Chapter 4: Sustainable Government Finances

Budget Advice

Delivery of the Australian Government 2006-07 Budget

During 2005-06 Finance contributed significantly to government policy development in the context of preparations for the 2006-07 Budget. The department provided ongoing advice and support to senior government ministers and the Expenditure Review Committee of Cabinet (ERC) to inform the government's consideration of the strategic direction and overall policy priorities for the budget. Finance also participated in a number of interdepartmental forums that developed major expenditure proposals considered by the government during the 2006-07 budget process and advised on a range of policy options to help ensure that these proposals supported sustainable government finances.

Finance played a key role throughout the budget process through briefing to ERC, the National Security Committee of Cabinet, and Cabinet more broadly on the policy and financial implications of new policy proposals, other budget-related initiatives and regular monitoring of budget balances to facilitate the smooth and effective consideration of all submissions by the government. Finance's advice during the budget process helped to inform the government's decisions in relation to the optimal balance of spending priorities in light of the Australian Government's overall financial position.

The 2006-07 Budget was notable for the substantial increase in the number of new expense and capital expenditure measures (up from 380 in 2005-06 to 490 in 2006-07) and the compressed timeframe in which ERC met due to constraints imposed by the timing of the 2006 Melbourne Commonwealth Games. The value of this year's expenditure decisions over four years was also significantly higher than previous years.

Major expenditure initiatives announced in the 2006-07 Budget to which Finance contributed directly included:

  • National Security-Preventing Terrorism which provides $1.7 billion over the six years to 2010-11 for intelligence, protective security, incident response capacity, regional cooperation and border security;
  • Council of Australian Governments' (COAG) Mental Health package, which provides funding of $1.9 billion over five years for substantial reform of the mental health system as well as improving health services and delivery;
  • Health and social services access card, which will replace seventeen existing health and social services cards and vouchers, providing Australians with more convenient and efficient access to Australian Government health and social services benefits; and
  • several cross-portfolio packages including Securing Borders against Illegal Foreign Fishing to enhance Australia's surveillance and patrol capability in Australia's northern waters, Fraud and Compliance to protect the integrity of the social security system and Strengthening Indigenous Communities to improve health, employment, education and community governance arrangements for Indigenous Australians.

Finance presented six submissions and memoranda for consideration by ERC that contributed to the 2006-07 Budget and future budget processes. The department also worked closely with the Department of the Treasury to prepare the 2006-07 Budget documentation and related briefing. Finance provided quality and timely advice to ministers throughout the process and delivered on its extensive budget responsibilities.

Economic Governance Support for Pacific Island States

During 2005-06 Finance continued to play an active role in the Australian Government's partnerships with Papua New Guinea (PNG), Solomon Islands and Nauru to assist with achieving economic and financial stabilisation and enhanced governance practices in these countries. These initiatives recognise the importance of good governance and law and order to political stability and sustainable economic development in our neighbouring countries and the broader Asia-Pacific region generally. Finance also continued to support the government's involvement in the Australia-Indonesia Partnership for Reconstruction and Development programme, particularly in relation to budgetary and financial management reform issues.

Finance continued to assist the PNG departments of Finance and the Treasury in 2005-06 as part of the Enhanced Cooperation Program between Australia and Papua New Guinea to help support sound financial administration and improved public sector management capability in PNG. At 30 June 2006, there were seven senior officers deployed from Finance to the PNG Department of Finance advising on financial management, audit and broader governance issues and four senior Finance officers in the PNG Treasury advising on PNG budgetary issues.

Under the Financial Management Strengthening Programme of the Regional Assistance Mission to Solomon Islands, three Finance officers are currently deployed in the Solomon Islands Department of Finance and Treasury. In 2005-06 these staff assisted in efforts to build capacity within the Solomon Islands public service, to strengthen the financial management framework and expenditure controls, and to consolidate the Solomon Islands' financial position through a fully funded and balanced 2006 Solomon Islands Budget. Reform of the budgetary framework also continued including assisting national planning through the introduction of a medium term (forward estimates) framework.

Finance also has one officer deployed to the Republic of Nauru to work as an adviser within the Nauru Department of Finance and to assist the government of Nauru with key economic and financial reforms.

Australian Government Response to Emergencies in Australia and Overseas

Finance continued to play a role in supporting the Australian Government's response to disasters and emergencies in Australia and overseas.

Finance contributed to the work of several interdepartmental emergency taskforces established by the Department of Foreign Affairs and Trade in response to the July 2005 London bombings, the October 2005 Bali bombings and the emergencies that developed in the Solomon Islands in April 2006 and in East Timor in May 2006. The range of responses included assistance to affected Australians and others in the countries concerned, as well as assistance with repatriation and continuing support back in Australia. In some cases Australia provided forensic and investigatory resources, in addition to humanitarian relief and assistance with the restoration of law and order and infrastructure reconstruction. Finance contributed to the development of the government's responses, including by providing advice on funding arrangements.

Similarly, Finance is a member of the Australian Government Disaster Recovery Committee, which coordinated Australian Government assistance for those affected by Tropical Cyclones Monica and Larry in Far North Queensland in March and April 2006, respectively. The government provided practical assistance with reconstruction as well as short-term financial support for individuals and businesses with immediate needs.

Assessing Defence Equipment Acquisition Proposals

Finance is responsible for providing independent quality assurance of cost estimates and assessments of cost and schedule risks for Defence acquisition proposals that require the approval of either the government or the Minister. This scrutiny provides independent assurance and advice on the cost and risk information provided by Defence to support the decisions sought.

Over the year, Finance reviewed nineteen major capital equipment proposals with a total estimated acquisition cost in excess of $9 billion for consideration by government and a further seven proposals requiring the Minister's approval valued at $164 million. The department also participated in the review of the Defence Capability Plan and provided advice on other projects and issues requiring consideration by government, for example progress reports on the Joint Strike Fighter.

Defence Procurement Review Advisory Board

The Defence Procurement Advisory Board was established in March 2004 to report to government on the implementation of the 2003 Defence Procurement Review (DPR) recommendations. The board's membership comprises eight senior representatives from the public and private sector, including from Finance. The board held six meetings during 2005-06 and has overseen further progress in the implementation of the DPR recommendations including the prescription of the Defence Materiel Organisation under the FMA Act from 1 July 2005, and improvements in cost estimates provided to government to support new major capital acquisition proposals.

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