Part V:  Expenses and Capital
Relative to the 2000-01 Budget, estimated expenses have increased in 2000-01 and the forward years. The increase in estimated expenses reflects a number of revisions, including higher than expected claims for savings bonuses by older Australians, an increased take-up of private health insurance (with flow-on effects to the Private Health Insurance Rebate and Medicare expenses), and revised superannuation interest expenses. Stronger forecast employment growth in 2000‑01 is expected to result in lower expenses on unemployment benefits.
In addition to these variations, around $1 billion of Defence expenditure has been reclassified from net capital investment to expenses. This reclassification of expenditure on defence weapons platforms is required to maintain consistency with Australian Bureau of Statistics (ABS) standards (see Box 2 for further information). It has no effect on the fiscal or underlying cash balances.
Expenses
Table 16 shows estimates of general government expenses for 2000-01 and the forward years.
Table 16:  Estimates of general government expenses

As presented in Table 17, the increase in expenses since the 2000-01 Budget is largely due to the effect of programme specific parameter variations and the reclassification of defence weapons platforms. Policy decisions and other variations have also contributed to the increase in expenses.
Table 17:  Reconciliation of general government expenses estimates

(a)	Excludes the public debt net interest effect of policy decisions.
(b)	This variation is matched by an offsetting reduction in net capital investment. It has no effect on the fiscal or underlying cash balances.
Major policy decisions since the 2000‑01 Budget include:
•	additional expenses of $36.5 million per annum following an increase in the maximum rate of rent assistance (to a total of 10 per cent of the pre‑1 July 2000 maximum rate for social security beneficiaries), further increasing compensation under The New Tax System; 
•	additional expenses of $37 million in 2000-01 (rising to $66 million in 2003‑04) on the Pharmaceutical Benefits Scheme (PBS) for the listing of Celecoxib, a new anti‑arthritis drug;
•	additional expenses of $183 million in 2000-01 and $141 million in 2001-02 for the Australian Taxation Office to cover the increased cost of administering the GST. This arises largely from a higher than expected number of GST registrations. These expenses are fully offset by equivalent revenue received from the States;
•	the provision of $66 million in 2000-01 and $17 million in 2001-02 to implement a comprehensive package of assistance for sugar cane growers;
•	the provision of up to $50 million in 2000-01 to the Sydney Organising Committee for the Olympic Games, the Sydney Paralympic Organising Committee, and the Australian Olympic Committee for the payment of GST liabilities on all non‑premium Games ticket sales by these organisations; and
•	increased expenses of around $80 million in 2000-01 as a result of the Commonwealth divesting its interest in the Australian Wool Research and Promotion Organisation, and establishing a new commercial wool service company, Australian Wool Services Ltd, from 1 January 2001.
A full list of expense measures since the 2000-01 Budget is provided at Attachment A and are discussed at Appendix A.
Revisions to parameters have increased estimated expenses in all years, primarily due to:
•	higher than expected payments ($550 million in 2000-01) under the Aged Persons Savings and Self Funded Retirees Supplementary Bonuses, mainly due to recipients having higher investment income, increasing the amount of bonus payable;
•	an increase in expenses of approximately $390 million in 2000-01 (reducing to around $250 million in 2003‑04), due to the impact on the 30 per cent rebate of an increased take-up of private health insurance following the introduction of the Government's Lifetime Health Cover;
•	higher expenses of around $130 million in 2000-01 (increasing to around $240 million in 2003‑04), due to expected flow-on effects of increased participation in private health insurance on Medicare expenses. This increase arises because the Commonwealth pays 75 per cent of the Medicare Schedule Fee for privately insured patients;
•	increased pension and personal benefit expenses of around $52 million in 2000-01 (increasing to around $265 million in 2003‑04), reflecting an upward revision to forecast growth in average weekly earnings (MTAWE); and
•	increased expenses of around $149 million in 2000-01 (increasing to around $220 million in 2003‑04), due to an increase in the expected average rate of payment for some social security payments, including the Age Pension, Newstart Allowance and Carer Allowance. This is partially offset by a decrease in expenses of $80 million in 2000‑01 due to lower than anticipated growth in the number of aged pension recipients.
These increases are partially offset by a reduction in expenses of around $96 million in 2000-01 (increasing to around $145 million in 2003-04), due to a downward revision in the estimated number of unemployment benefit recipients.
Public debt interest has also reduced expense estimates in 2000-01 by $290 million, reflecting the better than expected 1999‑2000 Budget outcome and the increase in the estimated 2000-01 cash surplus.

