Appropriation Bills
Overview
The purpose of these guidelines is to provide a broad overview of the legislative framework for expenditure by Australian Government agencies.
The Parliament has ultimate control over government finances. This control is two-fold. Firstly, taxes are imposed and loans to the Government are authorised by legislation which must be agreed to by the Parliament. Secondly, government expenditure must also be authorised by appropriation legislation.
Section 83 of Australia's Constitution [
] states that 'no money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law'. This means that however much money the Government has, whether raised by taxation or by loan or even by sale of government assets, the money cannot be spent unless the Parliament has authorised the expenditure by an Act of Parliament (an appropriation Act). Such authorisation is often known by the term 'supply', for example, when it is stated that 'the government has supply' or that 'supply has been withheld'.
Although Parliament has the ultimate control by way of veto, the Government has what is known as the 'financial initiative'. This is another way of saying that only the Government can request that an appropriation be made or increased, or propose to impose or increase taxation. Further detailed information on Parliamentary practices and the subject matter discussed below, can be found in Odgers' Australian Senate Practice. []
Types of Financial Bills
Expenditure Appropriation Bills
Appropriation bills are all bills which authorise expenditure or have the effect of increasing, altering the destination of, or extending the purpose of an existing appropriation.
The annual appropriation bills are passed regularly each financial year to appropriate money from the Consolidated Revenue Fund to provide funds for government and parliamentary expenditure. (Parliament is constitutionally separate and independent from the Government and has separate funding by means of its own appropriations.)
Special Appropriation Bills
This type of bill appropriates funds for a specified purpose, for example, to finance a particular project or programme set up by the bill (the appropriation being in most cases incidental to the bill's main intention). Around 75% of government expenditure is covered by special appropriation, which includes items such as the age pension and Medicare benefits. Special appropriation bills are often not specific in amount or duration. Those providing funds for an indefinite period are said to give 'standing appropriation'.
Revenue-Taxation Bills
Taxation bills impose a tax. Examples of taxation bills are income tax bills, customs tariff bills and excise tariff bills. Bills imposing 'a charge in the nature of a tax' are also considered to be taxation bills-that is, where a charge is a revenue raising measure as distinct from a fee for a service.
Bills Dealing with Taxation
Bills in this category lay down the administrative procedures for assessing and collecting tax. As with taxation bills they may be introduced without notice but in all other respects they are treated as ordinary bills, and may originate in and be amended by the Senate.
Customs and Excise Tariff Proposals and Bills
Customs tariffs (duties on imports and exports) and excise tariffs (duties on goods produced in Australia) are initiated by a customs tariff or excise tariff proposal.
Structure of Appropriation Bills
The Australian Government's Budget is presented to the Australian Parliament in the form of three Appropriation Bills: the Appropriations (Parliamentary Departments) Bill; and Appropriation Bills (Nos 1 and 2). The '1965 Compact' between the Senate and the House of Representatives governs the allocation of items between these annual appropriation bills.
The Appropriation Bills comprise:
- a schedule which details the amounts of the appropriation to be sought and the purpose for which each amount of moneys may be expended; and
- a series of clauses which may expand, limit, or, after specified legislative action, modify the purposes on which moneys can be expended by the Executive.
Appropriation Bill (No. 1 and 3)
These bills provide Government agencies with funding for the "ordinary annual services" of Government. The Bill cannot be amended by the Senate but, the Senate can request that the bill be amended by the House or can reject the bill in its entirety. Bill 1 [] includes annual appropriations for all:
- departmental price of output appropriations (which includes asset replacement, which will typically be funded from depreciation provisions); and
- administered expenses that fall within an existing outcome (ie the outcome has previously been approved by Parliament and in the case of new administered expenses, represents an increase in, or extension of, an existing outcome).
Appropriation Bill (No. 1) is generally supplemented at Additional Estimates by Appropriation Bill (No. 3).
