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This is a Bill, not an Act. For current law, see the Acts databases.


FISCAL RESPONSIBILITY BILL 2005





Fiscal Responsibility Bill 2005


Contents

                                                         Page
Part 1   Preliminary
          1   Name of Act                                  2
          2   Commencement                                 2
          3   Purpose, objects and application of Act      2
          4   Definitions and other general provisions     3

Part 2   Fiscal targets
          5   Fiscal targets                               5
          6   Medium term fiscal targets                   5
          7   Long term fiscal targets                     5

Part 3   Fiscal principles
          8   Fiscal principles                            6
          9   Application of fiscal principles             6
Fiscal Responsibility Bill 2005

Contents

                                                                                 Page
               10     Impact of decisions of Commonwealth Grants Commission
                      etc                                                          6
               11     Fiscal principle No 1--keeping the budget and forward
                      estimates in surplus                                         6
               12     Fiscal principle No 2--constrained growth in net cost of
                      services and expenses                                        6
               13     Fiscal principle No 3--managing public sector employee
                      costs                                                        7
               14     Fiscal principle No 4--evaluation of capital expenditure
                      proposals                                                    7
               15     Fiscal principle No 5--managing State finances with a
                      view to long-term fiscal pressures                           7
               16     Fiscal principle No 6--maintaining or increasing general
                      government sector net worth                                  7
               17     Fiscal principle No 7--funding employer superannuation
                      liabilities                                                  8
               18     Fiscal principle No 8--total asset management                8
               19     Fiscal principle No 9--prudent risk management               8
               20     Fiscal principle No 10--tax restraint                        8

Part 4        Miscellaneous
               21     Effect of Act                                               10
               22     Acts not affected by this Act                               10
               23     Repeal of General Government Debt Elimination Act 1995
                      No 83                                                       10
               24     Amendment of Public Finance and Audit Act 1983 No 152       10
               25     Review of Act                                               11
               26     Further review of Act                                       11

Schedule 1            Amendment of Public Finance and Audit Act
                      1983                                                        12




Contents page 2
I certify that this PUBLIC BILL, which originated in the LEGISLATIVE ASSEMBLY,
has finally passed the LEGISLATIVE COUNCIL and the LEGISLATIVE ASSEMBLY of
NEW SOUTH WALES.


                                                 Clerk of the Legislative Assembly.
                                                 Legislative Assembly,
                                                 Sydney,                     , 2005




                             New South Wales




Fiscal Responsibility Bill 2005
Act No      , 2005




An Act with respect to fiscal targets and fiscal principles and to repeal the General
Government Debt Elimination Act 1995; and for other purposes.




I have examined this Bill, and find it to correspond in all respects with the Bill
as finally passed by both Houses.


                           Chairman of Committees of the Legislative Assembly.
Clause 1          Fiscal Responsibility Bill 2005

Part 1            Preliminary




The Legislature of New South Wales enacts:

Part 1         Preliminary
  1      Name of Act
               This Act is the Fiscal Responsibility Act 2005.
  2      Commencement
         (1)   This Act commences, or is taken to have commenced, on 1 July 2005,
               except as provided by subsection (2).
         (2)   Schedule 1 [3] commences:
               (a) on the commencement of this Act, or
               (b) on the commencement of Schedule 3.2 to the Workers
                    Compensation Amendment (Insurance Reform) Act 2003,
               whichever is the later.
  3      Purpose, objects and application of Act
         (1)   The purpose of this Act is to provide the framework for the conduct of
               New South Wales fiscal policy, with a view to maintaining financial
               results that are fiscally sustainable in the medium and long term.
               Note. Fiscal sustainability requires that the Government be able to manage
               financial risks and financial shocks in future periods without having to introduce
               significant and economically or socially destabilising expenditure or revenue
               adjustments in those future periods. What is considered consistent with fiscal
               sustainability will vary depending on the strength and outlook for the economy,
               the structure of expenditure and revenue of the budget, the outlook for the
               State's credit rating, demographic and social trends that will affect the budget,
               and the nature of financial risks faced by the Government at any given time.
         (2)   The following principles are to be employed in meeting the purpose of
               this Act:
                (a) to set out fiscal targets and fiscal principles for the State,
               (b) to make it a goal for the Government to pursue its policy
                     objectives in accordance with those fiscal targets and fiscal
                     principles,
                (c) to provide for progress reports on those fiscal targets and fiscal
                     principles in the annual budget papers,
               (d) to provide for reports on departures from those fiscal targets and
                     fiscal principles to be prepared by the Treasurer.
         (3)   This Act applies to and in respect of the State budget.




