Overview
Fiscal Group aims to ensure government spending arrangements are effective. This is 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 through the ongoing management of the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement);
- policy development in industry, environment, climate change, 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 is also involved in preparing the Commonwealth Budget and other financial related papers required under the Charter, including the intergenerational report.
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 2010-11, the Treasury participated in a wide range of policy development processes, worked with other agencies to develop policy approaches, including the Government's Clean Energy Future package, provided advice for Cabinet ministers, and briefed the Deputy Prime Minister and Treasurer for his participation in Cabinet and the budget processes. Fiscal Group also assisted in preparing briefings for other Treasury portfolio ministers.
Fiscal Group provided advice on Commonwealth-State financial policy, arrangements related to state and territory fiscal and tax issues, and managed 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 on pages 91 to 104.
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;
- strategies that address intergenerational challenges, including social, fiscal and environmental sustainability; and
- Commonwealth-State financial relations, including the progress of the Council of Australian Government's (COAG) reform agenda.
Fiscal Group also coordinates the preparation of the Commonwealth Budget and other documents required under the Charter and supports Commonwealth-State relations through the coordination and delivery of various Commonwealth-State forums.
In addition, Fiscal Group also provides secretariat support to the GST Distribution Review and to the Advisory Panel on the Economic Potential of Senior Australians.
Group outcomes
Fiscal Group's key outcomes were:
- advising on the Clean Energy Future package;
- advising on the fiscal outlook and on delivering the Government's fiscal strategy;
- advising on budget priorities consistent with the medium-term fiscal strategy;
- preparing, with the Department of Finance and Deregulation, the 2010 Economic Statement and the 2010 PEFO (July 2010), the Final Budget Outcome 2009-10 (September 2010), the 2010-11 MYEFO (November 2010) and the 2011-12 Budget (May 2011);
- advising the Deputy Prime Minister and Treasurer, in consultation with the Australian Office of Financial Management (AOFM), on debt issuance and debt policy issues, including the future of the Commonwealth Government Securities (CGS) market and the Government's financing needs;
- advising on operational issues relating to the Future Fund and the three Nation-building Funds;
- advising on issues associated with the development of a Parliamentary Budget Office;
- continuing to implement the framework for federal financial relations which commenced on 1 January 2009, including advising on the development of new National Partnerships and other agreements;
- payments to the States totalling over $85 billion including five National SPPs in healthcare, schools, skills and workforce development, disability services and affordable housing, GST payments and other 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;
- providing secretariat support to the GST Distribution Review;
- advising on, and monitoring the First Home Owners Boost and the Guarantee of State and Territory Borrowing;
- providing assistance in the development of the sustainable population strategy;
- providing secretariat support for the Advisory Panel on the Economic Potential of Senior Australians;
- 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; and
- advising on social, education, Indigenous, labour market, immigration and health policy, including contributing to the development of the National Health Reform Agreement, providing advice on the development of the Building Australia's Future Workforce package in the 2011-12 Budget, 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 progress government reforms in relation to problem gambling.
Analysis of performance
Advice on the fiscal and budget strategies
During 2010-11, the Treasury provided advice to the Deputy Prime Minister and Treasurer and other portfolio ministers on the Australian Government's budget position over the forward estimates and medium-term to inform overall policy settings and provide the context for the Government's decision making. The fiscal outlook was updated in the 2010-11 MYEFO and the 2011-12 Budget.
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 up-to-date information available at the time the economic statements and budget were prepared.
The 2010-11 MYEFO was released by the Deputy Prime Minister and Treasurer and Minister for Finance and Deregulation on 9 November 2010. This updated the fiscal estimates published in the 2010-11 Budget.
The 2011-12 Budget, published in May 2011, reported that the budget was still on track to return to surplus in 2012-13, despite the significant economic imp
act of natural disasters in 2010-11.
The Treasury assisted the Government in implementing its fiscal strategy by managing budget processes and advising the Deputy Prime Minister and Treasurer on the overall budget strategy and priorities. In particular, the Treasury provided advice to the Government on the medium-term fiscal strategy in the context of returning the budget to surplus once economic growth is at or above trend.
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, Building Australia's Future Workforce: trained up and ready for work, Delivering better hospitals, mental health and health services; and Investing in Australia's Regions.
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 mid-year update before 31 January and a final budget outcome the following September.
