Risks to the budget
Economic and other parameters
Major short-term influences on expected revenues and expenses typically are changes in forecasts of economic and non-economic parameters. Over the long-term, differences between the economic parameter forecasts and outcomes have not created any clear bias toward understatement or overstatement of revenue, expenses or the budget balance.
Budget Statement 2 discusses the sensitivity of revenue and expense estimates to major economic parameters.
Fiscal risks
Fiscal risks are general developments or specific events that may affect the fiscal outlook. Some developments or events simply raise the possibility of some fiscal impact. In other cases, some fiscal impact may be reasonably certain, but it will not be included in the forward estimates because the timing or magnitude is not known. Fiscal risks may affect expenses and/or revenue and may be positive or negative on revenue, expenses and/or the budget balance. A general risk to the forward estimates is the possible Senate rejection or amendment of budget measures or other legislation before the Parliament. This general risk is not specifically identified elsewhere in this statement because these measures remain Government policy.
Contingent liabilities
Contingent liabilities are now defined by the accounting standard AASB 1044, which came into effect on 1 July 2002. Broadly, they represent possible costs to the Commonwealth arising from past events that the outcome of future events will confirm. Contingent liabilities include loan guarantees, non-loan guarantees, warranties, indemnities, uncalled capital and letters of comfort. These possible costs are in addition to those recognised as liabilities in the consolidated financial statements of the Commonwealth general government sector.
The Commonwealth's major exposure to contingent liabilities arises from legislation guaranteeing certain liabilities of Commonwealth controlled financial institutions (the Reserve Bank of Australia and the Export Finance and Insurance Corporation) and the now fully privatised Commonwealth Bank of Australia.
Strategies to manage these exposures aim to ensure the underlying strength and viability of the entities, so that the guarantees are not triggered. Similar strategies may be adopted in relation to entities not subject to explicit guarantees.
Other arrangements govern the entering into, and monitoring of, contingent liabilities, such as indemnities and uncalled capital. Uncalled capital is primarily associated with international financial institutions, such as the International Bank for Reconstruction and Development, the Asian Development Bank and the European Bank for Reconstruction and Development. Arrangements for capital contributions to these institutions, including contingent liabilities, are approved by Parliament, and the Government provides annual reports on the institutions to Parliament.
Consistent with the Australian Bureau of Statistics Government Finance Statistics standards, transactions concerned with the management of international reserves and the monetary system are classified as financing transactions and do not impact on the budget balances. Accordingly, contingent liabilities (and assets) with the International Monetary Fund are not shown.
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 Parliament's decisions and other developments until the close of parliamentary business on 30 April 2003. In general, information on contingent liabilities is based on information provided by Commonwealth departments and agencies and is current to 31 March 2003 (or later as indicated). However, in some cases, earlier dates are used and are noted in the relevant section.
Information on contingent liabilities also is provided in the annual financial statements of departments and non-budget entities.