Advance to the Finance Minister – section 13 of Appropriation Act (No. 1) 2009-2010 (No. 3 of 2009-2010)

Explanatory Statement

Appropriation Act (No. 1) 2009-2010, Section 13 – 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 13 of Appropriation Act (No. 1) 2009-2010”, dated 25 February 2010 and numbered 3 of 2009-2010.

The legislative authority under which the instrument is made

The Advance to the Finance Minister (AFM) is a provision contained in the annual Appropriation Acts. It enables the Finance Minister to facilitate urgent and unforeseen expenditure that was not within the contemplation of Parliament when the Appropriation Act was passed and is therefore not provided for in Schedule 1 of the Appropriation Act.

The Advance to the Finance Minister is provided for under section 13 of Appropriation Act (No. 1) 2009-2010. The discretionary power is exercisable upon the Finance Minister’s satisfaction of the matters specified in section 13. This section indicates that amounts can be issued from the Advance to the Finance Minister, up to a limit of $295 million, if the Finance Minister is satisfied that there is an urgent need for expenditure, in the current year, that is not provided for, or is insufficiently provided for, in Schedule 1 of that Act. The qualifying circumstances on the discretion of the Finance Minister to issue additional amounts under this provision are contained in subsections 13(1) (a) and (b) of that Act. The application from the Department of Education, Employment and Workplace Relations has satisfied the Finance Minister that the additional expenditure was not provided for because of unforeseen circumstances.

Exercise of the power via the issue of a determination has effect as if Schedule 1 of Appropriation Act (No. 1) 2009-2010 were amended to make provision for the additional expenditure specified in the determination.

Purpose of the instrument

The instrument determines that the Administered Item for Outcome 5 for the Department of Education, Employment and Workplace Relations in Appropriation Act (No. 1) 2009-2010 be increased by $10,364,000. The additional amount is provided to enable the Department of Education, Employment and Workplace Relations to meet expected calls on the General Employee Entitlements Scheme during March 2010.

Background

The background to the instrument is provided in the application made by the Department of Education, Employment and Workplace Relations for funding from the Advance to the Finance Minister, reproduced below.

APPLICATION FOR ADVANCE TO THE FINANCE MINISTER – 2009-2010

Agency: Department of Education Employment and Workplace Relations

Appropriation: Appropriation Act (No. 1) 2009-2010

Description: General Employee Entitlements and Redundancy Scheme (GEERS)

 Administered Annual Appropriation

Outcome: Outcome 5: Safer, fairer and more productive workplaces for employers and employees by promoting and supporting the adoption of fair and flexible workplace arrangements and safer working arrangements.

Appropriation Required: $ 153,767,394.89

Appropriations Available: $ 143,403,394.89

Amount required from AFM: $  10,364,000 .00

AFM Category:

This request is unforeseen and is in accordance with Appropriation Act (No. 1) 2009-2010, Part 3, section 13 (1)(b)”.

Explanation of requirements from AFM:

The General Employment Entitlements Scheme (GEERS) is a basic payment scheme to assist employees who have lost their employment due to the liquidation or bankruptcy of their employer and who are owed certain employee entitlements.

GEERS is a demand-driven scheme, and predicting future expenditure is difficult. GEERS anticipated payments for the remainder of February and March are expected to affect 571 businesses with 3,480 employees. Based on current trends and the recent insolvency of large employers the current GEERS appropriation of $106.429 million is expected to be exhausted by the end of February.  GEERS is expected to need up to an additional $33.199 million to meet its commitments to the 31 March 2010.

Expenditure under GEERS cannot be definitively predicted because it is affected by a wide range of variables, including:

• the number of companies placed into liquidation;
• the number of claimants for GEERS assistance;
• the industrial instruments that determine the terms and conditions of the claimants' employment; and
• eligible entitlements outstanding at the time of the insolvency.

Urgent:

The department is close to exhausting all relevant available appropriations to fund its commitments for the GEERS program. Uncommitted funds from within the outcome will be used to cover expenditure for the GEERS program for the period to March 5 2010. After this time, it is expected that all uncommitted funds within Outcome 5 will be exhausted.

In the event that the program has insufficient funds to make payments under GEERS in 2009-10, this would result in the untenable position of eligible GEERS claimants having their assistance delayed at a time of personal and financial hardship, following their redundancy from an insolvent employer. Such an outcome would also result in reduced public confidence in the Government’s administration of GEERS.

Unforeseen:

GEERS is a demand driven program available to employees in any industry where the employer enters liquidation or bankruptcy. Given the volatility of the overall economy and the range of industries and employers that might enter insolvency, it is impossible to predict the likely expenditure for the program in any given year with any certainty.

The Department requested an additional $58.4 million for GEERS, of which DoFD agreed to a $40.00 million increase through the Additional Estimates process.

Forecast to 30 June 2010:

Based on current trends and the recent insolvency of several large businesses, current projection of the actual expenditure that will be required under GEERS in 2009-10 is approximately $191 million (necessitating an increase in appropriation funding of $85 million for the 2009-10 financial year).

Based on the trends and expenditure patterns for this financial year, it is likely that additional Advances from the Finance Minister will be required each month from April to June 2010. The total value of these advances is likely to be approximately $45 million. This projection is based on current demand for GEERS assistance, including known insolvencies where GEERS claims have and will continue to be received for payment this financial year.