Address by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
CPA Annual Conference, Canberra
Thursday 13 November 2008
Good morning everyone, I apologise that the Minister has been detained. He is in the process of introducing a Bill in the Parliament and will be here shortly.
While the Minister is introducing the Bills, I would like to outline the Operation Sunlight reform process that commenced following the 2007 election. First, I will discuss what has been achieved so far, and when the Minister arrives, he will detail some of the reforms planned for the future. He will also briefly touch on the Razor Gang process and on the global financial crisis and how this will impact on future government decision making.
Operation Sunlight reforms have received little media attention but are extremely important to the transparency of government financial information – particularly to those of you who work in the finance or budget areas of agencies.
Operation Sunlight is designed to improve the quality of Budget information provided to Parliament, to the public generally and to the finance profession in particular. It is a long-term investment in greater accountability for the current as well as future Governments.
As sections of Operation Sunlight and Andrew Murray’s report, which I will discuss later, are currently under consideration by the Government, today I will limit my remarks to discussing the reforms proposed, and what these reforms may entail for public sector accountants.
In April 2006, Lindsay Tanner re-released Labor’s Operation Sunlight – Enhancing Budget Transparency a practical suite of measures to enhance budget transparency. This document was developed after extensive consultation with a range of academics, journalists and professional analysts. The suite of measures aimed to enhance budget transparency and accountability by:
However, the reform agenda is not static, and other initiatives and areas of reform have and will be identified and progressed under Operation Sunlight. Efforts to improve resource management and accountability are also being pursued, and the suggestions in Andrew Murray’s report agreed to by Government will also be incorporated.
What has been achieved?
Firstly I will go through what we have achieved so far.
On 20 December 2007 the Minister released the Australian Government’s Consolidated Financial Statements for 2006-07 recognising the Goods and Services Tax (GST) for the first time as a Commonwealth tax. The associated payments to the states and territories were also treated as a grant expenses.
All budget documents now disclose GST as a Commonwealth tax. This change of treatment delivered an important commitment under Operation Sunlight. As a result, for the first time in nearly a decade the CFS received an unqualified audit opinion.
In March this year, the Minister announced that the then Democrat Senator, Andrew Murray had commenced a review of Budget transparency issues as part of the Government’s Operation Sunlight reforms. This too delivered on a commitment made by Mr Tanner in May 2007 to engage Andrew Murray to undertake a review if Labor was elected.
Andrew Murray has delivered his report to the Minister and it has provided a number of suggestions on how the Minister can take the aims of Operation Sunlight further.
While the Government is considering Andrew Murray’s recommendations we have also been pressing forward with the reform program. The 2008-09 Budget delivered a series of practical reforms that will be built on in the next Budget.
A single set of financial statements were prepared in Budget Paper 1 under Australian Accounting Standard AASB 1049 Whole of Government and General Government Sector Financial Reporting. This replaced three sets of financial statements prepared and published at each Budget and in the Mid Year Economic and Fiscal Outlook and the Final Budget Outcome (FBO). Each of these financial statements measured the same economic activities of the Commonwealth but reported different key financial aggregates.
The 2008-09 budget papers also included a register of Special Accounts held by agencies and information on Special Appropriations estimates of agencies, the source of almost 80 per cent of all Commonwealth funding. The lack of a consolidated picture of special appropriations information in the Budget Papers has been a matter of concern for Parliamentary committees in recent years, and this additional disclosure is a response to those concerns.
Several changes were also introduced in the 2008-09 agency Portfolio Budget Statements. The Minister stated to the National Press Club back in February this year that he found portfolio budget statements virtually incomprehensible and that they were in serious need of reform. We took a large step forward this year, with the documents redesigned to be more streamlined, to reduce duplication and to provide an increased focus on the planned performance of agencies. Targets and key performance indicators were also introduced as mandatory requirements.
A comprehensive resource statement was also introduced. The Resource Statement provides more explicit information on appropriations and will also be included in Portfolio Additional Estimates Statements and Annual Reports. This will permit users to make comparison between planned and actual results and, more importantly, provide visibility of underspends.
The Minister considers this has been a good first step and that further changes be made next year to further raise the standard and to provide Parliament and the public with an enhanced range of information.
The transparency and processes for the Advance to the Finance Minister (AFM) have also been improved. The AFM will be provided in Appropriation Act Nos. 1 and 2, with subsequent AFM appropriations only sought from the parliament if the initial appropriation is exhausted. Agencies will be required to disclose the use of AFM in annual reports and a report on the total use of AFMs will be provided by me in an annual report to Parliament for the 2008-09 financial year.
