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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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This bill seeks to appropriate money out of the Consolidated Revenue Fund
for the ordinary annual services of the government
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Portfolio
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Finance
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Introduced
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House of Representatives on 9 May 2017
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Bill status
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Received the Royal Assent on 23 June 2017
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Scrutiny principles
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Standing Order 24(1)(a)(vi) and (v)
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2.50 The committee dealt with this bill in Scrutiny Digest No. 6 of 2017. The Minister responded to the committee's comments in a letter dated 15 September 2017. Set out below are extracts from the committee's initial scrutiny of the bill and the Minister's response followed by the committee's comments on the response. A copy of the letter is available on the committee's website.[30]
Initial scrutiny – extract
2.51 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.
2.52 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.[32]
2.53 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[33] has kept the issue of items possibly inappropriately classified as ordinary annual services of the government under active consideration over many years.[34]
2.54 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.[35] The Senate has not accepted this assumption.
2.55 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 50th 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.
2.56 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.[36]
2.57 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.[37]
2.58 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.[38]
2.59 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.
2.60 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)[39]
• Industry Specialist Mentoring for Australian Apprentices — establishment ($60 million over two years)[40]
• Reducing Pressure on Housing Affordability — establishment of the National Housing Finance and Investment Corporation ($63.1 million over four years).[41]
2.61 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.[42]
2.62 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.
2.63 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.
2.64 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.
2.65 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.
2.66 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).
2.67 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.
2.68 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.
Minister's response
2.69 The Minister advised:
New Administered Outcomes
As mentioned in my previous responses to the Committee and in the Senate on 17 March 2016, the allocation of measures between odd and even-numbered bills is consistent with the long-standing interpretation by all Governments of the Senate-executive compact, as adjusted in 1999 following the introduction of accrual-based budgeting.
Examples of non-operating items (equity injections, administered assets and liabilities), State, ACT, NT and local government items and corporate entity items of new measures included in even-numbered bills from
2013-14 to 2015-16 are shown in Attachment A.[43] Due to the difficulty of interrogating older data in various legacy systems and the call on departmental resources, the list for the purpose of this request does not go back further.
However further examples of new measures included in even-numbered bills from 2006-07, relating in these examples to New Administered Outcomes, are at Attachment B.[44]
Committee comment
2.70 The committee thanks the Minister for this detailed response and his ongoing engagement with the committee on this matter.
2.71 In particular, the committee thanks the Minister for providing examples of appropriations for non-operating items (sometimes referred to as capital costs) and payments to the States, territories and local governments which related to new measures and which were included in amendable appropriation bills. The committee acknowledges and welcomes the fact that where new measures involve an appropriation for capital costs or payments to the States, territories or local government, the appropriations for these costs are appropriately classified and therefore included in an amendable appropriation bill. In this way the Senate is able to exercise its constitutional right to amend these provisions which relate to matters not involving the ordinary annual services of the government.
2.72 However, there are many instances where new policies do not involve an appropriation for non-operating items or payments to the States, and in these circumstances (except on the rare occasion that the new measure requires an entirely new administered outcome),[45] the new measures are only included in a bill which is not amendable by the Senate. An example of such a measure was included in the committee's initial comments on this bill.[46]
2.73 The committee takes this opportunity to note that the High Court has emphasised that the interpretation of the expression 'ordinary annual services of the government' in sections 53 and 54 of the Constitution is not justiciable—that is, its interpretation is a matter for the two Houses in their dealings with each other, rather than for the Courts.[47]
2.74 The committee reiterates that the long-standing approach of governments 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.
2.75 The committee also 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.
2.76 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.
2.77 In light of the fact that this bill has already passed both Houses of Parliament the committee makes no further comment on this matter; however, the committee will continue to draw this important issue to the attention of Senators where appropriate in the future.
Parliamentary scrutiny—appropriations determined by the Finance Minister[48]
Initial scrutiny – extract
2.78 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).
2.79 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.
2.80 Where the Finance Minister is satisfied that these criteria are met, subclause 10(2) enables the 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, in effect, 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.
2.81 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'.[49]
2.82 Subclause 10(3) provides that the total amount that can be determined under the AFM provision is limited to $295 million.
2.83 The committee notes that this issue also arises in relation to other appropriation bills.[50]
2.84 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.
Minister's response
2.85 The Minister advised:
Advance to the Finance Minister
There have been 49 Advances to the Finance Minister (AFM) (included in 48 Determinations) over the past twelve financial years from 2006-07. A summary is at Attachment C. A report is tabled in Parliament for every year in which one or more AFMs is provided. The reports regarding AFMs are published on my Department's website at: http://www.finance.gov.au/publications/advance_to_the_finance_minister/.
Committee comment
2.86 The committee thanks the Minister for this detailed response and notes the Minister's advice that there have been 49 Advances to the Finance Minister (AFMs) over the past 12 financial years from 2006-07.
2.87 As detailed in Attachment C to the Minister's response,[51] these Advances have provided additional appropriations of varying amounts to a wide range of portfolios and for a wide variety of purposes. The table below provides details of a selection of AFMs issued since 2006-07:
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Year
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Purpose
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FRL No.