Page 2
Fiscal Responsibility Bill 2005                                                  Clause 4

Preliminary                                                                      Part 1



  4    Definitions and other general provisions
       (1)    In this Act:
              budget papers means the budget papers of the Government tabled in
              Parliament in connection with annual Appropriation Bills.
              financial asset means a financial asset as described in accordance with
              GFS.
              general government net financial liabilities includes all liabilities of
              the general government sector (such as unfunded superannuation and
              insurance liabilities) less all financial assets held by the general
              government sector (such as cash, advances and investments except for
              the Government's equity in the public financial enterprise sector and the
              public trading enterprise sector).
              general government sector means New South Wales agencies or
              activities listed or described as part of the general government sector by
              the Australian Bureau of Statistics (which are listed or described in
              accordance with international statistics conventions).
              government finance statistics or GFS means Australian Bureau of
              Statistics principles for the presentation of government finances (which
              are based on international statistics conventions).
              net cost of services means the total cost of services less any revenue
              retained by agencies involved in the provision of the services.
              net operating result means the excess of total revenue over total
              expenses as described for GFS.
              Note. Net operating result excludes expenditure on the acquisition of capital
              assets, but includes the consumption of capital (depreciation).
              net worth means total assets less total liabilities as described for GFS.
              public financial enterprise sector means New South Wales agencies or
              activities listed or described as part of the public financial corporation
              sector by the Australian Bureau of Statistics (which are listed or
              described in accordance with international statistics conventions).
              Note. The Australian Bureau of Statistics refers to the public financial enterprise
              sector as public financial corporations.
              public trading enterprise sector means New South Wales agencies or
              activities listed or described as part of the public non-financial
              corporation sector by the Australian Bureau of Statistics (which are
              listed or described in accordance with international statistics
              conventions).
              total state sector means the general government sector, the public
              financial enterprise sector and the public trading enterprise sector.
              underlying general government net debt means the sum of the deposits
              held by, advances received by and borrowings made by the general
              government sector less the sum of cash and deposits held by, advances



                                                                                       Page 3
Clause 4          Fiscal Responsibility Bill 2005

Part 1            Preliminary




               paid and investments, loans and placements made by the general
               government sector (as described for GFS). It excludes financial assets
               that are allocated to fund other liabilities through legislation or contract
               (for example, the net financial assets of the Liability Management
               Ministerial Corporation).
         (2)   A reference in the definitions of general government sector, public
               financial enterprise sector and public trading enterprise sector in
               subsection (1) to agencies or activities listed or described by the
               Australian Bureau of Statistics is a reference to agencies or activities
               listed or described by the Bureau for the purposes of the preparation of
               GFS.
         (3)   Notes included in this Act do not form part of this Act.




Page 4
Fiscal Responsibility Bill 2005                                                 Clause 5

Fiscal targets                                                                  Part 2




Part 2           Fiscal targets
  5    Fiscal targets
       (1)       For the purposes of this Act, the fiscal targets are as set out in this Part.
       (2)       The fiscal targets comprise:
                 (a) the medium term fiscal targets, and
                 (b) the long term fiscal targets.
       (3)       The fiscal targets are to be achieved in the context of maintaining
                 prudent, commercially sound debt levels for the agencies or activities
                 comprising the public trading enterprise sector.
  6    Medium term fiscal targets
                 The medium term fiscal targets are:
                 (a) to reduce the level of general government net financial liabilities
                      as a proportion of gross state product to 7.5 per cent or less by
                      30 June 2010, and
                 (b) to maintain underlying general government net debt as a
                      proportion of gross state product at or below its level as at 30 June
                      2005, unless an increase is required in net debt to reduce one or
                      more components of general government net financial liabilities.
  7    Long term fiscal targets
                 The long term fiscal targets are:
                 (a) to reduce the level of general government net financial liabilities
                       as a proportion of gross state product to 6 per cent or less by
                       30 June 2015, and
                 (b) to maintain underlying general government net debt as a
                       proportion of gross state product at or below its level as at 30 June
                       2005, unless an increase is required in net debt to reduce one or
                       more components of general government net financial liabilities,
                       and
                 (c) to eliminate total state sector unfunded superannuation liabilities
                       by 30 June 2030.