There are also a number of other Operation Sunlight projects in progress.
Finance is currently undertaking a comprehensive review of outcome statements. Outcomes will be more specific, targeted and measurable. No longer will we have outcomes such as “Higher pay, higher productivity” or “Assisting regions to manage their own futures”. Outcomes will be more detailed with binding descriptions of the content of appropriations reflected in appropriation bills, Portfolio Budget Statements and Annual Reports from the 2009-10 Budget onwards.
Program reporting will be introduced in agency Portfolio Budget Statements from 2009 10. Finance has been working with agencies on the format and content of program reporting to ensure a focus on agency performance and presentation of information for the Parliament. Further information program reporting in the budget papers will allow trend information to be gathered and enable the Parliament to see the performance of programs – both planned and actual results.
A net cost of service presentation of the income statement will also be introduced in 2009-10. This will ensure that more emphasis is placed on the cost of agency services rather than the identification of a notional profit and loss, providing Parliament and the public with a better idea of the public funds being used in the delivery of services to the community. The Minister considers that agencies are generally not commercial in nature and are not profit focused. In reality, many of the reasons for an agency incurring a loss are technical, such as recording of transactions between agencies or rephasing of project timings.
Thank you for your attention, and the Minister has now arrived and will take you through where we are heading with the Operation Sunlight reforms.
Thank you Kathryn for holding the fort while I was held up on Parliamentary business.
Thank you everyone for your patience.
Before I continue discussing the Operation Sunlight reforms, I have to confess I have no formal training in accounting. However, I am in fact the son of an accountant, so I do have accountancy in my blood.
My dad was an accountant in a small country town in East Gippsland, Victoria. While the other kids grew up with copies of the racing guide or TV Week on the table, I had this obscure publication called The Taxpayer on the kitchen table. Dad then became a farmer and it was the Weekly Times.
Growing up in that environment has stood me in good stead for where I've ended up in my ministerial career. It taught me about financial prudence, but it also taught me something that I think is extremely important to the task that is before the government now, and that is a good understanding of the central role of tax and financial management in the lives of ordinary working people.
In addition to my Finance role, I am also the Minister responsible for Deregulation. As Kevin Rudd promised before the election we now have a Cabinet Minister with specific responsibility for deregulation. My task is to reduce the regulatory burden on Australian businesses, non-profit organisations and consumers.
You need a Finance Minister as guardian of fiscal discipline, and a Deregulation Minister as guardian of regulatory efficiency. The two roles fit naturally together, and I am very pleased to have both of them.
The Operation Sunlight initiatives already mentioned by Kathryn significantly improve current approaches, or provide greater transparency and accountability of government activities. You can expect to see further changes in the 2009-10 Budget as the current round of reforms are refined. This will include further consolidated information for Parliament on the resources held in agencies’ special accounts and other sources of revenue available to agencies over and above those listed in the appropriation bills.
We will also look at the arrangements for the funding and presentation of appropriations. It is almost 10 years since the introduction of accrual-based appropriations and it is time that they are examined. I said as much to the Committee for Economic Development of Australia (CEDA) State of the Nation Conference in June this year.
Accrual-based budgeting and appropriation arrangements have been operating since 1999-2000 and agencies are currently appropriated on an accrual basis, which includes funding for non-cash items. The objective of this approach was to provide signals and incentives for agencies to manage their assets and liabilities efficiently through accounting for the full cost of implementing Government decisions. The result is that agencies are provided with an appropriation to meet costs that may not be realised until many years later – for example, for accrued employee entitlements, depreciation expenses and make good.
Additionally, the lack of transparency of the appropriation and use of these funds has led to criticism that the provision of cash in excess of immediate needs provides a pool of funds which can be used for other purposes, such as ‘hollow logs’ and ‘double-dipping’.
The assumption that appropriations must be on an accrual basis is not a precondition to having an accrual framework. Having control over cash is of equal importance. There is a need to simplify the compliance and regulatory framework while being mindful of balancing it with appropriation and budgeting arrangements that continue to ensure that agencies have sufficient appropriations to make payments when these are due.
A number of issues need to be resolved prior to implementing what might be described as “net cash” funding arrangements across the general government sector. These relate to accounting policies, aspects of the financial framework itself, the capacity of the Central Budget Management System and the need to unwind practices that have either been in place, or have developed, since the introduction of accrual appropriations in 1999.
