STATEMENT 4 - OUTLAYS

PART I. OVERVIEW OF BUDGET OUTLAYS

Introduction

The overview discusses trends in outlays, running costs budgets and staffing levels. The Statistical Appendix tables show outlays over the last decade and the budget and forward years by function, subfunction and economic type. Also shown are outlays on capital works, running costs budgets and staffing levels.

Refer to Budget Paper No. 2 for details of policy decisions affecting outlays in this Budget. Statement 7 provides information on total public sector outlays and fulfils requirements on the Commonwealth, arising from the revised uniform presentation framework agreed at the March 1997 Loan Council meeting, to report financial statistics using ABS concepts and reporting structures.

Overview of Budget Outlays

Table 1 provides an overview of underlying outlays by portfolio. Detailed data by function and economic type are contained in the Statistical Appendix to this Statement.

Trends in Outlays

Between 1990-91 and 1995-96, underlying outlays grew by around 4.5 per cent a year in real terms. Underlying outlays growth is projected to be much lower in 1996-97 at around 1.1 per cent. For 1997-98 underlying outlays are estimated to fall in real terms by 1.4 per cent, reflecting tight control of Government spending. The last period in which negative real underlying outlays growth was recorded was in 1987-88 and 1988-89. Real growth rates for underlying outlays over 20 years are shown in Chart 1. There is a large divergence between growth rates for underlying and headline outlays in the forward estimates primarily due to the effects of several large equity asset sales and a lower repayment of advances by the States expected in 1998-99.

The ratio of budget outlays to GDP shown in Chart 2 is an indicator of the share of national resources devoted to Commonwealth budget programmes. The ratio largely tracks the economic cycle, partly reflecting the operation of the Commonwealth's automatic stabilisers (during periods of recession Commonwealth outlays on labour market programmes and in the social security and welfare area rise substantially and the reverse occurs in times of economic and employment growth). Outlays are also significantly affected by discretionary policy decisions, which alter the structural budgetary position. Outlays as a proportion of GDP are expected to decline through the forward years, following policy decisions in this and the 1996-97 Budget which have repaired the structural balance after deterioration in the first half of the 1990s.

Table 1. Underlying Outlays by Portfolio

(a) Increase in Finance outlays in 1997-98 primarily reflects cost of the Telstra sale in 1997-98 and proceeds from the sale of DASFLEET reducing outlays in 1996-97.

(b) Decrease in Administrative Services outlays in 1997-98 primarily reflects divestment of real property.

Chart 1. Real Growth in Outlays

In the late 1980s, policy decisions and strong economic growth combined to reduce the ratio of outlays to GDP. With the onset of recession in 1990, this pattern was reversed, partly due to the operation of the automatic stabilisers and partly due to spending packages provided to stimulate growth. Between 1992-93 and 1995-96 the ratio of underlying outlays fell slowly from its peak level of 27.7 per cent to around 27.0 per cent of GDP. In 1996-97 and 1997-98, sharper falls are expected, with the ratio reaching 22.9 per cent of GDP by the end of the forward estimates in 2000-01. This will be the lowest level of outlays since 1973-74, when underlying outlays were 20.5 per cent of GDP.

Chart 2. Outlays as a Proportion of GDP

Running Costs Budgets

Table 2 shows the 1997-98 Budget and forward estimates of running costs for all portfolios. In nominal terms running costs are expected to increase by 0.8 per cent from 1996-97 to 1997-98 while in real terms they are expected to decrease by 1.1 per cent.

Approximately $300 million is being carried forward from 1996-97 running costs budgets into 1997-98. Based on this and previous historical trends, a further $300 million has been included in the Contingency Reserve for carryover of running costs from 1997-98 to 1998-99.

Staffing Levels

Consistent with practice in past years, Table 2 in this section and Table XIIa in the Statistical Appendix include estimates provided by each portfolio on average staffing levels. The total average staffing level (ASL) in running costs agencies is forecast to decline by 4,285 in 1997-98 as compared to 1996-97. ASL is projected to decline to some extent in most portfolios. The anticipated increase in ASL in the Social Security portfolio largely reflects and is offset by the transfer of staff from the Department of Employment, Education, Training and Youth Affairs to the new Commonwealth Services Delivery Agency, which commences operation on 1 July 1997.

