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Part 2: Report on performance (continued)

Program 1.1: Department of the Treasury (continued)

Fiscal Group

Overview

Fiscal Group aims to ensure government spending arrangements are effective, as they are crucial to influencing strong, sustainable economic growth and the improved wellbeing of Australians. Ongoing advice to portfolio ministers from the Treasury assists in formulating, implementing and explaining government spending decisions. Fiscal Group provides advice on:

  • the overall fiscal strategy and budget policies, and coordination of the budget and other reports required under the Charter of Budget Honesty Act 1998 (the Charter);
  • Commonwealth-State financial policy, and arrangements related to state and territory fiscal and tax issues, including implementing the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement) which commenced on 1 January 2009, and the progress of ongoing reforms across a broad spectrum of policy responsibilities through the Council of Australian Governments (COAG) process;
  • policy development in industry, environment, defence and national security policy; and
  • policy development in social and income support policy, including health, the labour market, education, Indigenous welfare and immigration.

Fiscal Group works with other departments and agencies to develop and provide policy advice to Treasury portfolio ministers and the Government on industry, climate change and environment, and defence and national security. Fiscal Group also works with other departments in areas such as early childhood and families, education and skills, social housing, Indigenous policy, labour markets, immigration and health policy. While other departments have primary responsibility for policy and programs in these areas, Fiscal Group focuses on improving productivity and competitiveness, and ensuring sustainable economic growth, taking account of fiscal policy objectives and broader issues relating to wellbeing.

During 2009-10, the Treasury participated in a wide range of policy development processes, worked with other agencies to develop policy approaches, provided advice for Cabinet ministers, and briefed the Treasurer for his participation in Cabinet and the budget processes. Fiscal Group also assisted in preparing briefings for the other Treasury portfolio ministers, and coordinated the preparation of the IGR2010.

Fiscal Group provides high quality advice on Commonwealth-State financial policy, arrangements related to state and territory fiscal and tax issues, and also manages the administration of payments to the States and Territories (the States). Since 1 January 2009, under the Intergovernmental Agreement, the Treasury has been responsible for administering National Specific Purpose Payments (National SPPs), National Partnership payments, goods and services tax (GST) payments and other general revenue assistance to the States. Details of these payments can be found in Programs 1.4 to 1.10.

Group deliverables

Fiscal Group’s key deliverables are to advise on:

  • fiscal strategy which aims to ensure fiscal sustainability over the economic cycle;
  • effective government spending arrangements which contribute to improving the wellbeing of Australians;
  • preparation of the Commonwealth Budget and other financial related papers required under the Charter; and
  • supporting Commonwealth-State relationships through the coordination and delivery of various Commonwealth-State forums, including the progress of COAG reform agendas.

Group outcomes

Fiscal Group’s key outcomes were:

  • advising on the fiscal outlook and fiscal strategy;
  • advising on budget priorities consistent with the mediumterm fiscal strategy;
  • preparing, with the Department of Finance and Deregulation, the 2010-11 Budget (May 2010) and related financial papers — Final Budget Outcome 2008-09 (September 2009) and MYEFO (November 2009);
  • advising the Treasurer, in consultation with the Australian Office of Financial Management (AOFM) on debt issuance and debt policy issues;
  • preparing the IGR2010, including advising on the challenges that Australia will face over the next 40 years, the fiscal and economic consequences of an ageing population, environmental challenges and social sustainability;
  • advising on operational issues relating to the Future Fund and the three Nationbuilding Funds;
  • implementing the framework for federal financial relations which commenced on 1 January 2009, including advising on the development of new National Partnerships;
  • managing the administration of payments to the States including five National SPPs in healthcare, schools, skills and workforce development, disability services and affordable housing, plus general revenue assistance and National Partnership payments;
  • providing secretariat support for the Ministerial Council for Federal Financial Relations on policy issues relevant to both the Australian Government and the States;
  • advising on, and monitoring the First Home Owners Boost and the Guarantee of State and Territory Borrowing;
  • establishing a Sustainable Population Strategy Taskforce in May 2010 to provide policy advice on issues relevant to population, as a follow on to the IGR2010;
  • advising on industry, climate change and environment, and defence and national security. The Treasury was engaged in a diverse range of issues and processes, including: climate change mitigation and adaptation policy; the commencement of work on a National Plan for Environmental Information; the inaugural Coordinated National Security Budget process; Australia’s bids for the soccer World Cup and Asian Cup; and the Government’s response to the review into the Future of Sport in Australia; and
  • advising on social, education, Indigenous, labour market, immigration and health policy, including: contributing to the development of the National Health and Hospitals Network Agreement; providing advice on the development of the Skills for Sustainable Growth strategy; several reforms to immigration policy; and Indigenous policy. Fiscal Group also worked with other agencies to progress the service delivery reform in the Human Services Portfolio and implement the Government’s Paid Parental Leave scheme.