                                                                                     Page 5
Clause 8          Fiscal Responsibility Bill 2005

Part 3            Fiscal principles




Part 3         Fiscal principles
  8      Fiscal principles
               For the purposes of this Act, the fiscal principles are as set out in this
               Part.
  9      Application of fiscal principles
         (1)   The fiscal principles relate to sound financial management, and
               accordingly the Government should aim to pursue its policy objectives
               in accordance with those principles.
         (2)   Those principles may be departed from in the presentation and
               implementation of the budget, but any departure should be temporary.
         (3)   The Treasurer is to include in the budget papers a statement containing
               the following:
                (a) the reasons for the departure,
               (b) the approach to be taken to enable a return to the principles,
                (c) the time frame within which a return to the principles should
                      occur.
10       Impact of decisions of Commonwealth Grants Commission etc
               The application of the fiscal principles and targets in determining the
               tax and other fiscal policies of the Government is subject to
               Commonwealth/State financial arrangements and the impact of
               decisions of the Commonwealth Grants Commission.
11       Fiscal principle No 1--keeping the budget and forward estimates in
         surplus
               Fiscal principle No 1 is that the budget should be framed so as to
               achieve a net operating result for the general government sector that is
               a surplus consistent with the fiscal targets.
12       Fiscal principle No 2--constrained growth in net cost of services and
         expenses
         (1)   Fiscal principle No 2 is that growth in net cost of services and expenses
               of the general government sector is to be managed in accordance with
               the objective of prudently managing State finances.
         (2)   For the purposes of this section, the average annual growth in net cost
               of services and expenses of the general government sector on a GFS
               basis is to be calculated for:
               (a) the 4-year period ending with, and inclusive of, the financial year
                      prior to the budget year, and


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Fiscal Responsibility Bill 2005                                            Clause 13

Fiscal principles                                                          Part 3




               (b)    the 4-year budget and forward estimates period commencing
                      with the budget year.
       (3)     For each of the 4-year periods referred to in subsection (2), the average
               annual growth in net cost of services and expenses is to be kept at or
               below long-term average revenue growth. An assessment of past and
               prospective long-term average revenue growth is to be reported each
               year in the budget.
       (4)     The calculations required by subsection (2) (a) and (b) are to be reported
               in the annual budget papers.
13     Fiscal principle No 3--managing public sector employee costs
       (1)     Fiscal principle No 3 is that government policy with respect to
               negotiating rates of pay and related conditions of employment of
               general government sector employees is to be consistent with the fiscal
               targets.
       (2)     In negotiating rates of pay for employees, public trading enterprises are
               to take into account conditions in their industry and the government's
               policy for negotiating rates of pay and related conditions of employment
               of general government sector employees.
14     Fiscal principle No 4--evaluation of capital expenditure proposals
               Fiscal principle No 4 is that capital expenditure proposals are to be
               evaluated in accordance with government procurement policy
               requirements.
15     Fiscal principle No 5--managing State finances with a view to long-term
       fiscal pressures
       (1)     Fiscal principle No 5 is that the budget should be framed taking into
               account the anticipated future fiscal gap likely to develop as a result of
               increased spending pressures associated with the ageing of the
               population and other long-term trends.
       (2)     An assessment of long-term fiscal gaps is to be presented in the
               2006-2007 budget papers and is to be updated in the budget papers in
               conjunction with the 5-yearly review of this Act.
       (3)     An assessment of the impact of budget measures in respect of expenses
               and revenue on long-term fiscal gaps is to be presented in the annual
               budget papers.
16     Fiscal principle No 6--maintaining or increasing general government
       sector net worth
       (1)     Fiscal principle No 6 is that general government sector net worth should
               at least be maintained in real terms from year to year.


                                                                                Page 7
Clause 17         Fiscal Responsibility Bill 2005

Part 3            Fiscal principles




         (2)   Measures taken to implement this fiscal principle are to be identified
               and subject to progress reports in the annual budget papers.
17       Fiscal principle No 7--funding employer superannuation liabilities
         (1)   Fiscal principle No 7 is that employer superannuation liabilities are to
               be managed and funded so as to eliminate total state sector unfunded
               superannuation liabilities by 30 June 2030 and that the manner of
               management and funding of these liabilities is to be subject to periodic
               review.
         (2)   Measures taken to implement this fiscal principle are to be identified
               and subject to progress reports in the annual budget papers.
18       Fiscal principle No 8--total asset management
         (1)   Fiscal principle No 8 is that government agencies must align their
               physical asset management practices (on a whole-of-life basis) with
               their service delivery priorities and strategies.
         (2)   Measures taken to implement this fiscal principle are to be identified
               and subject to progress reports in the annual budget papers.
19       Fiscal principle No 9--prudent risk management
         (1)   Fiscal principle No 9 is that financial risk is to be managed prudently on
               the basis of sound risk management principles.
         (2)   For the purposes of this section, the management of financial risk
               comprises the following:
               (a) maintaining total state sector net financial liabilities at prudent
                     levels,
               (b) managing risks associated with contingent liabilities,
               (c) managing risks associated with the total state sector's debt and
                     financial assets, including commercial risks arising from the
                     ownership of public trading enterprises.
         (3)   Measures taken to implement this fiscal principle are to be identified
               and subject to progress reports in the annual budget papers.
20       Fiscal principle No 10--tax restraint
         (1)   Fiscal principle No 10 is that any adjustments to legislated tax rates,
               thresholds and bases are to be made with the maximum possible
               restraint having regard to the effect of these adjustments on the overall
               level of tax revenue, and policies should be pursued that are consistent
               with a reasonable degree of predictability and stability of tax rates,
               thresholds and bases for future years.