My Department has already undertaken considerable consultation across the general government sector, and it is clear that Finance and agencies will need time to work through these issues before implementation of any changes to current arrangements is considered.
Given the comprehensive nature of the Operation Sunlight reform agenda an ongoing approach is also being taken to the assessment of the business and system risks associated with the implementation of the initiatives involved.
Razor Gang II
As well as looking at improving accountability and the transparency of financial information, the Government is creating a culture of continuous reform and service improvement through its razor gang process.
There is a tendency to view savings rounds with trepidation, as something which inflicts pain and reduces government performance. This is not my view.
I see savings rounds as providing an opportunity to clear away underperforming programmes so that the Government can focus more resources on the programmes that deliver. To often we have seen Governments fund underperforming programme on top of underperforming programme, rather than bite the bullet and abolish those programmes that are simply not up to scratch.
The discipline of the razor gang process provides us with a chance to change the way we view Government. The way we view risks in the public sector. The way we procure goods. The way we manage our resources. The way we deliver services.
The discipline of continually finding savings means that we must always be questioning our own priorities, seeing what works and what doesn’t and finding better ways of doing things.
Our Government’s Razor Gang process has entered the second stage and is directed at tackling structural waste as well as meeting the Government’s commitment to make the most efficient use of taxpayers’ dollars. The objective is to find savings that can be redirected to areas of genuine and immediate priority or that can be returned to the Budget to improve the budget bottom line.
The Expenditure Review Taskforce has identified areas of government expenditure where there is scope to improve the efficiency and effectiveness of programs and services. There is a tendency for program structures, their process requirements and administrative arrangements to become increasingly complex over time, and there is a good case for running a fresh eye over these activities on a regular basis.
The taskforce has been working with portfolio departments and agencies, and central agencies, to analyse and advise the Government on opportunities and options for improvements in expenditure in a range of areas. The work undertaken by the taskforce will be used to inform our 2009-10 Budget deliberations.
Because of the unknowns we face around the scale of our expenditure review, no formal targets have been set. Our benchmark is the goal of improving the quality of Government expenditure and its outcomes.
Our commitment to the Razor Gang process stems most fundamentally from our understanding of the high opportunity cost of poor government decisions.
As I have stated on many occasions, budgets are about choices. Every dollar a Government spends is a dollar that a family or individual does not have to spend as they wish. It’s a dollar that won’t be directly creating jobs in the private sector.
This has become increasingly important as the economic climate has deteriorated considerably over the last few months. The work of the Razor Gang is increasingly important to enable the Government to maximise budget decisions.
The Australian economy is facing one of the most significant upheavals in global financial markets since the Great Depression. This is causing a serious downturn in the global economy. Australia is better placed than most other countries, however, we are not immune from the fallout.
Australia’s economic outlook has deteriorated since the Budget. Growth in the Australian economy is expected to slow in 2008-09 as the impact of the financial crisis spreads around the world.
MYEFO, which was released last week, shows that the global financial crisis has had a substantial impact on the Government’s budget position. MYEFO shows a decline in cash surpluses. Underlying cash is now forecast at $5.4 billion, a decrease of $16.3 billion since the 2008-09 Budget. The decline is mainly due to the impact of the Economic Security Strategy package ($9.7 billion) and the downward revision of tax receipts ($4.9 billion).
The intensification of the global financial crisis and associated weaker global outlook has seriously impacted on the fiscal outlook in the forward estimates, particularly from 2009-10. As a result of deteriorating global economic circumstances, revenues have been revised down.
Therefore as we go into the 2009-10 budget cycle in the current environment, the Government needs to deliver a prudent budget that strikes the right balance. We are committed to budgeting for surpluses over the cycle. Therefore we need to ensure a disciplined and responsible approach to economic management.
We will face a number of tough decisions over the coming months, to be able to deliver on our ambitious reform agenda.
Conclusion
Openness, transparency and good governance are vitally important in the area of budget and financial management. A robust budget and financial framework provides a solid and lasting foundation for good government now and into the future.
Operation Sunlight and the Razor Gang process are important components of a much bigger reform agenda being pursued by the Rudd Government to improve the efficiency, transparency and performance of government.
These two streams of activity represent an approach that is based on well coordinated, financially responsible and sustainable economic management in these volatile times.
Thank you.
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