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 22 June 2009 and numbered 7 of 2008-2009.
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.
In Appropriation Act (No. 1) 2008-2009, the Advance to the Finance Minister is provided for under section 14. The discretionary power is exercisable upon the Finance Minister’s satisfaction of the matters specified in 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 of that Act. The qualifying circumstances on the discretion of the Finance Minister to issue additional amounts under this provision is contained in subsections 14(1)(a) and (b) of that Act. This application 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) 2008-2009 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 3 for the Department of Foreign Affairs and Trade in Appropriation Act (No. 1) 2008-2009 be increased by $2,266,200. The additional amount is provided to enable payments associated with Australia’s participation at the Shanghai World Expo 2010.
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 ADVANCE TO THE FINANCE MINISTER - 2008-2009
Agency: Department of Foreign Affairs and Trade
Appropriation: Appropriation Act (No. 1) 2008-2009
Description: Administered Expenses
Outcome: Outcome 3: Public understanding in Australia and overseas of Australia’s foreign and trade policy and a positive image of Australia internationally.
Source of Available Appropriations | 2006-2007 | 2007-2008 | 2008-2009 |
$ | $ | $ | |
Appropriation Act (No. 1) | 4,241,000 | 24,778,000 | 33,572,000 |
Advance to the Finance Minister | - | 2,998,508 | 22,208,044 |
Appropriation Act (No. 3) | 18,479,000 | 501,492 | 5,791,956 |
Section 8 Retention | - | - | 4,848 |
TOTAL APPROPRIATIONS AVAILABLE |
22,720,000 |
28,278,000 | 61,576,848 |
|
|
|
|
TOTAL AMOUNT SPENT | 22,009,525 | 28,177,751 | 60,548,791 |
TOTAL UNSPENT APPROPRIATIONS |
710,475 |
100,249 | 1,028,057 |
Appropriations Required: $ 3,294,257
Appropriations Available: $ 1,028,057
Amount required from AFM: $ 2,266,200
AFM Category: Appropriation Act (No.1) 2008-2009, Part 3, section 14, (1) (b)
Explanation of requirements for AFM:
The Department of Foreign Affairs and Trade (DFAT) received Administered Outcome 3 funding in 2008-09 of $38 million for the new measure Shanghai World Expo 2010 – Australia’s Participation (SWE). The Prime Minister agreed on 31 October 2008 that the foreign exchange no-win no-loss provisions of the Government’s Foreign Exchange Risk Management Guidelines should be extended to the SWE project. DFAT latest estimate of the foreign exchange loss incurred by the SWE project in 2008-09 is $6.6 million, however no further appropriation bills are scheduled for 2008-09 to make this funding available.
DFAT estimates that the SWE will require a total of $40.266 million in cash in 2008-09 to make progress payments on construction and operational contracts through to 30 June 2009. DFAT has fully drawn the original $38 million in Outcome 3 appropriation allocated for the Shanghai World Expo (SWE), leaving a shortfall to cover the total cash payments of $2.266 million. This short fall is a result of the realised foreign exchange losses incurred by the SWE project in 2008-09. DFAT requests an AFM of $2.226 million to cover the short fall in the cash requirements for the Expositions Special account and enable payments for the SWE project as they fall due.
The funding requested for 2008-09 is less that the total estimated foreign exchange losses as the June contract and operational expenses for SWE can be legally paid when invoiced in July 2009.
The available appropriation for Outcome 3 of $1.028 million is committed under the International Relations Grants Program for discretionary grant payments which are payable this financial year.
Urgent:
The remaining balance of Appropriation Act (No.1) 2008-2009 and Appropriation Act (No.3) 2008-2009 does not provide sufficient funding for Outcome 3 to cover the SWE project in accordance with the terms of contracts already entered into by DFAT. These payments fall due before June 30 2009 and there are no further 2008-09 appropriation bills scheduled. If additional funding is not secured in 2008-09 for the Expositions special account, DFAT would have to delay payment contrary to the terms of the contracts with possible legal consequences and which would compromise DFAT’s reputation of meeting its financial obligations in a timely manner. In addition, DFAT cannot make payment without further appropriation without overdrawing the Expositions special account which is contrary to the FMA Act.
Unforeseen:
Since the setting of the 2008-09 Budget, the actual exchange rate obtained for construction payments has been significantly lower than the 2008-09 Budget Exchange Rates used for estimating the cost of the SWE project. This lower exchange rate has increased the AUD amount required for payments for the SWE construction and operating contracts. This significant depreciation in the Australian dollar could not be foreseen at the time of finalisation of the 2008-09 Budget and was the primary justification for the extension of the foreign exchange no-win no-loss provisions to the SWE project.