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Australian Government Coat of Arms

Budget | 2015-16

Budget 2015-16
Australian Government Coat of Arms, Budget 2015-16
  1. budget.gov.au
  2. 2015‑16
  3. Mid-Year Economic and Fiscal Outlook
  4. Appendix C: Statement of Risks
  5. Contingent liabilities — quantifiable

Appendix C: Statement of Risks (continued)

Contingent liabilities — quantifiable

Defence

Claims against the Department of Defence

The Department of Defence (Defence) has 19 instances of non‑remote, quantifiable contingent liabilities in respect of claims on Defence valued at $25 million. The estimated figure is determined by conducting an objective analysis of the probable amount payable for all matters managed by the members of Defence's Legal Services Panel and those being handled in‑house by Defence Legal Division. However, the exact amount payable under those claims is uncertain. Defence is defending the claims or is trying to resolve them by recourse to alternative dispute resolution measures.

Environment

Low Carbon Australia Limited — Board of Directors' and senior management indemnities

The Australian Government has provided indemnities to directors and company officers of the former Low Carbon Australia Limited (LCAL). A total of seven indemnity deeds were executed in 2014. Each indemnity covers liability incurred by a director or officer arising from the implementation of the merger of LCAL with the Clean Energy Finance Corporation. An aggregate cap of $100 million to cover all claims has been established, and the indemnities will operate for seven years from execution (to 2020).

Foreign Affairs and Trade

Export Finance and Insurance Corporation

The Australian Government guarantees the due payment of money that is, or may at any time become, payable by the Export Finance and Insurance Corporation (EFIC) to anybody other than the Government. The Government also has in place a $200 million callable capital facility available to EFIC on request to cover liabilities, losses and claims. As at 30 September 2015, the Government's total contingent liability was $3.8 billion, which is consistent with the figure reported at the 2015‑16 Budget. The $3.8 billion contingent liability comprises EFIC's liabilities to third parties ($3.0 billion) and EFIC's overseas investment insurance, contracts of insurance and guarantees ($0.8 billion). Of the total contingent liability, $3.1 billion relates to EFIC's Commercial Account and $0.7 billion relates to the National Interest Account.

Infrastructure and Regional Development

Virgin Australia Airlines Pty Ltd Confidentiality and Non‑Disclosure Agreement

Under the 2002 Sydney (Kingsford‑Smith) Airport Sale Agreement, the owners of Sydney Airport have a Right of First Refusal, which gives them first opportunity to develop and operate a second major airport within 100 kilometres of Sydney's centre. The Australian Government must seek the views of major airlines during the consultation phase.

When establishing the industry consultations, Virgin Australia Airlines Pty Ltd sought a capped indemnity whereby they could seek damages for any financial loss they may suffer in the event of unauthorised disclosure by the Australian Government of confidential information. Until the information becomes publically available (not through a breach of confidentiality by the Commonwealth) the contingent liability remains capped at a maximum cumulative liability of $20 million. The risk of an event occurring that may result in a liability for the Australian Government is currently mitigated through the training of staff and compliance with a comprehensive information management plan.

Treasury

Australian Taxation Office — tax disputes

At any point in time the Australian Taxation Office is involved in a range of dispute resolution processes, including litigation, relating to tax disputes.

Details of the outcome of dispute resolution processes are uncertain until a court ruling is made and/or an agreement is reached with the taxpayer. As a result, in most cases it is not possible to estimate with any reliability the likely financial impact of current disputes. The estimated aggregate value of tax in dispute as at 31 October 2015, for which a provision has not been made, is $4.7 billion.

Outcomes of dispute resolution processes are included in the Commissioner of Taxation's Annual Report each year. This may include disputes resolved through objections, settlements and court and tribunal decisions. It may also include amounts owed by taxpayers that are subject to dispute but not finalised.

International financial institutions — uncalled capital subscriptions

The Australian Government has held an uncalled capital subscription in the International Bank for Reconstruction and Development (IBRD) since 1947. The Government has contributed additional resources to the IBRD as part of the general capital increase agreed in 2010. As part of this process, completed in 2015, Australia increased its uncalled capital subscription so that it totals US$3.6 billion (estimated value A$5.0 billion as at 29 October 2015).

The Australian Government has also held an uncalled capital subscription in the European Bank for Reconstruction and Development (EBRD) since 1991. Australia's uncalled capital subscription to the EBRD totals EUR237.5 million (estimated value A$365 million as at 29 October 2015).

The Australian Government has further held an uncalled capital subscription in the Asian Development Bank (ADB) since 1966. Australia increased its uncalled capital subscription (effective 11 January 2010) to the ADB as part of its 2010 general capital increase, so that it totals US$7.0 billion (estimated value A$9.9 billion as at 29 October 2015).

The Australian Government has further held an uncalled capital subscription in the Multilateral Investment Guarantee Agency of US$26.5 million (estimated value A$37.3 million as at 29 October 2015).

None of these international financial institutions have ever drawn on Australia's uncalled capital subscriptions.

The Australian Government will hold an uncalled capital subscription in the Asian Infrastructure Investment Bank (AIIB), which is expected to be established by the end of 2015. Australia's uncalled capital subscription to the AIIB will be US$3.0 billion (estimated value A$4.2 billion as at 29 October 2015).

International Monetary Fund

Australia has made a line of credit available to the International Monetary Fund (IMF) under its New Arrangements to Borrow (NAB) since 1998. The value of Australia's NAB credit arrangement is Special Drawing Rights (SDR, the IMF's unit of account) 4.4 billion (estimated value A$8.6 billion at 29 October 2015). This is a contingent loan to help ensure that the IMF has the resources available to maintain stability and support recovery in the global economy. As agreed by G20 Finance Ministers and IMF Governors in 2010, the credit arrangements of all NAB participants, including Australia, will be reduced when a proposed increase in IMF quotas comes into effect. The quota increase has not yet occurred, due to a delay in implementing the above agreement by the United States.

In addition to the NAB credit line, as part of a broad international effort to increase the resources available to the IMF, Australia has made available a SDR4.6 billion (approximately A$9.1 billion at 29 October 2015) contingent bilateral loan to the IMF. The contingent loan is on terms consistent with separate bilateral loan and note purchase agreements between the IMF and all contributing countries. It will be drawn upon by the IMF only if needed to supplement the IMF's quota and NAB resources and any loans would be repaid in full with interest. The increase in the IMF's resources will help ensure that it has the capability to address any potential vulnerability facing the global economy.