Contingent liabilities — quantifiable
Defence and Defence Materiel Organisation
Indemnities
The Department of Defence (Defence) and the Defence Materiel Organisation (DMO) carry an extensive range of indemnities and undertakings, normally of a short-term nature, relating to business, training activities and other activities involving contracts, agreements and other Defence and DMO arrangements. Indemnities issued cover potential losses or damages for which the Australian Government would be liable.
Defence carries 410 instances of contingencies that are unquantifiable and remote and 44 instances of quantifiable and remote contingencies to the value of $1.8 billion. As at 30 June 2007 the DMO carries two instances of contingencies that are unquantifiable and 231 contingencies that are quantifiable, to the value of $2.6 billion, and is planning to issue an indemnity to the value of $320 million (relating to an individual major capital acquisition project which is currently commercial-in-confidence). While these contingencies are considered remote, they have been reported in aggregate for completeness.
Finance and Administration
Potential claims relating to superannuation benefits
On 20 April 2007, the High Court rejected the Commonwealth of Australia's appeal on a claim for negligent misstatement relating to superannuation benefits for a former employee of the Department of the Interior. Based on initial estimates, potential liabilities arising from this decision are quantified at $296 million. However, there is uncertainty around this estimate in relation to both the number of claims and the size of potential damage payouts (because no claims have yet been determined).
Sale of Sydney Airports Corporation Limited
An indemnity has been provided to Southern Cross Airports Corporation as purchaser of the Sydney Airports Corporation Ltd in the event of a liability arising under Chapter 3 of the Duties Act 1997 (New South Wales) by reason of the sale of shares in Sydney Airports Corporation Ltd constituting a relevant acquisition in a land-rich private corporation.
The New South Wales Office of State Revenue issued a notice of assessment on 17 November 2006, which the Australian Government disputes to be a valid assessment. In the event the liability is sustained it is estimated to be valued at between $401.5 million and $441.9 million.
Future Fund Board of Guardians — indemnity
The Australian Government has provided the members of the Future Fund Board of Guardians (the Future Fund Board) with an indemnity, to cover liabilities in excess of the Board's insurance policies.
Members of the Future Fund Board are indemnified, to the maximum extent permitted by law, in relation to all official actions. Similar to indemnities that are provided to members of Boards that operate under the Commonwealth Authorities and Companies Act 1997, the indemnity does not cover a Board member for conduct that he or she engages in other than in good faith, and in respect of certain other liabilities and costs incurred.
The indemnity is financially limited, in broad terms, to the value of the Future Fund.
Foreign Affairs and Trade
Export Finance and Insurance Corporation (EFIC)
The Australian Government guarantees the due payment by the EFIC of money that is, or may at any time become, payable by EFIC to any body other than the Australian Government. The Australian Government also has in place a $200 million callable facility available to EFIC on request to cover liabilities, losses and claims. As at 31 August 2007, the Australian Government's total contingent liability was $2.8 billion, comprising EFIC's liabilities to third parties ($2.1 billion) and EFIC's overseas investments insurance, contracts of insurance and guarantees ($0.7 billion).
Treasury
Reserve Bank of Australia — guarantee
This contingent liability relates to the Australian Government's guarantee of the liabilities of the Reserve Bank of Australia. It is measured as the Bank's total liabilities excluding capital, reserve and Australian Government deposits. The major component of the Bank's liabilities are notes (that is, currency) on issue. Notes on issue amount to $40.3 billion as at 30 June 2007 and the total guarantee is $59.9 billion.