Advance to the Finance Minister – section 12 of Appropriation Act (No. 1) 2006-2007 (No. 4 of 2006-2007)

Explanatory Statement

Appropriation Act (No. 1) 2006-2007, Section 12 – Advance to the Finance Minister

The instrument to which this explanatory statement relates

This explanatory statement relates to an instrument (the instrument) entitled “Advance to the Finance Minister – Section 12 of Appropriation Act (No. 1) 2006-2007”, dated 20 June 2007 and numbered 4 of 2006-2007.

The legislative authority under which the instrument is made

The Advance to the Finance Minister is a provision authorised by the annual Appropriation Acts and made available to the Finance Minister as a central contingency fund to provide urgent funding to agencies throughout the financial year.

In Appropriation Act (No. 1) 2006-2007, the Advance to the Finance Minister is provided for under section 12. This section indicates that amounts can be issued from the Advance to the Finance Minister, up to a limit of $175 million, if the Finance Minister is satisfied that:

(a)   There is an urgent need for expenditure, in the current year, that is not provided for, or is insufficiently provided for, in Schedule 1 (which sets out the amounts appropriated); and

(b)   The additional expenditure is not provided for, or is insufficiently provided for, in Schedule 1:

(i)               Because of an erroneous omission or understatement; or

(ii)               Because the additional expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Bill for this Act before that Bill was introduced into the House of Representatives.

Exercise of the provision via the issue of a determination, has effect as if Schedule 1 of Appropriation Act (No. 1) 2006-2007 were amended to make provision for the additional expenditure specified in the determination.

In an instrument dated 12 February 2003, the Finance Minister has authorised the person holding the position of SES Band 2, Financial Reporting and Cash Management Division in the Department of Finance and Administration to exercise the power provided for under section 12 of Appropriation Act (No. 1) 2006-2007.

Purpose of the instrument

The instrument determines that the Administered Expenses – Outcome 1 appropriation for the Department of Foreign Affairs and Trade in Appropriation Act (No. 1) 2006-2007 be increased by $19,527,125.

Background

The background to the instrument is provided in the application made by the Department of Foreign Affairs and Trade for funding from the Advance to the Finance Minister.  The application is reproduced below.

APPLICATION FOR FUNDS - ADVANCE TO THE FINANCE MINISTER 2006-2007

Agency:   Department of Foreign Affairs and Trade (DFAT)

Appropriation:  Appropriation Act (No. 1) 2006-2007

Description:   Administered Expenses – Outcome 1

Description of Outcome: Australia’s national interests protected and advanced through contributions to international security, national economic and trade performance and global co-operation

1  Available Section 8 Retention

2  Cash spent as at 16 June 2007

Funds Required:   $22,837,112 

Funds currently unspent:  $  3,309,987     

Amount required for AFM:  $19,527,125

AFM Category:  Appropriation Act (No. 1) 2006-2007 Part 3 12 (1)(b)(ii)

Explanation of requirements from AFM:

This appropriation provides for: Australia’s assessed contributions to international organisations including United Nations peacekeeping operations; EFIC payments in respect of the National Interest Account; compensation for detriment caused by defective administration; rates on behalf of foreign governments; VAT payments and payments under the North American Pension Scheme (NAPS).

The shortfall in funding is primarily due to the increase in Australia’s contributions to the United Nations Regular Budget and Capital Master Plan for 2007. This increase has also been applied to all UN peacekeeping operations invoices issued by the UN since 1 January 2007.

Australia's contribution to the UN Regular Budget (the largest of the international payments each year) increased significantly this year from US$27.2 million to US$36.2 million as a result of the assessment of Member States increasing from US$1,924.8 million to US$2,241.7 million and Australia’s contribution rate also increasing from 1.592 to 1.787 per cent.  The new scale of assessments determining the rates for member states for 2007 to 2009 was decided by the UN on 22 December 2006 with the invoice for Australia’s contribution to the UN for 2007 issued on 1 January 2007. 

Australia’s contribution to the UN Capital Master Plan (CMP) also increased significantly this year from US$0.778 million to US$8.2 million as a result of a resolution of the UN General Assembly of 22 December 2006, approving increased funding for the CMP and the establishment of a working capital reserve.  This amount is comprised of US$6.1 million for the 2007 CMP, US$0.8 million for the working capital reserve and US$1.2 million for an adjustment to the 2006 CMP.

Urgent:

The Department is required to make approximately $22,837,112 in payments before the end of the financial year.    These payments comprise:

(a). Three UN peacekeeping operations invoices received on 4 June 2007 totalling US$5,835,446 (approx. AUD$7,263,180) for the periods May to June 2007;

(b). Australia’s annual contributions to the OECD of EUR$6,090,430 (approx. AUD$10,416,928) and the Anti-Personnel Mine Ban Convention of US$12,277 (approx. AUD$15,281);

(c). Export Finance and Insurance Corporation (EFIC) payments of $4,711,723 comprising the interest shortfall on payments by Egypt in respect of National Interest Account claims; and 

(d). Payments of $430,000 in respect of compensation for detriment caused by defective administration, rates on behalf of foreign governments, VAT refunds, and the North American Pension Scheme.

As at 15 June 2007, the Department has funding available of $3,309,987.  The shortfall has been caused due to the unexpected increases in UN contributions as discussed above.  Accordingly, to facilitate payment of the assessed contributions that are now due and to ensure funds are available for the Department’s remaining obligations under Outcome 1, the Department requests an Advance to the Finance Minister of $19,527,125 (funds required of $22,837,112 less unspent funds of $3,309,987).

Unforeseen:

Although the Department was aware of the increase in Australia’s contributions to the UN Regular Budget and Capital Master Plan prior to the preparation of Bills 3 and 5, the need for additional funding was unforeseen. Expenditure to 31 December 2006 in respect of UN peacekeeping operation payments gave rise to the strong possibility that the Department could accommodate the increase in the UN Regular Budget and Capital Master Plan payments in its original funding under its Payments to International Organisations Programme. To 31 December 2006, the Department had only expended $38.435 million on UN peacekeeping operations of its budgeted $97.720 million. Based on the 2005-06 experience in which approximately 47 per cent ($43.247 million of total $92.697 million) of expenditure was incurred in the first half of the financial year, the Department expected an underspend to 30 June 2007 of sufficient amount to offset the increases in the UN Regular Budget and Capital Master Plan.

Expenditure in regards to peacekeeping operations is strongly influenced by factors outside the Department’s control.  It is difficult to predict developments in the international security environment or the responses to this of the United Nations Security Council and thus the escalation or downgrading of individual peacekeeping operations and the subsequent impact on the amount of Australia’s assessed contributions.  As a result, the Department could not predict with any degree of accuracy the final outcome in terms of contributions to UN peacekeeping operations and therefore no provision was made in the appropriation bills to seek additional funding for the purpose of offsetting the increases in the UN Regular Budget and Capital Master Plan assessments for 2007. 

The Department was particularly cautious given its experience in 2004-05 where the Department did in fact seek an additional $23 million in Bill 5 for Payments to International Organisations only to return it at the end of the financial year when the invoices did not eventuate.  The Department was thus reluctant to pursue a similar course of action, particularly in advance of receiving further UN peacekeeping operation invoices. The most recent invoices for UN peacekeeping operations were received on 1 May and 4 June, after Bill 5 had closed.  Since that time the Department has also received the OECD, Anti-Personnel Mine Ban Convention and EFIC bills.