Program 1.1: Fiscal Group
Fiscal Group aims to ensure government spending arrangements are effective and that key social and economic reforms are supported. This is crucial to facilitating strong, sustainable economic growth and the improved wellbeing of Australians. 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, regional, environment, climate change, defence and national security; and
- social and economic policy issues, including income support and family payments, health, disability, Indigenous welfare, immigration, education and the labour market.
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 the 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, family payments, Indigenous policy, disability policy, labour markets, immigration, health policy and aged care. While other departments have primary responsibility for policy and programs in these areas, Fiscal Group focuses on improving wellbeing, including through lifting participation and productivity to help ensure sustainable economic growth, taking account of fiscal policy objectives.
During 2011-12, the Treasury participated in a wide range of policy development processes, worked with other agencies to develop policy approaches (including implementation of the Clean Energy Finance Corporation and support for the Prime Minister’s Manufacturing Taskforce), and provided advice for Cabinet, the Deputy Prime Minister and Treasurer (for his participation in Cabinet and the budget processes) and for the 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.
Fiscal Group’s key deliverables are advice on:
- fiscal strategy that aims to ensure fiscal sustainability over the economic cycle;
- effective government spending arrangements that contribute to improving the wellbeing of Australians;
- strategies that address intergenerational challenges, including social, fiscal and environmental sustainability, and the development and use of skills; and
- Commonwealth-State financial relations, including the progress of the 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 provides secretariat support to the GST Distribution Review.
In 2011-12, Fiscal Group’s key outcomes were:
- advising on the implementation of the Clean Energy Future package and the Clean Energy Finance Corporation;
- advising on the fiscal outlook and delivering the Government’s commitments on fiscal policy;
- advising on budget priorities consistent with the medium-term fiscal strategy;
- preparing, with the Department of Finance and Deregulation, the Final Budget Outcome 2010-11 (September 2011), the Mid-Year Economic and Fiscal Outlook (MYEFO) 2011-12 (November 2011) and the 2012-13 Budget (May 2012).
- advising the Deputy Prime Minister and Treasurer, in consultation with the Australian Office of Financial Management (AOFM), on debt issuance and debt policy issues;
- advising on operational issues related to the Future Fund and the three Nation-building Funds;
- advising on issues associated with the establishment of a Parliamentary Budget Office (PBO);
- 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 $85.8 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 to the GST Distribution Review;
- advising on and monitoring, the First Home Owners Boost;
- contributing to progressing the first stage of the National Disability Insurance Scheme and the National Injury Insurance Scheme;
- providing secretariat support for the Advisory Panel on the Economic Potential of Senior Australians, and working with other departments to develop the Government’s response to the Panel’s final report;
- advising on industry, regional, climate change and environment policy, and on defence and national security matters;
- advising on social, education, disability, Indigenous, labour market, immigration and health policy and aged care; and
- establishing a Centre for Market Design in collaboration with the Victorian Department of Treasury and Finance and the University of Melbourne.
Analysis of performance
Advice on the fiscal and budget strategies
During 2011-12, the Treasury provided advice to the Deputy Prime Minister and Treasurer and to other portfolio ministers on the Australian Government’s budget position over the forward estimates and the medium term, to inform overall policy settings and to provide context for the Government’s decision-making. The fiscal outlook was updated in the 2011-12 MYEFO and the 2012-13 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 2011-12 MYEFO was released by the Deputy Prime Minister and Treasurer and Minister for Finance and Deregulation on 9 November 2011, and updated the fiscal estimates published in the 2011-12 Budget.
The 2012-13 Budget, published in May 2012, indicated that the budget would return to surplus in 2012-13, despite the weaker than expected recovery in tax receipts.
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 around trend. In this respect, 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. Since the 2012-13 Budget, there have been over 311,210 unique visitors to the budget website and over 2.7 million pages have been viewed. 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, Delivering a Stronger, Fairer Future and the Tax Reform Road Map.
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 of Budget Honesty 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 2010-11 was published in September 2011. In 2010-11, the Australian Government general government sector recorded an underlying cash deficit of $47.7 billion. This outcome was around $1.6 billion better than estimated at the 2011-12 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 detailed in the 2012-13 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. It also informs the States of their expected payments in the upcoming financial year.
In addition, this Budget Paper also includes information on fiscal developments in the States, as well as advice on policies relating to Commonwealth-State financial relations.
Relevant information is also included in MYEFO and the Final Budget Outcome documents.
Information on the federal financial framework is available on the Standing Council on Federal Financial Relations (Standing Council) website at www.federalfinancialrelations.gov.au.
Debt management policy
In consultation with the AOFM, Treasury provided advice to the Deputy Prime Minister and Treasurer on debt issuance and debt policy issues. This included advice on issues affecting the Government’s debt management operations including the performance, governance and functioning of the Commonwealth debt market.
