Chapter Two > Outcome Five: Strategic Policy > Price to Government

Outcome Five: Strategic Policy

Price to Government

Table 2.20 Outcome Five - Strategic Policy for the Defence of Australia and its Interests
Budget
Estimate
Revised Additional Estimate(1) Projected Result(2) Actual Result Variation(4) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Operating Expenses
Employees - Military 63,686 67,576 66,931 45,787 -21,143 -31.6
Employees - Civilian 39,005 37,912 38,856 37,764 -1,093 -2.8
Sub-Total Employees 102,691 105,488 105,787 83,551 -22,236 -21.0
Suppliers expense 111,861 103,924 115,911 114,630 -1,281 -1.1
Inventory consumption 408 - - 668 668 -
Sub-Total Suppliers 112,269 103,924 115,912 115,299 -613 -0.5
Grants 89 8 24 38 14 58.3
Depreciation and amortisation 9,583 5,254 5,180 4,325 -855 -16.5
Value of assets sold - - 582 579 -3 -0.5
Write-down of assets 106 1,435 1,479 12,998 11,519 778.9
Borrowing costs 207 313 258 275 17 6.7
Other expenses -21 10 - 973 973 -
Total Operating Expenses from Ordinary Activities 224,925 216,433 229,221 218,037 -11,184 -4.9
Revenues
Sale of goods and services -9,900 -11,618 -6,324 -8,649 -2,325 36.8
Revenue from sale of assets - - -582 -962 -380 65.3
Assets now recognised -119 -1,133 -1,378 -1,575 -197 14.3
Other revenues(3) -1,477 -1,150 -794 -1,067 -273 34.3
Total Own Source Revenues -11,495 -13,901 -9,078 -12,253 -3,175 35.0
Price to Government for Outcome Five 213,429 202,532 220,143 205,784 -14,359 -6.5

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.45) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge.
  4. 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 Five was $14.4m lower than the 2003-04 projected result, representing a decrease of 6.5 per cent. The major variations were due to:

  • a net decrease in military employee expenses (-$21.1m) due to:

    Salary and allowances

    • an overestimate of long service and annual leave to be paid in 2003-04 (-$0.1m);
    • an overstatement of the military employees salaries estimates in 2003-04 (-$0.1m);
    • decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$0.1m);
    • an overstatement of salary advances (-$0.1m);
    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 (-$1.8m);
    • an overstatement of military superannuation estimates in 2003-04 (-$0.1m);
    Housing

    • an increase in housing expenses including buy out of old, on-base housing annuities and increased take-up rate by members without dependents using rental assistance rather than living-in accommodation (+$0.1m);
    Compensation

    • a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$0.1m);
    Health

    • increased health costs relating to medical and professional fees (+$0.2m);
    Fringe benefits tax

    • an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$0.2m);
    Cost attribution

    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$19.2m);
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  • a net decrease in civilian employee expenses (-$1.1m) due to:

    Salary and allowances

    • the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$0.6m);
    • lower full-time equivalent-average personnel than projected in 2003-04 (-$0.1m);
    • an overstatement of the civilian employee salaries in 2003-04 (-$0.6m);
    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 (-$0.8m);
    • an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$0.4m);
    Leave liability

    • an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$0.8m);
    • an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme/Public Sector Superannuation rate increases on leave liabilities (+$0.2m);
    • a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$0.2m); and
    Cost attribution

    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$1.8m).
  • a net decrease in supplier expenses (-$1.3m) due to:
    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$0.5m);
    • lower levels of expenses incurred on Defence's recruitment contract due to improvement in separation rates (-$0.1m);
    • the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$0.3m);
    • the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$2.3m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$0.9m).
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  • a net increase in inventory consumption (+$0.7m) due to the progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.
  • a net decrease in depreciation and amortisation expenses (-$0.9m) due to:
    • net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$0.2m);
    • a revaluation of buildings and infrastructure (+$0.5m);
    • a review of the useful life on the repairable items on a number of platforms (+$0.1m);
    • the reclassification of some operating leases into finance leases (+$0.2m);
    • an understatement of the depreciation estimate (+$0.1m);
    • 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 (-$1.1m);
    • 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 (-$0.1m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.8m).
  • a net increase in write-down of assets expense (+$11.5m) due to:
    • asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$2.2m); the write-down of specialist military equipment assets (+$1.5m);
    • a large-scale review of Defence's inventory holdings by Defence Materiel Organisation which led to inventory being recognised as obsolete (+$1.1m);
    • the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$0.8m);
    • the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$0.8m);
    • 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 (+$0.5m);
    • an increase in inventory disposals (+$0.3m);
    • the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$0.2m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$4.1m).
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  • a net increase in other expenses (+$1.0m) due to:
    • an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$0.8m);
    • corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$0.1m); and
    • the resolution of past errors in accounting for the transfer of expense and revenue items between departmental and special public monies accounts (items transferred after 30 June 2003 have been accounted for correctly) (+$0.1m).
  • a net increase in revenue from sales of goods and services (-$2.3m) due to:
    • increased fuel sales to foreign governments (-$0.1);
    • the sale of equipment to other government agencies (-$0.2m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.0m).
  • a net increase in revenue from sale of assets (-$0.4m) 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 (+$0.6m);
    • an overestimation of the expected proceeds for other property, plant and equipment (+$0.2m);
    • revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$0.3m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.9m).
  • a net increase in revenue from assets now recognised (-$0.2m) due to:
    • assets identified following site audits and other remediation activities (-$0.6m);
    • the reclassification of certain fixed assets in Standard Defence Supply System as inventory (-$0.2m);
    • 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 (-$0.5m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.1m).
  • a net increase in other revenue (-$0.3m) due to:
    • net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$0.1m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.2m).

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Table 2.21 Price Summary of Outputs for Outcome Five - Strategic Policy for the Defence of Australia and its Interests
Budget
Estimate
Revised
Additional Estimate(1)
Projected Result(2) Actual Result Variation(3) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Output 5.1 - Capability for Strategic and International Policy, Activities and Engagement 170,465 172,658 173,382 176,172 2,790 1.6
Output 5.2 - Capability for Military Strategy and Strategic Operations 42,964 29,874 46,761 29,612 -17,149 -36.7
Price to Government for Outcome Five 213,429 202,532 220,143 205,784 -14,359 -6.5

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.46) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The variation figures are the difference between the Actual Result and the Projected Result.

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