Analysis of performance

Advice on the fiscal and budget strategies

During 2009-10, the Treasury provided advice to the Treasurer and other portfolio ministers on the Australian Government’s budget position over the forward estimates and the mediumterm, to inform overall policy settings and provide the context for the Government’s decision making. The fiscal outlook was updated in the 2009-10 MYEFO and the 2010-11 Budget.

With an improved economic outlook in the lead up to the 2009-10 MYEFO and the 2010-11 Budget, the Treasury advised the Government on the fiscal strategy.

As fiscal estimates are a joint responsibility, the Treasury worked extensively with the Department of Finance and Deregulation, the Australian Taxation Office (ATO) and other government departments and agencies. Assessments of the budget position incorporated changes to the economic outlook, so advice was based on the most reliable and uptodate information available at the time the economic statements and budget were prepared.

The 2009-10 MYEFO was released by the Treasurer and Minister for Finance and Deregulation on 2 November 2009, updating the fiscal estimates published in the 2009-10 Budget. The forecast underlying cash deficit of $57.7 billion for 2009-10 was largely unchanged from the 2009-10 Budget, although beyond 2009-10, underlying cash balances improved in each year across the forward estimates.

The 2010-11 Budget, published in May 2010, showed further improvements to the projected budget pos
ition in each year of the forward estimates. The underlying cash deficit for 2010-11 was estimated to be $40.8 billion, with the budget expected to return to surplus in 2012-13, three years earlier than previously projected.

The Treasury assisted the Government in implementing its fiscal strategy by managing budget processes and advising the Treasurer on the overall budget strategy and priorities. In particular, the Treasury provided advice to the Government on the mediumterm fiscal strategy in the context of returning the budget to surplus once economic growth is at or above trend. Good budget processes help governments make decisions based on accurate information, and allow proposals to be prioritised according to overall budget objectives.

Contribution to public debate and awareness

The Government’s budget publications are available free at www.budget.gov.au. Widespread access to these documents helps the public keep informed of budget decisions and the fiscal outlook.

The Treasury and the Department of Finance and Deregulation jointly prepare the Government’s budget documentation. The Treasury also prepares accessible summaries for non-specialist readers. This year, these were the Budget Overview , Budget at a Glance , and an overview of health reform A National Health and Hospitals Network for Australia’s Future .

Generally, the Treasury is primarily responsible for preparing budget documentation on:

  • the principal budget aggregates and the Government’s fiscal strategy and objectives;
  • economic assumptions underpinning the budget estimates;
  • tax revenue estimates;
  • tax expenditure estimates; and
  • the conduct of Commonwealth-State financial relations.

Reporting requirements are set out in the Charter and are consistent with leading international practice. To help achieve better fiscal outcomes, the Charter promotes:

  • disciplined budget management, with fiscal policy based on principles of sound fiscal management;
  • transparency, with regular reports stating fiscal objectives and expected outcomes;
  • accountability, with information allowing an informed assessment of the conduct of fiscal policy; and
  • reporting against external accounting standards.

Under the Charter, budget reporting follows an annual cycle comprising the budget in May, a midyear update before 31 January and a final budget outcome the following September.

The Final Budget Outcome 2008-09 was published in September 2009. In 2008-09, the Australian Government general government sector recorded an underlying cash deficit of $27.1 billion. This outcome was around $5.0 billion better than estimated at the 2009-10 Budget, reflecting higher than expected cash receipts and lower than expected cash payments.