Budget 2012-13 reported that Treasury Bond issuance in 2012-13 is expected to be around $35 billion. The face value of securities offered at each tender will be between $500 million and $1 billion. In addition, Treasury Notes will be offered at regular tenders to support the within-year financing task. It is planned that at least $10 billion of Treasury Notes will be kept on issue at all times so as to maintain a liquid market. In 2012-13, Treasury Indexed Bond issuance is expected to be around $2 billion.
Specific details of the Government’s forward debt issuance program in 2012-13 are on the AOFM website at www.aofm.gov.au.
Future Fund and Nation-building Funds
During 2011-12, 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 on Federal Financial Relations (Intergovernmental Agreement). The framework has proved to be flexible and able to facilitate reform activity, including health reform.
Following the 2010 Heads of Treasuries review of agreements under the framework (HoTs Review), COAG initiated reviews of the performance reporting frameworks for the six National Agreements. This work was progressed during 2011-12 in conjunction with wider work by Senior Officials to implement the recommendations of the HoTs Review and address challenges identified by the COAG Reform Council in their annual performance reports under National Agreements. The final reports and recommendations of the reviews of the National Agreements were considered by COAG on 25 July 2012. The reports can be found online, at www.coag.gov.au.
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 Standing 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 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. During 2011-12, the National Agreement for Skills and Workforce Development was reviewed and updated in consultation with States and Territories.
National Health Reform funding will be provided from 1 July 2012, replacing the National Healthcare Specific Purpose Payment (National Healthcare SPP). This funding will comprise two elements: National Health Reform base funding to be provided from 1 July based on the National Healthcare SPP; and efficient growth funding to be provided from 2014-15. National Health Reform funding will be paid into a National Health Funding Pool to support public hospital services.
In addition, Na
tional 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.
Standing Council for Federal Financial Relations
The Standing Council, comprising the Commonwealth Treasurer and all State and Territory Treasurers, considers on-going 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 Standing Council. The website for the Standing Council is www.federalfinancialrelations.gov.au.
At Standing Council meetings held in 2011-12, Treasurers focused on key issues including monitoring the national and state and territory 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 well placed to respond to long-term trends and structural change in the economy while maintaining confidence in the financial relations within the Australian Federation. Supplementary Terms of Reference were issued on 17 November 2011, asking the Review panel to examine the interaction between the GST distribution and State tax reform, and the relationship between State mineral royalties and the Commonwealth’s resource tax reforms.
The Review is being conducted by the Hon John Brumby, Mr Bruce Carter, and the Hon Nick Greiner AC. The Treasury has established a secretariat to support the Review. The secretariat includes officials seconded from the Commonwealth Grants Commission and State Treasuries.
In 2011-12, the panel produced two interim reports, focusing on the initial Terms of Reference (March 2012) and the supplementary Terms of Reference (June 2012). Following further public submissions and consultations with the States and Territories, the panel will present its final report to the Treasurer by October 2012.
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. The guarantee closed to the new issuance of bonds on 31 December 2010. The Loan Council found that the guarantee had been used appropriately, and in 2011-12, agreed to a cessation of reporting on the guarantee.
Heads of Treasuries
At 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 2011-12 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 2011-12. The sub-committee assisted the Standing Council in the development of draft regulations specifying the GST treatment of certain Australian government fees and charges, as well as providing advice on other GST policy and administrative issues, and discussing GST revenue and payments.
Industry, Regional, Climate Change and Environment, and Defence and National Security
Industry and regional policy
The Treasury advised on industry assistance, science and innovation, arts, sports and regional policy issues. This included advice on the work of the Prime Minister’s Manufacturing Taskforce, structural and regional adjustment, Australian space policy and the Australian venture capital market.
Climate change and environment policy
The Treasury advised the Deputy Prime Minister and Treasurer on climate change issues, including implementation of carbon pricing and the Clean Energy Future package, low emissions technologies and energy efficiency, renewable energy and alternative fuels, and international engagement on climate change issues.
The Treasury advised the Deputy Prime Minister and Treasurer on the establishment and design of the Clean Energy Finance Corporation (CEFC) and provided secretariat support to the CEFC expert review panel. Treasury also prepared the legislation and associated explanatory memorandum for the establishment of the CEFC.
The Treasury also advised the Deputy Prime Minister and Treasurer and participated in associated inter-departmental committees on environmental and agricultural issues including biodiversity, marine reserves, biosecurity, drought policy, water policy and the Murray-Darling Basin Plan.
The Treasury’s advice covered the Government’s response to the Tasmanian Forests Statement of Principles, the review of the Environment Protection and Biodiversity Conservation Act 1999, the development of the National Food Plan green paper and Australia’s Antarctic Territory. Additional advice was provided on specific agricultural commodity issues including live animal exports, fisheries and other primary industries.
