Chapter Two > Outcome Two: Navy Capabilities > Price to Government

Outcome Two: Navy Capabilities

Price to Government

Table 2.14 Outcome Two - Navy Capability for the Defence of Australia and its Interests
Budget
Estimate
Revised Additional Estimate(1) Projected Result(2) Actual Result(3) Variation(5) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Operating Expenses
Employees - Military 1,238,483 1,228,910 1,291,845 1,274,253 -17,592 -1.4
Employees - Civilian 325,435 327,632 321,247 335,940 14,693 4.6
Sub-Total Employees 1,563,918 1,556,542 1,613,092 1,610,192 -2,899 -0.2
Suppliers expense 1,203,374 1,341,060 1,358,265 1,312,843 -45,422 -3.3
Inventory consumption 239,729 189,542 181,672 170,104 -11,568 -6.4
Sub-Total Suppliers 1,443,103 1,530,602 1,539,936 1,482,947 -56,990 -3.7
Grants 295 259 407 1,627 1,220 299.8
Depreciation and amortisation 1,059,648 942,313 1,074,739 953,422 -121,317 -11.3
Value of assets sold - - 81,713 23,367 -58,345 -71.4
Write-down of assets 144,028 137,487 133,373 410,289 276,916 207.6
Borrowing costs 7,020 7,266 5,432 7,766 2,334 43.0
Other expenses -382 219 - 18,770 18,770 -
Total Operating Expenses from Ordinary Activities 4,217,630 4,174,687 4,448,691 4,508,380 59,690 1.3
Revenues
Sale of goods and services -53,488 -38,902 -32,728 -47,315 -14,586 44.6
Revenue from sale of assets - - -81,713 -34,490 47,223 -57.8
Assets now recognised -84,578 -102,743 -104,357 -207,868 -103,511 99.2
Other revenues(4) 8,125 -22,505 -18,655 -41,259 -22,604 121.2
Total Own Source Revenues -129,941 -164,149 -237,453 -330,931 -93,479 39.4
Price to Government for Outcome Two 4,087,689 4,010,538 4,211,238 4,177,449 -33,789 -0.8

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.32) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The Actual Price to Government for Outcome Two, shown in this table ($4,177.449m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Two does not include $0.627m of administered revenues. This amount relates to interest received from the foreign military sales account.
  4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge.
  5. The variation figures are the difference between the Actual Result and the Projected Result.

top of page

Explanation of Significant Variations

The overall price of Outcome Two was $33.8m lower than the 2003-04 projected result representing a decrease of 0.8 per cent. The major variations were due to:

  • a net decrease in military employees expenses (-$17.6m) due to:

    Salary and allowances

    • increased salaries and allowance payments due to the higher than projected average funded strength (+$1.0m);
    • an overestimate of long service and annual leave to be accrued in 2003-04 (-$3.5m);
    • an overstatement of the military employees salaries estimates in 2003-04 (-$3.5m);
    • decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$2.7m);
    • an overstatement of salary advances (-$2.3m);
    Superannuation

    • the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from administered to departmental accounts (-$51.3m);
    • an overstatement of military superannuation estimates in 2003-04 (-$1.5m);
    • increased superannuation payments due to higher than planned average funded strength (+$0.2m);
    Leave liability

    • an overestimate of the impact of the Workplace Remuneration Arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$0.5m);
    Housing

    • an increase in housing expenses including buy-out of old on-base housing annuities and increased take-up rate of members without dependents using rental assistance rather than living-in accommodation (+$2.5m);
    Compensation

    • an adjustment arising from an actuary review of compensation expense which projected higher longer-term incapacity payments (+5 per cent), higher medical payments (+25 per cent) and higher establishment costs for claims (+$21.5m);
    • a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$2.1m);
    Health

    • increased health costs relating to medical and professional fees (+$4.2m);
    Fringe benefits tax

    • an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$6.7m);
    Reserves

    • increased activity by Reserve officers and Reserve instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$1.0m); and
    Cost Attribution

    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$12.7m).
  • top of page

  • a net increase in civilian employees expenses (+$14.7m) due to:

    Salary and allowances

    • a recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$5.7m);
    • lower full-time equivalent-average personnel than projected in 2003-04 (-$0.7m);
    • an overstatement of civilian employee salaries in 2003-04 (-$5.2m);
    Superannuation

    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$7.4m);
    • an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$3.2m);
    Leave Liability

    • an increase in the leave liability costs resulting from the new Defence Employee Certified Agreement (+$7.5m);
    • an increase in the leave liability expense resulting from the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes rate increases on leave liabilities (+$2.0m);
    • a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$2.0m);
    Other

    • a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce and other minor variations (+$0.4m); and
    Cost Attribution

    • progressive refinements of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$7.2m).
  • a net decrease in supplier expenses (-$45.4m) due to:
    • the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$26.7m);
    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$5.7m);
    • the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$3.5m);
    • changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$1.8m);
    • lower level of expenses incurred on Defence's recruitment contract due to improvement in separation rates (-$2.7m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$20.0m).
  • top of page

