The Commonwealth Budget: a quick guide (2025)

Updated7 May 2018

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Daniel Weight; updated by Phillip Hawkins
EconomicsSection

The Commonwealth Budget: A Quick Guide

The Commonwealth Budget is typically the mostimportant annual policy statement by the Government.

This Quick Guide identifiesinformation and key concepts that are used in the Budget Papers and relatedmaterials, and other resources that are available to analyse the Budget.

Contents

What occurs on Budget night?

What occurs after Budget night?

What is in the Budget Papers andrelated materials?

Budget Speech
Budget Overview
Budget Paper No. 1: Budget Strategy and Outlook
Budget Paper No. 2: Budget Measures
Budget Paper No. 3: Federal Financial Relations
Budget Paper No. 4: Agency Resourcing
Portfolio Budget Statements
Ministerial Statements

Key concepts used in the BudgetPapers

Consolidated Revenue Fund andappropriations

Legislation relating to the financialmanagement of the Commonwealth

Other Budget related reports notreleased on Budget night

Mid-year Economic and Fiscal Outlook Final Budget outcome
Intergenerational Report
Pre-election Economic and Fiscal Outlook
Post-election Report

What occurs on Budget night?

Budget night is when theTreasurer tables the annual Appropriation Bills in the House of Representativesfor the forthcoming year, and delivers the second reading speech on AppropriationBill(No. 1). Since 1994, the AppropriationBills have typically been tabled on the second Tuesday in May. The secondreading speech on Appropriation Bill (No. 1) commences at 7.30 pm.

Along with the AppropriationBills, the Government also tables the Budget Papers and related materials. The Budget Papers and related materialsare made available on the internet at www.budget.gov.au when the Treasurer commences the second reading speech on AppropriationBill (No. 1). Increasingly, detailed tables and budget data are also releasedon data.gov.au shortly after the Budget Papers are tabled.

What occurs afterBudget night?

On the Thursday immediately followingBudget Night, a second reading speech on annual Appropriation Bill(No.1)is delivered by the Leader of the Opposition. The speech is often referred toas the Leader of the Opposition’s Budget reply speech.

The details of theexpenditure proposed in the Budget are referred by the House of Representativesto the Senate for consideration by the Senate. This enables the Senate tocommence its scrutiny of the Budget in the Senate Estimates process, despite theSenate having not yet received the annual Appropriation Bills from the House ofRepresentatives.

Additional resources

Department of the Senate, Senate Brief No. 5: Consideration of Estimates by the Senate's Legislation Committees

What is in the Budget Papers and related materials?

The Budget Papers comprise:

the Budget Speech
the Budget Overview
Budget Paper No. 1: Budget Strategy and Outlook
Budget Paper No. 2: Budget Measures
Budget Paper No. 3: Federal Financial Relations and
Budget Paper No. 4: Agency Resourcing.

Additionally, for each portfolio the Government produces a Portfolio Budget Statement. The Governmentmay also table one or more Ministerial Statements with the Budget Papers.

The contents of the BudgetPapers and related materials are discussed below.

Budget Speech

The Budget Speech is acopy of the second reading speech for the Appropriation Bill (No. 1). TheTreasurer will use the second reading speech to set out the reasons why the annualAppropriation Bills should be passed by the Parliament. Treasurers have usedthe second reading speech to update the Parliament about the prevailingeconomic circumstances, and to announce important or major policy decisionsthat the Government has made.

Budget Overview

The Budget Overviewprovides a summary of what the Government considers to be the main or importantaspects of the Budget.

Budget Paper No. 1: Budget Strategy and Outlook

Budget Paper No. 1: BudgetStrategy and Outlook provides high-levelinformation about the overall economic outlook, and the Commonwealth’s fiscalposition.