Other variations to expense estimates since the 2000‑01 Budget include:
•	increased superannuation interest expenses of around $190 million in 2000-01 (rising slightly over the forward estimates), resulting from an actuarial review of the Commonwealth and Public Sector superannuation schemes. The review modified assumptions to increase the level of preserved benefits and the ratio of pensions to lump sum payments on retirement;
•	higher expenses of around $230 million in 2000-01 due to a shift in expenses from 1999-2000. The bulk of the expense ($133 million) is for a range of annual programmes administered by the Department of Health and Aged Care;
•	additional petroleum royalty grant expenses of around $120 million in 2000-01. These expenses reflect the payment of royalties collected by the Commonwealth and shared with the associated States. These royalties have increased as a result of the recent rise in world crude oil prices; and
•	higher expenses of around $90 million in 2000-01 for the Fuel Sales Grants Scheme reflecting higher than anticipated claims by non-metropolitan and remote fuel retailers and distributors.
The increase in expenses from other variations is partly offset by:
•	a reduction in estimated budget balancing assistance grants to the States of $360 million in 2000-01 and $1,339 million in 2001-02, following a revision in estimated GST revenue collections in 2000-01. More information on this variation is provided in Box 1 of Part III;
•	a reduction in Contingency Reserve expenses estimates to reflect changes in the conservative bias allowance and provision for underspends; and
•	reduced expenses of around $92 million in 2000-01 for the Diesel Fuel Rebate Scheme, reflecting lower than anticipated claims, especially in mining.
Further information on the breakdown of general government expenditure is provided in Tables 18 and 19. Table 18 presents Commonwealth General Government expenses by function, while Table 19 shows Commonwealth general government expenses by economic type.
Box 2:  Reclassification of expenditure on defence weapons platforms
The Australian Bureau of Statistics (ABS) GFS framework is based on the international statistical standards determined by the International Monetary Fund and United Nations. Under these statistical standards, destructive weapons (such as missiles) are considered to be single-use goods and are not classified as fixed assets. By extension, vehicles and equipment designed to release such weapons are not treated as fixed assets.
Commencing with the 2000‑01 edition of the Government Financial Estimates publication (Cat. No. 5501.0), the ABS will align the GFS framework with international statistical standards by classifying purchases of defence weapons platforms (for example, ships, tanks, fighter aircraft) as current expenses rather than as investments in fixed assets. Consistent with the Charter of Budget Honesty Act 1998 the Commonwealth is also now adopting this treatment and the impact on the GFS financial statements is summarised below.
In the cash flow statement, the underlying cash balance will remain unchanged. Operating cash payments will increase and cash spent on purchases of non‑financial assets will decrease by an equal amount.
In the operating statement, the fiscal balance will remain unchanged, but there will be a redistribution between expenses and net capital investment, resulting in a fall in the GFS net operating balance.
Over the forward estimates, current expenses will increase in net terms by approximately $1 billion each year. The reclassification of purchases from capital to current expenditure is partially offset by a corresponding reduction in depreciation expenses.
Net capital investment (net acquisition of non-financial assets) will decrease by an amount equivalent to the increase in current expenses.
In the balance sheet, defence weapons platforms will be removed from assets, resulting in a reduction in net worth of approximately $30 billion.
The AAS31 financial statements (in Appendix C) will continue to treat defence weapons platforms as assets.	

Table 18:  GFS general government expenses by function

Table 18:  GFS general government expenses by function (continued)

(a)	The Diesel Fuel Rebate Scheme (DFRS) has been reclassified from Financial and Fiscal Affairs in General Public Services, to Fuel and Energy. At the 2000‑01 Budget, the DFRS was reclassified from an offset to revenue to an expense. Following this change, the ABS advised that the functional classification should be Fuel and Energy as the DFRS reduces the cost of fuel to the commercial non-transport sector.
(b)	Nominal Superannuation Interest has been reclassified from Government Superannuation Benefits in General Public Services, to Other Purposes (following advice from the ABS) as interest expenses are recorded in Other Purposes.
(c)	The change in the GFS classification of defence weapons platforms (as described in Box 2) is primarily responsible for the increase in the Defence function expenses since the 2000‑01 Budget.

Table 19:  Changes to general government expenses by economic type since the 2000‑01 Budget

Capital
Excluding the reclassification of defence weapons platforms (described in Box 2), estimated net capital investment has fallen by $383 million in 2000-01 and $187 million in 2001‑02.
Table 20 provides a reconciliation of the MYEFO net capital investment estimates with those at the 2000‑01 Budget, showing the effect of policy decisions and parameter and other variations. A full list of capital measures is at Attachment B.
Table 20:  Reconciliation of general government net capital investment estimates(a)

(a)	Net capital investment is defined as the net acquisition of non‑financial assets. Capital policy decisions as shown above do not include capital measures that fall outside this definition, for example, equity injections to reduce an agency’s balance sheet liabilities.
(b)	This variation is matched by an offsetting increase in expenses. It has no effect on the fiscal or underlying cash balances.
New capital decisions since Budget include the provision of around $5 million over two years to support the construction of Reconciliation Place and related initiatives in the Parliamentary Zone in Canberra. Other revisions to the Budget estimates of net capital investment include:
•	higher than anticipated proceeds from the sale of FM radio licenses in the Sydney area;
•	higher than expected depreciation (around $200m in 2000‑01); and
•	a change in the capital conservative bias allowance.
Contingency Reserve
The Contingency Reserve is the means of ensuring that the aggregate estimates are robust and based on the best information available at the time of publication. The Contingency Reserve includes the following:
•	an allowance for the tendency for expense estimates of existing government policy to be revised upwards in the forward years;
•	an allowance for the tendency for estimates of some expenses to be overstated in the budget year;
•	commercial‑in‑confidence and national security‑in‑confidence items which cannot be disclosed separately;
•	decisions made too late for inclusion against individual agency estimates; and
•	the effect of economic parameter revisions on the budget and forward estimates received late in the process and hence not able to be allocated to individual agencies.
The Contingency Reserve also includes a provision for possible future funding increases for the Defence portfolio, pending the outcome of the Government's final consideration of the forthcoming Defence White Paper.

Attachment A
Expense measures since the 2000‑01 Budget
Table 21:  Expense measures since the 2000‑01 Budget

Table 21:  Expense measures since the 2000‑01 Budget (continued)

Table 21:  Expense measures since the 2000‑01 Budget (continued)

Table 21:  Expense measures since the 2000‑01 Budget (continued)

Table 21:  Expense measures since the 2000‑01 Budget (continued)

(a)	All funding for this measure, including funding for the Environment and Heritage portfolio, is listed under the Agriculture, Fisheries and Forestry portfolio.

Attachment B
Capital measures since the 2000‑01 Budget
Table 22:  Capital measures since the 2000‑01 Budget