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Part 1: Overview



Secretary’s review

Photo of Dr Martin Parkinson, Secretary to the Treasury

The Treasury has a long-standing commitment to improving the wellbeing of all Australians by delivering quality advice to government and by providing assistance in the implementation of key policy initiatives. This year has been no different. In an environment where both global economic volatility and the opportunities arising from the growth of the Asian economies remain front and centre, the Treasury has continued to provide relevant, well-argued and considered policy analysis and advice.

Significant achievements in 2011-12

The Treasury’s key objective is to develop timely and robust policy advice that improves the wellbeing of all Australians, and we do this by always striving to provide the government of the day with a whole-of-economy perspective. Our advice reflects the importance of: maintaining sound macroeconomic settings; ensuring the Australian economy’s fiscal sustainability; and maximising resource efficiency, competitiveness and productivity. The Treasury undertakes this work both in terms of its own responsibilities, and as a key partner to other portfolios.

The Treasury updates the Mid-Year Economic and Fiscal Outlook (MYEFO) and delivers the Budget every year. As part of that work, we are responsible for providing analysis, preparing macroeconomic forecasts, revenue costings and revenue forecasts, and providing policy advice. This year, that work took into account matters such as the evolving sovereign debt crisis in Europe, the uneven global economic recovery, domestic and international fiscal consolidation, the mining investment boom, structural reform challenges, and Australia’s high terms of trade.

The department was also responsible for providing advice on, and developing legislation for, a range of tax measures, including measures associated with personal tax, superannuation and assisting small business. During 2011-12, we also provided advice on, and developed legislation for, establishing the Minerals Resource Rent Tax (MRRT) and extending the Petroleum Resource Rent Tax (PRRT), as well as increasing the tax-free threshold as part of the Clean Energy Future package and establishing a new regulator, the Australian Charities and Not-for-profits Commission.

The Treasury assisted ministers to implement elements of the Clean Energy Future Plan, which involved work across several groups. This work included providing policy advice on related legislation, household compensation, and adjustments to the tax transfer and welfare systems, as well as on establishing the Energy Security Council, developing legislation to establish the Clean Energy Finance Corporation, and preparing a range of changes to the taxation of fuel.

The Treasury also helped to deliver on other responsibilities that are shared with other portfolios or groups. We were a key contributor to the development of the Asian Century White Paper, the Gonski review of funding for schooling, aged care reform, the National Disability Insurance Scheme, the National Broadband Network, and the Prime Minister’s Manufacturing Taskforce.

During 2011-12, the Treasury provided secretariat support to the Business Tax Working Group and the 2011 Tax Forum. We also continued to monitor and provide advice on the general prudential framework that applies to the banking sector, insurers and superannuation funds. Internationally, we deepened our engagement with key Asian and Pacific economies and enhanced policy advice through dialogue, cooperation, research and capacity-building.

We are also now well into implementing the recommendations of both the Strategic Review and the Women in Treasury review, which will help us build on our organisational capabilities, such as through greater business and stakeholder engagement. Our pursuit of organisational change in 2011-12 was one of the Treasury’s proudest achievements, signalling that we can look inward, recognise the need for changes, and begin to adapt and enhance our strengths.

Sound macroeconomic environment

Robust macroeconomic frameworks have underpinned Australia’s sustained strong economic performance, which has resulted in 21 years of uninterrupted growth. Close monitoring and analysis of economic conditions in Australia and overseas have played a vital role in maintaining this strong performance.

Throughout 2011-12, the Treasury provided advice on the performance and outlook of the Australian economy in the context of a volatile global economy. This included advice on the implications of the evolving sovereign debt crisis in Europe; the impact of introducing a carbon price on the Australian economy; the economic impact of natural disasters at home and overseas; conservative household spending behaviour; and the effect of Australia’s high terms of trade and exchange rate on growth across the economy.

Recognising our growing linkages with Asian economies, the Treasury also expanded its analytical expertise in relation to regional economic developments.

By continuing to engage actively with the G20, the Treasury advanced: initiatives that strengthen the legitimacy, credibility and effectiveness of international financial institutions (particularly the International Monetary Fund and the World Bank); international standards for the regulation of the financial system; and international development outcomes. The Treasury also continued to be an active participant in the Financial Stability Board in its efforts to strengthen international regulatory financial arrangements.

Effective government spending arrangements

Effective spending arrangements are crucial to facilitating sustainable economic growth, including through policies that enhance productivity and participation, and to improving the wellbeing of Australians. As always, though, there are more demands for expenditures than there is revenue available, requiring hard trade-offs by government and the community. Advising on these trade-offs, and helping to maintain fiscal sustainability, are key responsibilities for the Treasury.

