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Legislative Assembly for the ACT: 1995 Week 11 Hansard (14 December) . . Page.. 3053 ..

MRS CARNELL (continuing):

Another flaw in the current budget and reporting arrangements is that capital spending is treated as a cost rather than an investment. Similarly, current arrangements treat capital as a free good to agencies. Even in a cash surplus budget, capital spending has an opportunity cost. This can be in terms of earnings lost or alternative uses forgone - for example, support of recurrent activities. A change in budget and reporting arrangements to provide for reporting to the Assembly on the use of Territory assets is essential for improved decision-making and accountability.

Other major changes proposed to budget arrangements include linking appropriations made by the Assembly to outputs provided by departments and agencies; linking outputs defined in the budget to higher level outcomes desired by the Government; and basing appropriations on the full accrual cost of goods and services to be acquired through the budget process. To improve the focus on what is achieved, appropriations will in future be defined by the outputs to be acquired by the Territory. The appropriations will, in effect, be the price the Territory is prepared to pay for defined outputs. I must emphasise that, in this context, outputs can be either tangible or intangible. They can be represented by goods or services. The evaluation of outputs can rely on both qualitative and quantitative measures - that is, both judgment and numbers can be used to assess whether an output is worth having. The determination of outcomes, and judgments as to their relevance, will be a matter for the normal political process.

The Financial Management Bill will codify these requirements as basic preconditions of effective accountability. The reform will change the basis of appropriation from cash budgets, which provide only a partial view of the cost of services, to accrual budgets, which represent the full cost of services provided. Accrual budgeting will disclose a far more complete picture of the resources used by agencies. It will introduce more meaningful measures of good management in general and good financial management in particular. The proposed appropriation structure will also recognise differences between the nature of departmental activities. An example of this is the difference between outputs provided by an agency and the role of that agency in on-passing funding such as welfare benefits. In the latter case, the level of expense is not within the agency's discretion to control.

The proposed Financial Management Bill will require a change in the form and content of departmental budget documents to include operating estimates; the estimated financial position of assets and liabilities; cash flow estimates; the estimated net fiscal impact of operations - this will be equivalent to current cash estimates; and a statement of outputs to be provided, costs of these outputs and links between those outputs and outcomes determined by the Government. It is intended that financial statements, at both the agency and whole-of-government level, will be in the same format, and be based on the same principles, as the budget.

The office of the Auditor-General is fundamental to accountability. The existing legislation is fragmentary and out of date. Under the reform proposals, legislative provisions relating to the Auditor-General will be consolidated into a separate Act. The legislation will affirm and promote the importance of the Auditor-General's role.

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