Statement 8: Statement of Risks
The forward estimates of revenue and expenses in the 2009‑10 Budget incorporate assumptions and judgments based on the best information available at the time of publication. A range of factors may influence the actual budget outcome in future years. The disclosure of these factors in this statement increases the transparency of the fiscal projections.
Events that could affect fiscal outcomes include:
- changes in economic and other parameters;
- matters not included in the fiscal forecasts because of uncertainty about their timing, magnitude or likelihood; and
- the realisation of contingent liabilities or assets.
Risks to the Budget — overview
The revenue and expense estimates and projections are based on a range of economic and other parameters. If the economic outlook were to differ from that presented in the Budget, the revenue and expense estimates and projections would also change. The sensitivity of budget estimates to changes in economic assumptions is discussed in Appendix A of Statement 3.
It is important to note that the Budget revenue forecasts have been prepared during a period of substantial financial and economic uncertainty. As the global recession hits economies around the world, the ultimate severity and duration of overseas and Australian downturns is still uncertain. Budget Statement 2 includes a detailed discussion of uncertainties around the economic outlook. To the extent that further risks to the economic forecasts materialise or the economic outlook turns out to be different for other reasons, their impact will flow through to the forecasts.
In the view of heightened economic risks, there is an increased degree of uncertainty surrounding the revenue forecasts in the Budget. Specifically, it should be noted that revenue forecasting necessarily relies heavily on the historical relationships between the economy, tax bases and tax revenues. However, such relationships may shift in the current circumstances, requiring a more than usual degree of caution in their use in predicting future revenues.
In recent years, capital gains tax (CGT) has become an important, though volatile, component of individuals', companies' and superannuation funds' income taxes. The large declines on equity markets during 2008 and early 2009 make for particular difficulties in forecasting CGT at this time. As there is limited information about investor behaviour in the current environment, it is more difficult than usual to predict when any gains and losses (even in relation to the movement in equity prices observed to date) may be realised.
Other fiscal risks comprise general developments or specific events that may affect the fiscal outlook. Some developments or events raise the possibility of some fiscal impact. In other cases, the likelihood of a fiscal impact may be reasonably certain, but will not be included in the forward estimates because their timing or magnitude is not known.
Information on fiscal risks takes account of Parliament's decisions and other developments until the close of parliamentary business on 30 April 2009. In general, information on contingent liabilities and assets is based on information provided by Australian Government departments and agencies and is current to 31 March 2009. However, in some cases other dates are used and are noted in the relevant section.
Contingent liabilities and assets are a specific category of fiscal risks. Broadly, they represent possible costs or gains to the Australian Government arising from past events or decisions which will be confirmed or otherwise by the outcome of future events that are not within the Government's ability to control.
Contingent liabilities include loan guarantees, non‑loan guarantees, warranties, indemnities, uncalled capital and letters of comfort. These possible costs are in addition to those recognised as liabilities in the consolidated financial statements of the Australian Government general government sector.
Contingent liabilities, contingent assets and other fiscal risks with a possible impact on the forward estimates greater than $20 million in any one year, or $40 million over the forward estimates period are listed in this statement. Information on contingent liabilities and contingent assets is also provided in the annual financial statements of departments and non‑budget entities.
The main changes to quantifiable contingent liabilities since the Mid‑Year Economic and Fiscal Outlook 2008‑09 (MYEFO) are the New Arrangements to Borrow with the International Monetary Fund, the increased uncalled capital subscription in the Asian Development Bank and the new standby loan facility for Indonesia. The main changes to unquantifiable contingent liabilities since the MYEFO are the Australian Business Investment Partnership and the Australian Government guarantee of state and territory borrowing. Table 1 provides a full list of recent changes in fiscal risks.
Table 1: Summary of material changes to Statement of Risks since the 2008‑09 Budget and Mid‑Year Economic and Fiscal Outlook 2008‑09(a)
| CONTINGENT LIABILITIES — QUANTIFIABLE | |
|---|---|
| Defence and Defence Materiel Organisation | |
| Indemnities | Modified |
| Environment, Heritage and the Arts | |
| Potential claims relating to the Great Barrier Reef Marine Park Structural Adjustment Package | Deleted |
| Finance and Deregulation | |
| Australian Industry Development Corporation | Modified |
| Litigation | Modified |
| Sale of Sydney Airports Corporation Ltd | Modified |
| Foreign Affairs and Trade | |
| Export Finance and Insurance Corporation | Modified |
| Immigration and Citizenship | |
| Immigration detention services | Modified |
| Treasury | |
| Guarantees under the Commonwealth Bank Sale Act 1995 | Modified |
| International financial institutions | Modified |
| Reserve Bank of Australia — guarantee | Modified |
| Standby loan facility for the Government of Indonesia | New |
| CONTINGENT ASSETS — QUANTIFIABLE | |
| Treasury | |
| International Monetary Fund allocations of Special Drawing Rights | New |
| CONTINGENT LIABILITIES — UNQUANTIFIABLE | |
| Agriculture, Fisheries and Forestry | |
| Compensation claims arising from equine influenza outbreak | Modified |
| Exceptional Circumstances assistance for drought‑affected farmers | Modified |
| Attorney‑General's | |
| Native title costs | Modified |
| Northern Patrol and Response — Ashmore Guardian and Triton | New |
| Southern Ocean Maritime Patrol and Response Program | Modified |
| Broadband, Communications and the Digital Economy | |
| National Broadband Network — Australian Government contribution | New |
| National Broadband Network Request for Proposals process — panel of experts and strategic adviser indemnities | Modified |
| New company to roll out and operate the National Broadband Network — interim board members' indemnity | New |
| Climate Change | |
| Carbon Pollution Reduction Scheme | Deleted |
| Defence and Defence Materiel Organisation | |
| HMAS Melbourne and HMAS Voyager damages claims | Modified |
| Environment, Heritage and the Arts | |
| Art Indemnity Australia | Modified |
| Finance and Deregulation | |
| Googong Dam | Modified |
| Telstra 3 BPAY Biller Agreement — indemnities | Deleted |
| Telstra Sale Company Ltd — indemnities | Deleted |
| Sharjade v Darwinia — breach of Heads of Agreement between the parties | Modified |
| Health and Ageing | |
| Guarantee Scheme for aged care accommodation bonds | Modified |
| Human Services | |
| Medicare Australia | New |
| Infrastructure, Transport, Regional Development and Local Government | |
| Airservices Australia | New |
| Assumed residual liabilities of the Australian National Railways Commission | Modified |
| Australian Maritime Safety Authority incident costs | New |
| Tripartite deed relating to the sale of federal leased airports | Modified |
| Innovation, Industry, Science and Research | |
| Liability for damages caused by Kistler space activities | Modified |
| Treasury | |
| Australian Business Investment Partnership | New |
| Car dealer financing — Australian Government guarantee of the OzCar Special Purpose Vehicle | New |
| Financial Claims Scheme | Modified |
| Guarantee of deposits in authorised deposit‑taking institutions | Modified |
| Guarantee of wholesale funding of authorised deposit‑taking institutions | Modified |
| Guarantee of state and territory borrowing | New |
| CONTINGENT ASSETS — UNQUANTIFIABLE | |
| Finance and Deregulation | |
| Tidbinbilla | Deleted |
| Innovation, Industry, Science and Research | |
| Wireless Local Area Network | Modified |
- Risks appearing in this Statement but not listed in the table above are substantially unchanged since disclosed in Budget Paper No. 1, Budget Strategy and Outlook 2008‑09, Statement 8 or in Mid‑Year Economic and Fiscal Outlook 2008‑09, Appendix C.
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