Appropriation Bill (Nos. 2 and 4)
These bills provide agencies with funding for capital injections, grants to the States and Territories, and administered funding for new agency outcomes. The Bill can be amended by the Senate. Bill 2 [] includes annual appropriations for all:
- all non-operating funding (equity injections,loans, previous years' outputs and administered assets and liabilities), including for Defence purposes;
- Section 96 Grants to the States (called Specific Purpose Payments); and
- New administered expenses (ie new policy) for outcomes not previously authorised by Parliament.
- Note that subsequent funding will move to Bill 1 once the outcome has been approved by Parliament.
Appropriation Bill (No. 2) is generally supplemented at Additional Estimates by Appropriation Bill (No. 4).
Appropriation (Parliamentary Departments) Bill
As Parliament is constitutionally separate and independent from the Government, it receives separate funding through its own appropriation bill.
Administered versus Departmental
Departmental and administered items are specific accounting terms. Administered and departmental monies are treated differently and appropriated separately in the Appropriation Bills. The distinction arises from the differing accountabilities involved. 'Administered items' are those resources controlled by Government but administered by the agency on behalf of the Government (e.g., most grants and benefits; transfer payments).
'Departmental items' (or outputs) are those resources controlled by the agency, comprising the assets, liabilities, revenues and expenses applied to the production of an agency's outputs (e.g. salaries; operational expenses including depreciation (or asset replacement); and accruing employee entitlements).
Departmental expenses are notionally split between outcomes, thereby providing an indication of the departmental resources to be allocated towards the achievement of key outcomes for agencies. This split is for information only, as departmental items will be appropriated as a single amount for each agency. The single appropriation for departmental items represents the price paid by Government for all the outputs the agency plans to deliver.
- Departmental outputs appropriations represent funding for the provision of outputs by agencies to the Government (this funding is controlled by agencies subject to delivery of their outputs).
- Departmental non-operating appropriations represent funding in the form of equity injections or borrowings over which the agency exercises control.
Administered expenses are expenses that agencies do not have control over and are normally made pursuant to eligibility rules and conditions established by the Government such as grants, subsidies and benefit payments. Annual appropriations for administered expenses are appropriated on the basis of agency outcomes, making it clear what the funding is intended to achieve rather than the programme it is being spent on. Administered assets and liabilities appropriations represents equity injections, which are for functions oversighted (not controlled) by an agency on behalf of the Government.
Passage of the Appropriation Bills
Under the Constitution appropriation bills cannot be initiated in the Senate, and appropriation bills for 'the ordinary annual services of the Government' cannot be amended by the Senate (ie Appropriation Bill (No. 1)). Section 56 of the Constitution requires that no appropriation bill can be passed unless the purpose of the appropriation has been recommended by a message from the Governor-General.
Appropriation Controls
As mentioned above, Section 83 of the Constitution states that "No money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law". Each agency is responsible to ensure that their expenditure does not exceed the amount under an appropriation. Agencies need to ensure that there are sufficient amounts remaining in an appropriation to cover each payment they make against an appropriation item. To assist in the control the cash available under appropriations, the Cash and Appropriations Management Module (CAMM) of AIMS maintains a record of annual appropriations passed by the Parliament, and funds transferred to agencies against appropriations.
When should expenditure be Recorded Against an Appropriation?
All expenditure of agencies must be recorded against an appropriation. Under Section 5 [] of the Appropriation Acts this includes notional transactions between Agencies, which are to be treated as if they were real transactions. For example, consider a "payment" between two Australian Government agencies. The effect is that payment will be debited from an appropriation of the paying agency, even though no payment is actually made from the Consolidated Revenue Fund (CRF).
Part 4 of the Annual Appropriation Act No. 1 generally provides that amounts may be debited from an annual appropriation and credited to a Special Account.
Departmental Appropriation Controls
Departmental output appropriations set a limit on an agency's right to make payments under that appropriation. Agencies' authority to make expenditures from Departmental output appropriations are not limited to the year in which funds were appropriated. This is because unused Departmental annual output appropriations do not lapse at financial year end.
Departmental capital appropriations provide authority for agencies to expend cash in relation to equity injections and borrowings. They are not limited to the year in which funds were appropriated as they do not lapse at financial year end.
