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 contingencies to the value of $1.8 billion. DMO carries 505 instances of contingencies (including Foreign Military Sales) that are unquantifiable and 67 contingencies that are quantifiable to the value of $2.8 billion. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Environment, Heritage and the Arts
Possible claims relating to the Great Barrier Reef Marine Park Structural Adjustment Package
The Great Barrier Reef Marine Park Structural Adjustment Package was designed to assist businesses to manage the impacts caused by the July 2004 rezoning of the Great Barrier Reef Marine Park. Applicants were able to apply for assistance under various elements of the package, but could accept funding under only one component (excluding Business Advice Assistance).
Claims have been submitted by a number of applicants that had previously accepted funding under one component of the package and are now seeking access to another component that could have resulted in a higher level of assistance.
In the event that all current claimants are found to be eligible for the higher level of assistance, the Australian Government's liability is estimated at up to $24 million. Any further claimants could increase this liability.
Finance and Deregulation
Australian Industry Development Corporation
Under the Australian Industry Development Corporation Act 1970 certain obligations of the Australian Industry Development Corporation (AIDC) are guaranteed by the Australian Government. As at 31 December 2007, AIDC's contingent liabilities, subject to Australian Government guarantee, were approximately $100 million in respect of guarantees and credit risk facilities.
Litigation
The Department of Finance and Deregulation is involved in litigation where a counter‑claim for damages has been lodged against the Australian Government. The litigation relates to the Davis Samuel Case where the Department is engaged in legal action seeking recovery of funds misappropriated during 1997‑98. The counter‑claim is from the parties to whom Finance believes the misappropriated funds were channelled.
The grounds for the counter‑claim have never been articulated and it is counsel's advice that the counter‑claim is without merit. The counter‑claim, which will be vigorously defended by the Australian Government, seeks damages of $4.3 billion although the basis for this amount is yet to be fully provided. Hearing of the Australian Government's claim, and the counter‑claim, is set down to commence in the Supreme Court of the Australian Capital Territory on 10 June 2008.
Sale of Sydney Airports Corporation Ltd
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 at $451.3 million as at 31 March 2008.
Foreign Affairs and Trade
Export Finance and Insurance Corporation
The Australian Government guarantees the due payment by the Export Finance and Insurance Corporation (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 capital facility available to EFIC on request to cover liabilities, losses and claims. As at 31 March 2008, the Australian Government's total contingent liability was $2.7 billion, comprising EFIC's liabilities to third parties ($2.0 billion) and EFIC's overseas investments, insurance, contracts of insurance and guarantees ($0.7 billion).
Immigration and Citizenship
Immigration detention services
A contract with GSL (Australia) Pty Ltd commenced on 1 September 2003 at which time the Australian Government agreed to limit GSL's exposure under the liability regime of the contract. While the general contract requires GSL to indemnify the Australian Government for certain claims of losses, the Australian Government has agreed to share the risk. Subject to certain conditions, GSL has been indemnified by the Australian Government against claims of losses above a fixed amount to a capped amount. Where claims exceed the cap in any financial year, responsibility for the excess reverts to GSL.
A further limitation of liability has been provided in the contract in relation to loss or damage to Australian Government property or equipment as a result of the actions of detainees. Under the contract, GSL's liability for detainee damage is subject to an annual limit, unless claims of losses exceed an agreed cap.
Infrastructure, Transport, Regional Development and Local Government
Code Management Company — indemnity for the Code of Practice for the Defined Interstate Rail Network
The Code Management Company (CMC) is a company owned by the Australasian Railway Association whose members include all of Australia's major rail operators and track owners and representatives from smaller companies. The Australian Government has provided an indemnity to CMC against any loss or expense that occurred prior to the transfer of ownership from the Commonwealth in relation to the correct use or application of the Code of Practice for the Defined Interstate Rail Network. The Code sets out a national approach to operational and engineering practices, including uniform standards for safe working, train operations and freight loading specifications. The indemnity is limited to an aggregate of $50 million for a period of six years from the date of transfer of ownership and expires on 15 July 2009.
Treasury
Guarantees under the Commonwealth Bank Sale Act
Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various superannuation and other liabilities amounting to around $5.5 billion. Of this amount, $1.6 billion was attributable to liabilities of the Commonwealth Bank of Australia at 31 December 2007 and $3.9 billion was attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation at 31 December 2007.
International financial institutions — uncalled capital subscriptions
This contingent liability relates to the value of the uncalled portion of the Australian Government's shares in the International Bank for Reconstruction and Development (US$2.8 billion — estimated value A$3.1 billion), the Asian Development Bank (US$2.4 billion — estimated value A$2.7 billion), the European Bank for Reconstruction and Development (US$81.7 million plus €77.5 million — estimated value A$216.9 million), and the Multilateral Investment Guarantee Agency (US$26.5 million — estimated value A$29.6 million).
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, reserves and Australian Government deposits. The major component of the Bank's liabilities are notes (that is, currency) on issue. Notes on issue amount to $42.7 billion as at 18 March 2008 and the total guarantee is $64.9 billion.
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