Page 8
Fiscal Responsibility Bill 2005                                           Clause 20

Fiscal principles                                                         Part 3




       (2)     The estimated impact of proposed tax policy changes in the year of
               implementation and, where different, in a full year, is to be reported in
               the budget papers.




                                                                                Page 9
Clause 21         Fiscal Responsibility Bill 2005

Part 4            Miscellaneous




Part 4         Miscellaneous
21       Effect of Act
         (1)   Nothing in this Act places on any person any obligation enforceable in
               a court of law or administrative review body.
         (2)   Without limiting subsection (1), a failure to comply with a provision of
               this Act:
                (a) does not prevent the introduction of any Bill in, or the passage of
                     a Bill through, a House of Parliament or prevent assent being
                     given to any Bill, and
               (b) does not affect the validity of any legislation, and
                (c) does not affect the validity of any action taken by any public
                     official or agency, and
               (d) does not expose any person to civil or criminal liability.
         (3)   Accordingly, no court or administrative review body has jurisdiction or
               power to consider any question involving compliance or
               non-compliance with this Act.
         (4)   This section does not apply to the other provisions of this Part or to
               Schedule 1.
22       Acts not affected by this Act
               This Act does not affect the provisions of any of the following Acts:
               Annual Reports (Departments) Act 1985
               Annual Reports (Statutory Bodies) Act 1984
               Public Authorities (Financial Arrangements) Act 1987
               Public Finance and Audit Act 1983
               State Owned Corporations Act 1989
               Note. Within-year reporting requirements are contained in sections 6 and 8 of
               the Public Finance and Audit Act 1983.

23       Repeal of General Government Debt Elimination Act 1995 No 83
               The General Government Debt Elimination Act 1995 is repealed.
24       Amendment of Public Finance and Audit Act 1983 No 152
               The Public Finance and Audit Act 1983 is amended as set out in
               Schedule 1.




Page 10
Fiscal Responsibility Bill 2005                                          Clause 25

Miscellaneous                                                            Part 4



25     Review of Act
       (1)    The Treasurer is to review this Act to determine whether the policy
              objectives of the Act remain valid and whether the terms of the Act
              remain appropriate for securing those objectives.
       (2)    The review is to be undertaken as soon as possible after the period of
              5 years from the date of assent to this Act.
       (3)    A report of the outcome of the review is to be tabled in each House of
              Parliament within 12 months after the end of the period of 5 years.
26     Further review of Act
       (1)    As soon as possible after the period of 10 years from the date of assent
              to this Act, the Treasurer is to review this Act to determine whether the
              policy objectives of the Act remain valid and whether the terms of the
              Act remain appropriate for securing those objectives.
       (2)    A report of the outcome of the review is to be tabled in each House of
              Parliament within 12 months after the end of that period of 10 years.
       (3)    If a House of Parliament is not sitting when the Treasurer seeks to
              present the report in accordance with subsection (2), the Treasurer is to
              present the report to the Clerk of the House concerned to be dealt with
              in accordance with section 63C of the Public Finance and Audit
              Act 1983.




                                                                             Page 11
               Fiscal Responsibility Bill 2005


Schedule 1     Amendment of Public Finance and Audit Act 1983




Schedule 1            Amendment of Public Finance and Audit
                      Act 1983
                                                                    (Section 24)
[1]   Section 4 Definitions
      Omit "General Government Debt Elimination Act 1995" from the definition
      of general government sector in section 4 (1).
      Insert instead "Fiscal Responsibility Act 2005".
[2]   Section 27AA Budget content
      Omit "General Government Debt Elimination Act 1995" from section 27AA
      (2) (a) (i).
      Insert instead "Fiscal Responsibility Act 2005".
[3]   Section 63F Status of Workers Compensation Insurance Fund (as
      inserted by Workers Compensation Amendment (Insurance Reform)
      Act 2003)
      Omit "General Government Debt Elimination Act 1995" from section 63F (b).
      Insert instead "Fiscal Responsibility Act 2005".




Page 12


 


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