EXPLANATORY STATEMENT

Issued by the authority of the Minister for Finance and Administration

Financial Management and Accountability Act 1997

Determination 2005/03 to establish a Special Account

Purposes of Determination 2005/03

The attached instrument makes a determination under subsection 20 (1) of the Financial Management and Accountability Act 1997 (FMA Act) to establish a Special Account, entitled Australia-Indonesia Partnership for Reconstruction and Development (Loans) Special Account (Loans Special Account).  It also specifies the nature of amounts that may be credited to, and the purposes for which amounts may be debited from, the Loans Special Account.

Special Accounts Generally

In accordance with the Constitution, all revenues or moneys raised or received by the Executive Government of the Commonwealth form one Consolidated Revenue Fund (CRF) and may not be used unless in accordance with an appropriation by the Parliament for the purposes of the Commonwealth.  This determination establishes a Special Account, and sets out the amounts that may be credited to the Account and the purposes for which it may be debited.  Special Accounts established by determination are supported by an appropriation under section 20 of the FMA Act.  In effect, Special Accounts allow specified amounts from the CRF to be expended for a particular specified purpose.

The Finance Minister must table a copy of a determination relating to a Special Account in each House of Parliament.  Either House may disallow a determination within five sitting days of having been tabled.  If the determination is not disallowed, it comes into effect on the calendar day after the last day on which it could have been disallowed.  Regulation 10 of the Legislative Instruments Regulations 2004 preserves the disallowance provisions under section 22 of the FMA Act by exempting Special Account determinations from subsections 57(2) and 57(5) of the Legislative Instruments Act 2003 (LI Act).

The notes to the determination identify legislation and other laws that allow or require amounts to be credited to, or debited from, the Special Account.

Operation of the Determination 2005/03

Purpose of the Loans Special Account

This determination is required in order to establish a Special Account to hold amounts, from which loans will be provided for the relief, rehabilitation and reconstruction of the areas in the Republic of Indonesia (Indonesia) directly affected by the Tsunami, and for development assistance to all areas of Indonesia, following the devastation caused by the Tsunami on 26 December 2004.

On 5 January 2005, the Prime Minister announced an agreement with Indonesia to form an Australia-Indonesia Partnership for Reconstruction and Development (AIPRD).  The purpose of the AIPRD is to support Indonesia’s reconstruction and development efforts, both in and beyond Tsunami affected areas, through long-term cooperation focused on assistance for economic and social development projects and Indonesia’s programmes of reform and democratisation.  The Australian Government will contribute $1 billion to the partnership over five years, which will comprise grants and concessional loans in equal parts.

The forthcoming Bill, Appropriation (Tsunami Financial Assistance and Australia-Indonesia Partnership) Bill 2004-2005, will provide an appropriation that will allow $500 million to be credited to the Loans Special Account.  Other amounts may be credited to the Loans Special Account where they relate to the purposes of the Special Account, including donations or other programmes of Government.

It is intended that another Special Account, Australia-Indonesia Partnership for Reconstruction and Development (Grants) Special Account (Grants Special Account), will be established concurrently with the Loans Special Account.  The Grants Special Account will hold amounts to be appropriated for grants for the relief, rehabilitation, reconstruction of Indonesia directly affected by the Tsunami and development assistance to all areas of Indonesia.

The Purposes in clause 5 provide the functions for which the Loans Special Account can be debited.  A Joint Commission of Ministers from Australia and Indonesia, including Foreign and Economic Ministers from both countries will set the priorities for which expenditure from the Special Account can be made.

The list of items in paragraph 5.1(a) are the purposes, in relation to the loans for relief, rehabilitation and reconstruction and development, which an activity must be consistent with, before expenditure is made from the Special Account.

Paragraph 5.1(b) is intended to include incidental expenditure, other than for the direct administration of the Special Account, relating to activities contained in paragraph 5.1(a).  The Grants Special Account contains a purpose clause to allow incidental amounts relating to the Loans Special Account to be debited.  This is so that incidental expenses relating to the loan programme may be debited from either the Loans Special Account or Grants Special Account.  Incidental expenses relating to the loans programme could include costs associated with the preparation of loan agreements and other related documentation, costs associated with the management and monitoring of loan performance and repayments, and costs associated with technical design of projects financed by loans.  Expenditure for activities incidental to a purpose contained in paragraph 5.1(a), but for the administration of the Special Account, are not to be debited from the Special Account.

Paragraphs 5(c) and (d) are standard to most modern Special Accounts.  Paragraph (c) enables amounts to be returned to the Budget from the Special Account; it does not allow amounts to be transferred to another Special Account, or allocated for any other purpose, that is not consistent with the purposes of the Special Account.  Paragraph (d), although already permitted by section 28 of the FMA Act, simplifies accounting for these transactions.

Consultation

AusAID and its portfolio Department of Foreign Affairs and Trade are the agencies affected by this instrument.  The agencies’ and their Minister, the Minister for Foreign Affairs were provided with drafts of the instrument before it was finalised and agree with the form of the instrument.  No community consultation was carried out as the instrument is for machinery of government purposes only (see sections 17 and 18 of the LI Act).

Estimates of transactions on the Australia-Indonesia Partnership for Reconstruction and Development (Loans) Special Account