Fiscal risks - revenue
The Government's revenue and policy measure forecasts, like all forecasts, are subject to a margin of error.
An implication of the degree of uncertainty surrounding the revenue forecasts is that, while many of the forecasts are reported to the nearest million dollars for budget accounting purposes, they should not be interpreted as implying an equivalent level of forecast precision.
The various risks influencing the accuracy of the revenue forecasts are outlined.
General risks
The forward estimates of revenue are subject to a number of general pressures that can affect revenue collections. These general pressures include tax avoidance, developments in communications technology and workplace arrangements, court decisions and ATO rulings. These pressures may result in a shift in the composition of revenue collected from the various tax bases and/or a change in the size of the tax base. The revenue forecasts include an appropriate allowance for these factors, given the data available.
Specific risks
United Kingdom Double Tax Convention
The Government is close to finalising negotiations with the United Kingdom to modernise the double tax convention between the two countries. The Government has made an allowance in the forward estimates for the likely cost of the agreement, but revisions may alter the final revenue effect of the package.
Fiscal risks - expenses
Agriculture, Fisheries and Forestry
Exceptional Circumstances assistance for drought-affected farmers
Exceptional Circumstances assistance is available, subject to eligibility criteria, to drought-affected farmers by way of interest rate subsidies and/or income support through the Exceptional Circumstances Relief Payment. Continuation of drought conditions could result in higher than expected expenses for these forms of assistance. It is not possible to quantify the cost arising from such potential developments as this depends on intensity, duration and scale of future drought conditions.
Finance and Administration
Asset sales - Sydney Basin Airports
The forward estimates include the effect of the sale of Sydney Basin Airports. The Government announced the sale strategy on 9 April 2003. The sale is expected to be completed by end September 2003 and the level of proceeds to the Commonwealth will depend on market conditions at the time of the sale.
Asset sales - Telstra
The forward estimates include the effect of the sale of the Commonwealth's shareholding in Telstra, noting that the level of proceeds will depend, inter alia, on the prevailing levels of world equity markets at the time of the sale. The sale of the Commonwealth's remaining shareholding in Telstra is dependent on the passage of legislation through the Parliament. The Government has committed not to introduce such legislation until it is satisfied arrangements exist to deliver adequate services, in particular to rural and regional Australia.
Member choice and Commonwealth superannuation arrangements
The Government's policy for new superannuation arrangements for Commonwealth employees has been provided for in the forward estimates. These new arrangements provide for the closure of the Public Sector Superannuation Scheme (PSS) to new employees and for new employees to join a complying superannuation fund or retirement savings account (RSA) offered by their employer. The arrangements also provide for existing Commonwealth Superannuation Scheme and PSS members to choose to join another fund or RSA. Subject to the introduction of new legislation into Parliament to give effect to this policy, the estimates are now based on an assumed start date of 1 July 2004. A later start date would improve the underlying cash balance from 2004-05, compared to the existing estimates, as this would delay the time at which payments would be made to private sector superannuation funds or RSAs.
Health and Ageing
Australian Health Care Agreements
Under the 2003-08 Australian Health Care Agreements (AHCAs), the Commonwealth will contribute up to $42 billion over 2003-04 to 2007-08 to the States and Territories in support of public hospital services in Australia. An element of this funding is dependent upon terms and conditions which are to be met by the States and Territories. Should these terms and conditions not be met by any jurisdiction, Commonwealth outlays under the AHCAs may be less over the five-year period.
Immunisation funding mechanism
Future vaccine technology will result in new vaccines substituting for those already in use (for example, multivalent vaccines which combine several vaccines into one) and, as a consequence, could result in higher unit costs of vaccine within the routine schedule. Given the nature of current vaccine technology and the possible introduction of new vaccines, specific costs cannot be precisely quantified at this stage.
Major new listings - Medicare Benefits Schedule and Pharmaceutical Benefits Scheme
From time to time items are added to or removed from the Medicare Benefits Schedule and Pharmaceutical Benefits Scheme schedules following independent assessments of cost-effectiveness. Major new developments in medicines or medical procedures could result in increases in expenses that exceed the provision in the forward estimates. Similarly, significant shifts in usage patterns, which may occur for particular drugs or groups of drugs from time to time, could result in increases in expenses that exceed the provision in the forward estimates. It is not possible to quantify the fiscal risk arising from such potential developments.
Medical Indemnity Insurance - Incurred-But-Not-Reported (IBNR) scheme
In announcements on the medical indemnity package in May and October 2002, the Prime Minister indicated that the Commonwealth would assume the liability for the unfunded IBNR liabilities of Medical Defence Organisations (MDOs), with this liability to be funded by doctors who were members of the organisations as at 30 June 2000, subject to a number of conditions.
Legislation has been passed giving effect to the IBNR scheme. An estimate of the liability for United Medical Protection/Australasian Medical Insurance Limited was reported as an expense in the 2001-02 Final Budget Outcome. The necessary data to make a similar estimate for other MDOs is, as yet, unavailable.
Transport and Regional Services
Natural Disaster Relief Arrangements
Payments are made to State and Territory Governments under specific criteria relating to costs incurred by the State and Territory Governments following natural disasters. An amount has been included in the estimates for future payments. However, the actual level of payments under this scheme will depend on the incidence and severity of natural disasters.
Treasury
International Monetary Fund (IMF) assistance to Thailand
Australia's offer to provide bilateral financing of up to $US1 billion in support of the IMF programme in Thailand was taken up in the form of a series of currency swaps between the Reserve Bank of Australia (RBA) and the Bank of Thailand. Under the swap arrangements, the RBA provided $US862 million to the Bank of Thailand in exchange for Thai Baht. From March 2001, the Bank of Thailand began repaying the swaps as scheduled. Currently, $US53.8 million of the facility remains outstanding. Repayment in full is scheduled to occur no later than July 2004. Changes to the schedule of repayments outstanding may result in the RBA dividend stream in the forward estimates being affected.