Appropriation Bill (No 1) 2017-2018 [2017] AUSStaCSBSD 157 (14 June 2017)

• Chapter 1
• Commentary on Bills
• Appropriation Bill (No. 1) 2017-2018
• Parliamentary scrutiny—ordinary annual services of the government1
• Appropriations for new administered outcomes

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Chapter 1

Commentary on Bills

1.1 The committee seeks a response or further information from the relevant minister or sponsor of the bill with respect to the following bills.

Appropriation Bill (No. 1) 2017-2018

Purpose	This bill seeks to appropriate money out of the Consolidated Revenue Fund for the ordinary annual services of the government
Portfolio	Finance
Introduced	House of Representatives on 9 May 2017
Scrutiny principles	Standing Order 24(1)(a)(vi) and (v)

Parliamentary scrutiny—ordinary annual services of the government^[1]

1.2 This bill seeks to appropriate money from the Consolidated Revenue Fund. The appropriations in this bill are said to be for the ordinary annual services of the government. However, it appears to the committee, for the reasons set out below, that the initial expenditure in relation some measures in the bill may have been inappropriately classified as ordinary annual services.

1.3 The inappropriate classification of items in appropriation bills as ordinary annual services when they in fact relate to new programs or projects undermines the Senate's constitutional right to amend proposed laws appropriating revenue or moneys for expenditure on all matters not involving the ordinary annual services of the government. The issue is relevant to the committee's role in reporting on whether the exercise of legislative power is subject to sufficient parliamentary scrutiny.^[2]

1.4 By way of background, under section 53 of the Constitution the Senate cannot amend proposed laws appropriating revenue or moneys for the ordinary annual services of the government. Further, section 54 of the Constitution provides that any proposed law which appropriates revenue or moneys for the ordinary annual services of the government shall be limited to dealing only with such appropriation. Noting these provisions, the Senate Standing Committee on Appropriations and Staffing^[3] has kept the issue of items possibly inappropriately classified as ordinary annual services of the government under active consideration over many years.^[4]

1.5 The distinction between appropriations for the ordinary annual services of the government and other appropriations is reflected in the division of proposed appropriations into pairs of bills—odd-numbered bills which should only contain appropriations for the ordinary annual services of the government, and even-numbered bills which should contain all other appropriations (and are amendable by the Senate). However, the Appropriations and Staffing Committee has noted that the division of items in appropriation bills since the adoption of accrual budgeting has been based on a mistaken assumption that any expenditure falling within an existing departmental outcome should be classified as ordinary annual services expenditure.^[5] The Senate has not accepted this assumption.

1.6 As a result of continuing concerns relating to the misallocation of some items, on 22 June 2010 (in accordance with a recommendation made in the 50^th Report of the Appropriations and Staffing Committee), the Senate resolved:

1) To reaffirm its constitutional right to amend proposed laws appropriating revenue or moneys for expenditure on all matters not involving the ordinary annual services of the Government; [and]

2) That appropriations for expenditure on:

a) the construction of public works and buildings;

b) the acquisition of sites and buildings;

c) items of plant and equipment which are clearly definable as capital expenditure (but not including the acquisition of computers or the fitting out of buildings);

d) grants to the states under section 96 of the Constitution;

e) new policies not previously authorised by special legislation;

f) items regarded as equity injections and loans; and

g) existing asset replacement (which is to be regarded as depreciation),

are not appropriations for the ordinary annual services of the Government and that proposed laws for the appropriation of revenue or moneys for expenditure on the said matters shall be presented to the Senate in a separate appropriation bill subject to amendment by the Senate.