An exception to the rule that departmental appropriations do not lapse was introduced in Acts 3 and 4 of 2003-04 []. The new "lapsing" sections provide that the Finance Minister may reduce a departmental or non-operating appropriation if he has been requested to do so by a Minister.
Administered Appropriation Controls
Annual administered expense appropriations are set as the lesser of:
- the amount specified in the item; and
- the amount determined by the Finance Minister in relation to the item, having regard to the expenses incurred by the entity in the current year in relation to the item.
Any excess of the amount of an annual Administered expense appropriation over expenses incurred in that year will be lapsed by a determination by the Finance Minister.
Where an agency finds that the amount of an annual Administered appropriation is insufficient to meet expenses required, an increase in the appropriation amount should be sought at Additional Estimates. Subsequent to Additional Estimates, if expenditure will exceed the available appropriation, additional monies may be sought through the Advance to the Finance Minister.
It cannot be presumed that an Administered assets and liabilities appropriation will be approved by Parliament. An agency that makes payments in excess of available appropriations (the annual administered expense appropriation recognised and any existing appropriation receivables) will result in it breaching Section 83 of the Constitution.
Administered Special Appropriation Controls
Special appropriations generally provide uncapped authority for an agency to make payments in accordance with the criteria specified in the Act. Where payments required exceed expenses actually incurred under an Administered special appropriation, the difference may be funded from the same Administered special appropriation. This is subject to any payments limit specified under the relevant special appropriation.
Presentation of the Appropriation Bills, Portfolio Budget Statements and Annual Reports
The Appropriation Bills, Portfolio Budget Statements (PBS) (or Portfolio Additional Estimates Statements at Additional Estimates) and Annual Reports are an integrated package used to inform Senators and Members of the proposed allocation of resources to Government outcomes by agencies.
Agency PBSs (which are released on Budget night) contain detailed information on planned performance of outputs and outcomes on the same basis as the Bills. Additionally, information on actual performance will be published on an outcomes basis in agencies annual reports, enabling a clear read between the Bills, PBS's and Annual Reports.
Accuracy of the Appropriation Bills
Errors in the Appropriation Bills cannot be corrected by corrigendum. Once the appropriation bills are introduced into the Parliament, correction of errors (eg in the amounts to be appropriated) would be effected by the Government:
- giving notice that it intends to amend the bills;
- seeking a new message from the Governor-General; and
- ensuring the amended bill is passed by both houses.
The agency affected by the amendment would have to table in the Senate an addendum to the Portfolio Budget Statement (or the Portfolio Additional Estimates Statement) reflecting the change.
If an error were discovered after the Bills were passed, the only means of correcting that error would be the introduction of new legislation for consideration by the Parliament. In these circumstances, 'acceptable accuracy' in the preparation of the Appropriation Bills is 100 per cent accuracy for:
- the purpose for which an appropriation is to be sought for example, the outcomes of the agency;
- the amounts being sought for each purpose; and
- any clauses modifying those amounts or purposes.
Payments to or for the States
Where an appropriation for an outcome is to involve payments to or for the States and Territories, the expenses associated with those payments are recorded in Appropriation Bill (No. 2).
In Appropriation Bill No. 2, Schedule 2 gives certain Ministers powers concerning the determination of terms, conditions, amounts and timing of certain payments to the States/Territories. Where inclusion in the Bill 2 Schedule is considered necessary, agencies should provide details to Finance as soon as possible.
Note: Unless the item is detailed in Schedule 2 there is no specific authority for the relevant Minister to impose any conditions on the provision of those moneys under that item. However, inclusion in Schedule 2 does not mandate the imposition of terms and conditions.
Section 32 [] of the Financial Management and Accountability Act 1997 [] gives the Minister for Finance and Deregulation the power to transfer appropriations from one agency to another whenever, for any reason, a function of one agency becomes a function of another. In these circumstances, there is no requirement for explicit provision in the Appropriation Bills for the transfer of funding on the establishment of new bodies during the financial year.
Contact for information on this page: AMTMail@finance.gov.au