer of any assets rights and obligations or liabilities of the company; employment of staff and transfer of company shares.

The Commonwealth has also indemnified the Commonwealth Bank of Australia against any stamp duty payments related to the transaction other than the basic share transfer duty.

Sale of Avalon Airport Geelong Pty Ltd (AAG)

An indemnity has been given to the purchaser of AAG to indemnify the purchaser against any loss it suffers as a result of AAG incurring any tax liability under the Income Tax Assessment Act 1936 as a result of any action or inaction of AAG in respect of the period prior to sale.

An indemnity has been given to the purchaser of AAG to indemnify the purchaser and AAG against all liabilities, losses, costs, damages, expenses and claims arising out of: any contamination on, in or affecting Avalon Airport that existed prior to closing; any remedial action taken by the purchaser or AAG in regard to any contamination on, in or affecting Avalon Airport that existed prior to closing in compliance with any notice or order issued by a regulator; and the construction, alteration or addition prior to closing of buildings using any materials or fixtures and fittings which are a potential health hazard.

An indemnity has been given to the purchaser of AAG to indemnify the purchaser against: the holding of or disposal of shares in PAC or ASTAAS by AAG prior to closing; the exposure at Avalon Airport of any person to asbestos prior to closing; any breach of representation or warranty by the Commonwealth under the sale agreement (claims will not exceed either individually or in aggregate the amount of the purchase price); any liability of AAG arising under any lease granted to it prior to closing by the Commonwealth, or out of AAG's use or occupation, of Avalon Airport prior to closing; any breach of environmental law by AAG arising out of its use or occupation of Avalon Airport prior to closing; and any claim or liability arising out of or in relation to the Paint Shop.

CSL Ltd

CSL Ltd is indemnified against claims made by persons who contract specified infections from specified products and against employees contracting asbestos related injuries. CSL has unlimited cover for most events that occurred before the sale of CSL on 1 January 1994 but has more limited cover for a specified range of events that might occur during the period of the current contract. Given the open ended nature of some of the indemnities, damages and risk cannot be quantified.

Sale of CSL Ltd

An indemnity has been given to Potter Warburg/Price Waterhouse (PW/PW) for protection for litigation costs, limited to circumstances where PW/PW was sued as a result of the proper performance of the consultancy. This indemnity was issued on 14 October 1992. The termination date is undefined, but is limited by statutes of limitation.

An indemnity has been given to Arthur Anderson (AA) for protection of litigation costs, limited to circumstances where AA was sued as a result of the proper performance of the consultancy. This indemnity was issued on 7 June 1993 and is continuing, however it is limited by statutes of limitation.

An indemnity has been given to CSL to protect CSL from any claim made against them for breach of confidentiality as a result of CSL having provided information to the Commonwealth, and the Commonwealth subsequently failing to ensure that confidentiality. This indemnity was issued on 14 September 1992.

Provisions for this latter indemnity are continuous. However, the parties clearly anticipate that the indemnity ceased to have practical effect after conclusion of the sale of CSL. This will be formalised through an exchange of letters.

Sale of Lease of Federal Airports Corporation (FAC) Airports

A letter of comfort has been provided to assure Standard and Poor's Ratings Group that the FAC will continue to have access to adequate liquidity to enable it to continue to service its obligations and effectively conduct its operations. This assurance was issued on 27 May 1994 and effectively terminates upon the completion of the assumption of FAC debt by the Commonwealth.

An indemnity has been given to Ernst & Young to indemnify them against legal costs incurred in respect of their obligations for legal compulsion to disclose. This indemnity was issued on 15 July 1996.

An indemnity has been given to the Board of the FAC to replace the extension of Finance Direction 21 to FAC Board members. This indemnity is ongoing and was issued on 3 October 1996.

An indemnity has been given to Mallesons Stephen Jaques to indemnify the consultant in relation to all reasonable costs (including legal costs) incurred by the consultant in complying with any requests or directions by the Commonwealth given to the consultant pursuant to a confidentiality agreement dated 13 September 1996.

An indemnity has been given to BZW Australia Limited to indemnify BZW against legal costs and disbursements incurred in respect of BZW's obligations for legal compulsion to disclose. This indemnity is ongoing and was issued on 18 August 1995.

Sale of Moomba Sydney Gas Pipeline

An indemnity has been given to East-Aust Pipeline Limited in an Agreement entitled 'Asset Purchase Agreement' dated 30 June 1994 between the Commonwealth and East-Aust Pipeline Limited. East-Aust Pipeline Ltd is indemnified against losses sustained due to a claim by an employee of the Pipeline Authority for negligence or accrued salary or other entitlements arising prior to the 'Transfer Day'. By implication East-Aust Pipeline Ltd cannot bring an action more than six years after the Transfer Day.