ASL is the average number of employees receiving salary or wages over the financial year, with adjustments for casual and part-time employees to show the full-time equivalent. This measure of employment allows for comparison between average employment in particular financial years, rather than reflecting the actual number of staff being employed at the end of successive financial years or at other specific points in time. ASL figures are the most relevant for funding purposes, but do not indicate the change in total staff numbers from the end of one financial year to the next in the Australian Public Service. Movements in ASL as compared to point-in-time figures may vary significantly due to differences in the coverage of the two series (especially in the Department of Administrative Services) and from the partial ASL effect of staffing changes occurring during the financial year.

Based on point-in-time figures provided by Public Service Act agencies to the Public Service and Merit Protection Commission, it is expected that the total number of people employed (full-time and part-time permanent and temporary staff) under the Public Service Act will decline by some 16,500 between 30 June 1997 and 30 June 1998. This compares to a reduction of 11,200 now expected by Public Service Act agencies to occur between 30 June 1996 and 30 June 1997; in last year's Budget papers, portfolios predicted a reduction of 10,500 staff over the same period.

The expected reduction of staff numbers in the APS in the year to 30 June 1998 reflects the Government's public sector reforms, such as the sales of businesses in the Department of Administrative Services and the transfer of the employment placement function out of the APS to the Public Employment Placement Enterprise (PEPE) and to private sector providers. PEPE will be a wholly-owned Commonwealth company with staff employed outside the Public Service Act.

Table 2. Total Running Costs Budgets by Portfolio

(a) ASL figures are as provided by portfolios.

PART II: FUNCTION OUTLAYS

1. General Public Services

1A. Legislative and Executive Affairs

Nature of Outlays

This function includes outlays of the following portfolios:

• Administrative Services;
• Attorney-General's; and
• Prime Minister and Cabinet.

Chart 1. Overview of Commonwealth Outlays on
Legislative and Executive Affairs
(1989-90 prices)

Trends in Legislative and Executive Affairs Outlays

The Other Legislative Services trend reflects the impact on outlays of Federal elections. The 1997-98 Budget figure includes funding for the election of delegates to the Constitutional Convention. Provision for the next election is included in the Forward Estimates in 1998-99.

Commonwealth outlays on Executive Affairs remain largely stable after 1997-98 at a level which reflects the ongoing impact of the Prime Minister and Cabinet portfolio savings announced in last year's Budget. The higher level of outlays in 1997-98 compared to the forward years is the result of one-off funding in 1997-98 for the Constitutional Convention and carryovers from 1996-97 into 1997-98.

1997-98 and Forward Estimates

1A.1 Parliamentary Outlays

1A.2 Other Legislative Services

1A.3 Executive Affairs

1B. Financial and Fiscal Affairs

Nature of Outlays

This function includes outlays of the following portfolios:

• Treasury;
• Finance; and
• Industry, Science and Tourism.

Chart 1. Overview of Commonwealth Outlays on
Financial and Fiscal Affairs
(1989-90 prices)

Trends in Financial and Fiscal Affairs Outlays

• a strengthening of the Australian Taxation Office (ATO) resource base, including introduction of the Tax File Number System from 1988-89, modernisation of systems commencing 1989-90, compliance enforcement from 1993-94, and debt management activities from 1994-95;
• additional funding for the Insurance and Superannuation Commission (ISC) for audit of superannuation funds and improved enquiry services from 1991-92, as well as enhanced capacity for superannuation and insurance supervision from 1992-93; and
• taxes paid rose with the introduction from 1987-88 of Fringe Benefits Tax (FBT) and from 1990-91 of customs duty payable by Commonwealth departments and budget sector agencies. FBT payments increased significantly from 1994-95 as a result of legislation which effectively increased the FBT liability of departments and budget sector agencies from 48.25 per cent to around 93 per cent; the departments and agencies are tax exempt employers and therefore not eligible for tax deductions for any FBT costs.