During 2011-12, the Treasury also contributed to inter-departmental committees dealing with water policy, progressing the Murray-Darling Basin Plan, 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, which examines and advises on proposals considered by the National Security Committee of Cabinet. It also participated in inter-departmental processes concerning Defence Capability Plan projects, cyber policy, border protection policy and various aspects of domestic security arrangements.
Social, Disability, Education, Indigenous, Labour Market, Immigration and Health policy
During 2011-12, the Treasury:
- assisted other agencies to implement 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;
- worked with the States and Territories and other agencies to progress the first stage of the National Disability Insurance Scheme and the National Injury Insurance Scheme, including providing secretariat support to the National Injury Insurance Scheme Advisory Group;
- worked with other agencies to develop the Stronger Futures in the Northern Territory package to support Indigenous people living in regional and remote areas of the Northern Territory;
- worked with other agencies, particularly the Department of Health and Ageing, to develop the Government’s response to the final
report of the Advisory Panel on the Economic Potential of Senior Australians;
- provided policy advice on the Commonwealth response to natural disasters and on natural disaster recovery policy more broadly; and
- provided policy advice on the final design of the Review of Military Compensation Arrangements and the activities to commemorate the 100th anniversary of the First World War and the Anzac Centenary.
In the 2012-13 Budget, the Government announced funding for the first stage of a National Disability Insurance Scheme (NDIS) to provide care and support for all Australians with a significant and permanent disability. Treasury is working closely with the NDIS Joint Taskforce to progress consideration of costing, funding and design issues.
Treasury is also tasked with progressing the National Injury Insurance Scheme (NIIS), along with the States and Territories. The NIIS will be a federated model of separate, state‑based no fault schemes to provide lifetime care and support to people who incur a catastrophic injury as a result of an accident. The initial focus is on developing minimum standards across the States and Territories for motor vehicle accidents. Treasury is also providing secretariat support to the Minister for Financial Services and Superannuation’s NIIS Advisory Group, which assists the Government in considering the Productivity Commission’s NIIS recommendations.
The Treasury continued to provide advice on education and skills policy during 2011-12, working collaboratively across government to consider the proposals of the Gonski review of school funding and ensure effective implementation of the Building Australia’s Future Workforce package of measures announced in the 2011-12 Budget, including the new National Partnership Agreement on Skills Reform.
A key area of work in Indigenous policy in 2011-12 was the Treasury’s input into the development of and advice on the Stronger Futures in the Northern Territory package. The Treasury also had a continued role in advising on the Government’s commitment to closing the gap in Indigenous disadvantage, including through the COAG reform agenda and the Single Indigenous Budget Statement.
Labour market programs and participation
The Treasury advised on a range of employment and participation issues, with a particular focus on remote jobseekers, redundant workers and the long-term unemployed. In particular, the Treasury provided input into the development of the new $1.5 billion Remote Jobs and Communities Program, which will provide a more integrated and flexible approach to employment and participation services for people living in remote areas of Australia, and worked with the Department of Education, Employment and Workplace Relations (DEEWR) and the Department of Industry, Innovation, Science, Research and Tertiary Education on a new range of initiatives to ensure that mature age workers maintain their attachment to the workforce.
The Treasury worked closely with DEEWR to develop a whole-of-government approach to the 2012 Minimum Wage Review and prepare government submissions to the Minimum Wage Panel’s minimum wage decision.
The Treasury continued to provide advice that links Australia’s immigration policy to labour market needs and prevailing economic conditions.
In particular, advice was provided on several reforms to immigration policy and associated settings, including the introduction of a new Significant Investor Visa and new visa fee system, reforms to the Employer Sponsored and Student Visa programs, and changes to the composition of the 2011-12 Migration Program.
A National Health Reform Agreement was finalised with all States and Territories in August 2011. The Treasury assisted the Department of Health and Ageing to implement the changes, including changes to the financial framework and modelling of the fiscal implications.
The Treasury worked closely with other agencies to help develop the Living Longer. Living Better aged care reform package, which was announced on 20 April 2012.
Household Assistance Package
Treasury worked as a joint lead agency with the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and the Department of Climate Change and Energy Efficiency (DCCEE) to design the Clean Energy Future Household Assistance Package. The Treasury has since maintained a role in supporting other agencies to implement the package. The Treasury will also have a role in reviewing the adequacy of the package over the fixed price period.
Centre for Market Design
In 2011-12, the Treasury, in collaboration with the Victorian Department of Treasury and Finance and the University of Melbourne, established a Centre for Market Design (the Centre). The Centre provides a mechanism for participants to build capacity and capability in the area of market design and experimental economics and apply economic design techniques to public policy, procurement and resource allocation problems. The concept is being tested as an initial two-year pilot.
Further information on the Centre is available at www.cmd.org.au.