House of Representatives

Taxation Laws Amendment (Software Depreciation) Bill 1999

Second Reading Speech

Senator NEWMAN (Minister for Family and Community Services and Minister Assisting the Prime Minister for the Status of Women)

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-


This bill will implement the measures announced in the 1998-99 Budget to allow a deduction to be claimed over 2½ years for spending incurred in acquiring, commissioning or developing software. The measures will not apply to software which is trading stock or is used to produce trading stock.

The measures broadly provide for spending to be written off over 2½ years. In certain circumstances, they also allow an immediate deduction. An immediate deduction will be allowed for software spending of $300 or less and for undeducted spending where software development projects are abandoned. This will be helpful for small business.

An immediate deduction will also be allowable in relation for spending on new software or on substantially rebuilding current software to ensure Y2K compliance for an existing computer system, provided the expenditure is incurred prior to 1 January 2000. Finally, spending incurred before 1 July 1999 on software development projects which had been started by 11 May 1998 will continue to be immediately deductible.

The Government has recognised the costs of complying with these measures. Taxpayers who develop or commission the development of software will therefore be able to choose between two methods of deducting expenditure. One method involves pooling spending incurred in an income year and writing that off over 2½ years from the year after it is incurred. Another method is to account for software development on a project-by-project basis and write the expenditure off over 2½ years from when the resulting software is used or installed ready for use.

The legislation was released in draft form for public comment on 14 December 1998. Submissions received have been considered in finalising this bill and explanatory memorandum

The amendments generally apply to software spending incurred after 10am on 11 May 1998.

I commend this bill to the Senate.


The purpose of this bill is to amend the Commonwealth's financial legislation to facilitate introduction of a full accrual financial framework from 1 July 1999.

Under an accrual financial framework the Government will budget, manage and report on all of the Commonwealth's revenues and expenses (including those that have accrued), its assets and liabilities and its cash flows. This contrasts with the present framework where the accounting focus has been on cash transactions and cash balances with minimal emphasis on the transparency of other resource transactions and their underlying assets and liabilities.

At a macro level, accrual information will make more transparent whether, over time, the Commonwealth is operating at a sustainable level, how its financial position is changing and how it is financing its operations.

Greater transparency of government financial operations has been an important and continuing commitment of this Government. We have already put in place legislation dealing with budget honesty. The accrual framework builds on this initiative and ensures that government operations will at least match that of private sector entities operating under the Corporations Law.

The move to an accrual framework was strongly supported by the Joint Committee of Public Accounts in its Reports 338 and 341 of August and November 1995, respectively, and the National Commission of Audit in its report of June 1996.

As the National Commission of Audit stated, a full accrual accounting framework is an essential complement to the structural and cultural change the Government is seeking by way of a more competitive, efficient and effective public sector. It is also essential if the accountability requirements of the Parliament and the taxpayer, and the Government's commitment to a Charter of Budget Honesty are to be met.

In the lead-up to the 1999-2000 financial year, the Government's May Budget will, for the first time, be presented on the basis of accrual principles.

The Budget and forward estimates will therefore show the full effects of the Commonwealth's revenues and expenses as well as changes in its assets and liabilities and how they were financed. At the same time, coverage of the budget will be extended to the general government sector. That is, full details will be included for budget funded Commonwealth authorities as well as for government departments.

The Appropriation Bills will also reflect accrual principles and will be structured to show how key budget appropriations are intended to contribute to `outcomes' sought by the Government. Ministers' Portfolio Budget Statements will show the full cost of the `outputs' (goods and services) needed to achieve those outcomes, providing a clear read across the budget documents.

In order to show performance against the budget estimates, the Government's monthly financial statements will be prepared on an accrual basis, consistent with the budget documents. Transitional arrangements are provided in the bill for the accrual based monthly statements to be phased in from 1 July 1999, starting with quarterly statements, then moving to monthly as soon as soon as systems are fine-tuned.

Coupled with these reforms, it is intended to devolve central accounting and banking arrangements to agencies. This is to encourage better cash management by agencies while still enabling central coordination of cash and consolidation of financial data. In future agencies will have their own bank accounts and will process and account for all receipts and payments in their own financial systems, rather than a central system.

Under the new arrangements, the Government and its agencies will have a more complete picture of their performance and finances for decision making and accountability. Overall, the reforms will bring public sector resource management into line with the best of private sector business practice.

I will now turn to the principal amendments in the bill which are aimed at facilitating the reforms I have outlined.

The primary change made by the act is to repeal the provisions dealing with `fund accounting' while retaining the essential features of the funds-the ability to hypothecate money for specified purposes-through provisions to establish `Special Accounts' within the Consolidated Revenue Fund (CRF).

Fund accounting was introduced by the Audit Act 1901 and is based on the notion that financial management and accountability can be supported by a simple system that requires the setting aside of separate pools of money designated for particular purposes. However, such accounting has been overtaken by more sophisticated financial management systems suited to the complexities of a modern business-like environment.

The modern systems, which are being implemented by agencies, are not designed to perform fund accounting and its continuation would therefore require dual accounting systems to be kept. Clearly this would serve no useful purpose and be wasteful of resources. Further, the complexity of such an arrangement would frustrate the efficient and effective operation of the accrual framework that will operate from 1 July 1999.