During 2011-12, the Treasury assisted the Government to deliver the 2012-13 Budget, which projected a return to surplus in 2012-13 and increasing surpluses over the forward estimates despite the weaker than expected recovery in tax receipts.

The Treasury also contributed to the development of significant social policy initiatives during 2011-12, including the National Health Reform Agreement, which was finalised with all States and Territories in August 2011; the Joint Taskforce of the National Disability Insurance Scheme; and the Gonski review of funding of schools.

Facilitating structural adjustment and cost-effective climate change mitigation were also central to the Government’s economic growth agenda and, to that end, in 2011-12, the Treasury provided advice on a range of policies that address the structural pressures facing the Australian economy. This included advice on the work being undertaken by the Prime Minister’s Manufacturing Taskforce, as well as on regional structural adjustment. All Treasury groups contributed to policy advice on measures aimed at facilitating cost‑effective climate change mitigation.

The Treasury also established a secretariat to support the GST Distribution Review, which is examining whether the distribution of the GST can maintain Australia’s ability to respond to long-term trends and structural change in the economy while conserving confidence in the financial relations of the Australian Federation. During 2011-12, the Review panel produced two interim reports, with the final report to be presented to the Treasurer by October 2012.

The Treasury is also responsible for the payment of over $90 billion per annum to the States and Territories and, in 2011-12, continued to oversee the dev
elopment of, and provide advice on, the outcomes related to the Commonwealth-State agreements that frame this funding.

Effective taxation and retirement income arrangements

As with expenditure measures, the careful design of measures aimed at raising revenue can create incentives, and disincentives, for different types of behaviour. And in raising any given amount of revenue, it is critical that efforts be made to reduce the burden placed upon the community by ensuring the taxation system is as efficient as possible while delivering equitable outcomes.

During 2011-12, the Treasury provided policy advice that assisted the Government in its reforms to the tax and retirement income systems. The Treasury developed legislation that gave effect to measures announced in the 2011-12 and 2012-13 Budgets, as well as the 2011-12 MYEFO. The Treasury developed costings as an input to the medium-term analysis of initiatives announced in the 2012-13 Budget, which also included quantitative advice on changes to the fringe benefits tax on living-away-from-home allowances and benefits; consolidating dependency offsets; phasing out the mature age worker tax offset; changing the net medical expenses tax offset and duty-free allowances on tobacco; reforming superannuation; and increasing the withholding tax on managed investment trusts.

The Treasury also provided advice on, and developed legislation for, a number of other tax initiatives. These included establishing the MRRT and extending the PRRT; improving the efficiency of the research and development tax concessions; reforming taxation relief for small business; and consulting on a revised policy framework for the taxation of trust income. The Treasury also provided secretariat support to the 2011 Tax Forum and the Business Tax Working Group.

The Treasury also advised on, and developed legislation for, Australia’s international tax arrangements. This work reflects efforts to maintain the integrity of the tax base while providing a competitive and modern international tax system. It also responded to the recommendations from the Board of Taxation’s review of the foreign source income anti‑tax‑deferral regimes and the Johnson Report on Australia as a financial services centre. The department also contributed to global efforts to address tax transparency, such as by representing Australia as the Chair of the Global Forum on Transparency and Exchange of Information on Tax Matters.

Well-functioning markets

Well-functioning markets result in resources moving to the areas in which society values them the most. As such, a focus on market integrity and operation, and the effectiveness of price signals in reflecting the relative valuations society places on different activities, are critical underpinnings of fair and efficient economic outcomes.

During 2011-12, the Treasury continued to pursue regulatory and structural reforms that foster the well-functioning operation of key financial, infrastructure, energy, housing and labour markets. Areas of focus for the Treasury in 2011-12 included providing policy analysis and advice on maintaining the robustness of the financial system and in ensuring that regulatory frameworks promote macroeconomic stability and market confidence.

The Treasury continued to monitor and provide advice on the general prudential framework that applies to the banking sector, insurers and superannuation funds. The Treasury also coordinated Australia’s participation in the International Monetary Fund’s Financial Sector Assessment Program and participated in international forums, such as the G20 and the Financial Stability Board, to enhance regional and global financial architecture. In addition, the Treasury provided advice on foreign investment and trade policy to support Australia’s national interest, while also continuing to participate in free trade agreement negotiations.

Treasury provided advice on, and prepared legislation for, reform of the financial advice industry and the implementation of a national approach to the provision of consumer credit.

In 2011-12, the Treasury also worked: on the COAG reform agenda to reduce the regulatory burden on business, which included implementing a national law for consumer protection; on housing supply and affordability; and, as the lead agency, on the multi-agency Standard Business Reporting initiative, which is a significant initiative aimed at reducing the regulatory burden on business.