The Final Budget Outcome 2009-10 was published in September 2010. In 2009-10, the Australian Government general government sector recorded an underlying cash deficit of $54.8 billion. This outcome was around $2.3 billion better than estimated at the 2010-11 Budget, reflecting lower 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 2011-12 Budget, Budget Paper No. 3, Australia's Federal Relations. This paper, produced 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 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 provided advice to the Deputy Prime Minister and Treasurer on debt issuance and debt policy issues. This included advice on the future of the CGS market, drawing on the deliberations of a panel of financial market participants and financial regulators.
In the 2011-12 Budget, the Government clarified its objectives with regard to the future of the CGS market. Maintaining liquidity in the CGS market to support the three and ten year bond futures market will continue to be the Government's primary objective, in particular as Australian banks prepare for the 2015 commencement of the Basel III liquidity requirements.
Treasury Bond issuance in 2011-12 is expected to be around $51 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. It is planned at least $10 billion of Treasury Notes on issue will be kept at all times so as to maintain a liquid market. In 2011-12, Treasury Indexed Bond issuance is expected to be around $2 billion. Specific details of the Government's forward debt issuance program in 2011-12 are on the AOFM website at www.aofm.gov.au.
The Treasury also provided, along with the AOFM, advice on an efficient and effective issuance program, and managing and optimally structuring the debt portfolio. The Treasury also provided advice to the Deputy Prime Minister and Treasurer on issues affecting the Government's debt management operations including the performance and functioning of the Commonwealth debt market, Future Fund and Nation-building Funds.
Future Fund and Nation-building Funds
During 2010-11, the Treasury continued to provide policy advice to portfolio ministers on operational issues relating to the Future Fund and the three Nation-building Funds. Further information regarding the performance of the Future Fund is at www.futurefund.gov.au.
Australia's Federal Financial Relations
The Commonwealth is working in partnership with the States in a number of key reform areas benefitting all Australians. Significant progress has been made in implementing the reform agenda through the Intergovernmental Agreement. The framework has proved to be flexible and able to facilitate reform activity, including health reform.
A review of agreements under the framework was conducted by Heads of Treasuries over the course of 2010. The review was considered by COAG at its February 2011 meeting. A key finding of the review is that the underlying principles of the Intergovernmental Agreement provide a strong foundation for pursuing the COAG reform agenda. Still, while significant work has been undertaken by all levels of government to implement the Intergovernmental Agreement, some challenges remain.
The review found that the Intergovernmental Agreement's underlying principles should be strengthened where necessary to sharpen the focus on outcomes, improve responsiveness and enhance public accountability. The outcomes of the review provide a basis for addressing the challenges that remain, to ensure that the federal financial relations framework remains sustainable and mutually beneficial. Implementation of the review's recommendations has commenced.
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 determined by the Deputy Prime Minister and Treasurer, following recommendations by the Commonwealth Grants Commission and discussion at the Ministerial Council meeting.
The ATO and the 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 on pages 91 and 92.
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 mutually-agreed 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 on pages 93 to 104.
Ministerial Council for Federal Financial Relations
The Ministerial Council, comprising the Commonwealth Treasurer and all State and Territory Treasurers, considers ongoing reform of federal financial relations and oversees the Intergovernmental Agreement. The Treasury advised the Deputy Prime Minister and 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 2010-11, Treasurers focused on the key issues: monitoring the state and national economies; monitoring progress under the COAG reform agenda; and considering the financing aspects of the health reforms.
GST Distribution Review
On 30 March 2011, the Commonwealth Government announced a review of the distribution of the GST (the Review).
The Review will consider whether the distribution of the GST and the current form of horizontal fiscal equalisation will ensure that Australia is best placed to respond to long-term trends and structural change in the economy while maintaining confidence in the financial relationships within the Australian Federation.
The Review is being conducted by the Hon Nick Greiner AC, the Hon John Brumby and Mr Bruce Carter and will present its final report to the Deputy Prime Minister and Treasurer by September 2012, with an interim report to be provided by February 2012. The Treasury has established a secretariat to support the Review. The secretariat includes officials seconded from the Commonwealth Grants Commission and State Treasuries.
In 2010-11, the panel commenced its first round of consultations with States and Territories. On 1 July 2011 it released an Issues Paper seeking public submissions, due 14 October 2011.
Further information on the Review is available online at www.gstdistributionreview.gov.au.
Australian Loan Council
The Australian Loan Council is a Commonwealth-State ministerial council that meets annually to consider jurisdictions' nominated borrowings for the forthcoming year with regard to each jurisdiction's fiscal position and the macroeconomic implications of the aggregate figure.
