Chapter Two > Outcome Four: Air Force Capabilities > Price to Government

Outcome Four: Air Force Capabilities

Price to Government

Table 2.18 Outcome Four - Air Force 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 1,173,467 1,224,857 1,294,035 1,307,890 13,855 1.1
Employees - Civilian 333,135 348,416 360,941 354,138 -6,803 -1.9
Sub-Total Employees 1,506,602 1,573,273 1,654,976 1,662,028 7,052 0.4
Suppliers expense 1,176,755 1,212,666 1,333,303 1,375,481 42,178 3.2
Inventory consumption 290,134 268,548 263,246 241,476 -21,770 -8.3
Sub-Total Suppliers 1,466,889 1,481,215 1,596,549 1,616,957 20,408 1.3
Grants 541 281 434 2,233 1,799 414.7
Depreciation and amortisation 1,008,500 1,174,412 1,210,894 1,134,107 -76,787 -6.3
Value of assets sold - - 81,008 53,419 -27,589 -34.1
Write-down of assets 129,117 154,340 156,112 364,328 208,217 133.4
Borrowing costs 7,431 7,910 6,020 9,063 3,043 50.5
Other expenses -366 158 - 17,843 17,843 -
Total Operating Expenses from Ordinary Activities 4,118,713 4,391,587 4,705,992 4,859,979 153,987 3.3
Revenues
Sale of goods and services -58,114 -49,548 -39,094 -52,448 -13,354 34.2
Revenue from sale of assets - - -81,008 -45,653 35,355 -43.6
Assets now recognised -96,542 -113,772 -114,013 -213,498 -99,486 87.3
Other revenues(4) 39,637 -19,864 -27,085 -47,716 -20,631 76.2
Total Own Source Revenues -115,020 -183,184 -261,200 -359,315 -98,115 37.6
Price to Government for Outcome Four 4,003,694 4,208,403 4,444,792 4,500,663 55,872 1.3

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.41) 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 Four, shown in this table ($4,500.663m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Four does not include $1.322m 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.

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Explanation of Significant Variations

The overall price of Outcome Four was $55.9m higher than the 2003-04 projected result, representing an increase of 1.3 per cent. The major variations were due to:

  • a net increase in military employee expenses (+$13.9m) due to:

    Salary and allowances

    • reduced salaries and allowance payments due to the lower (-26) than planned average funded strength (-$2.1m);
    • an overestimate of long service and annual leave to be paid in 2003-04 (-$3.6m);
    • an overstatement of the military employees salaries estimates in 2003-04 (-$3.6m);
    • decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$2.7m);
    • an overstatement of salary advances (-$2.4m);
    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 the administered to departmental accounts (-$52.7m);
    • an overstatement of military superannuation estimates in 2003-04 (-$1.6m);
    • reduced superannuation payments due to the lower than planned average funded strength (-$0.4m);
    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 a higher establishment costs for claims (+$16.3m);
    • 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 (+$4.3m);
    Fringe benefits tax

    • an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$6.8m);
    Reserves

    • increased activity by officers and 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 (+$54.7m).
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  • a net decrease in civilian employee expenses (-$6.8m) due to:

    Salary and allowances

    • recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$6.0m);
    • lower full-time equivalent-average personnel than projected in 2003-04 (-$0.7m);
    • an overstatement of civilian employee estimates in 2003-04 (-$5.5m);
    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 (-$7.8m);
    • an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$3.3m);
    Leave liabilities

    • an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$7.9m);
    • an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme/Public Sector Superannuation rate increases on leave liabilities (+$2.1m);
    • recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$2.1m);
    Other