Specifically, it provides:

Further resources

Parliamentary Library, Monthly Statistical Bulletin
Australian Bureau of Statistics, Government Finance Statistics, Australia, 2016-17 (ABS Cat. No. 5512.0)
Australian Bureau of Statistics, Taxation Revenue, Australia, 2016-17 (ABS Cat. No. 5506.0)
Australian Tax Office, Taxation statistics
Parliamentary Budget Office, Research Reports

Budget Paper No. 2:Budget Measures

Budget Paper No. 2: BudgetMeasures contains information about thebudget measures—or policies—the Government intends to pursue. Each budget measureis classified according to what aspect of the Commonwealth’s finances it mostlyaffects, with:

a revenue measure mostly affecting the revenues of the Commonwealth
an expense measure mostly affecting expenses of the Commonwealth and
a capital measure mostly affecting the capital—or assets—held by the Commonwealth.

The description of each measure will have a costing attached to it. A costing is an estimate of the impact of the proposed policy on the net fiscal position of the Commonwealth (the ‘budget balance’). A costing only shows the incremental change to the Commonwealth’s finances from that decision, not the total amount of funding orexpenditure related to that policy area or activity.

The costing will show whetherthe measure is expected to have:

a positive effect
nil effect (-), a small effect that is close to zero (...), or an uncertain, or an unquantifiable effect (*) or
a negative effect

on the revenues or expenses for the Commonwealth, or the amount of assets and liabilities held by the Commonwealth,as the case may be.

For revenue measures:

A positive number reflects an increase in revenue from the policy measure; a positive impact on the Budget balance.
A negative number reflects a decrease in revenue from the policy measure; a negative impact on the Budget balance.

For expense measures:

A positive number reflects an increase in expenditure from the policy measure; a negative impact on the Budget balance.
A negative number reflects a decrease in expenditure from the policy measure, a positive impact on the Budget balance.

For capital measures:

A positive number reflects an increase in the assets of the Commonwealth.
A negative number reflects a decrease in the assets of the Commonwealth.

Example: If the Government announces a measure to build a new computer system, because the computer system will—once completed—be an asset for the Commonwealth, the measure will be classified as a capital measure. The measure will have a positive costing associated with it as the decision willresult in an increase in the assets held by the Commonwealth.

A costing is an estimate orforecast of the expected effect of the measure on the Commonwealth’s financesonly. It will take account of the direct impact of the policy proposal onrevenues and expenses, including an estimate of the implications of anybehavioural change by affected entities in response to the measure. However, acosting generally does not include any broader effects of the policy decisionon the Australian economy or community.

Budget Paper No. 3: Federal Financial Relations

Budget Paper No. 3:Federal Financial Relations containsinformation about grants of financial assistance made by the Commonwealth tothe States and Territories. There are two categories of financial assistancethat the Commonwealth may make:

specific purpose payments, which are monies provided by the Commonwealth on the condition that the states and territories spend those monies on specified purposes such as health, education, or roads, or use them to fund local governments. These are often called ‘tied grants’.
general revenue assistance, which are monies provided by the Commonwealth to the states or territories without any conditions on how those monies may be spent. These are often called ‘untied grants’.

The main type of general revenue assistance is the revenue from the Goods and Services Tax (GST). Budget PaperNo.3: Federal Financial Relations provides estimates of the amount of GST revenue that will be collected, and estimates of how mucheach state and territory will receive from the GST.

Further resources

Commonwealth Grants Commission, 2018 Update report
Council on Federal Financial Relations, Federal financial relations
Productivity Commission, Inquiry into Australia's system of horizontal fiscal equalisation.

Budget Paper No.4: Agency Resourcing

Budget Paper No. 4: AgencyResourcing deals with the varioustypes of appropriations that are used by the Government to fund entities andactivities. Budget Paper No. 4: Agency Resourcing shows:

for each entity, and for each outcome of each entity, the amounts and types of appropriation that are expected to be utilised in the forthcoming year
for each piece of legislation that provides for a special appropriation, the amount of money expected to be drawn against that appropriation in the forthcoming year and
for each special account, the expected transactions on that special account, and the expected balance of that special account.

Budget Paper No. 4: Agency Resourcing also shows the expectedlevel of staffing for each entity.

Further resources

Department of Finance, Special Accounts
Department of Finance, Special Appropriations
Australian Public Service Commission, APS Statistical Bulletin

Portfolio Budget Statements

A Portfolio Budget Statementis a statement that is tabled by the relevant portfolio Minister in support ofthe appropriation for that portfolio proposed in the Budget Papers. PortfolioBudget Statements are made available on departments’ websites at the same timeas the Budget Papers are released.