Information on the Government’s financial relations with State and Local Governments is in the 2010-11 Budget, Budget Paper No. 3, Australia’s Federal Relations . The paper, prepared by the Treasury, is the main public source of information on Australian Government payments to the States and Local Governments. It also informs the States of their expected payments in the upcoming financial year.

This budget paper also includes information on fiscal developments in the states, as well as any policy changes affecting the relationship between the Australian and State Governments.

Relevant information is also included in the MYEFO and the Final Budget Outcome documents.

Information on the federal financial framework is available on the Ministerial Council website at www.federalfinancialrelations.gov.au.

Debt management policy

In consultation with the AOFM, the Treasury provides advice to the Treasurer on debt issuance and debt policy issues. This includes supporting an efficient and effective issuance program, and managing and structuring the debt portfolio. The Treasury also provides advice to the Treasurer on issues affecting the Government’s debt management operations including the performance, governance and functioning of the Commonwealth debt market.

Treasury Bond issuance in 2010-11 is expected to be around $56 billion. The face value of securities offered at each tender will be between $500 million and $1.2 billion. In addition, Treasury Notes will be offered at regular tenders to support the within-year financing task.

In 2009-10 the Government recommenced issuance of Treasury Indexed Bonds. In 2010-11, Treasury Indexed Bond issuance is expected to be around $4 billion.

On 7 April 2009, the Government announced that it would partially fund its investment in the National Broadband Network by issuing Aussie Infrastructure Bonds. During 2009-10, the Treasury provided advice on the design and issuance of Aussie Infrastructure Bonds. The Government announced in the 2010-11 Budget that $300 million of Aussie Infrastructure Bonds will be issued in 2010-11.

Specific details of the Government’s forward debt issuance program in 2010-11 is on the AOFM website at www.aofm.gov.au.

Intergenerational Report

The Charter stipulates that an intergenerational report be produced on a fiveyearly cycle.

The IGR2010 was tabled by the Treasurer in February 2010. In assessing the challenges that Australia will face over the next 40 years, the report sets out the fiscal and economic consequences of an ageing population coupled with a discussion on environmental challenges and social sustainability.

Future Fund and Nationbuilding Funds

During 2009-10, the Treasury continued to provide policy advice to portfolio ministers on operational issues relating to the Future Fund and the three Nationbuilding Funds. Further information regarding the performance of the Future Fund is at www.futurefund.gov.au.

Australia’s Federal Financial Relations

The current framework for federal financial relations, introduced on 1 January 2009, provides a strong foundation for COAG to pursue economic and social reforms to underpin growth, prosperity and wellbeing into the future.

Significant progress has been made in implementing the framework, with the institutional arrangements well established, payment arrangements bedded down and performance reporting well underway.

Over 2009-10, fiscal stimulus payments to the States made under the framework, including for the Nation Building and Jobs Plan and the First Home Owners Boost, have supported the recovery of the economy from the global financial crisis.

The framework has demonstrated that it can respond flexibly to events, such as the global financial crisis, as well as lay the foundation for improved community wellbeing and a high standard of living for Australians in the future. The framework has supported and is being adapted to incorporate new reforms, including the National Health and Hospitals Network agreed at COAG by all States other than Western Australia on 20 April 2010.

To ensure that the framework continues to be effective in driving COAG’s ambitious reform agenda, a review of agreements under the framework is being conducted by Heads of Treasuries over the course of 2010, with a report to COAG by the end of the year. The review currently being undertaken by the Australian and State Treasuries is considering options to improve the efficiency and effectiveness of the federal financial relations framework, with a focus on improvements that will enhance the delivery of national outcomes as agreed by COAG.

In 2009-10, the Treasury has made payments for general revenue assistance, including GST, National SPPs and National Partnership payments.

General revenue assistance

Under the Intergovernmental Agreement, the Commonwealth makes payments to the States equivalent to the revenue received from the GST. GST revenue is paid on a monthly basis, distributed in accordance with relativities de
termined by the Treasurer, following recommendations by the Commonwealth Grants Commission and discussion at the Ministerial Council meeting.

