Statement 8 (continued)
Risks to the Budget — overview
The revenue and expense estimates and projections published in the 2015‑16 Budget Papers are based on a range of economic and other parameters. If the economic outlook were to differ from that presented in the Budget, the revenue and expense estimates and projections would also change. The sensitivity of budget estimates to changes in economic assumptions is discussed in Statement 7: Forecasting Performance and Scenario Analysis.
To the extent that unanticipated changes in economic conditions occur, their impact will flow through to government expense and revenue forecasts. For example, over the past year weaker than expected growth in wages has been reflected in weaker forecasts for tax revenue and higher than expected social services payments.
In addition, revenue forecasting relies on the observed historical relationships between the economy, tax bases and tax revenues. Such relationships may shift as conditions change and present a further risk to the estimates. For example, losses incurred during the global financial crisis have posed particular challenges in estimating both the quantum and timing of loss utilisation. Revenue forecasts also incorporate costings for new policies which also typically have a margin of uncertainty.
The Budget is subject to a number of contingent liabilities. A large number of these contingent liabilities reflect indemnities, including those relating to the Department of Defence, the Defence Materiel Organisation, the Future Fund Management Agency and Future Fund Board of Guardians, and the Reserve Bank of Australia.
The Australian Government has also issued a number of guarantees, such as those relating to guarantee schemes for the banking and financial sector, payments by the Export Finance and Insurance Corporation and the superannuation liabilities of the Commonwealth Bank prior to its sale to the private sector.
Other significant contingent liabilities relate to uncalled capital subscriptions and credit facilities to international financial institutions and legal cases concerning the Australian Government. The Government has robust and conservative strategies in place to reduce its potential exposure to these contingent liabilities.
There have been several changes to both the quantifiable and unquantifiable risks since the 2014‑15 Mid‑Year Economic and Fiscal Outlook (MYEFO). General revaluations of securities and deposits have led to certain risks such as the Guarantee of State and Territory Borrowings and the Financial Claims Scheme being modified. Two new risk items have also arisen since the MYEFO.
Contingent liabilities, contingent assets and other fiscal risks with a possible impact on the forward estimates greater than $20 million in any one year, or $50 million over the forward estimates period, are listed in this statement. Some financial information in the text may not add to totals due to rounding. Information on contingent liabilities and contingent assets is also provided in the Australian Government's annual consolidated financial statements and in the annual financial statements of departments and other Government entities.
Table 1 outlines how fiscal risks, assets and liabilities and contingent assets and liabilities are disclosed in the Budget.
| Category | Type(a) | Disclosure |
|---|---|---|
| Fiscal Risks | Fiscal Risks | Statement of Risks |
| Contingent assets and contingent liabilities | Significant contingent assets and liabilities considered remote | Statement of Risks |
| Unquantifiable contingent assets and liabilities that are improbable but not remote | Statement of Risks | |
| Quantifiable contingent assets and liabilities that are improbable but not remote | Statement of Risks | |
| Contingent assets and liabilities excluded on the basis of immateriality(b) | None | |
Assets and liabilities |
Assets and liabilities that are probable and can be reliably measured | Balance sheet(c)(d) |
| Assets and liabilities that are probable but have an uncertain timing or amount (provisions) | Balance sheet |
(a) Items that are described as probable have a 50 per cent or higher chance of occurrence.
(b) Only risks with a possible impact on the forward estimates greater than $20 million in any one‑year, or $50 million over the forward estimates period, are considered material and disclosed in this Statement.
(c) Unearned income from charging guarantee fees is shown as a liability in the balance sheet.
(d) Additional disclosure to increase transparency on loans over $200 million has been included in the Statement of Risks since the 2014‑15 Budget.