The current amendments will have the effect of merging the Loan Fund, Reserved Money Fund and Commercial Activities Fund with the Consolidated Revenue Fund. This will eliminate the need to maintain a multiple fund accounting system, including the inefficient legal requirement of daily transferring of moneys back and forth between the funds to keep them in positive balance. The current requirement does not assist financial management.

The effect will be to give the CRF the central role envisaged by the founders of the Constitution rather than the diluted role that has emerged with the creation of additional funds outside the CRF.

The amendments will also remove present unnecessary requirements for debiting and crediting various transactions to the CRF. The fund is `self executing' under the Constitution. That is, moneys paid to the Commonwealth form part of the CRF whether or not the Commonwealth has credited those moneys to a fund which is designated as the CRF. The Finance Minister will be required to cause proper accounts and records to be kept in relation to the receipt and expenditure of public money.

One of the consequences of the repeal of the Reserved Money Fund is to remove the need for the Loan Consolidation and Investment Reserve Act 1955. The bill repeals the LCIR act and provides the Treasurer with more appropriate powers for the purpose of managing the public debt of the Commonwealth.

The repeal of the Reserved Money Fund also had to be tested against the new accrual appropriation regime which will require carry over of appropriations for unspent accrued costs. These appropriations will cover the full price of goods and services produced by agencies as well as the full cost of subsidies, benefits and grants (including accrued costs). Since some accrued costs may not need to be paid until future years (e.g. long service leave payments and payments for the replacement of assets from depreciation provisions ), appropriations will need to remain valid, without lapsing, until all such costs are fully met over time.

The Solicitor-General has advised that the new accrual appropriation arrangements can operate exclusively within the CRF and do not require moneys for accrued costs to be paid into another fund to avoid lapsing. The appropriation bills will be amended to reflect these arrangements.

In outlining the accrual framework that will operate from 1 July 1999, I mentioned that, in order to show performance against the budget estimates, the Government `s monthly financial statement will be prepared on an accrual basis. The bill will therefore repeal the present requirement for monthly reporting of the cash transactions of the funds. This will be replaced with one that will require the preparation of accrual financial statements.

The bill will globally change the effect of references in other acts to the repealed Loan Fund, Reserved Money Fund and Commercial Activities Fund to mean the Consolidated Revenue Fund. References to the old funds will still appear in those acts for the time being. However, in consultation with my fellow Ministers, I propose, in due course, to introduce a consequential amendments bill that will ensure that terminology in other acts is consistent with the amended FMA act.

This proposed law will be a catalyst for change to sharpen and strengthen the framework of Commonwealth financial administration.

I commend the bill to the Senate.


This bill gives effect to a number of measures announced in the Government's 1998-99 Budget, and a number of non-Budget measures that will assist in more effective and efficient social security administration.

First, the bill provides for fairer treatment for more than 26,000 workers currently employed in Community Development Employment Projects (CDEP), as well as providing increased incentives for those workers. These measures will provide for a CDEP participant supplement of $20 per fortnight, (similar to the $20 Work-for-the-Dole Supplement), and will provide access for CDEP workers rent assistance, bereavement payments, telephone allowance and pharmaceutical allowance. Also, in the interests of equity, adjustments are made to the income level provisions which apply to CDEP participants who are pensioners, treating CDEP income in the hands of those pensioners as directly deductible on a dollar-for-dollar basis, up to the equivalent of the maximum basic rate of allowance. These provisions will commence on 20 September 1999, with the $20 Supplement granted retrospectively to 20 March 1999.

The Government announced in its 1998 Budget that it would provide a special employment advance of $500, to assist an estimated 30,000 customers with the "start-up" costs of taking up employment. This measure will also be available to assist an estimated 4,500 people in financial hardship as they move from social security payments into work, where those people have earned money but haven't yet been paid. The bill provides for the measure to commence on 20 September 1999.

In a further Budget measure, some 11,000 victims of domestic violence will be among those to benefit from the Government's initiative to introduce a new one-off crisis payment from 1 July 1999. This crisis payment will assist new and existing customers in financial hardship when they are forced to leave their home and establish a new one due to a limited number of circumstances, such as fleeing domestic violence or in the event of a house fire. The crisis payment will also replace the current prisoner release payment. In addition to the above, other Budget measures included in the bill will:

expand the definition of "suitable work" to ensure that persons who seek, and are offered, work outside of their local area will be required to accept that work, or be subject to an activity test breach;
tighten arrangements for unemployed persons who move to an area of lower employment prospects;
amend the liquid assets test that applies to education leavers, to rationalise inconsistencies in the application of that test as between those education leavers who claim newstart allowance, sickness allowance and youth allowance;
introduce a two-tiered payment structure for the austudy pensioner education supplement, geared to the study load undertaken by the student. Under this measure, students who undertake a study load of between 25-50 per cent will receive half the current rate (that is, $30 instead of $60). Disability support pensioners, and Department of Veterans' Affairs disability pensioners, will be exempt from this measure; and
promote consistency in the application of the newly arrived residents waiting period to migrants from all countries.

Lastly, the bill contains various minor amendments rationalising the provisions in the act that relate to periods of overseas residence and travel.

A further 1998 Budget measure, dealing with the receipt of lump sums received in respect of non-economic loss, will be dealt with in another bill to be introduced later in these Sittings.

I commend the bill to the Senate.

Ordered that further consideration of the second reading of these bills be adjourned till the first day of sitting in the winter sittings of 1999, in accordance with standing order 111.

Ordered that these bills be listed on the Notice Paper as separate orders of the day.