The Portfolio BudgetStatement provides more detail on the proposed activities and expenditures ofeach entity in the Minister’s portfolio for the Budget year and the forwardestimate years. Portfolio Budget Statements contain an overview of theportfolio, with separate sections for each Commonwealth entity within thatportfolio.

Example: The Australian Tax Office is an entity within theTreasury Portfolio. Therefore, the Treasury Portfolio Budget Statement willinclude a section relating to the Australian Tax Office.

For each Commonwealth entity,the Portfolio Budget Statement will include:

a statement that shows the financial resources proposed to be made available to that entity from all sources
a reconciliation showing the expected impact of the Government’s announced measures on that entity
the outcomes that the Government intends that entity to pursue
a description of the programmes that will contribute to each of the entity’s outcomes, an estimate of the expenses expected to be incurred in delivering each programme, and performance indicators against which the Government intends the performance of each programme to be measured and
the budgeted financial statements of that entity.

Where it is relevant to the activities of an entity, a Portfolio Budget Statement will also include other material, such as information about the balances of, and transactions on, any specialaccounts within an entity.

If additional AppropriationBills are introduced during the year, the Government will release a PortfolioAdditional Estimates Statement or a Portfolio Supplementary AdditionalEstimates Statement for each portfolio that has its appropriation changed.These statements will update the information in the most recent PortfolioBudget Statement.

Further resources

Department of Finance, Flipchart of Commonwealth entities and companies

Ministerial Statements

The Government may also tableone or more Ministerial Statements. Typically, Ministerial Statements releasedwith the Budget group together information related to one theme or issue.

Example:If the Government wants to show howmuch it is doing to assist regional or remote parts of Australia, it may releasea Ministerial Statement that brings together activities across all portfoliosthat the Government believes assist regional and remote areas.

The standing orders of theHouse of Representatives provide an opportunity for the relevant Minister tospeak on Ministerial Statements, and afford the Opposition an opportunity of areply.

Key concepts used inthe Budget Papers

It is useful to explain importantconcepts used in the Budget Papers.

Accrual accounting and cash accounting

Accrualaccounting is a method of accounting that records revenues when they are earnedand expenses when they are incurred, regardless of when any cash is received orpaid. Costings are generally presented on an accrual accounting basis.

Example: The decline in value of an asset as it wears out—known asdepreciation—is recognised as an expense for an entity as it occurs, eventhough no cash payment is required at that time.

Cash accounting is a methodof accounting that records receipts and payments of cash when they occur.

The Budget Papers use a mixof both accrual accounting and cash accounting.

Fiscalbalance and underlying cash balance

Fiscal balance is an accrualaccounting measure of the balance between the revenues and expenses of theCommonwealth.

Underlying cashbalance is a cash accounting measure of the balance between the receipts andpayments of the Commonwealth. It is the Government’s preferred measure forshowing the surplus or deficit of the Commonwealth in any one year.

Administered and departmental items

An administered item is anitem that a Commonwealth entity administers on behalf of the Commonwealth as awhole. An administered item may be an expenditure, a revenue, or an asset. ACommonwealth entity does not have discretion about what it can do with anadministered item, and must use that item in the way the Government directs. Administereditems mostly relate to outcomes and programmes that are managed by an entity.

Departmental items areexpenditures, revenues, or assets over which a Commonwealth entity hasdiscretion about how it may be used. Departmental items are mostly used for therunning of entities, such as for paying and accommodating staff.

General Government Sector, PublicNon-financial Corporations sector and Public Financial Corporations sectorentities

Commonwealth entities areclassified according to their activities and objectives into one of threesectors.

Most Commonwealth entities donot seek to make a profit, and are classified as General Government Sectorentities. Where a Commonwealth entity provides goods and services and seeks tomake a profit, it will be classified as either a Public Non-financialCorporation or a Public Financial Corporation, depending upon whether or not itprovides financial services.

Example:Imagine the Government established acorporation that had the purpose of providing loans for a certain purpose oncommercial terms, and the Government expected that entity to make a profit.