Our organisation

In 2011, Treasury undertook two major reviews aimed at improving our capabilities and ability to support the Government. The intent was to ensure the most effective use of the resources entrusted to us, to engage better with our stakeholders, and to create a more inclusive workplace that offers stimulating and rewarding careers for all our staff. The Strategic Review gave us a blueprint for improving our organisational priorities, systems and capabilities, while the Progressing Women initiative (arising from the Women in Treasury review) is a suite of strategies intended to widen and deepen the pool of future leaders, and to build greater inclusivity in our organisational culture.

As a result of the two reviews, our organisational strategy function was combined with corporate services in early 2012 to form the new Corporate Strategy and Services Group. This change underlines the importance we place on delivering all corporate and governance functions in a way that supports the Treasury’s broader organisational strategy, and the significant responsibility given to the group for coordinating and implementing recommendations from the reviews.

In 2011-12, the Treasury implemented a number of recommendations from the Graduate Development Program review aimed at enhancing workforce capability and introducing a workforce planning framework to drive the development of strategies to attract, retain and develop a skilled and diverse workforce. To continue supporting and driving individual and organisational performance, the Treasury also refreshed its Performance Management System, an exercise that reinforced the value we place on performance management and the types of behaviours the Treasury seeks.

Implementing the recommendations of our reviews is the beginning of a journey of organisational change to which the Treasury is committed. This journey is not only about becoming more reflective of the community we serve, it is also about making the department a resilient, adaptive, engaged and highly capable organisation that can better meet the challenges of a rapidly changing, dynamic environment.

More broadly, as part of the Australian Public Service, our objective is to be the policy advisers of choice for Australian governments, now and into the future. To achieve this, we must be well informed about our country, its place in the world and the opportunities that gives us as a nation. We must be ready to adapt to transformations in our operating environment. We must also be united by our ethics and our sense of purpose, and always remember that we serve the Australian public through the government of the day. We strive to provide our ministers and the Government with high-level, considered and timely advice, and, to achieve this, we must ensure we effectively and openly engage with business and the broader community, as well as our colleagues from other departments, agencies and levels of government.

In achieving our objectives, it is vital that we be trusted by governments, business, the public and one another. We should collaborate generously and our culture should encourage constructive debate about ideas and innovation. The nature and importance of our work requires us to have a high-quality and diverse workforce, and the Strategic Review and Progressing Women initiative are key to ensuring that continues and improves into the future.

Finally, APS leaders are responsible for the future of our individual organisations, while also being stewards of the APS itself
. To do this requires conscious and deliberate efforts to nurture the talents of our employees so they can both give their best and motivate those around them to become future leaders.

2012-13 outlook

The year ahead will bring a number of policy challenges, both internationally and domestically. Ensuring a stable and resilient macroeconomic environment and efforts to lift productivity across the economy are two key areas in which I expect the Treasury to continue to play a significant role. Adjusting to the structural change in our economy as a consequence of growth in the Asian economies will continue to require our analysis, advice and expertise.

Delivering on the Government’s fiscal strategy and, in particular, helping deliver on the commitment to surpluses across the forward estimates will remain a key focus for the Treasury. In addition, we will continue to provide analysis and advice on the Government’s reform agenda, such as the National Disability Insurance Scheme, school funding reform and implementation of the Clean Energy Future package. The Treasury will also be involved in the outcomes of the GST Distribution Review and the Business Tax Working Group later this year.

Internationally, 2012-13 will prove a busy and active year for the Treasury as we work towards Australia’s hosting of the G20 in 2014. Commencing in December 2012 with Australia’s three-year membership of the troika that guides the work of the G20, the Treasury will be engaged in organising the Finance Ministers’ and Central Bank Governors’ meetings, as well as related officials’ meetings, while also supporting other APS colleagues in their preparation for the leaders’ meeting scheduled for Brisbane in 2014. Increased engagement with the Asian region will remain a major focus for the department in all of its international activities.

The year ahead, of course, will have as many unexpected developments as those that have passed. Yet its tempo and unpredictability will, invariably, be no different. We will continually refine ways of doing things and build our capacity to support the Government and the Australian community. Our commitment to the Treasury’s two recent organisational reviews is testament to this.

In concluding this section of the Annual Report, I would like to express my gratitude to all Treasury staff. They have faced the challenges before us with high-calibre professionalism, commitment and good humour. The department’s achievements over the past 12 months are their achievements. And those achievements are a reflection and a distillation of the Treasury’s mission: to ensure the wellbeing of all Australians.

Martin Parkinson
Secretary to the Treasury