  • a net decrease in inventory consumption (-$11.6m) due to:
    • an overestimate of inventory consumption (-$18.1m);
    • the flow through of improvements in the pricing of explosive ordinance (-$8.5m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$15.0m).
  • a net increase in grants (+$1.2m) due to the reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$1.2m).
  • a net decrease in depreciation and amortisation (-$121.3m) due to:
    • a revaluation of buildings and infrastructure (+$14.9m);
    • a reclassification of some operating leases into finance leases (+$5.4m);
    • the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$187.6m);
    • a review of the useful life of repairable items for a number of platforms, including patrol boats (+$19.8m);
    • an understatement of the depreciation estimate (+$15.7m);
    • net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$35.8m);
    • greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$14.7m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$10.6m).
  • a net decrease on value of assets sold (-$58.3m) due to:
    • delays in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority (-$31.5m);
    • the value of assets sold for which Defence owes an annuity to Defence Housing Authority (+$10.4m);
    • an overestimation of the expected proceeds for other property, plant and equipment (-$6.3m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$30.9m).
  • top of page

  • a net increase in write-down of assets (+$276.9m) due to:
    • a large scale review of Defence's inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete. (+$35.2m);
    • an adjustment to account for the change from $1,000 to $2,000 in the asset recognition threshold for administrative assets, and the removal of grouping of these assets (+$12.0m);
    • the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$21.4m);
    • the flow through of improvements in the pricing of explosive ordnance (+$26.3m);
    • disposal of a range of minor naval assets (+$14.0m);
    • the write-down of specialist military equipment, including assets under construction through project-initiated reviews SEA 1114 - Submarines and JP 2070 - Lightweight Torpedoes (+$88.3m);
    • the reclassification of certain fixed assets in Standard Defence Supply System from fixed assets to inventory (+$27.9m);
    • an increase in inventory disposals (+$10.0m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$41.8m).
  • a net increase in borrowing costs (+$2.3m) due to:
    • the reclassification of some operating leases into finance leases (+$0.7m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.6m).
  • a net increase in other expenses (+$18.8m) due to:
    • an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$15.0m);
    • the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts. Items transferred after 30 June 2003 have been accounted for correctly (+$1.0m); and
    • corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$2.8m).
  • a net increase in sale of goods and services (-$14.6m) due to:
    • increased fuel sales to foreign governments (-$0.5m);
    • the sale of equipment to other government agencies (-$1.3m);
    • an increase in the sale of hydrographic charts and maps (-$0.7m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$12.1m).
  • top of page

  • a net decrease in revenue from sale of assets (+$47.2m) due to:
    • the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority (+$26.8m);
    • an overestimation of the expected proceeds for other property, plant and equipment (+$6.3m);
    • revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$10.4m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$24.5m).
  • a net increase in assets now recognised (-$103.5m) due to:
    • assets identified following site audits and other remediation activities (-$16.4m);
    • the recognition for the first time of maritime ranges assets (-$40.0m);
    • the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System - Defence's inventory management system - following the introduction of Standard Defence Supply System version 4 (-$56.6m);
    • the reclassification of certain assets in the Standard Defence Supply System from fixed assets to inventory (-$27.9m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$37.4m).
  • a net increase in other revenues (-$22.6m) due to:
    • the changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$1.8m);
    • the net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$3.9m);
    • Australian National Audit Office audit services received free of charge (-$0.7m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$16.2m).

top of page

Table 2.15 Price Summary of Outputs for Outcome Two - Navy Capability for the Defence of Australia and its Interests
Budget
Estimate
Revised
Additional Estimate(1)
Projected Result(2) Actual Result(3) Variation(4) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Output 2.1 - Capability for Major Surface Combatant Operations 1,487,315 1,281,098 1,362,904 1,367,879 4,975 0.4
Output 2.2 - Capability for Naval Aviation Operations 472,472 470,321 485,629 520,025 34,396 7.1
Output 2.3 - Capability for Patrol Boat Operations 260,599 272,227 275,055 264,710 -10,345 -3.8
Output 2.4 - Capability for Submarine Operations 773,777 835,668 878,370 844,600 -33,771 -3.8
Output 2.5 - Capability for Afloat Support 215,090 194,898 218,217 197,335 -20,881 -9.6
Output 2.6 - Capability for Mine Warfare 333,790 377,190 391,274 385,542 -5,733 -1.5
Output 2.7 - Capability for Amphibious Lift 366,429 362,950 366,381 372,376 5,995 1.6
Output 2.8 - Capability for Hydrographic and Oceanographic Operations 178,219 216,187 233,407 224,982 -8,425 -3.6
Price to Government for Outcome Two 4,087,689 4,010,538 4,211,238 4,177,449 -33,789 -0.8

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.35) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The Actual Price to Government for Outcome Two, shown in this table ($4,177.449m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Two does not include $0.627m of administered revenues. This amount relates to interest received from the foreign military sales account.
  4. The variation figures are the difference between the Actual Result and the Projected Result.

top of page

| « Previous | Home | Next »