• a peak in outlays for the Australian Bureau of Statistics (ABS) in 1996-97 reflecting the 1996 Census of Population and Housing offset in part by significant census outlays expected in 2000-01;
• a winding down in the ATO's Modernisation Project; and
• higher receipts of FBT payments by Commonwealth departments and budget sector agencies (reducing outlays).

1997-98 and Forward Estimates

1B.1 Financial and Statistical Services

Department of the Treasury is responsible for advising and assisting the Government in the management of the Australian economy.

Australian Taxation Office is responsible for ensuring the collection of revenue payable under the laws administered by the Commissioner of Taxation.

Australian Bureau of Statistics is responsible for the collection of statistics Australia wide including the five yearly Census of Population and Housing as well as other cyclical surveys.

Department of Finance is responsible for promoting efficient, effective and ethical financial management and accountability practices within Commonwealth agencies and value for money in the design and delivery of Commonwealth programmes. Payments relating to Commonwealth Superannuation Administration and the Office of Government Information Technology are also included against this item.

Australian National Audit Office (ANAO) is responsible for audits of Commonwealth departments and authorities. The ANAO charges fees for audits of financial statements of Commonwealth authorities and companies and those fee receipts are treated as offsets within outlays.

Australian Customs Service is involved in facilitating the movement of people and goods into and out of Australia, the delivery of industry assistance programmes and the collection of customs duty and excise.

Insurance and Superannuation Commission is responsible for prudential supervision of the insurance (including life insurance) and superannuation industries.

1B.2 Taxes Paid by Budget Agencies

Taxes and levies received from budget sector agencies and classified as offsets within outlays are reported under this subfunction whereas the payments are reported under the functions to which the paying departments and agencies are classified. These items, combined with their offsets in other functions, have no net effect on aggregate budget outlays.

1C. Foreign Economic Aid

Nature of Outlays

This function principally includes outlays of the following portfolios:

• Foreign Affairs and Trade;
• Administrative Services; and
• Treasury;

• Health and Family Services;
• Industrial Relations;
• Attorney-General's;
• Immigration and Multicultural Affairs;
• Industry, Science and Tourism; and
• Transport and Regional Development.

Chart 1. Overview of Commonwealth Outlays on
Foreign Economic Aid
(1989-90 prices)

Trends in Foreign Economic Aid Outlays

Growth in Foreign Affairs Non-Aid over the period since 1987-88 has largely been influenced by Australian contributions to UN peacekeeping operations and by property. UN peacekeeping contributions have decreased in recent years and are projected to remain at this lower level. The fluctuations over the current, budget and forward years for Non-Aid outlays primarily reflect greater than average overseas property sales in 1996-97, carryovers in the Overseas Property Group's medium and minor works from 1996-97, transitional arrangements for devolving overseas property funding from the Overseas Property Group, affecting only 1997-98 at this stage, and the completion of major works overseas.

1997-98 and Forward Estimates

1C.1 Bilateral Aid

Bilateral Aid supports development assistance programmes provided to specific countries, such as technical and other training, education, health and other humanitarian programmes. The principal recipients of Australia's bilateral aid are countries in the Asia-Pacific region, with Papua New Guinea being the largest.

Papua New Guinea - Budget Support

Under the Papua New Guinea-Australia Treaty on Development Cooperation, Budget Support is being phased out and substituted with programmed aid. In 1997-98, the loan made to Papua New Guinea in 1995-96 to help fill the External Financing Gap is to be repaid.

Development Import Finance Facility

The Development Import Finance Facility was abolished in the 1996-97 Budget.

1C.2 Multilateral Aid

Multilateral aid outlays encompass contributions to economic development funds administered by international, regional or other multinational organisations including the World Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the International Fund for Agricultural Development, and the International Monetary Fund's Enhanced Structural Adjustment Facility.