Thecorporation would be classified as a Public Financial Corporation in theBudget.

Most material in the Budgetrelates to the activities of entities in the general government sector only.

Further resources

Department of Finance, Governance structures in the public sector

Outcomesand programmes

An outcome is the purposefor which monies are appropriated to a Commonwealth entity.

A programme is an activitythat is undertaken by a Commonwealth entity to achieve an outcome. For eachoutcome, there may be one or more programmes.

Retainedrevenue receipts

Section 74 of the Public Governance, Performance and Accountability Act2013 provides a mechanism wherecertain amounts received by entities may be retained by that entity. Thecategories of revenues mostly relate to amounts likely to be received by theentity to defray the cost of providing a good or service. Examples may includeapplication or processing fees.

The exact categories ofmonies that agencies are able to retain are set out in the Rules made under thePublic Governance, Performance and Accountability Act2013.

Parameter variations and policy decisions

In places in the BudgetPapers, a distinction is made between changes to the Commonwealth’s financesthat occur because of parameter variations, and changes that occur because of policydecisions.

A parameter variation is achange to the finances of the Commonwealth that is outside the direct controlof the Government. Parameter variations mostly occur because of changes in thebroader Australian or international economy, and changes to the composition ordemographics of the Australian population.

Example:Companies pay tax on their profits.If, in a given year, company profits are lower than previously anticipated,Commonwealth tax receipts from companies are also likely to be lower.

Such areduction in company tax receipts would be recorded as a parameter variation inthe Commonwealth Budget.

Parameter variations mayaffect both the receipts and payments of the Commonwealth.

Example:Unemployment benefits are availableto any person who is unemployed within the meaning of the Social SecurityAct 1991. If there are more people unemployed in a given year, payments ofunemployment benefits will be greater.

The reasons for, andmagnitude of, parameter variations are mostly set out in the economic and financialinformation contained in Budget Paper No. 1: Budget Strategy and Outlook.

The term policy decisiondenotes the cumulative effect of all changes to the finances of theCommonwealth that arise because of the budget measures—or actions—of theGovernment. Each budget measure is set out in Budget Paper No. 2: BudgetMeasures. The magnitude of the cumulative effect of the Government’s policydecisions are set out in the financial information contained in Budget PaperNo. 1: Budget Strategy and Outlook.

Special Accounts

A special account is anamount of money that is held in the Consolidated Revenue Fund and is earmarkedfor a specific purpose, and which may only be released when the criteria forrelease are satisfied.

Special accounts are mostlyused to provide transparency about how much the Government is providing to aspecific purpose or activity, or to quarantine amounts for specific purposes oractivities. They are often used when dealing with entities outside of theCommonwealth Government as a way to account for funds.

Consolidated Revenue Fund and appropriations

The Consolidated Revenue Fundis established by section 81 of the Constitution. All monies received by the Commonwealth must be paid into theConsolidated Revenue Fund. It is a constitutional requirement that, before theGovernment may spend any monies, an Act of the Parliament providing for an appropriationmust authorise the release of the necessary monies from theConsolidated Revenue Fund.

A Bill that proposes anappropriation may take two general forms:

an annual Appropriation Bill or
a Bill that proposes a special appropriation.

Each year, annual Appropriation Bills provide for about 20 per cent of the Commonwealth’s expenditure, and special appropriations provide for about 80 per cent of the Commonwealth’sexpenditure.

Annual Appropriation Bills

An annual Appropriation Billwill typically propose the appropriation of a finite amount of money, but thatmoney will be provided to a broad range of entities and outcomes. The finitenature of such appropriations means that the Executive Government must returnto the Parliament periodically and request the Parliament appropriate furthermonies for those entities and outcomes.

Each year, there are at leastthree annual Appropriation Bills. Appropriation Bill (No. 1) for a given yearwill propose to appropriate monies for activities that are part of the‘ordinary annual services’ of the Executive Government. Appropriation Bill (No.2) in a given year will propose to appropriate monies for the ‘other’ annualservices of the Executive. The Senate enjoys different powers overAppropriation Bills for the ‘ordinary annual services’ of the ExecutiveGovernment and Appropriation Bills for the ‘other’ annual services of theExecutive Government. The difference between the two types of AppropriationBill, and powers of the Senate over each, are explained in more detail in Odgers’ Senate Practice.