Sale of Snowy Mountains Engineering Corporation (SMEC)

An indemnity has been given to Tinbury Limited in an agreement for the sale of shares in SMEC Ltd which indemnifies Tinbury Ltd from and against all damages, losses, liabilities, claims, costs and expenses which Tinbury Ltd may suffer from the Commonwealth's non-observance of any of the express representations, warranties, covenants or undertakings contained in the Agreement. This indemnity in ongoing and was issued on 21 October 1993.

Housing Loans Insurance Corporation (HLIC)

The Commonwealth guarantees the liabilities of the HLIC which provides mortgage insurance to lenders. Whilst it is possible to measure the total value of all insurance contracts on the HLIC's books at any given time, this does not realistically reflect the potential risk to the Commonwealth. The HLIC has never suffered a claim for the total value of any insurance contract in its thirty year history; claims amounts on policies usually amount to 10 to 20 per cent of the policy value.

Partial Sale of Telstra Corporation

An indemnity has been provided to the present and certain former Telstra directors and officers to protect against any liability incurred in connection with a civil liability; defending criminal proceedings in Australia or overseas; any application in relation to criminal proceedings; any examination, investigation, inquiry or proceeding by the Australian Securities Commission or any other authority of any Government in Australia or elsewhere arising in relation to the scoping study. This indemnity was issued on 23 September 1996 and is ongoing.

Qantas Trade Sale

An indemnity has been issued to British Airways PLC to protect against loss resulting from failure of the Commonwealth to meet its obligations in the Qantas trade sale. This indemnity is open-ended and was issued on 12 January 1993.

An indemnity has also been issued to British Airways PLC to cover a loss in economic value of shares as a result of the Qantas trade sale. This indemnity was issued on 12 January 1993 and terminates on 30 June 2003.

A Letter of Comfort has been given to Qantas Airways Ltd to provide an assurance that the Commonwealth will continue to honour a $100 million standby facility. This letter was issued on 12 September 1991 and the termination date is unspecified.

Qantas Public Share Offer

An indemnity has been given to Qantas Airways Ltd to protect it from losses and costs resulting from Commonwealth breaches of the debt assumption agreement. This indemnity is open-ended and was issued on 12 January 1993.

An indemnity has been given to Grant Samuel and Associates Ltd to protect against losses caused in proper performance of the contract and loss of fees due to the Commonwealth triggering a conflict of interest. This indemnity is permanent and was issued on 31 March 1993.

An indemnity has been given to Joint Lead Manager on the abandoned original Qantas public share offer process of 1993 and their employees and executives to protect against loss caused by false public statements that were pre-endorsed by the Commonwealth as true. This indemnity is permanent and was issued on 10 December 1992.

The Commonwealth has indemnified Qantas Directors for all civil liabilities they may incur through their participation in the offer. The indemnity was issued in 1995.

Commonwealth Bank Public Share Offer

In 1996, the Commonwealth provided an indemnity to the Commonwealth Bank, its directors and certain officers to cover the civil liability in relation to providing assistance to the Commonwealth in the offer context.

Indemnities for Banks

The Commonwealth has indemnified a number of banks in Europe and North America and the Reserve Bank of Australia against loss and damage arising from the acceptance of certain Commonwealth cheques bearing a facsimile signature having been impressed thereon without the authority of the Commonwealth.

Civil Aviation Safety Authority (CASA) - Indemnity in Relation to the Authority's Safety Regulatory Functions

Under a Deed of Agreement, the Civil Aviation Safety Authority is indemnified against claims incurred in carrying out its responsibilities for aviation safety regulations. Under existing arrangements, this indemnity is subject to annual renewal on payment of an annual premium by CASA to the Commonwealth. The current CASA safety regulatory indemnity expires on 5 July 1997.

Civil Aviation Safety Authority - Indemnity to Officers of the Authority Administering the Carrier's Liability Insurance Requirements

An indemnity is given to those officers of the Civil Aviation Safety Authority who administer the carrier's liability insurance requirements under Part IVA of Civil Aviation (Carrier's Liability) Act 1959 and complementary state legislation. This indemnity is unquantifiable and no expiry date has been set.

Sale of Australian National Railways Commission (AN)

The Commonwealth is funding AN's loss making operations until AN is sold. A delay in the sale of all or any parts of AN would require extending subsidisation to AN by the Commonwealth.

Sale of the Australian National Rail Commission and National Rail Corporation Ltd

An indemnity has been provided to each of the Commissioners in respect of assistance in relation to sale process. This includes the provision of information about Australian National Rail Commission or National Rail Corporation Ltd at the request of the Commonwealth or its advisers for the purposes of the sale of the Australian National Railways Commission and National Rail Corporation Ltd their business units or assets.