Chapter 8: Financial Performance

Departmental Activities

An overview of the department's financial performance for the 2005-06 financial year is at Table 10. The department's financial statements are set out from page 155. The 2004-05 comparatives have been restated for the impact of the Australian Equivalents to International Financial Reporting Standards (AEIFRS). The total impact of the adoption of AEIFRS is disclosed at Note 2 of the financial statements. The most significant impact on the departmental financial results is the reclassification of a portion of the non-Defence property portfolio from land and buildings to investment properties.

For the 2005-06 financial year, the department's income statement shows an operating surplus of $166.0 million compared to an operating surplus of $155.4 million in 2004-05. This surplus reflects the operations of a number of special accounts held by Finance which in 2005-06 contributed $146.9 million to the operating result. The budget-funded operations recorded a surplus of $19.1 million, $18.6 million of which was directly related to the deferral of marketing and logistics suppliers appointments pending a decision by the government to proceed with a public Telstra share offer. There were savings in other budget-funded activities of approximately $0.5 million for the year.

Total income increased by $62.0 million, from $453.3 million in 2004-05 to $515.3 million in 2005-06. Revenue from government increased by $53.7 million to $235.5 million, reflecting funding for activities associated with the potential sale of Telstra, the Gateway initiative and the implementation and management of the Central Budget Management System (CBMS), as well as the full year impact of the Australian Government Information Management Office (AGIMO) being incorporated into the department. Revenue from services increased by $7.4 million to $81.0 million, mainly reflecting increased rent received following the completion of Adelaide Law Courts construction project. As a result of Comcover's targeted cash reserves being reached, insurance premiums in 2005-06 were reduced by $10.9 million to $119.8 million.

Total gains of $74.7 million were recognised in 2005-06, representing $51.4 million from revaluations of investment properties, $23.3 million in resources received free of charge, an adjustment to the Tuggeranong Office Park sinking fund to reflect changes in the bond rate and the reversal of prior year expenses.

Total operating expenses increased from $267.3 million in 2004-05 to $323.5 million in 2005-06. Employee expenses increased by $20.2 million reflecting salary movements and increased staff numbers. Supplier expenses increased by $37.7 million, mainly due to costs associated with asset sales, the implementation of the CBMS and Austender, as well as the full year impact of AGIMO in the department. Insurance claims expense decreased by $2.2 million as a result of further improved claims experience. Depreciation and amortisation expense increased by $4.5 million, following the capitalisation of the Adelaide Law Courts and the CBMS.

An income tax equivalent regime is applied to the department's major business activities, Property Management and Comcover, in accordance with the Australian Government's Competitive Neutrality Principles. Property Management's income tax equivalent expense was $7.7 million in 2005-06, compared with $10.5 million in 2004-05. Comcover's income tax equivalent expense was $18.1 million in 2005-06, compared with $20.1 million in 2004-05.

Finance returned a total of $33.4 million to government in 2005-06, comprising a cash return of $16.9 million from Property Management operations, $7.1 million from the sale of non-Defence property and $9.4 million from the Business Services Trust Account. This brought the total amount returned to government to $1.83 billion over eight years.

Table 10: Departmental Financial Performance
 
30 June 2006
$'000
30 June 2005
$'000
Variance
$'000
Revenue from government
235,508
181,767
53,741
Income from independent sources
205,133
209,654
(4,521)
Gains
74,671
61,863
12,808
Total income
515,312
453,284
62,028
Operating expenses
323,464
267,302
56,162
Operating result before tax
191,848
185,982
5,866
Income tax equivalent
25,802
30,626
(4,824)
Operating surplus/(deficit)
166,046
155,356
10,690

The department has budgeted for an operating surplus of $43.7 million in 2006-07. The decrease from 2005-06 is mainly due to a decrease in insurance premium revenue reflecting Comcover's policy to return excess reserves to fund members, reductions in gains on investment properties and an increase in anticipated insurance claims expense. Income is budgeted at $821.2 million and total expenses at $777.5 million.

Figure F: Departmental Financial Performance 2002-03 to 2005-06 ($ million)

Figure F: Departmental Financial Performance 2002-03 to 2005-06 ($ million)

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