Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

I wish to make a statement on behalf of the Joint Committee of Public Accounts and Audit concerning the draft budget estimates for the Australian National Audit Office and the Parliamentary Budget Office for 2024-25. I thank the member for Solomon for being so deeply interested in this topic that he has promised to stay for the entire statement, which is a credit to the House!

On behalf of the Joint Committee of Public Accounts and Audit, I present this statement on the draft budget estimates of the Australian National Audit Office, the ANAO, and the Parliamentary Budget Office, or the PBO. The committee is required under the Public Accounts and Audit Committee Act 1951 and the Parliamentary Service Act 1999 to consider the draft budget estimates of the ANAO and the PBO, respectively, and to make recommendations to both houses of parliament regarding these estimates. This required statement on behalf of the committee is in advance of the budget being handed down and is an important transparency measure that informs the parliament and the public on the adequacy of the ANAO's and the PBO's resourcing. The committee considers both offices vital in supporting the work of this parliament and in strengthening integrity and transparency in public administration. I was counting today: this is actually the ninth time I've delivered this statement, which is a testament to how well my parliamentary career is going! We'll aim for 10!

The committee has carefully scrutinised the ANAO's and the PBO's draft budget estimates and has resolved to endorse them subject to further review of the costings and final estimates, which may be agreed with the Department of Finance. The ANAO received supplementations in both the 2021-22 and 2023-24 budgets to deal with acute cost pressures, but it is not requesting any additional funding in this budget. As outlined in its budget submission to the committee, however, the ANAO will require funding in future years if it is to meet both its legislative requirements and its other outputs under the present framework. This is due primarily to the cumulative impact of the efficiency dividend which currently applies to the ANAO. I would just say that the committee has resolved—and this will take a few minutes, but we have a few minutes—to fulfil our legislative requirement and make some detailed comments on this for the record.

For many years, over successive parliamentary terms, the committee has been grappling with the sustainability of the ANAO's long-term financial position and the risk arising to its operational independence and ability to perform its vital statutory roles at an appropriate level of output. In plain English: I'm a Victorian and I lived through the 1990s. I saw what happened when the then Kennett government effectively tried to nobble their then auditor-general by slashing the budget. That's what these mechanisms in the Commonwealth legislation aim to avoid. For the coming financial year, though, the ANAO can draw on accumulated reserves to meet its resourcing requirements. However, it has become clear to the committee, in discussions over many months regarding the ANAO's funding models and protections, that its current financing model is not sustainable over the long term. The ANAO is a relatively small agency and has a legislative mandate to undertake financial statement auditing—that's mandatory—alongside a set of other agreed outputs. Notable of those are performance audits, which are the things which attract the most public attention, and, more recently, a new third limb, if you like, in auditing the performance statement auditing.

Financial statement auditing has to meet very strict Australian Accounting Standards and can involve unavoidable unforeseen costs. When the auditor finds something, they're obliged to go and spend money to dig into it. There is no discretion there and there is no discretion about the quality standards they have to meet.

Luke Gosling (Solomon, Australian Labor Party) Share this | Link to this | Hansard source

Uh-huh.

Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

Thank you for the noises there, member for Solomon—I feel validated! Although the ANAO has invested in technology and in-house capability to improve efficiency and to reduce costs, it has been demonstrated over multiple terms of parliament that it is simply not possible for the ANAO to bear the cumulative impact of the efficiency dividend without reducing outputs which can only occur in the performance audit program. Indeed, the impact of the efficiency dividend has been the key driver of prior supplementary funding requests.

Conceptually, the committee considers that the efficiency dividend need not, and should not, apply to the ANAO. The efficiency dividend is a reasonable tool of executive government, both to free up resources in departments of state and similar entities for new priorities of the government of the day and also to send the management signal of fiscal discipline. Fair enough. But evidence gleaned over multiple terms of parliament demonstrates that it is simply not possible for the ANAO to accommodate the cumulative impact of the efficiency dividend without reducing its performance audit program below the number agreed to be optimal on a broadly bipartisan basis, which is 48 performance audits per annum.

Late in the last term we conducted the 10-year review of the Auditor-General Act. We went up hill and down dale and pulled apart that number, and it came back to 48. Everyone agrees that 48 is the right number, but, if the efficiency dividend keeps eroding the base, the Audit Office has no choice but to start reducing that number. Hence, for some decades now, an inevitable ritual dance has developed where every few years—we're getting there now—the ANAO moves into a budget deficit and then properly indicates that it has no choice but to start cutting the performance audit program. In response, as part of the dance, the government of the day eventually provide supplementary funding, sometimes with, and sometimes without, political drama.

The application of the efficiency dividend is predicted by the ANAO to have a cumulative budgetary impact of $10.9 million between 2024-25 and 2027-28. This is not a new issue. Back in 2008 the JCPAA commented in report No. 413 entitled The efficiency dividend and small agencies: size does matter:

The ANAO saves the Australian taxpayer significant sums of money each year through reduced opportunity for fraud, better accountability and improved agency performance. Saving small sums on the ANAO's budget only costs the Government larger sums later on.

