Fiona Nash (NSW, National Party) Share this | Link to 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.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The remarks I make will be brief. This report from the Senate Standing Committee on Finance and Public Administration is entitled Transparency and accountability of Commonwealth public funding and expenditure. The title will probably make those who are more interested in the lively side of public policy move on. Yet, in my opinion, this is an extremely important report by the committee. It is one which has engaged serious thinkers in this area across the community and one which has engaged the members of the committee to a level and degree of participation, interaction and involvement which is unusual, even by the high standards of the Senate. When the draft report came out, no fewer than four members of the committee made very substantial and detailed additional contributions. I note that the unanimous report that has been produced as a consequence has 19 far-reaching recommendations which are in the interests of any government because they go right to the heart of introducing measures which will improve the nature, function and efficacy of our system.

The transparency and accountability of Commonwealth public funding and expenditure is right at the heart of parliamentary life. Those who understand the history of parliaments know that this is the battlefield on which hundreds and thousands of people have lost their lives. It is about the right of people to determine how they are to be taxed and how that taxation is to be spent by those who govern them. The fact that the history of striving for good government goes back centuries and is steeped in blood should remind us that, as dull as this may seem to those who seek other pastures of interest, this is material which goes right to the very heart of our parliamentary function. I therefore commend the report to those members of the fourth estate and of the community who are serious minded. I want to express particular thanks to the chair, the acting chair and the deputy chair of the committee for being able to contribute to what is a genuine cross-party effort, which, if adopted by the government, I think will result in markedly improved systems and standards in Commonwealth funding and expenditure.

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

I rise to speak on the Senate Standing Committee on Finance and Public Administration report, Transparency and accountability of Commonwealth public funding and expenditure. Although I am only a participating member of this committee, I note that this report deals with a number of issues in relation to the financial and reporting framework of government that Labor has spoken about previously. I want to place on record a number of issues that I think are confirmed by or arise out of the report. It is clear, from the terms of this report, that there are some real problems with and holes in the existing system, which is intended to provide transparency and accountability. Senator Murray has gone through a number of these. I have also spoken previously in this place on Australian National Audit Office reports which have identified deficiencies in the current reporting framework.

I want to talk particularly about three recommendations in the report. The first is recommendation 3, which relates to transfers of amounts between different forms of appropriations. The committee has recommended that such transfers be highlighted in reporting documents. It is a concern that a great many transfers are not disclosed until substantially after the event, and, in the interests of transparency in Commonwealth financial reports and in the reporting framework, it seems quite appropriate that there be mechanisms by which such transfers can be highlighted at the appropriate time. The committee has noted that the reporting of such transfers may not occur until well after the event. This does create difficulties for members of the public and also for senators, particularly in the context of Senate estimates in determining when such transfers have in fact occurred. I look forward to the government dealing with this issue.

Recommendation 5 deals with unspent appropriations. The committee has recommended that the agencies report the amounts of their unspent appropriations and the reasons for the underspends to Finance at the end of each financial year. It seems quite odd with this issue that there is not an easily accessible record of underspends by government. As a senator who has done estimates committees in a number of areas, I say that in some portfolios the extent to which there has been an underspend is quite extraordinary. An obvious example over the last four years has been in the Environment portfolio. I recall that a number of programs administered by the Australian Greenhouse Office over time were regularly—as I think the term was—‘rephased’, which means they could not spend as much money as the government had theoretically allocated, the programs were not up and running sufficiently and the money kept being pushed forward to an outer year. That happened throughout a number of estimates processes that I was involved in. It is difficult to know the extent to which the government is in fact spending what it says it will spend across portfolios without a more transparent mechanism for identifying that across government.

We also know that it is often difficult to determine overspends—that is, departments running operating deficits. I recall in relation to the CSIRO that it took Labor senators an estimates process of asking questions before the actual extent of the deficit which the CSIRO were running in that financial year was disclosed. It was significantly more than had been agreed with them by Finance. The actual amount of the overspend, or the deficit, was not disclosed until the estimates process. My recollection of the most recent estimates, a couple of weeks ago, is that we had the department of immigration disclosing, in the context of an estimates hearing, a $50 million or $60 million overspend, significantly more than what had been agreed with Finance. So we have unders and overs, and the government really needs to get its house in order and be clearer and more transparent about what has occurred in relation to appropriated expenditure.

I agree with the recommendation of the committee that there should be some mechanism whereby underspent appropriations are reported to the parliament with the reasons for the underspends. It might be politically embarrassing for the government, but one would have thought, given that the appropriation bills go through both this and the other chamber, that if government departments are not spending the amount that they have requested from the parliament they ought, in the interests of accountability, in fact disclose that and the reasons why. There may be reasons which are reasonable and there may not be reasons which are reasonable—and that would be a matter for political debate—but surely accountability requires that they in fact report those.

We have spoken a number of times in this place over the last couple of days—and I note my colleagues Senator Conroy, yesterday, and Senator Sherry did talk about this—about the general decline in the financial accountability standards of the Howard government, particularly over the last two or three years. There have been some reasonably high-profile examples of that. Perhaps the most notorious in recent times was the $10 billion water package, which we have spoken about on a number of occasions. Putting the media aspects aside, there is a more serious issue here. I would suggest to the chamber, and it is entirely consistent with the Auditor-General’s reports in relation to the outputs framework and the other reporting mechanisms which have been described, that, arguably, budget papers are now less transparent and less understandable for users than they have been previously.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Senator Murray interjecting—

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

Senator Murray suggests that was intended, I think.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

No, ‘and than was intended’.

Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

That may well be the case. Certainly the rhetoric when this reporting framework was introduced was that it was supposedly going to make things much more understandable and much more accountable—and the fact is it has not. I think senators understand that because we do the estimates process. One would have thought it would not be a particularly difficult ask to get program level amounts, to understand what is allocated within a line item of an output to particular programs, but the reality is many departments refuse to provide that information and the information is aggregated at such a high level it is actually very difficult at times to get clear advice about how much the government is spending under particular programs. The government may want to hide that. It may want to have outputs aggregated at very high levels so it can hide a whole range of its programs and not tell us what is being underspent, what is being overspent and what it is actually doing or not doing. But it is not particularly accountable to announce packages and then not be clear with the parliament and the Australian people, through your financial reporting framework, as to precisely what is being spent and where.

There have been a number of reports by the Auditor-General which have pointed this out. I suggest that this committee report also points this out. We also have independent commentators such as Dr Fels and Mr Brenchley, who recently observed in the Australian Financial Review that the government’s financial discipline and management is in decay and its approach to the financial framework appears to be alarmingly weak. This is an issue of accountability. This is about ensuring that you do with the money what you say you will do. It is about ensuring the parliament is clear about what moneys are being appropriated for. But it is also about performance. We can talk about accountability, which is an extremely important principle, but it is also about performance, because the logic behind a financial reporting framework is to enable users of it, including the public, members of parliament and senators, to be able to make some sort of judgement on the information presented as to whether the purpose for which the money has been appropriated has been achieved and whether there has been performance. If the government were confident about their ability to justify their performance then clearly they would be far more open about disclosing the state of government finances. The government should listen to this report, just as they should take on board the Auditor-General’s report. I look forward to their response on this issue, but I have a feeling it will be a very long time coming. I seek leave to continue my remarks later.

Leave granted; debate adjourned.