Statement 11: Statement of Risks
The forward estimates of revenue and expenses in the 2007-08 Budget incorporate assumptions and judgments based on the best information available at the time of publication. A range of factors may influence the actual budget outcome in future years. The disclosure of these factors in this statement increases the transparency of the fiscal projections and ensures they remain 'on-balance' estimates.
Events that could affect fiscal outcomes include:
- changes in economic and other parameters;
- matters not included in the fiscal forecasts because of uncertainty about their timing, magnitude and/or likelihood; and
- the realisation of contingent liabilities.
Risks to the budget — overview
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 were 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 have a positive or negative impact on revenue, expenses and/or the budget balance. Contingent liabilities are a specific category of fiscal risks.
Contingent liabilities
Contingent liabilities are defined by the accounting standard AASB 137, which came into effect on 1 July 2005. Broadly, they represent possible costs to the Australian Government arising from past events that the outcome of future events not within the control of the Government 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. To help manage these exposures, strategies are in place which aim to ensure the underlying strength and viability of the entities, so that the guarantees are not triggered.
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
Contingent liabilities and other fiscal risks 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 2007. In general, information on contingent liabilities is based on information provided by Australian Government departments and agencies and is current to 31 March 2007. However, in some cases other 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 material changes to Statement of Risks since the 2006-07 Budget and Mid-Year Economic and Fiscal Outlook 2006-07(a)
| Fiscal risks — expenses | |||
| Agriculture, Fisheries and Forestry | |||
| Exceptional Circumstances assistance for drought-affected farmers | Modified | ||
| Contingent liabilities — quantifiable | |||
| Defence and Defence Material Organisation | |||
| Indemnities | Modified | ||
| Finance and Administration | |||
| Australian Industry Development Corporation | Modified |
||
| Potential claims relating to superannuation benefits | Modified | ||
| Foreign Affairs and Trade | |||
| Export Finance and Insurance Corporation | Modified | ||
| Treasury | |||
| Guarantees under the Commonwealth Bank Sale Act | Modified |
||
| International financial institutions – uncalled capital subscriptions | Modified |
||
| Reserve Bank of Australia – guarantee | Modified | ||
| Contingent liabilities — unquantifiable | |||
| Attorney-General's | |||
| Native title costs | Modified |
||
| Other indemnities | Deleted | ||
| Defence | |||
| ASC Proprietary Limited – Australian Government indemnities provided to Electric Boat Corporation under the services agreement | Modified |
||
| Decontamination of Defence sites | Modified |
||
| HMAS Melbourne and HMAS Voyager damages claims | Modified |
||
| Litigation cases | Modified | ||
| Employment and Workplace Relations | |||
| COMCARE liability for additional workers' compensation payments | Deleted | ||
| Environment and Heritage | |||
| Antarctic – make good provision | Deleted | ||
| Finance and Administration | |||
| Australian Reward Investment Alliance - Immunity and Indemnity | New |
||
| Indemnities relating to other former asset sales, privatisations and IT outsourcing projects | Modified |
||
| Industrial Waste Commission (IWC) Cleanaway | New |
||
| Telstra Sale Company Limited – indemnities | New |
||
| Tuggeranong Office Park Pty Ltd – shareholder indemnity | Deleted | ||
| Health and Ageing | |||
| Blood and blood products liability cover | Modified | ||
| Immigration and Citizenship | |||
| Immigration detention services | Modified | ||
| Industry, Tourism and Resources | |||
| Liability for damages caused by Kistler space activities | Modified | ||
| Treasury | |||
| Housing Loans Insurance Corporation – guarantee | Modified | ||
- 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 2006-07, Statement 11 or in Mid-Year Economic and Fiscal Outlook 2006-07, Appendix D.