The ATO and Australian Customs and Border Protection Service collect GST revenue on behalf of the States, and the States compensate them for the costs incurred in administering and collecting GST revenue. The Treasury managed the payments made to the States and ensured they were administered accurately.

General revenue assistance is provided to the States, including GST payments, without conditions, to spend according to their own budget priorities.

Details on general revenue assistance are provided under Program 1.4.

Payments for Specific Purposes (National SPPs and National Partnerships)

The five National SPPs are in healthcare, schools, skills and workforce development, disability services and affordable housing. These are associated with six national agreements, including the National Indigenous Reform Agreement , which contain mutuallyagreed objectives, outcomes and performance indicators, and which clarify the roles and responsibilities that guide the Commonwealth and the States in the delivery of services in these sectors.

In addition, National Partnerships support the delivery of specific projects, facilitate reforms and/or reward those jurisdictions that deliver on nationally significant reforms.

Details on National SPPs and National Partnerships are provided under Programs 1.5 to 1.10.

Ministerial Council for Federal Financial Relations

The Ministerial Council, comprising the Australian Treasurer and all State and Territory Treasurers, considers ongoing reform of federal financial relations and oversees the Intergovernmental Agreement. The Treasury advised the Treasurer in relation to these matters and provided secretariat support to the Ministerial Council. The website for the Ministerial Council is www.federalfinancialrelations.gov.au.

At Ministerial Council meetings held in 2009-10, treasurers focused on: bedding down the new framework for Federal Financial Relations; monitoring economic conditions and prospects; and considering the financing aspects of the health and hospital network reforms.

Australian Loan Council

The Australian Loan Council, chaired by the Treasurer, meets annually to consider each jurisdiction’s expected borrowing for the next financial year. The Treasury advised the Treasurer on key issues and coordinated arrangements for this meeting. The Australian Loan Council took on two new roles in 2009-10: to look at macroeconomic impacts on infrastructure; and an oversight function for the Commonwealth guarantee of State and Territory borrowing.

Heads of Treasuries

At the Heads of Treasuries meetings, the treasuries of the Australian and State Governments share information on common issues. The Secretary to the Treasury and his state counterparts met twice in 2009-10 to discuss the general operation of the Federal Financial Relations framework, current economic conditions and the fiscal outlook, tax and financial issues.

GST Administration Subcommittee

The Treasury chairs this subcommittee, which comprises officials from the Treasury, the ATO and State Treasuries. The subcommittee met three times in 2009-10. The subcommittee monitored the performance agreement agreed in 2008-09 and discussed GST revenue and payments, GST policy and administrative issues.

Industry, Climate Change and Environment, and Defence and National Security policy

Industry policy

The Treasury advised on industry assistance, export assistance, science and innovation, arts, sports and regional policy issues. This included advice on the development of Commercialisation Australia and the Government’s response to the review of Australia’s sports system, entitled the Future of Sport in Australia.

The Treasury also participated in interdepartmental committee meetings and forums during 2009-10, including the implementation of the national tourism strategy, the Government’s response to the Productivity Commission’s review of Australia’s Anti-Dumping and Countervailing System, Australia’s bid for the FIFA World Cup and Asian Football Confederation Cup, and Export Finance and Insurance Corporation proposals.

Climate change and environment policy

The Treasury advised the Treasurer on climate change issues, including climate change adaptation, greenhouse gas emissions abatement, emissions trading, low emissions technologies and energy efficiency, renewable energy and alternative fuels, energy security and international engagement on climate change issues.

The Treasury worked closely with the Department of Climate Change and Energy Efficiency and the Department of Resources, Energy and Tourism on the enhancements to the Clean Energy Initiative, including the Renewable Energy Future Fund, changes to the Renewable Energy Target and through participation in the Prime Minister’s Energy Efficiency Task Force.

The Treasury supported Australia’s engagement in international climate change issues and processes through work in forums such as the United Nations Framework Convention on Climate Change. The Treasury’s advice focused on international climate change financing issues, including the United Nations Secretary General’s Highlevel Advisory Group on Climate Change Financing.

