5 - How does the government provide and fund its services?
5.1 How the government appropriates money
The Australian Constitution legally defines how the Commonwealth accesses and uses the revenues it receives. The Constitution requires that one Consolidated Revenue Fund (CRF) be formed from all revenues or monies raised or received by the Executive Government of the Commonwealth.
Sections 81 and 83 of the Constitution provide that there must be an appropriation, made by law, for the purposes of the Commonwealth, before money can be drawn down from the CRF. This is intended to safeguard Parliament’s control over government funding.
Government entities are resourced with appropriations from the CRF. There are two main types of appropriations to authorise the spending of money from the CRF: annual and special appropriations.
- Annual appropriations, contained in annual Appropriation Acts passed by Parliament, provide annual funding to entities to undertake government operations and programmes; and
- Special appropriations, which are established in ordinary Acts of Parliament.
Annual appropriations require regular annual approval by Parliament and provide for a greater degree of parliamentary scrutiny. Special appropriations are the more commonly used of the two, accounting for around three quarters of government expenditure.
Two other mechanisms – special accounts and agency receipts – are legally appropriations, but in practice are mechanisms that allow agencies to receive funds from third parties.
A special appropriation is a provision contained within an act of Parliament that provides authority to spend money for particular purposes. Once a bill with a special appropriation clause has been passed by Parliament and receives Royal Assent, ongoing authority exists for the continued expenditure of these funds.
A special appropriation will often be used when:
- it is desirable to create a legal entitlement to a benefit which is to be provided to everyone who satisfies specific criteria;
- it is necessary to give effect to inter-government agreements or arrangements by providing a specific amount of appropriation under stated conditions;
- it is important to demonstrate the independence of an office from Parliament and the Executive by providing for automatic payments; and
- it is considered necessary to demonstrate Australia’s ability to meet its financial obligations independently of parliamentary approvals.
Ministers and their departments are responsible for administering special appropriations. Information on special appropriations is published in Budget Paper 4 and the Portfolio Budget Statements.
Annual appropriation acts provide annual funding for government operations and programmes and also for investment in assets to reduce liabilities.
Bills proposing appropriations for the forthcoming year are introduced into Parliament on Budget night and, when passed, fund approximately 25 per cent of all government expenditure for the year.
Annual appropriations are split into two bills, the first that funds the ordinary annual services of the government (Appropriation Bill 1) and the second that funds things outside the ordinary annual services, such as new activities and major capital works (Appropriation Bill 2).
The services of the four parliamentary departments are not considered to be ordinary annual services of the government, and are funded by a third annual appropriation. Annual appropriations provide specified amounts for expenditure by agencies in achieving government outcomes. Those amounts may only be expended on the purposes for which the appropriations are provided and that expenditure must be consistent with relevant legislation and government policy.
Annual appropriations come in departmental and administered forms. The purpose of departmental annual appropriations is to provide money for the annual operating costs of agencies. The purpose of administered annual appropriations is to provide money to achieve government outcomes, which are defined as the results, consequences or impacts of government actions.
A second set of three annual appropriation bills, called Additional Estimates Appropriation Bills, is usually introduced during the financial year. The Additional Estimates Appropriation Bills seek appropriation authority from Parliament for additional expenditure of money from the CRF, in order to meet requirements that have arisen since the last Budget.
Supplementary additional estimates
Further annual Appropriation Bills are introduced during the year if required. These further Bills are called the Supplementary Estimates Appropriation Bills (after the Budget) or Supplementary Additional Estimates Appropriation Bills (after Additional Estimates). These additional Bills are only introduced if needed.