1.7 There were also two other parts to the resolution: the Senate clarified its view of the correct characterisation of payments to international organisations and, finally, the order provided that all appropriation items for continuing activities, for which appropriations have been made in the past, be regarded as part of ordinary annual services.^[6]

1.8 The committee concurs with the view expressed by the Appropriations and Staffing Committee that if 'ordinary annual services of the government' is to include items that fall within existing departmental outcomes then:

completely new programs and projects may be started up using money appropriated for the ordinary annual services of the government, and the Senate [may be] unable to distinguish between normal ongoing activities of government and new programs and projects or to identify the expenditure on each of those areas.^[7]

1.9 The Appropriations and Staffing Committee considered that the solution to any inappropriate classification of items is to ensure that new policies for which no money has been appropriated in previous years are separately identified in their first year in the appropriation bill that is not for the ordinary annual services of the government.^[8]

1.10 Despite these comments and the Senate resolution of 22 June 2010, it appears that a reliance on existing broad 'departmental outcomes' to categorise appropriations, rather than on an individual assessment as to whether an appropriation relates to a new program or project, continues and appears to be reflected in the allocation of some items in the most recent appropriation bills.

1.11 For example, it appears that the initial expenditure in relation to a number of measures, including the following measures, may have been inappropriately classified as 'ordinary annual services' and therefore improperly included in Appropriation Bill (No. 1) 2017-2018 (which is not subject to amendment by the Senate):

• Cyber Security Advisory Office — establishment ($10.7 million over four years)^[9]

• Industry Specialist Mentoring for Australian Apprentices — establishment ($60 million over two years)^[10]

• Reducing Pressure on Housing Affordability — establishment of the National Housing Finance and Investment Corporation ($63.1 million over four years).^[11]

1.12 The committee has previously written to the Minister for Finance and considered this general matter in relation to the inappropriate classification of items in other appropriation bills on a number of occasions.^[12]

1.13 On each of these occasions, the committee noted the government's advice that it does not intend to reconsider its approach to the classification of items that constitute ordinary annual services of the government; that is, the government will continue to prepare appropriation bills in a manner consistent with the view that only appropriations for measures that require a new administered outcome not previously authorised by Parliament (rather than appropriations for expenditure on new policies not previously authorised by special legislation) should be included in even-numbered appropriation bills.

1.14 The committee again notes that the government's approach to the classification of items that constitute ordinary annual services of the government is not consistent with the Senate resolution of 22 June 2010 relating to the classification of ordinary annual services expenditure in appropriation bills.

1.15 The committee reiterates its agreement with the comments made on this matter by the Senate Standing Committee on Appropriations and Staffing, and in particular that the division of items in appropriation bills since the adoption of accrual budgeting has been based on a mistaken assumption that any expenditure falling within an existing outcome should be classified as ordinary annual services expenditure. The committee notes that existing outcomes are extremely broad and therefore it appears that most new policies could therefore fall within these existing outcomes.

1.16 The committee draws the 2010 Senate resolution to the attention of Senators and notes that the inappropriate classification of items in appropriation bills undermines the Senate's constitutional right to amend proposed laws appropriating revenue or moneys for expenditure on all matters not involving the ordinary annual services of the government. Such inappropriate classification of items impacts on the Senate's ability to effectively scrutinise proposed appropriations as the Senate may be unable to distinguish between normal ongoing activities of government and new programs or projects.

1.17 The committee draws this matter to the attention of Senators as it appears that the initial expenditure in relation to some items in the latest set of appropriation bills may have been inappropriately classified as ordinary annual services (and therefore improperly included in Appropriation Bill (No. 1) 2017-2018 which should only contain appropriations that are not amendable by the Senate).

Appropriations for new administered outcomes

1.18 Under the current approach to the classification of items in appropriation bills, appropriations relating to 'new policies' will only be included in an even-numbered appropriation bill (which is amendable by the Senate) where the new policy requires a new administered outcome not previously authorised by the Parliament. As a result of this approach, the only appropriations for new policies included in amendable appropriation bills are those relating to new administered outcomes.

1.19 The committee notes that it appears that there are no proposed appropriations for new administered outcomes in Appropriation Bill (No. 2) 2017-2018 (and so there are no proposed appropriations relating to 'new policies' which are subject to amendment by the Senate). Noting this, the committee requests the Minister's advice as to each instance in which appropriations for new administered outcomes (which are amendable by the Senate) have been included in even-numbered appropriation bills over the past ten financial years.