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

    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other minor variations (-$14.6m).
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  • a net increase in supplier expenses (+$42.2m) due to:
    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$6.0m);
    • changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$2.0m);
    • lower levels of expenses incurred on Defence's recruitment contract due to improvement in separation rates (-$2.9m);
    • rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$3.6m);
    • the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$28.0m);
    • the redirection of major capital project costs related to Outcome Four for the Joint Strike Fighter, incorrectly attributed to Outcome One in the projected result (+$54.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$13.9m).
  • a net decrease in inventory consumption (-$21.8m) due to:
    • the flow through of improvements in the pricing of explosive ordnance (-$12.3m);
    • an overstatement of inventory consumption estimate (-$26.3m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns, and other variations (+$16.8m).
  • a net increase in grants due to a 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 (+$1.8m).
  • a net decrease in depreciation and amortisation expenses (-$76.8m) due to:
    • a revaluation of buildings and infrastructure (+$21.9m);
    • a review of the useful life on the repairable items on a number of platforms, including the F-111C aircraft (+$23.5m);
    • an understatement of the depreciation estimate (+$18.6m);
    • the reclassification of some operating leases into finance leases (+$6.0m);
    • 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 (-$17.4m);
    • 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 (-$222.8m);
    • net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$42.5m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$50.9m).
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  • a net decrease in value of assets sold (-$27.6m) due to:
    • the value of assets sold for which Defence owes an annuity to Defence Housing Authority (+$11.2m);
    • lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (-$13.0m);
    • an overestimation of the expected proceeds for other property, plant and equipment (-$8.4m);
    • 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 (-$45.0m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$27.6m).
  • a net increase in the write-down of assets (+$208.2m) due to:
    • asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$60.0m); the write-down of specialist military equipment, including assets under construction through project-initiated reviews including JP 2030 - Air Command Support System and JP 2070 - Lightweight Torpedoes (+$42.0m);
    • a large scale review of Defence's inventory holdings by the Defence Materiel Organisation (+$31.3m);
    • the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$32.1m);
    • the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$28.7m);
    • the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$23.4m);
    • an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$18.9m);
    • an increase in inventory disposals (+$8.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$37.0m).
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  • a net decrease in borrowing costs (+$3.0m) due to:
    • the reclassification of some operating leases into finance leases (+$0.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$2.2m).
  • a net increase in other expenses (+$17.8m) due to:
    • an increase in the provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$14.2m);
    • corrections arisng from the reconciliation of Defence Housing Authority annuity balances (+$2.6m); and
    • 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).
  • a net increase in the sale of goods and services (-$13.4m) due to:
    • increased fuel sales to foreign governments (-$0.6m);
    • the sale of equipment to other government agencies (-$1.4m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$11.4m).
  • a net decrease in the revenue from sale of assets (+$35.4m) 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 sale proposals (+38.2m);
    • an overestimation of the expected proceeds for other property, plant and equipment (+$8.4m);
    • lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (+$13.0m);
    • the revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$11.2m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$13.0m).
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  • a net increase in the allocation for assets now recognised (-$99.5m) as a due to:
    • the reclassification of a prior year adjustment to 'other revenue' in respect of Air 5400 (air-to-air missiles for the F/A-18 Hornet aircraft) (+$49.0m);
    • assets identified following site audits and other remediation activities (-$25.5m);
    • the reclassification of certain fixed assets in the Standard Defence Supply System as inventory (-$28.7m);
    • the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System - Defence's inventory management system - following the introduction of the Standard Defence Supply System version 4 (-$58.1m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$36.2m).
  • a net increase in other revenue (-$20.6m) due to:
    • Australian National Audit Office audit services received free of charge (-$0.8m);
    • changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$2.0m);
    • the receipt of liquidated damages including for the F/A-18 Hornet aircraft upgrade and lead-in-fighter projects to fund a program of rectification works caused by delays in the projects (-$6.8m);
    • net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$4.5m);
    • the reclassification of a prior year adjustment to 'other revenue' in respect of Air 5400 (air-to-air missiles for the F/A-18 Hornet aircraft) (-$49.0m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$42.5m).

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Table 2.19 Price Summary of Outputs for Outcome Four - Air Force 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 4.1 - Capability for Air Combat Operations 1,779,583 1,744,459 1,888,748 1,803,730 -85,018 -4.5
Output 4.2 - Capability for Combat Support of Air Operations 423,662 591,943 571,189 632,241 61,052 10.7
Output 4.3 - Capability for Strategic Surveillance 369,154 474,539 516,409 591,951 75,542 14.6
Output 4.4 - Capability for Maritime Patrol Aircraft 535,451 559,605 535,276 641,287 106,011 19.8
Output 4.5 - Capability for Airlift 895,843 837,858 933,170 831,454 -101,716 -10.9
Price to Government for Outcome Four 4,003,694 4,208,403 4,444,792 4,500,663 55,872 1.3

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.43 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 Four, as shown in this table ($4,500.663m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Four does not include $1.322m 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.

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