Fiona Nash (NSW, National Party) Share this | Hansard source

On behalf of the Chair of the Senate Standing Committee on Finance and Public Administration, Senator Mason, I present the report of the committee Transparency and accountability of Commonwealth public funding and expenditure, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

I seek leave to move a motion in relation to the report.

Leave granted.

I move:

That the Senate take note of the report.

I seek leave to have a tabling statement incorporated in Hansard.

Leave granted.

The statement read as follows—

Today the Senate Finance and Public Administration Committee has presented a unanimous report on its inquiry into the transparency and accountability of Commonwealth funding and expenditure.

The issue at the heart of this report is nothing less than the accountability of the executive government to the legislature and through the legislature to the people.

In recent years in Australia, and especially since the High Court’s judgement in the Combet case in 2005, there has been a growing perception that the Parliament may have lost some measure of its historical and constitutional responsibility to control the finances of the executive government.

The Senate was sufficiently concerned about this perception that in June 2006 it referred the matter of the transparency and accountability of the Commonwealth’s public funding and expenditure to a committee for inquiry and report.

Historical perspective

Since Federation there have been many changes to the way in which the Commonwealth Government has accounted for its funding and expenditure. The extended responsibilities of government, the massive increase in the size of the national economy, and changes in the disciplines of accounting and management have all played a part in this.

Historically, governments have operated on an annual cash basis. There was good reason for this. Parliaments were able easily to safeguard their constitutional rights and responsibilities on that basis.

In the past twenty years, however, there have been significant changes in the way that the executive government has presented its budget to the Parliament for approval. These changes have led inevitably to changes to the Parliament’s processes for appropriating money for the purposes of the executive. There have also been significant changes in the ways in which governments account for past expenditure.

In the 1980s the government adopted a system of program budgeting. Then, in 1997, the Commonwealth Government introduced accrual accounting. In 1999-2000 the Commonwealth Budget was produced for the first time based on accrual accounting principles in. In that budget the Government also introduced the outcomes and outputs reporting framework.

In some respects the changes that were made then and have since been refined appear to have been positive, and have for example provided the opportunity for public sector managers to manage better. They have also provided, through the medium of accrual accounting, information about the real state of the Commonwealth’s finances. The changes have also resulted in increased transparency for expenditure after the event.

However, it has become apparent that these positive outcomes have been accompanied by some negative outcomes, in particular in the appropriation processes.

In the time I have today I shall focus on only some of the main matters covered in the Committee’s report.

Multiple sources of funding

Among the particular matters of concern to the Senate, as expressed in its reference to the Committee, were the impact on the fiscal responsibilities of the Parliament of the Commonwealth of:

Outcome budget appropriations and reporting;

Multiple sources of funding; and

The use of ordinary annual services to fund activities including non-annual services.

As I have mentioned, historically Parliaments have appropriated funds for the annual services of the government. Currently, however, some 80 percent of the Commonwealth Government’s funds are supplied by way of Special Appropriations. These appropriations are typically used to pay for continuing expenses, for example, for pensions, where the recipient’s entitlement lasts for longer than a year. Very few Special Appropriations lapse at the end of a financial year. Most are open-ended.

An issue of concern to the Committee is that Parliament in reality has little control over these Special Appropriations. Funding and expenditure under Special Appropriations are usually scrutinised only when an enabling or amendment bill comes before us. Admittedly, expenditure is reported in many different budget documents, but there is no consolidated report that would assist the Parliament and the Senate in particular, through the estimates processes, to scrutinise expenditure.

The Committee has recommended therefore that the government should produce a separate document that sets out the past and expected expenditure from all Special Appropriations and table that document with the annual budget documents.

The ability of government agencies to carry over funds from year to year is also a matter of some concern to the Committee. Prior to the implementation of accrual budgeting, agencies were not able to carry over funds. Now, however, agencies are funded for future liabilities, for example, for employees’ entitlements and for depreciation, and may carry over those funds that are not spent during the year.

The Committee has recommended that agencies report the amounts of unspent appropriations and the reasons for not spending the appropriations to the Department of Finance and Administration at the end of each financial year, and that the government should table a consolidated report of the amounts and reasons within six months of the end of the financial year.

The Committee has also recommended that unless the government can propose another mechanism that would overcome the transparency and accountability issues raised by the carry overs it should discontinue the appropriation of funds to agencies for the purpose of depreciation.

The outcomes/outputs framework

A number of witnesses and, indeed, members of the High Court have remarked on the high level of specification of outcomes in the budget documents. At times outcomes appear as little more than aspirations. Outcomes expressed in such terms are obviously of little use in defining the purposes of an appropriation.

The Committee has recommended therefore that outcomes be expressed in clear, simple and measurable terms.

The Committee has also recommended that expenditure should be reported at the program level in the budget documents, including in the Appropriation Acts.

Portfolio Budget Statements

The former Finance and Public Administration Legislation Committee produced three separate reports on the format of the Portfolio Budget Statements in 1997, 1999 and 2000. It is worth recalling that in its report of November 2000 the Committee stated that:

… the PBS are … well-crafted documents which contain a wealth of useful information, once the reader has grasped the underlying concepts of accrual accounting, budgeting processes, the reporting framework and reporting requirements. The PBS are not for the uninitiated.

They are evolving, however, and may eventually reach a point where they can more closely merge the government’s aspirations for them as budgeting statements and senators’ hopes for a simple, straightforward, user-friendly, yet detailed guide to the estimates.

It was timely therefore for the Committee to consider again, under the second of its terms of reference, options for improving the transparency and specificity of the budget papers. The Committee has made recommendations for improvements to the PBS, including one for a common approach to the documents and for the inclusion of estimates for three forward years for departmental and administered items.

Other Measures to improve Parliament’s oversight

The Committee was required by the third of its terms of reference to nominate other measures to improve the Parliament’s oversight of proposed and actual Commonwealth funding and expenditure.

The Committee has recommended, among other things, the Appropriation Acts should be drafted so as to make it clear that appropriations for departmental expenses must be expended against a specified outcome or purpose.

Conclusion

To conclude, the challenges to the appropriations processes do not arise directly from accrual accounting or budgeting. Indeed, the Committee supports those measures.

However, as the Committee has found, there are quite significant shortcomings in the application of the measures for the Commonwealth’s funding and expenditure.

The Committee considers that its recommendations, if implemented, should go some way to restoring the Parliament’s historical and constitutional responsibilities with regard to public funding and expenditure.

I commend the report to the Senate.