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. Specific fiscal risks to the budget and forward estimates are detailed below.

The 2016‑17 estimates for the Department of Defence include the cost of major operations of the Australian Defence Force in 2016‑17 in Afghanistan, Iraq, Syria, the broader Middle East region, and the protection of Australia's borders and offshore maritime interests. Funding is considered on a year‑by‑year basis and the forward estimates do not provide for extensions of currently approved operations beyond 2016‑17. This is consistent with past practice. The Department of Defence will likely have additional funding requirements for major operations beyond 30 June 2017.

The Australian Government has supported the Gold Coast's bid to host the 2018 Commonwealth Games through the provision of commitments in areas such as immigration, customs, work permits, taxation, security, protection of commercial rights, and communications and information technology. Not all costs associated with delivery of the commitments are available at this time.

The introduction in the 2014‑15 Budget of a 1500 gigalitre (GL) cap on Australian Government water purchasing under the Basin Plan comes with a potential, but currently unquantifiable, fiscal risk for the Government. If there is a substantial shortfall in sustainable diversion limit (SDL) adjustments from supply measures, then the cap on water purchases may be reached and other potentially more expensive means of water recovery will need to be used to meet SDLs. It will not be possible to identify whether this risk will be realised, and what the financial implications are, until the SDL adjustment mechanism commences in 2016‑17.

In February 2016 the Commonwealth agreed to assume one‑third of the default risk associated with a $320 million New South Wales Government loan to the Asbestos Injuries Compensation Fund (AICF), contingent on all States and Territories agreeing to assume the remaining default risk. The AICF provides compensation to Australian asbestos disease related claims against former subsidiaries of the James Hardie Group, and is funded on an ongoing basis through contributions from the James Hardie Group. NSW provided the $320 million loan facility in 2010 to enable AICF to continue to pay compensation as lump sums, rather than on an instalment basis. As at 31 March 2016, not all States and Territories have confirmed their agreement to this arrangement.

The Australian Government has confirmed that the site for a Western Sydney Airport will be Badgerys Creek. The Government has been progressing its obligations under the Right of First Refusal contained in the 2002 Sydney (Kingsford Smith) Airport Sale Agreement and is considering options for an airport proposal to meet Sydney's future aviation capacity needs. The Government may then make a decision to enter a contractual phase, which would involve issuing a Notice of Intention (setting out the detailed terms for the development and operation of the airport) to Sydney Airport Group. Sydney Airport Group would have the opportunity to exercise its option to develop and operate the proposed airport. Should Sydney Airport Group decline the opportunity, the Government may approach the market, or choose to develop and/or operate the airport itself. When the terms for developing and operating the airport are finalised and the party that will develop and operate the airport identified, financial support from the Government may be required. Government financial support for the project would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet, and depending on the nature of support, could have positive or negative impacts on the underlying cash balance.

The Australian Government has committed $29.5 billion in equity to NBN Co Limited (nbn), which is expected to be fully utilised by the end of the 2016‑17 financial year. Consistent with nbn's 2016 Corporate Plan, nbn is expected to raise debt from external markets of between $16.5 billion and $26.5 billion (with a base case of $19.5 billion) to complete the rollout of the network. nbn is currently undertaking the necessary preparatory work on the proposed debt raising. In the event that nbn is initially unable to raise the necessary debt on acceptable terms, interim funding support may be required. Were it required, additional Government financial support for nbn would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet and, depending on the nature of support, could have positive or negative impacts on the underlying cash balance.

The Australian Government has committed to build the Inland Rail project through the Australian Rail Track Corporation (ARTC) to provide a direct, high‑performance freight rail corridor between Melbourne and Brisbane as well as creating a new freight corridor between Brisbane and Perth (via Parkes). The Government has committed $594 million in equity for land acquisition for the Inland Rail corridor and further due diligence activities. Decisions on financing arrangements and delivery options will take into account the results of a market testing process. The full cost of Inland Rail is expected to be up to $10.7 billion with the possibility of significant private sector involvement in project delivery. Any further Government financial support for the project would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet, and depending on the nature of support, could have positive or negative impacts on the underlying cash balance.

The Australian Government funds the care and management of asylum seekers in Regional Processing Centres (RPCs) to support host governments' management, removal and resettlement of these people. Any significant changes in the number of asylum seekers managed under these arrangements, the operations of the facilities, or to estimates of the number of refugees being resettled may incur a cost or generate cost reductions which are unquantifiable at this time.

There are a significant number of measures that impact on the Budget aggregates and remain subject to the legislative process. If legislation is not passed by Parliament as proposed, this may affect the estimates and projections of the Budget.

---