1C.3 Aid Administration

1C.4 Foreign Affairs Non-Aid

Foreign Affairs Non-Aid outlays cover the promotion of Australia's interests through diplomatic relations with other countries, both bilaterally and through our participation in, and contributions to, international organisations and forums including UN peacekeeping operations.

Because of the nature of the events covered, the contributions for UN Peacekeeping activities are uneven and not easy to predict. The forward years, therefore, reflect a provision based on previous experience.

General administration outlays include the major part of the Department of Foreign Affairs and Trade administration costs (other than a small proportion of the Department's costs which relate to 3. Public Order and Safety) and the administrative costs of the Department of Administrative Services' Overseas Property Group.

1D. General Research

Nature of Outlays

The research agencies, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the Australian Nuclear Science and Technology Organisation (ANSTO) and the Australian Institute of Marine Science (AIMS) receive most of their funding directly from the Budget. Additional research funding is received from the private sector and from a variety of Commonwealth assisted grant schemes.

Australia maintains several Antarctic research stations and supports associated research through the Antarctic Division of the Department of the Environment, Sport and Territories (DEST).

Commonwealth grants are provided for higher education research on the advice of the Australian Research Council (ARC) and through the Cooperative Research Centres (CRC) Programme to supplement contributions from CRC partner organisations.

This function includes outlays of the following portfolios:

• Industry, Science and Tourism;
• Employment, Education, Training and Youth Affairs;
• Environment, Sport and Territories;
• Communications and the Arts; and
• Administrative Services.

Chart 1. Overview of Commonwealth Outlays on
General Research
(1989-90 prices)

Trends in General Research Outlays

1997-98 and Forward Estimates

1D.1 Commonwealth Scientific and Industrial Research Organisation

1D.2 Australian Nuclear Science and Technology Organisation

1D.3 Australian Research Council

The Government has foreshadowed a restructuring of the ARC with a wider range of functions including responsibility for allocating competitive research grants, liaising with industry, promoting the role and importance of research within the broader community and developing closer links between the universities, public research organisations and the private sector.

1D.4 Other General Research, NEC

Cooperative Research Centres

The Cooperative Research Centres (CRC) Programme provides support for long-term collaborative research ventures between universities, public research organisations, Government agencies and private enterprises. It aims to promote high quality research, strengthen links between research and its commercial and other applications, and provide a training ground for Australia's future researchers.

Antarctic Division

The Antarctic Division (of the Department of the Environment, Sport and Territories) maintains an Australian presence at three stations on the Antarctic continent and one on Macquarie Island. The Division's main research effort is directed at building up a systematic knowledge of the Antarctic and its environment, and understanding the role that this region has in relation to global climate change.

Australian Institute of Marine Science

The Australian Institute of Marine Science (AIMS) undertakes research directed towards improving the understanding of the marine environment in the coastal and continental shelf regions of Australia and assists with the development, conservation and management of marine resources including the environmental sustainability of offshore resource industries and of Great Barrier Reef management plans.

International and Other Research

The significant programmes in this subgroup include: the Major National Research Facilities Programme; the International Science and Technology Cooperation Programme; the Anglo-Australian Telescope; and the Department of Administrative Services' Centre for Environmental Management.

1E. General Services

Nature of Outlays

This function includes outlays of the following portfolios:

• Administrative Services;
• Industrial Relations;
• Environment, Sport and Territories; and
• Attorney-General's.

Chart 1. Overview of Commonwealth Outlays on
General Services
(1989-90 prices)

Trends in General Services Outlays

• the progressive introduction from 1987-88 of commercialisation in the delivery of common services by the Department of Administrative Services (DAS);
• ACT self-government in May 1989;
• the introduction of revised arrangements for funding Commonwealth employees' compensation, including the payment of premiums by agencies from 1989-90;
• the introduction, from 1989-90, of rent payments by agencies which occupy Commonwealth owned real estate;
• the effect of property sales from 1996-97; and
• the rationalisation of DAS common service businesses in 1996-97.

