Statement 6: Expenses and
Net Capital Investment
Appendix B: The contingency reserve
The Contingency Reserve (other purposes function) is an allowance, included in aggregate expenses, principally to reflect anticipated events that cannot be assigned to individual programs in the preparation of the Australian Government budget estimates. The Reserve is used to ensure that the budget estimates are based on the best information available at the time of the Budget. It is not a general policy reserve.
While the Reserve is designed to ensure that aggregate estimates are as close as possible to expected outcomes, it is not appropriated. Allowances that are included in the Reserve can only be drawn upon once they have been appropriated by Parliament. These allowances are removed from the reserve and allocated to specific agencies for appropriation and for outcome reporting closer to the time when the associated events eventuate.
The Contingency Reserve makes allowance in 2009‑10 and the forward years for anticipated events, including the following:
- an allowance for the tendency for estimates of expenses for existing Government policy to be revised upwards in the forward years, known as the conservative bias allowance. An examination of expenses estimates since the last budget indicates that the extent of the historic tendency for expenses to be revised upwards, after taking account of policy measures and formal economic parameter variations, has reduced in recent years. On this basis the provision has been reduced by half of one percentage point in each year of the forward estimates. This allowance is now set at 2.0 per cent of total general government sector expenses (excluding Goods and Services Tax payments to the States) in the third year of the forward estimates period (2012‑13), 1.0 per cent in the second year (2011‑12), and 0.5 per cent in the first forward year (2010‑11). This involves a reduction of expenses of $1.5 billion in 2010‑11, $1.5 billion in 2011‑12 and $1.6 billion in 2012‑13;
- a provision for underspends in the current financial year reflecting the tendency for budgeted expenses for some agencies or functions not to be met;
- commercial‑in‑confidence and national security‑in‑confidence items that cannot be disclosed separately and programs that are yet to be renegotiated with State and Territory governments;
- decisions made too late for inclusion against individual agency estimates;
- the effect on the budget and forward estimates of economic parameter revisions received late in the budget process and hence not able to be allocated to individual agencies or functions; and
- provision for events and pressures that are reasonably expected to affect the budget estimates. For example, a provision for the continuation of drought relief in 2009‑10.
The Contingency Reserve also makes the provision for future increases in Australia's official development assistance yet to be allocated to specific aid programs. However, in this budget statement, those expenses are allocated to the general public services function (see page 6‑11 for further information).
Following the Government's decision to defer the implementation of the Carbon Pollution Reduction Scheme (CPRS) by 12 months, updated expense and revenue estimates associated with the revised implementation of the Scheme have been included in the Contingency Reserve.
The Contingency Reserve also includes provisions for future equity investments in the National Broadband Network. This is subject to the outcome of the implementation plan and subsequent commercial negotiations and, accordingly, is not disclosed.
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