The Treasury also advised the Treasurer on environmental and agricultural issues including water reform, environmental stewardship and protection, wheat marketing, waste policy, quarantine, drought policy and natural resource management issues.

The Treasury’s advice covered the development of a National Plan for Environmental Information, the design of the Western Australian drought pilot as part of the Government’s drought policy reform announced in the 2010-11 Budget, and the terms of reference for Productivity Commission inquiries into microeconomic reform in the urban water sector and rural research and development corporations. Additional advice was on specific agricultural commodity issues including wheat, fisheries, logging and sugar.

During 2009-10, the Treasury also contributed to interdepartmental committees dealing with water policy, quarantine and drought.

Defence and National Security policy

The Treasury advised on a range of defence and national security issues, including the Coordinated National Security Budget process and advice to support the Secretary in his role as a member of the Defence Strategic Reform Advisory Board.

The Treasury has continued to participate in the Secretaries’ Committee on National Security that examines and advises on proposals considered by the National Security Committee of Cabinet. It also participated in interdepartmental processes concerning Defence Capability Plan projects, Defence estate, and various aspects of domestic security arrangements.

Social, Education, Indigenous, Labour Market, Immigration and Health policy

Social policy

During 2009-10, the Treasury:

  • worked with other agencies to progress the Social Inclusion agenda, including the Government’s approach to reducing homelessness;
  • continued to contribute to the National Disaster Resilience Strategy, currently under development for COAG;
  • provided policy advice supporting the development of the child care reforms announced in the 2010-11 Budget, and was involved in the implementation of the Government’s Paid Parental Leave scheme; and
  • participated in the Steering Committee for the Review of Military Compensation Arrangements.
Education policy

The Treasury undertook significant work on skills policy during 2009-10, working collaboratively with the Department of Education, Employment and Workplace Relations and other departments on skills policy advice both during the recovery and in the longer term, such as the Skills f
or Sustainable Growth strategy announced in the 2010-11 Budget.

Indigenous policy

The Treasury played a significant role in providing advice on Indigenous policy. The Treasury was involved in crossdepartmental work on the Government’s commitment to closing the gap in Indigenous disadvantage. The Treasury has focused on the COAG Reform Agenda, the Single Indigenous Budget Submission process and development of an Indigenous Expenditure Report for COAG.

Labour market programs and participation

The Treasury advised on a range of employment and participation issues, including the Keep Australia Working initiative announced by the Government as part of its response to the economy’s downturn. Work was also undertaken on longer term policy issues, including the impact of demographic change on participation, and ways to improve the labour market engagement of matureage Australians, including through the Productive Ageing Package, announced alongside the release of the IGR2010.

Workplace relations

The Treasury worked closely with the Department of Education, Employment and Workplace Relations to develop a wholeofgovernment approach to the 2010 Minimum Wage Review and prepare submissions to the Minimum Wage Panel’s final minimum wage decision.

Immigration

Advice was provided on several reforms to immigration policy that the Government progressed, including those arising from the review of the Migration Occupations in Demand List, the review of the General Skilled Migration points test and the changes to the composition of the 2010-11 Migration Program. The reforms were designed to enhance the contribution of immigration to the productive capacity of the economy and help to address emerging demands for skilled labour during the economic recovery.

Health policy

In April 2010, COAG, with the exception of Western Australia, agreed to the National Health and Hospitals Network Agreement. The Treasury played a significant role in developing the National Health and Hospitals Network , including the reforms to the financial framework, the health system governance arrangements and the modelling of healthcare costs. Work also commenced on the implementation of these health reforms, particularly the financial framework aspects for which the Treasury has responsibility.

The Treasury also advised the Treasurer on Medicare, the Pharmaceutical Benefits Scheme, the Medicare Benefits Schedule, private health insurance, and aged and community care.

Australian Government Service Delivery Reform

The Treasury worked closely with other policy agencies in progressing the Government’s commitments to service delivery reform in the Human Services Portfolio, and contributed to developing a more strategic approach to managing fraud and compliance efforts across health and social welfare payments.