Risks to the budget
Economic and other parameters
The revenue and expense estimates and projections are based on a range of economic and other parameters. If the economic outlook was to differ from that presented in Statement 3, the revenue and expense estimates and projections would also change. Statement 3 discusses risks to the economic forecasts. Statement 2 discusses the sensitivity of revenue and expense estimates to changes in the 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.
Contingent liabilities
Contingent liabilities are defined by the accounting standard AASB 1044, which came into effect on 1 July 2002. Broadly, they represent possible costs to the Australian Government 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 Australian Government general government sector.
The Australian Government’s major exposure to contingent liabilities arises from legislation guaranteeing certain liabilities of Australian Government 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.
Another class of contingent liability is uncalled capital, which reflects a financial commitment to an institution where no promissory note is issued by the Australian Government. Uncalled capital is primarily associated with international financial institutions such as the International Bank for Reconstruction and Development, the Asian Development Bank, the European Bank for Reconstruction and Development and the Multilateral Investment Guarantee Agency. When promissory notes are issued, such as in the case of the International Monetary Fund, the amounts are recorded in the general government balance sheet, so contingent liabilities (or assets) are not shown for those amounts.
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 2005. In general, information on contingent liabilities is based on information provided by Australian Government departments and agencies and is current to 31 March 2005 (or later as indicated). However, in some cases, earlier dates are used and are noted in the relevant section.
Information on contingent liabilities is also provided in the annual financial statements of departments and non-budget entities.
Table 1: Summary of changes to Statement of Risks since 2004-05 Budget and Mid-Year Economic and Fiscal Outlook
| Specific risks — revenue | Status |
|---|---|
| Renegotiation of withholding tax rates in certain Australian double tax treaties | Modified |
| Fiscal risks — expenses | |
| Agriculture, Fisheries and Forestry | |
| Exceptional Circumstances assistance for drought affected farmers | Modified |
| Contingent liabilities — quantifiable | |
| Defence | |
| Guarantees | Modified |
| Employment and Workplace Relations | |
| Special Employee Entitlements Scheme for Ansett group employees | Deleted |
| Finance and Administration | |
| Australian Industry Development Corporation | Modified |
| ComLand Limited | Deleted |
| Foreign Affairs and Trade | |
| Export Finance and Insurance Corporation | Modified |
| Industry, Tourism and Resources | |
| Timor Sea Designated Authority — litigation | New |
| Transport and Regional Services | |
| Maritime industry reform | Modified |
| Treasury | |
| Guarantees under the Commonwealth Bank Sale Act 1995 | Modified |
| Reserve Bank of Australia — guarantee | Modified |
| Uncalled capital subscriptions — international financial institutions | Modified |
| Various | |
| Asbestos related disease claims | Deleted |
| Contingent liabilities — unquantifiable | |
| Attorney-General’s | |
| Southern Ocean surveillance | Modified |
| Communications, Information Technology and the Arts | |
| New South Wales Councils | Deleted |
| Defence | |
| Military Superannuation and Benefits Scheme — indemnity | New |
| Education, Science and Training | |
| Australian Nuclear Science and Technology Organisation — delays in the commissioning of Replacement Research Reactor | Deleted |
| Australian Nuclear Science and Technology Organisation — indemnity | New |
| Finance and Administration | |
| Australian Technology Group — directors’ indemnities | New |
| ComLand Limited — directors’ indemnities | Modified |
| ComLand Limited — land remediation | Deleted |
| ComLand Limited — site contamination | New |
| Health Insurance Commission | Deleted |
| Members of Parliament Staff Employee Entitlements | Deleted |
| Potential claims relating to superannuation benefits | New |
| Sydney Airports Corporation Limited, Bankstown, Camden and Hoxton Park Airports — directors’ indemnities | Modified |
| Tuggeranong Office Park Pty Ltd | Deleted |
| Tuggeranong Office Park Pty Ltd — shareholder indemnity | New |
| Indemnities relating to other former asset sales, privatisations and IT outsourcing projects | Modified |
| Health and Ageing | |
| CSL Limited | Modified |
| Industry, Tourism and Resources | |
| Litigation | New |
| Transport and Regional Services | |
| Deep vein thrombosis action | Modified |
| Tripartite deeds relating to the sale of Federal leased airports | Modified |
| Treasury | |
| Terrorism insurance — commercial cover | Modified |
Note: Risks appearing in this Statement but not listed in the table above are substantially unchanged since disclosed in Budget Paper No. 1, Budget Strategy and Outlook 2004-05, Statement 11 or in Mid-Year Economic and Fiscal Outlook 2004‑05, Appendix D.