The appropriation of moniesfor the operation of the Parliament for a given year is proposed in a separateAppropriation (Parliamentary Departments) Bill, reflecting that the Parliamentis distinct from the Executive Government.

Often the Government willrequire further monies during the year, and will introduce additionalAppropriation Bills. Additional Appropriation Bills will be numberedconsecutively.

Supply Bills

If, in a given year, theGovernment does not intend to table and pass through the Parliament a fullBudget before the start of the financial year, the Government may introduceSupply Bills that propose to appropriate a small amount of money to ensure thecontinued operation of the Government until a full Budget can be prepared.

Special appropriations

A Bill may also propose toappropriate an unlimited amount of money, but only make it available for aspecific purpose or in specific circumstances. Such an appropriation is knownas a special appropriation. Almost all of the Commonwealth’s substantialexpenditure programs are now provided for by special appropriations; withmonies being automatically released from the Consolidated Revenue Fund wherethe criteria applying to that appropriation are met.

Example: Medicare is established under the Health InsuranceAct 1973. Section 125 of that Act appropriates from the ConsolidatedRevenue Fund any amount of money required for the payment of Medicare benefits.

To change the amount of moneythat will be provided by a special appropriation, the criteria that must be metto use the special appropriation need to be changed. Where those criteria areset out in legislation, the Parliament must pass an amendment to that legislation.

Example: The Paid Parental Leave Act 2010 providesunder what circumstances a person is entitled to parental leave pay. To changethe amount that is paid under that Act, an amendment to that Act is needed tochange the eligibility criteria for parental leave pay.

Further resources

Department of Finance, Guide to appropriations
Department of the Senate, Odgers’ Senate Practice, Chapter 13: Financial legislation

Legislation relatingto the financial management of the Commonwealth

Charter of Budget Honesty

The Charter of Budget Honestyis a set of rules that establish how the Commonwealth is to manage and reporton its fiscal performance. It is a schedule to the Charter of Budget Honesty Act 1998.

Public Governance, Performance andAccountability Act 2013

The Public Governance, Performance and Accountability Act2013 is the main Act that providesfor the financial management of the Commonwealth. The Public Governance,Performance and Accountability Act 2013 allows certain matters to be dealtwith via delegated legislation, known as Rules.

Further resources

Department of Finance, PGPA associated instruments and policies

Other Budget relatedreports not released on Budget night

Additional budget reportsmust be publicly released and tabled in Parliament from time to time.

Mid-year Economicand Fiscal Outlook

Under the Charter of BudgetHonesty, the Treasurer must release the Mid-Year Economic and Fiscal Outlookreport within six months of the Budget, or by the end of January in a givenyear, whichever is later. The Mid-Year Economic and Fiscal Outlookreport must update any information that has changed since the Budget.

Final Budget outcome

Under the Charter of BudgetHonesty, the Treasurer must produce a Final Budget Outcome within threemonths of the end of each financial year. The Final Budget Outcome must containthe fiscal outcomes for the Commonwealth for the relevant year.

IntergenerationalReport

Under the Charter of BudgetHonesty, every five years the Treasurer must release and table in Parliament anIntergenerational Report. The Intergenerational Report mustassess the sustainability of current Government policies over the next 40years.

Pre-electionEconomic and Fiscal Outlook

Under the Charter of BudgetHonesty, within 10 days of the calling of a general election the Secretaries ofthe Department of Finance and the Treasury must release a Pre-ElectionEconomic and Fiscal Outlook report. The Pre-Election Economic and FiscalOutlook must update any information that has changed from the last budgetupdate.

Post-election Report

Under the ParliamentaryService Act 1999, within 30 days of the end of the caretaker period for ageneral election the Parliamentary Budget Officer must releasea Post-election Report that sets out the Parliamentary Budget Officer’sestimates of the costings of the election commitments made by political partiesduring the preceding election campaign.

All online articles accessed May 2018

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