I'll note that, for the record and to be clear, I was not on the committee at that time and had nothing to do with the title of the report!

The value to the Australian government of a robust audit function is significant, as it fosters and drives efficiency, effectiveness and accountability throughout the public sector. The committee notes with interest, and relays to the parliament here, that the New South Wales government permanently excluded integrity agencies from an efficiency dividend, from 2022-23, to safeguard their future independence. It did so in response to recommendations by the Public Accountability and Works Committee of the New South Wales parliament. It has been the presumption in different quarters for many years that an efficiency dividend drives efficiency in a sustainable manner, as applies to the ANAO, but this is simply not borne out by the detailed analysis and the facts.

The strong and considered recommendation of the committee—and I'm embodying this statement to the parliament—is that the ANAO should simply be excluded from future efficiency dividends. Doing so will maintain the performance audit program at the level broadly agreed to be necessary and thereby enhance efficiency and effectiveness in Commonwealth entities. This approach will also avoid the periodic circus that I referred to and political drama about cutting the audit program—and, believe me, in opposition I dined out on that, and it was a terrific 12 months—before additional funding is inevitably provided by the government of the day. In addition to enabling the ANAO to better absorb market-based cost increases in the conduct of its mandatory financial statement auditing functions, removal of the efficiency dividend will help it to reach that target of a discretionary 48 performance audits per financial year—a number that we recommended be funded, as I referred to earlier, in the Auditor-General Act.

The final paragraph on this point, you'll be pleased to know, is that the JCPAA recognised that, at that time, resourcing of the ANAO was not adequate. But at that point we did not have sufficient evidence to justify a recommendation to remove the efficiency dividend. The committee now takes a different view on this. However, following the additional considerations and detailed analysis that we've conducted—fascinating and scintillating, I can assure you they were—the committee regards it as the simplest and most effective first step in ensuring the ANAO's financial sustainability. In essence, that would avoid the periodic wasted effort of justifying the obvious with analysis and business cases, and the political circus of accusations that the government is cutting the Audit Office budget, before it's inevitably restored. I'll also note that we finalised our analysis and provided that to the government too late in the budget process, so we're not setting any test for this budget. But we are putting it on the record for transparency that, in future years, that would be the simplest way to stop this goldfish-in-the-bowl circus that we seem to have created.

We've also got a statutory responsibility to convey to the parliament the following information about the Parliamentary Budget Office. The PBO's estimated expenses for 2024-25 amount to $10.371 million. The committee notes, from the PBO's portfolio budget statement, under the strategic direction section, that its expected resourcing for 2024-25 will make it challenging for the PBO to maintain its service levels for parliamentarian requests, as well as to meet its publication and election related responsibilities. The committee has understood for some time that the principal continuing budgetary issue facing the PBO has simply been the sustained increases in demand for its work across the parliament. It's maturing as an organisation. We have a very active parliament and we have a very active crossbench. That's also coupled with the depletion of its special appropriation fund from $6 million, allocated at its inception, to around $1.8 million now. Although the PBO should continue to meet most of its fiscal requirements from its departmental appropriation, this special appropriation has represented a crucial buffer for it to manage risks to its operational independence in meeting unexpected costs, including the heightened demand for its services in recent years.

The committee has supported the replenishment of this fund in previous budgets but acknowledges and accepts the recent advice from the Department of Finance that, as it was created to assist the PBO through its establishment phase only, a new policy proposal is required to obtain additional funding. The committee therefore supports the PBO's request for additional funding of $1.1 million per year over four years from 2024-25, and ongoing thereafter, and the establishment of a $3 million special account to provide a reasonable measure of ongoing fiscal independence from executive government and resources to call upon if needed, subject to appropriate rules regarding access to the special account. The JCPAA confirms its continuing support for the PBO in its role in providing valuable information and analysis to all parliamentarians to better inform public debate.

I thank the Acting Auditor-General and the Parliamentary Budget Officer for their work in support of the parliament and the JCPAA, and committee members for their thoughtful and detailed consideration of these budget requests. The final word I'd just note is to record in the House proper—we've done this through committee hearings—the thanks of the parliament to the previous Auditor-General. He served as an officer of the parliament, a very rare designation, with distinction for 8½ years. The Auditor-General can be appointed under the legislation by the Governor-General for one 10-year term as an officer of the parliament. The work the Audit Office does is not for the executive; it's on behalf of this parliament, both houses, to scrutinise the executive. Grant Hehir, the former Auditor-General, is one of Australia's finest and most distinguished public servants, who served us with distinction. We wish him well in retirement and thank him also for his work in supporting the committee over many years.

I seek leave to present a copy of my statement and executive minutes on reports Nos 495, 497, 498 and 499 of the Joint Committee of Public Accounts and Audit.

Leave granted.

I present a copy of my statement and executive minutes.

Sitting suspended from 18:07 to 19:31