1997-98 and Forward Estimates

1E.1 Commonwealth Employees' Compensation

Premium rates for 1997-98 will be decided by the Safety, Rehabilitation and Compensation Commission in June 1997. The downward trend experienced from 1995-96 to 1996-97 is expected to continue, largely due to claims frequency continuing to decrease whilst the average cost of claims appears to be stabilising.

1E.2 Estate Management

The Government has agreed on a set of Commonwealth Property Principles which will have the effect of restricting Commonwealth ownership of property to cases where there are strong public interest or financial reasons for ownership. As a result, major sales are forecast for the budget and later years. No new developments are planned, although some properties may be refurbished. The Government has outsourced the management of its office estate, reflecting the trend to outsource activities which are not core functions of government.

1E.3 Common Service Businesses

(a) The Office of Asset Sales (OAS) is progressing the sale of these businesses. Sales are expected to be concluded by mid 1997.

(b) OAS is currently assessing the sale of DASFLEET or refinancing of the vehicle fleet, with a target completion date of mid 1997. Budget estimates are based on refinancing the fleet.

Estimates of the proceeds from sale/refinancing of the DAS businesses are included in the totals under 14E. Asset Sales. The costs associated with the handling of surplus staff and property following the sale and/or restructure are reported in 1E.4 Other General Services below.

1E.4 Other General Services

Department of the Environment, Sport and Territories

This element covers the running costs and other outlays of the Territories Programme that are not elsewhere classified. Government policy is to bring the laws, standards and infrastructure on the Indian Ocean Territories of the Cocos (Keeling) Islands and Christmas Island up to the standard of those on mainland Australia.

Department of Administrative Services

The Government's decision to withdraw from or to restructure the common service businesses in DAS will result in a large number of staff and properties becoming surplus to requirements. Surplus staff are given short term assistance with retraining and redeployment counselling through the DAS Business Sale and Restructuring - Staff Management Programme. These costs are met by the budget and are reported under this subfunction. The decline in outlays from 1998-99 reflects the progressive wind down of the programme.

Other

This item covers outlays on the Administrative Appeals Tribunal and other small agencies not elsewhere classified.

1F. Government Superannuation Benefits

Nature of Outlays

The major Commonwealth civilian superannuation schemes are the Public Sector Superannuation (PSS) Scheme and the Commonwealth Superannuation Scheme (CSS), while the Parliamentary Contributory Superannuation Scheme exists for members of Parliament. The Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme provide benefits to military personnel.

Chart 1. Overview of Commonwealth Net Outlays on
Government Superannuation Benefits
(1989-90 prices)

Trends in Government Superannuation Outlays

• decreased net outlays in 1992-93 reflecting the commencement of payment by the Department of Defence of employer superannuation contributions to the Consolidated Revenue Fund;
• decreased net outlays in 1995-96, due to the commencement of notional employer superannuation contributions by running cost departments and agencies, so bringing running cost departments and agencies into line with other government agencies:
  • these contributions reduce net superannuation outlays but have a neutral net effect on total Commonwealth budget outlays as they are offset by an equivalent increase in running costs outlays in other functions; and
• a large increase in net superannuation outlays in 1996-97, which is expected to continue into 1997-98, due to lump sum benefit payments associated with public sector redundancies.

1997-98 and Forward Estimates

2. Defence

Nature of Outlays

This function includes outlays of the following portfolios:

• Administrative Services;
• Defence; and
• Finance.

Chart 1. Overview of Commonwealth Outlays on
Defence
(1989-90 prices)

Trends in Defence Outlays

Savings arising from the Commercial Support Programme have been allocated by Defence to higher priority areas. Defence also retains the proceeds from the sale of most surplus or under-utilised properties. The Government's policy is to reallocate funds from lower priority and support areas to enhance Defence's combat capabilities. This process will be reinforced by the Defence Reform Programme (DRP) which will implement the agreed recommendations of the 1997 Defence Efficiency Review report, Future Directions for the Management of Australia's Defence. The forward year estimates reflected in the preceding chart and the following tables do not yet fully reflect the impact of the DRP.

1997-98 and Forward Estimates