Statement 8: Statement of Risks (Continued)
Fiscal risks
Fiscal risks comprise general developments or specific events that may affect the fiscal outlook. Some developments or events raise the possibility of a fiscal impact. In other cases, the likelihood of a fiscal impact may be reasonably certain, but will not be included in the forward estimates because the timing or magnitude is not known.
The estimates and projections of revenue are subject to a number of general risks that can affect taxation collections. These general pressures include tax avoidance, court decisions and Australian Taxation Office rulings. These pressures may result in a shift in the composition of taxation collected from the various tax bases and/or a change in the size of the tax base.
Major taxes such as company and personal tax fluctuate significantly with economic activity. Capital gains tax is particularly volatile and is affected by both the level of gains in asset markets and the timing of when those gains are realised. The Petroleum Resource Rent Tax and Minerals Resource Rent Tax may vary quite significantly with commodity prices, output, and the level of the Australian dollar.
There are also a number of fiscal risks that may affect the expense estimates and projections. For example, major technological advances in medicines and medical practices may lead to changes to both the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme. Such changes have in the past resulted in unexpected increases in expenses and may do so again.
The Government has proposed that a carbon price mechanism commence on 1 July 2012. The proposal involves a two‑stage process starting with a fixed price period for three to five years before transitioning to an emissions trading scheme. As details of the carbon price mechanism are yet to be determined, no financial implications associated with the introduction of a carbon price have been included in the forward estimates. This is consistent with past practice. 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.
The Australian Government has established NBN Co Limited (NBN Co) to build and operate the National Broadband Network (NBN). The 2011‑12 Budget includes equity of $18.2 billion from 2011‑12 to 2014‑15, for the roll‑out of the NBN, based on NBN Co's Corporate Plan 2011‑2013.
On 20 June 2010, NBN Co and Telstra announced that they had entered into a Financial Heads of Agreement and that they would enter into negotiations on the Definitive Agreements (the agreements). A further announcement was made on 10 February 2011 that Telstra and NBN Co had finalised key commercial terms of the agreement and were proceeding to finalise documented agreements. In support, the Government and Telstra had reached in‑principle agreement for a package of measures to facilitate the transition to the NBN. These measures include, amongst other things, the establishment of a new Government entity to assume responsibility for the provision of components of the universal service obligation.
The transactions contemplated by the non‑binding Financial Heads of Agreement involving Telstra and NBN Co will involve substantial expenditure and obligations over extended timeframes. NBN Co will need continuing equity injections over time to meet these obligations as they fall due. Accordingly, the Government is considering the provision of financial support arrangements to facilitate the finalisation of the agreements. The Government has committed to providing to Telstra, in conjunction with the agreements, a guarantee for the financial obligations of NBN Co until NBN Co is fully capitalised to provide certainty to Telstra's commercial position should they agree to undertake those transactions. The Government is also examining the provision of equity funding undertakings to NBN Co and the provision of additional limited indemnities to the directors of NBN Co.
The estimates for the Department of Defence include the cost of major overseas operations of the Australian Defence Force in Afghanistan and the Middle East, Timor‑Leste and the Solomon Islands for 2011‑12. The forward estimates of expenses do not provide for extensions of currently approved operations beyond 2011‑12. Such funding is considered on a year‑by‑year basis and is subject to future decisions of the Government. This is consistent with past practice.
Other fiscal risks that may affect expenditure include potential natural disasters in the future, emergency foreign aid and contingent liabilities and contingent assets.
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