In 2009-10, the Loan Council expanded to include reporting on the macroeconomic implications of infrastructure investments, and to take on an oversight function of 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 five times in 2010-11 to discuss the general operation of the Federal Financial Relations framework, current economic conditions and the fiscal outlook, and tax and financial issues.
GST Administration Sub-committee
The Treasury chairs this sub-committee, which comprises officials from the Treasury, the ATO and State Treasuries. The sub-committee met once in 2010-11. The sub-committee assisted the Ministerial Council in the development of a revised performance agreement that will continue to be monitored and discussed GST revenue and payments, GST policy and administrative issues.
Industry, Climate Change and Environment, and Defence and National Security
Industry and regional policy
The Treasury advised on industry assistance, export assistance, science and innovation, arts, sports and regional policy issues. This included advice on publicly funded science and science workforce matters, and the development of a National Cultural Policy.
The Treasury also participated in interdepartmental committee meetings and forums during 2010-11, 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, progressing the Murray-Darling Basin Plan, development of the sustainable population strategy, the strategic review of Geoscience Australia, and Export Finance and Insurance Corporation proposals.
Climate change and environment policy
The Treasury advised the Deputy Prime Minister and Treasurer on climate change issues, including carbon pricing and the Clean Energy Future package, 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 on the design of the Clean Energy Future package. It advised on the design of the scheme and the production of the documentation surrounding the announcement of the scheme. The Treasury also provided advice on the design of the assistance package for households and industry.
The Treasury also advised the Deputy Prime Minister and Treasurer on environmental and agricultural issues including environmental stewardship and protection, waste policy, biosecurity, drought policy and natural resource management issues.
The Treasury's advice covered the temporary suspension of live cattle exports, the Government's response to the Montara commission of inquiry, and Australia's Antarctic Territory. Additional advice was on specific agricultural commodity issues including wheat, fisheries, logging and other primary industries.
During 2010-11, the Treasury also contributed to interdepartmental committees dealing with water policy, marine protected areas, forestry, biosecurity 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 2010-11, the Treasury:
- worked with other agencies to develop a package of assistance for households to accompany the introduction of a carbon price;
- worked with other agencies to progress the Government's problem gambling reforms;
- worked with other agencies to progress the Social Inclusion agenda, including the Government's approach to reducing homelessness;
- provided policy advice on the Commonwealth response to the natural disasters of the 2010-11 summer, and on natur
al disaster recovery policy more broadly; - 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;
- participated in the Steering Committee for the Review of Military Compensation Arrangements; and
- worked with other agencies to develop the Building Australia's Future Workforce package of measures to support participation in the labour market and skills development.
Education policy
The Treasury undertook further significant work on skills policy during 2010-11, working collaboratively with the Department of Education, Employment and Workplace Relations (DEEWR) and other departments on skills policy advice, such as the Building Australia's Future Workforce package of measures announced in the 2011-12 Budget. The department also worked collaboratively to ensure effective implementation of a range of election commitments in relation to schools and higher education policy.
Indigenous policy
The Treasury played a significant role in providing advice on Indigenous policy. The Treasury was involved in cross-departmental work on the Government's commitment to closing the gap in Indigenous disadvantage. The Treasury has focused on the COAG Reform Agenda and the Single Indigenous Budget Submission process. The Treasury also worked closely with other agencies, states and territories and the Productivity Commission to finalise and release the first Indigenous Expenditure Report for COAG.
Labour market programs and participation
The Treasury advised on a range of employment and participation issues, including the Building Australia's Future Workforce package to support improved labour force participation of key groups, as well as working with DEEWR on the future improvements to employment services delivered through Job Services Australia and Disability Employment Services.
Workplace relations
The Treasury worked closely with DEEWR to develop a whole-of-government approach to the 2011 Minimum Wage Review and prepare submissions to the Minimum Wage Panel's final minimum wage decision.
Immigration policy
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
A National Health Reform Agreement was finalised with all States and Territories in August 2011. The Treasury assisted in developing the National Health Reform Agreement, including the reforms to the financial framework and the modelling of healthcare costs.
The Treasury worked closely with other agencies to develop a National Mental Health Reform package for the 2011-12 Budget. A cornerstone of this package was better coordination and integration of mental health services and a greater focus on prevention and early intervention initiatives for children and youth.
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.
Advisory Panel on the Economic Potential of Senior Australians
The Treasury provided secretariat support to the Advisory Panel on the Economic Potential of Senior Australians to prepare a series of reports to government and conduct targeted consultations.