Australian Office of Financial Management

Section 1: Overview, appropriations and budget measures summary

Agency overview

The Australian Office of Financial Management (AOFM), a ‘prescribed agency’ under the Financial Management and Accountability Act 1997, is responsible for the Commonwealth’s debt management activities.

The AOFM aims to manage the Commonwealth net debt portfolio at least cost over the medium term, subject to the Government’s policies and risk preferences.

Appropriations and resourcing

The total appropriation for the AOFM in the 2004-05 Budget is $87,830.5 million. Table 1.1 sets out appropriations for the AOFM.

Price of outputs appropriation is $8.1 million. The total administered outcome appropriation of $87,822.4 million is based on budgeted expenses of $5,976.4 million and budgeted debt redemption and financial investment activity of $81,846.0 million.

Australian Office of Financial Management — appropriations 2004-05

Table 1.1: Appropriations and other revenue

1. C1, E1 and I1 refer to information provided in Table 2.1, Total resources for Outcome 1. K1 refers to information provided in Table 3.1, Budgeted Agency Statement of Financial Performance.
2. Refer to Table 3.1, Budgeted Agency Statement of Financial Performance for application of agency revenue.
3. Estimated expenses from individual special appropriations are shown in Table 1.5.

Note: Percentage figures indicate the percentage contribution of revenues from government (agency appropriations) to the total price of outputs, by outcome.

Agency revenues

Table 1.3: Agency revenues

Note 1: comprises forward foreign exchange contracts, cross currency swaps and foreign denominated bonds.

Administered revenues includes interest revenue on swap transactions and financial investments, interest on Commonwealth Government Securities allocated to the States and Territories and interest on other advances made to the States under Commonwealth — State financing arrangements.

Financial assets and liabilities denominated in a foreign currency are converted to Australian dollar equivalents using actual exchange rates for closed-out positions and budget exchange rate assumptions for positions open at the time of preparing the budget estimates. Estimated net exchange rate gains arising from the currency translations are disclosed in Table 1.3.

Special appropriations

Table 1.5: Estimates of expenses from special appropriations

The commentary below summaries the key legislative mechanisms that establish the Commonwealth’s borrowing capacity.

The Commonwealth Inscribed Stock Act 1911 and associated regulations represent the Commonwealth’s primary vehicle for the creation and issuance of domestic stock prescribed under the Act, including Treasury Fixed Coupon Bonds, Treasury Indexed Bonds and Treasury Notes.

The Financial Agreement Act 1994 formalises revised debt redemption arrangements applying since 1 July 1990 between the Commonwealth and the States and Territories.

The Loans Securities Act 1919 (as amended by the Loans Securities Amendment Act 1988) provides the Commonwealth with additional borrowing flexibility, by allowing overseas borrowings and borrowings in foreign currencies and by providing an explicit authority to enter into swaps and other financial arrangements.

Special accounts

Table 1.6: Estimates of special account flows and balances

1. The opening balance for 2004-05 (reference A) is the same as the closing balance for 2003-04 (reference B).
2. This special account is administered in nature and is governed by the Financial Agreement Act 1994.

Until July 1990, the Commonwealth borrowed on behalf of the State and Territory Governments and allocated a portion of its Treasury Bond raisings to those Governments to fund the redemption of previous allocations of bond raisings. Until 1986, the Commonwealth also borrowed on behalf of the State and Territory Governments to raise new borrowings.

The annual funding of the redemption of the State and Territory allocated debt is governed by the Financial Agreement Act 1994 which requires the Commonwealth to establish and maintain the Debt Retirement Reserve Trust Account (DRRTA), a special account, for the States and the Northern Territory. Monies standing to the credit of a State or the Northern Territory are applied by the Commonwealth in connection with the repurchase and repayment of the debt of that State or the Northern Territory.

The Act prescribes the contributions to be made by the Commonwealth, the States and the Northern Territory to the DRRTA to meet the volume of maturing debt.

Agency equity injections and loans

The AOFM is not seeking new equity injections or loans for 2004-05.

The AOFM will carryover into 2004-05 unspent equity injections obtained during 2003-04 and previous financial years for the acquisition of a specialist debt management system and for the implementation of the Budget Estimates and Framework Review (BEFR) recommendations.

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