Contingent liabilities — unquantifiable
Agriculture, Fisheries and Forestry
Exceptional Circumstances assistance for drought-affected farmers
Exceptional Circumstances assistance is available, subject to eligibility criteria, to drought-affected farmers and agriculture-dependent small business primarily by way of interest rate subsidies and income support. The estimates assume that there will be no new drought declarations but that some existing declarations will be extended until June 2012. A continuation of adverse seasonal conditions or a return to severe drought conditions could result in higher-than-expected expense for these forms of assistance. It is not possible to quantify the cost arising from such potential developments as this depends on the intensity, duration and scale of future drought conditions.
Litigation
The Australian Government is involved in litigation involving a claim by Rail Equipment Leasing Pty Limited for losses arising from a breach of contract and negligence/negligent misstatement in the course of officers undertaking offshore quarantine pre-inspection services in Denmark in 2006. The potential liability is unquantifiable as the plaintiff has not as yet quantified their alleged loss.
Broadband, Communications and the Digital Economy
NBN Co Limited — board members indemnity
The Australian Government has indemnified the directors of NBN Co Limited in relation to claims arising out of the directors' involvement in the negotiation and entry by NBN Co into the Financial Heads of Agreement with Telstra.
Health and Ageing
CSL Ltd
CSL Ltd is indemnified against claims made by individuals who contract specified infections from specified products and against employees contracting asbestos-related injuries. CSL Ltd has unlimited cover for most events that occurred before the sale of CSL Ltd on 1 January 1994, but has more limited cover for a specified range of events that occurred during the operation of the Plasma Fractionation Agreement from 1 January 1994 to 31 December 2004. Where alternative cover was not arranged by CSL Ltd, the Australian Government may have a contingent liability.
The new Australian Fractionation Agreement with CSL Ltd, which operates from 1 January 2010, includes a requirement that the National Blood Authority make a defined payment to CSL Ltd, in certain circumstances only, in the event that the volume of plasma supplied annually to CSL Ltd is less than a specified amount.
Sustainability, Environment, Water, Population and Communities
Murray-Darling Basin Reform — risk assignment
The Water Act 2007 (the Act) provides the mechanism for defining liabilities and making payments to affected entitlement holders for the Australian Government's share of reductions in water allocations, or in the reliability of water allocations, in the Murray-Darling Basin arising from the Basin Plan prepared under the Act. The Australian Government's liabilities will be mitigated by investment in water efficiency measures and the purchase of water entitlements under the Water for the Future initiatives.
The Australian Government has committed to bridge any remaining gap, between the level of water returned to the Basin under existing Water for the Future initiatives and the level required to be returned under the Final Basin Plan, by continuing to buy back water entitlements each year beyond 2014. The Government has provided additional funding of $310 million per annum from 2014-15 for water entitlement purchases. Until the Basin Plan is finalised, the total cost of this commitment is not able to be quantified.
The independent Murray-Darling Basin Authority has released a Guide to the proposed Murray-Darling Basin Plan. There are another 12 months of consultation before the Minister is presented with a Final Murray-Darling Basin Plan. The Final Plan requires ministerial sign off and is subject to the scrutiny of both Houses of Parliament.
Treasury
Financial Claims Scheme
The Australian Government has established a Financial Claims Scheme to provide depositors of authorised deposit‑taking institutions and general insurance policyholders with timely access to their funds in the unlikely event of a financial institution failure.
The Australian Prudential Regulation Authority (APRA) is responsible for the administration of the Financial Claims Scheme. Under the Financial Claims Scheme any payments to eligible depositors or general insurance policyholders will be made out of APRA's Financial Claims Scheme Special Account.
The Early Access Facility for Depositors established under the Banking Act 1959 provides a mechanism for making payments to depositors under the Government's guarantee of deposits in authorised deposit-taking institutions.
The Government announced that, from 12 October 2008, deposits up to $1 million at eligible authorised deposit taking institutions would be eligible for coverage under the Financial Claims Scheme. The $1 million cap will continue until at least October 2011, when it will be reviewed by the Government.
As at 31 July 2010, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $700 billion, compared to $670 billion at 31 March 2010.
The Policyholder Compensation Facility established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer. Amounts available to meet payments and administer this facility, in the event of activation, are capped initially at $20.1 billion under the legislation.
Any payments made under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. If there were a shortfall, a levy would be applied to industry to recover the difference between the amount expended and the amount recovered in the liquidation.
Guarantee of state and territory borrowing
The Australian Government announced on 25 March 2009 that a voluntary, temporary guarantee would be put in place over state and territory borrowing. The guarantee of state and territory borrowing commenced on 24 July 2009.
The guarantee will close to new issuance of guaranteed liabilities on 31 December 2010. Securities covered by the guarantee will continue to be guaranteed until these securities either mature or are bought back and extinguished by the issuer.
The expected liability under the guarantee is remote and unquantifiable. Government expenditure would arise under the guarantee only in the unlikely event that a State or Territory failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant State or Territory at a future date. The impact on the Government's budget would depend upon the extent of the default and the State or Territory's ability to meet the Government's claim.
As at 30 September 2010, the face value of state and territory borrowings covered by the guarantee was $62.0 billion, down from $69.1 billion at 30 June 2010.
Guarantee Scheme for Large Deposits and Wholesale Funding
The Australian Government announced the guarantee of eligible deposits and wholesale funding for authorised deposit taking institutions from 12 October 2008 under the Guarantee Scheme for Large Deposits and Wholesale Funding.
On 7 February 2010, the Government announced the closure of the Guarantee Scheme to new applications on 31 March 2010. Since 31 March 2010, Australian authorised deposit taking institutions have been prohibited from issuing any new guaranteed wholesale funding or accepting new guaranteed deposits above $1 million. Existing guaranteed wholesale funding is guaranteed to maturity. Depositors who covered their balances above $1 million under the Guarantee Scheme can have those funds covered to maturity for term deposits up to five years, or until October 2015 for at call deposits.
The expected liability for deposits under the Guarantee Scheme is remote and unquantifiable. Government expenditure would arise under the guarantee only in the unlikely event that an institution failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant institution. The impact on the Government's budget would depend on the extent of the institution's default and its ability to meet the Government's claim.
As at 15 October 2010, total liabilities covered by the Guarantee Scheme were estimated at $148.7 billion, down from $161.7 billion at 9 July 2010. This is made up of $4.6 billion (down from $6.6 billion) of large deposits and $144.1 billion (down from $155.1 billion) of wholesale funding.
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