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Amount
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2006-07
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To meet commitments in relation to payments to the Australian Broadcasting
Corporation to provide Australian television in the Asia
Pacific region
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$8,989,493
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2007-08
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To cover funding obligations for the Mersey Community Hospital, Tasmanian
Health Initiatives, Year of the Blood Donor measure and
ongoing blood and organ
donation services
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$48,760,078
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2008-09
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To enable payments to local governments through the Regional and Local
Community Infrastructure Program
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$206,500,247
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2009-10
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To enable the payment of an additional contribution to the International
Monetary Fund Poverty Reduction and Growth Trust
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$29,675,000
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2010-11
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To cover payments for the 2011-12 budget measure 'Supporting football in
the lead up to the 2015 Asian Cup'
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$7,500,000
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2011-12
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To enable the Department of Regional Australia, Local Government, Arts and
Sport to meet a shortfall of funding for expenditure relating
to grants to arts
and culture bodies
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$6,000,000
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2012-13
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To enable the Department of Health and Ageing to make payments through the
Local Hospital Networks Special Account to Victorian Local
Hospital
Networks
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$107,000,000
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2015-16
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To enable the AEC to implement the electoral reforms in the Commonwealth
Electoral Amendment Act 2016, as well as to bring forward election
preparations for the 2016 Federal Election
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$101,237,000
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2017-18
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To facilitate a voluntary postal plebiscite for all Australians enrolled on
the Commonwealth Electoral Roll, conducted by the Australian
Bureau of
Statistics
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$122,000,000
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2.88 As noted in the committee's initial comments, one of the core functions of the Parliament is to authorise and scrutinise proposed appropriations. High Court jurisprudence has emphasised the central role of the Parliament in this regard. In particular, while the High Court has held that an appropriation must always be for a purpose identified by the Parliament, '[i]t is for the Parliament to identify the degree of specificity with which the purpose of an appropriation is identified'.[52]
2.89 Given that Advance to the Finance Minister determinations are not subject to parliamentary disallowance, the primary accountability mechanism in relation to AFMs (beyond the initial passage of the authorising provision in the regular appropriation bills) is an annual report tabled in Parliament on the use of the Advance. These reports are referred to legislation committees considering estimates and are also considered in committee of the whole.[53] In addition, the reports are published on the Department of Finance website.[54] The committee draws these reports and the Advance to the Finance Minister provision in the regular appropriation bills to the attention of Senators.
2.90 In light of the fact that this bill has already passed both Houses of Parliament the committee makes no further comment on this matter; however, the committee will continue to draw this important issue to the attention of Senators where appropriate in the future.
[30] See correspondence relating to Scrutiny Digest No. 12 of 2017 available at: www.aph.gov.au/senate_scrutiny_digest.
[31] Various provisions. The committee draws Senators' attention to these provisions pursuant to principle 1(a)(v) of the committee's terms of reference.
[32] See Senate standing order 24(1)(a)(v).
[33] Now known as the Senate Standing Committee on Appropriations, Staffing and Security.
[34] 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.
[35] Senate Standing Committee on Appropriations and Staffing, 45th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.
[36] Journals of the Senate, 22 June 2010, pp 3642–3643.
[37] Senate Standing Committee on Appropriations and Staffing, 45th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.
[38] Senate Standing Committee on Appropriations and Staffing, 45th Report: Department of the Senate's Budget; Ordinary annual Services of the government; and Parliamentary computer network, 2008, p. 2.
[39] Budget Paper No. 2, 2017-18, p. 139.
[40] Budget Paper No. 2, 2017-18, p. 84. It appears that the appropriation for departmental expenses for this measure ($20.2 million) may have been improperly included in Appropriation Bill (No. 1) 2017-18. However, it appears that the appropriation for capital expenses ($0.3 million) was correctly included in Appropriation Bill (No. 2) 2017-2018.
[41] 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 ($4.75 million) was correctly included in Appropriation Bill (No. 2) 2017-2018.
[42] 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.
[43] See Appendix 1.
[44] See Appendix 1.
[45] Attachment B to the Minister's response demonstrates that there have only been four instances since 2006-07 where an entirely new administered outcome has been included in an amendable appropriation bill. See Appendix 1.
[46] Cyber Security Advisory Office — establishment ($10.7 million over four years) [Budget Paper No. 2, 2017-18, p. 139].
[47] Wilkie v Commonwealth [2017] HCA 40 (28 September 2017) [125]; Rosemary Laing (ed), Odgers' Australian Senate Practice: As Revised by Harry Evans (Department of the Senate, 14th ed, 2016), p. 385.
[48] 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.
[49] Explanatory memorandum, p. 9.
[50] 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).
[51] See Appendix 1.
[52] Combet v Commonwealth (2005) 224 CLR 494, 577 [160]; Wilkie v Commonwealth [2017] HCA 40 (28 September 2017) [91].
[53] Rosemary Laing (ed), Odgers' Australian Senate Practice: As Revised by Harry Evans (Department of the Senate, 14th ed, 2016), pp 395–396.
[54] See http://www.finance.gov.au/publications/advance_to_the_finance_minister/.
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