Australia followed New Zealand’s lead by establishing a similar set of financial principles and adopting an accrual accounting system. In order to avoid repetition, we will cover these briefly. We begin with the foundation of Australia’s fiscal framework which was laid by the Charter of Budget Honesty 1998. Its aim was ‘‘to improve the discipline, trans- parency and accountability applying to the conduct of fiscal policy. The Charter comprises three elements, namely fiscal policy formulation, fiscal reporting and the costing of election promises. Each year, the Charter requires a ‘Fiscal Strategy Statement’ which should:
(a) specify the Government’s long term fiscal objectives within which shorter term fiscal policy will be framed;
(b) explain the broad strategic priorities on which the budget is or will be based;
(c) specify the key fiscal measures that the Government considers important and against which fiscal policy will be set and assessed; and
(d) specify, for the budget year and the following 3 financial years:
(i) the Government’s fiscal objectives and targets; and (ii) the expected outcomes for the specified key fiscal
measures;
(e) explain how the fiscal objectives and strategic priorities specified and explained as required by paragraphs (a), (b) and (d) relate to the principles of sound fiscal management;
(f) specify fiscal policy actions taken or to be taken by the Government that are temporary in nature, adopted for the purpose of moderating cyclical fluctuations in economic activity, and indicate the process for their reversal; and (g) explain broadly the reporting basis on which subsequent
Government fiscal reports will be prepared.’’
Arising out of Australia’s new fiscal framework is a set of fiscal principles and financial risks, which are discussed next.
24.4.1 Fiscal Principles
Australia’s fiscal framework is supported by principles which ‘‘focus atten- tion on a range of issues that must be addressed. The principles require the Government to:
manage financial risks faced by the Australian Government prudently, having regard to economic circumstances, including by maintaining general government debt at prudent levels;
ensure that its fiscal policy contributes to achieving adequate national saving and to moderating cyclical fluctuations in economic activity, as appropriate, taking account of the economic risks facing the nation and the impact of those risks on the Government’s fiscal position;
pursue spending and taxing policies that are consistent with a reasonable degree of stability and predictability in the level of the tax burden;
maintain the integrity of the tax system; and
ensure that its policy decisions have regard to their financial effects on future generations.
The financial risks identified by the Charter include:
risks arising from excessive net debt;
commercial risks arising from ownership of public trading enterprises and public financial enterprises;
risks arising from erosion of the tax base; and
risks arising from the management of assets and liabilities.’’ (Finance and Administration, 2003).
One of the attempts made to control these risks was through the introduction of accrual accounting. This is discussed next.
24.4.2 Accrual Accounting
In addition to the newly designed fiscal principles by the Australian Government, ‘‘financial management was modernized through three pieces of legislation designed to improve the quality and clarity of understanding of the Commonwealth’s financial management framework. These were the Financial Management and Accountability Act 1997, the Common- wealth Authorities and Companies Act 1997 and the Auditor-General Act 1997. The legislation sharpens accountability and emphasizes perfor- mance and propriety. It also facilitated the subsequent, separate decisions to replace cash accounting with accrual-based budgeting and output and
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outcomes reporting. Together, with the full adoption of accrual-based bud- geting in 1999, the current arrangements have aimed at achieving:
improved accountability;
improved outcomes- and outputs-based budgeting and reporting; and better understanding of the true cost of government.’’ (Australian
Public Service Commission, 2003).
The context for Australian governmental agencies’ reporting system is the outcomes and output framework.
24.4.3 Outcomes and Output Framework
Introduced with the 1999–2000 federal budget, the outcomes and output framework has two basic objectives: to improve agencies’ corporate governance and enhance public accountability. Managing through out- comes and outputs helps improve decision-making and performance by
‘‘focusing attention on the fundamental questions:
i. What does government want to achieve? (outcomes) ii. How does it achieve this? (outputs and administered items) iii. How does it know if it is succeeding? (performance
reporting)
It is intended to improve the understanding and knowledge of those out- side the agency who have an interest in its performance, including ministers, parliament and external accountability bodies such as the Auditor General.’’
A significant feature of the outcomes and output framework is that ‘‘agen- cies are responsible for developing a series of outputs which, in conjunction with administered items, work directly towards the delivery of the relevant outcome. Outputs are the actual deliverables (i.e., goods and services) agencies produce which, together with administered items, generate the desired outcomes specified by government. All departmental outputs must contribute to the realization of a specified outcome. This also applies to purchaser/provider arrangements where the provider is delivering services to contribute to the purchaser’s outcomes.’’ (Kristensen, Groszky and Buhler, 2002).
An emphasis of the framework is on performance and ‘‘the main vehi- cles for agencies to externally report on planned and actual performance against outcomes and outputs are:
Portfolio Budget Statements; and Annual Reports.
Portfolio Budget Statements identify each agency’s plans for the coming budget year, while Annual Reports detail the degree to which those plans have been realized and the efficiency of agency outputs and administered items used to achieve this. In preparing the two documents, agencies are required to enable a clear read between planning information and actual performance’’ (Chan, Nizette, La Rance, Broughton, and Russell, 2002).
In order to monitor performance, the Australian government uses performance indicators as a tool and these ‘‘fall into two categories — indi- cators of effectiveness and indicators of efficiency. Effectiveness indicators should be designed to identify as clearly as possible the causal relationship between the outcome and the outputs and administered items in place to achieve it. Efficiency indicators provide information on the productivity of a given output in terms of the combined and interdependent effects of its quality, quantity and price’’ (Kristensen, Groszky and Buhler, 2002).