Explanatory Statement
Appropriation Act (No. 1) 2008-2009, Section 14 – 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 14 of Appropriation Act (No. 1) 2008-2009”, dated 3 November 2008 and numbered 1 of 2008-2009.
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) 2008-2009, the Advance to the Finance Minister is provided for under section 14. 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 (which sets out the amounts appropriated);
a) Because of an erroneous omission or understatement; or
b) 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) 2008-2009 were amended to make provision for the additional expenditure specified in the determination.
Purpose of the instrument
The instrument determines that the Departmental Item for Wheat Exports Australia in Appropriation Act (No. 1) 2008-2009 be increased by $1,107,000. The additional amount is provided to ensure the financial viability of Wheat Exports Australia during 2008-09.
Background
The background to the instrument is provided in the application made by Wheat Exports Australia for funding from the Advance to the Finance Minister. The application is reproduced below.
APPLICATION FOR ADVANCE TO THE FINANCE MINISTER (AFM) - 2008-2009
Agency: Wheat Exports Australia
Appropriation: Appropriation Act (No.1) 2008-2009
Description: Departmental Outputs
Outcome:
Source of Available Appropriations | 2006-2007 | 2007-2008 | 2008-2009 |
$ | $ | $ | |
Wheat Exports Australia Special Account: Wheat Export Marketing Act 2008 |
|
| 789,048 |
TOTAL APPROPRIATIONS AVAILABLE |
|
| 789,048 |
|
|
|
|
TOTAL AMOUNT SPENT |
|
| 646,739 |
TOTAL UNSPENT APPROPRIATIONS |
|
| 142,309 |
Appropriations Required: $1,249,309
Appropriations Available: $142,309
Amount required from AFM: $1,107,000
AFM Category: Appropriation Act (No. 1) 2008-2009 Part 3 14 (1)(b)
Explanation of requirements from AFM:
On 1 July 2008, Wheat Exports Australia (WEA) replaced the Export Wheat Commission (EWC) to manage control of bulk wheat exports with newly implemented wheat export marketing arrangements. This was consistent with the Government’s 2007 election commitments Australian Wheat Export Marketing and Labor’s Plan for Primary Industries.
These new arrangements are intended to increase competition in the export wheat market. The new arrangements require WEA to accredit multiple exporters versus the previous single desk and for WEA to adopt increased monitoring and enforcement powers to ensure that a competitive regime is achieved and maintained.
WEA’s income is predominantly received from the Wheat Export Charge (WEC) @ $0.22 per tonne of wheat exported. As wheat production levels are normally determined by annual rainfall, the volume of wheat exports each year varies considerably. The domestic wheat market generally consumes the first eight million tonne of wheat produced leaving all excess production available for export and thus attracting the WEC.
At the time of being wound up, the EWC had cash reserves of $0.9 million with average operating expenses of approximately $0.39 million per month. Both were carried forward to WEA. WEA is continuing to incur both up front establishment costs and transitional obligations carried forward from the EWC. Using a simplistic analysis, it was expected that WEA could not operate for more than a few months without the support of additional revenue from accreditation fees and the WEC. Unfortunately, both are not sufficient to meet these expenses leaving WEA as at 31 October 2008 with an estimated $0.167 million in cash reserves only. These reserves are expected to be exhausted during the first two weeks of November 2008. WEA is now in urgent need of further funding through an AFM.
The likely need for financial assistance was identified by the Government during the Second Reading of the Wheat Export Marketing Bill 2008 (House of Representatives, 29 May 2008), in which the Government undertook to provide up to $5.0 million in funding to assist WEA through their transitional period. This commitment was in recognition of additional start up costs, limited wheat exports due to the 2007 drought and additional transitional functions required of the agency.
Urgent:
Revenue from the WEC levy and export application fees were never anticipated to fully cover the costs of implementing the new accreditation scheme in 2008-09. Prudent financial management has seen expenses below budget, but with the drought and additional transitional tasks, expenses remain in excess of income. WEA forecasts a negative cash balance by early November 2008.
As at 31 October 2008, WEA will have estimated cash reserves of just $0.167 million. WEA expects to fully exhaust its cash reserves during the first two weeks of November 2008. An AFM of $1.107 million will help to ensure the financial viability of WEA during 2008-09.
Unforeseen:
At the time the 2008-09 Appropriation Bills were prepared, the Wheat Export Marketing Bill 2008, which establishes the WEA, had not been introduced to Parliament. Given the uncertainty over the passage of the Bill through Parliament, no amounts were included in the Appropriation Bills as it was unclear whether WEA would be established. The only certainty was that if WEA was established, a range of transitional costs would be incurred in addition to the new functions proposed.