Statement 6: Expenses and Net Capital Investment (Continued)
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 Contingency 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 Contingency 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 Contingency Reserve can only be drawn upon once they have been appropriated by Parliament. These allowances are removed from the Contingency Reserve and allocated to specific agencies for appropriation and for outcome reporting closer to the time when the associated events eventuate.
The Contingency Reserve contains an allowance for the tendency for estimates of expenses for existing Government policy to be revised upwards in the forward estimates, known as the conservative bias allowance. Since the 2010‑11 MYEFO, the allowance has been drawn down to zero in the Budget year (2011‑12), to ½ of a percentage point of total general government sector expenses (excluding GST payments to the States) in the first forward year (2012‑13), to 1 per cent of expenses in the second forward year (2013‑14), and a 2 per cent provision has been included in the third forward year (2014‑15). The drawdown of the allowance reduced expenses by $778 million in 2011‑12, $786 million in 2012‑13 and $1.6 billion in 2013‑14. The drawdown of the conservative bias allowance is consistent with long standing practice and does not represent a saving or offset to Government spending measures.
The Contingency Reserve also makes allowance in 2011‑12 and the forward estimates for anticipated events, including the following:
- 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
- a provision for events and pressures that are reasonably expected to affect the budget estimates.
The Contingency Reserve also makes 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 foreign affairs and economic aid sub‑function (see page 6‑12 for further information). This provision is currently set at $61 million in 2010‑11, $71 million in 2011‑12, $247 million in 2012‑13, $828 million in 2013‑14 and $1.5 billion in 2014‑15. The provision is increased or decreased in line with the forecasts for the national accounts and when new aid proposals are funded.
The Contingency Reserve previously included provisions for future equity investments in the National Broadband Network (NBN). This provision has been removed from the Contingency Reserve and placed in the agency's forward estimates.
A provision made for election commitments at the time of the 2010‑11 MYEFO has been removed, as decisions regarding these election commitments are included as part of the 2011‑12 Budget.
No provision has been included for the Government's proposed carbon price mechanism as details of the proposal, and the related financial implications, are yet to be determined. The proposal will be developed consistent with the principle that the overall package of a carbon price mechanism and associated assistance measures should be budget neutral.
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