Capital Budget
Defence Capability Plan
The Defence White Paper 2000 set out a new approach to capability
planning. The Defence Capability Plan is a detailed plan for Australia's military
capabilities with broad guidance on major investments over the decade to 2010-11.
The plan is reviewed annually to take account of changing strategic circumstances,
new technologies and changed priorities. It is currently being reviewed to
take account of changed strategic circumstances since 2000.
The Capital Investment Program
The capital investment program is not exclusively developed on the basis
of the Defence Capability Plan. While representing the key element, there
are other components in the investment program, such as facilities and minor
capital projects, purchase of repairable items, and other plant and equipment
items which are valued above the capital threshold of $10,000 ($50,000 for
grouped items). Total capital investment expenditure for 2002-03 was $3.75b
as summarised in Table 3.1 below.
Table 3.1: Defence Financial Performance for the Capital Program 2002-03(1)
| Group/Item Description |
2002-03 |
|
Budget Estimate |
Revised Estimate |
Projected Result |
Result |
Variance |
| $m |
$m |
$m |
$m |
$m |
| Not Yet Approved Major Capital Equipment (VCDF)(2) |
277.9 |
224.6 |
24.6 |
0.0 |
-24.6 |
|
| Capital Component (USDM) |
3,014.5 |
3,033.2 |
2,569.2 |
2,571.3 |
2.1 |
| Operating Component (USDM)(3) |
- |
- |
204.0 |
278.3 |
74.3 |
|
|
Notes
- Since publication of the Portfolio
Additional Estimates Statements 2002-03, Defence has changed the format
in which it reports on the capital budget to reflect the way the capital
program is managed by Defence and the accountability for each element of
the investment program. The figures presented in Table 3.1 have been
presented in this new format to align with the 2002-03 Projected Result
contained within the Portfolio
Budget Statements 2003-04 (see page 133).
- Government agreement was given for
Defence to retain $200m in Cash Reserves, quarantined specifically for reprogramming
in the Defence Capability Plan, subject to further review and approval by
Government in the 2004-05 budget. |
- To ensure that Defence's estimates
and actuals are budgeted and reported in accordance with accounting standards,
the Government has agreed to make a budget neutral adjustment to the existing
capital operating mix contained in the Defence Capability Plan.
|
- The Total Projected Result differs
from Table
3.4 in the Portfolio Budget Statements 2003-04 as a result
of a change in the accounting treatment of operations funding from specialist
military equipment to inventory ($124m). |
Total capital expenditure was $78.2m greater than the projected result. Explanations
for the variations in each category follow.
Not Yet Approved Major Capital Program (-$24.6m)
In addition to the retained $200m which is held in the cash receivable (see
note 2 to Table 3.1), the 'Not Yet Approved Program' under spent against the
projected result for 2002-03 by a further $24.6m because of delays in the
approval of Defence Capability Plan projects. The estimates methodology is
being reviewed in the 2004-14 Defence Management and Finance Plan.
Approved Major Capital Equipment
Program (+$76.4m)
As the Australian dollar substantially appreciated during 2002-03, Defence
was able to return $220m of capital equipment funding which was no longer
required to meet foreign commitments. Following this variation, the year-end
result for the capital component of the Approved Major Capital Equipment Program
exceeded the budget by $76.4m including $74.3m in relation to the Capital/Operating
adjustment. Information in regard to the current status of specific projects
is contained in the Major Capital Equipment section of this report.
Capital Operating Adjustment
In 2002-03, the mix between the capital budget and operating budget was adjusted
to more accurately reflect the way in which funding for the major capital
equipment program is actually spent and accounted for, in accordance with
Australian accounting standards. To ensure that Defence's estimates and actuals
were budgeted and reported correctly in 2002-03, an amount of $204m in specialist
military equipment funds was included as part of operating funds in the projected
result in the Portfolio
Budget Statements 2003-04 (page 133). This was to cover operating
expenditure for project office costs, studies, research and development, project
maintenance contracts and other project overheads. In the event, total operating
costs associated with the capital program totalled $278m or $74.3m higher
than projected.
Major Capital Facilities Projects (+$15.7m)
Expenditure on Defence's Major Capital Facilities Program exceeded the projected
result by $15.7m. This result reflects variation in the cash flow requirement
of a number of capital facilities projects, details of which are in the Capital
Facilities section of this chapter.
Other Capital Purchases (+$10.8m)
This category of the investment program comprises purchases of other capital
items including minor capital equipment projects, purchase of repairable items,
other plant and equipment exceeding the capitalisation threshold of $10,000,
and other property, plant and equipment, software and intangibles. Expenditure
on other capital items in 2002-03 was $10.8m higher than the projected result.
This variation is primarily due to variations in minor capital equipment projects,
and higher levels of expenditure on repairable items in order to remediate
shortfalls, the capital cost of the IBM Software Licence, and a change in
accounting procedures for equipment purchases by the Defence Science and Technology
Organisation.
Summary
When account is taken of the re-programming of Not Yet Approved Capital funding
($200m) and the foreign exchange savings ($220m), the capital program exceeded
the projected result by $78.2m but was broadly in line with the revised estimates
contained in the 2002-03 additional estimates.
Capital Receipts Program
Net capital receipts for 2002-03 totalled $181.5m or $72m more than the projected
result. Details are shown in Table 3.2 with an explanation
of the variations for each category shown below.
Table 3.2: Defence Capital Receipts - 2002-03
| Capital Receipts |
2002-03 |
| |
Budget Estimate |
Revised Estimate |
Projected Result |
Result |
Variance |
| $m |
$m |
$m |
$m |
$m |
| Proceeds from the sale of specialist military equipment |
- |
- |
22.9 |
29.7 |
6.8 |
| |
| Property Sales |
| Proceeds from the sale of land and buildings |
659.5 |
659.5 |
519.8 |
578.0 |
58.2 |
| Less: Capital withdrawal (DoFA requirements) |
659.5 |
659.5 |
473.5 |
473.5 |
- |
| Proceeds retained by Defence |
- |
- |
46.3 |
104.5 |
58.2 |
| |
| Proceeds from sales of other property, plant and other equipment |
40.3 |
63.2(1) |
40.3 |
47.3 |
7.0 |
| |
| Other capital receipts |
- |
- |
- |
- |
- |
| |
Note
- This amount includes $22.9m later reclassified
as proceeds from the sale of specialist military equipment.
Sale of Specialist Military Equipment ($+6.8m)
Although initially estimating nil proceeds in 2002-03, Defence realised $29.7m
from the sale of specialist military equipment, $6.8m more than the projected
result. This figure is predominantly due to higher than expected receipts
from a program of sales of F/A-18 radar equipment back to the United States
Navy.
Property Sales ($+58.2m)
In finalising the 2003-04 Budget, the Government determined that it would
not proceed with the sale of Russell Offices and accordingly, the property
sale estimates were reduced, leaving a revised sales target of $473.5m. The
Government agreed that Defence could retain any proceeds in excess of $473.5m.
At the time of the 2003-04 Budget this was estimated to be $46.3m. In the
event, Defence received proceeds of $578.0m which was $104.5m more than the
target, due to higher than anticipated sale prices. In accordance with incentive
arrangements agreed by Government, Defence retained the $104.5m.
Other Property, Plant and Equipment ($+7.0m)
Other property, plant and equipment sales exceeded the projected result by
$7.0m Included in this amount was $4.5m for the sale of administrative assets
that was not foreseen in the preparation of the 2002-03 Budget. The remaining
variation relates mainly to higher than planned disposals of commercial vehicles.