Parliamentary scrutiny—appropriations determined by the Finance Minister^[13]

1.20 Clause 10 seeks to enable the Finance Minister to provide additional appropriations for items when satisfied that there is an urgent need for expenditure and the existing appropriation is inadequate. This additional appropriation is referred to as the Advance to the Finance Minister (AFM).

1.21 Subclause 10(1) establishes the criteria about which the Finance Minister must be satisfied before making a determination under the AFM provision. Specifically, the Finance Minister is required to be:

satisfied that there is an urgent need for expenditure, in the current year, that is not provided for, or is insufficiently provided for, in Schedule 1:
(a) because of an erroneous omission or understatement; or
(b) because the expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Bill for this Act before that Bill was introduced into the House of Representatives.

1.22 Subclause 10(2) enables the Finance Minister to make a determination which has the effect of modifying the appropriations outlined in Schedule 1 to the Act. As such, this provision may be considered to be a Henry VIII clause as it allows delegated legislation to amend primary legislation. There are significant scrutiny concerns with enabling delegated legislation to override the operation of legislation which has been passed by Parliament as such clauses impact on the level of parliamentary scrutiny and may subvert the appropriate relationship between the Parliament and the Executive.

1.23 Subclause 10(4) provides that a determination under subclause 10(2) is a legislative instrument, which must therefore be registered and tabled in Parliament. However, these determinations are not subject to parliamentary disallowance. The explanatory memorandum states that allowing these determinations to be disallowable 'would frustrate the purpose of the provision, which is to provide additional appropriation for urgent expenditure'.^[14]

1.24 Subclause 10(3) provides that the total amount that can be determined under the AFM provision is limited to $295 million.

1.25 The committee notes that this issue also arises in relation to other appropriation bills.^[15]

1.26 Noting that one of the core functions of the Parliament is to scrutinise proposed appropriations, the committee requests the Minister's advice as to each instance in which the Advance to the Finance Minister provisions have been utilised over the past ten financial years.

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[1] Various provisions. The committee draws Senators' attention to these provisions pursuant to principle 1(a)(v) of the committee's terms of reference.

[2] See Senate standing order 24(1)(a)(v).

[3] Now known as the Senate Standing Committee on Appropriations, Staffing and Security.

[4] See Senate Standing Committee on Appropriations and Staffing, 50th Report: Ordinary annual services of the government, 2010, p. 3; and recent annual reports of the committee.

[5] Senate Standing Committee on Appropriations and Staffing, 45^th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.

[6] Journals of the Senate, 22 June 2010, pp 3642–3643.

[7] Senate Standing Committee on Appropriations and Staffing, 45^th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.

[8] Senate Standing Committee on Appropriations and Staffing, 45^th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.

[9] Budget Paper No. 2, 2017-18, p. 139.

[10] Budget Paper No. 2, 2017-18, p. 84.

[11] Budget Paper No. 2, 2017-18, p. 169. It appears that the appropriation for departmental expenses for this measure ($4.828 million) may have been improperly included in Appropriation Bill (No. 1) 2017-18. However, it appears that the appropriation for capital expenses was correctly included in Appropriation Bill (No. 2) 2017-2018 ($4.75 million).

[12] See Senate Standing Committee for the Scrutiny of Bills, Tenth Report of 2014 at pp 402–406; Fourth Report of 2015 at pp 267–271; Alert Digest No. 6 of 2015 at pp 6–9, Fourth Report of 2016 at pp 249–255; Alert Digest No. 7 of 2016 at pp 1–4; Scrutiny Digest No. 2 of 2017 at pp 1–5; and Scrutiny Digest No. 3 of 2017 at pp 2–4.

[13] Clause 10. The committee draws Senators' attention to this provision pursuant to principles 1(a)(iv) and 1(a)(v) of the committee's terms of reference.

[14] Explanatory memorandum, p. 9.

[15] For example, see clause 12 of Appropriation Bill (No. 2) 2017-2018 (the total amount that can be determined under this AFM provision is $380 million).