OVERVIEW

Defence's Cash Position

Defence sources its annual cash requirements mainly from the appropriation for outcomes, the equity injection, own-source revenue, capital receipts and cash reserves. The allocations are subject to Government approval as part of the annual budget process. Once funds are appropriated for Defence purposes, they remain in Defence's accounts even if not fully used in the budget year. Any unused funds are held as an appropriation receivable in the Official Public Account and are available to Defence to meet liabilities, including employee liabilities, as they fall due, subject to Government approval.

At the time of the 2006–07 Budget, Defence had planned to have cash reserves totalling $660.3m at 30 June 2006, comprising cash at bank ($161.2m) and the appropriation receivable ($499.1m). At 30 June 2006, Defence had cash reserves totalling $384.8m or $275.5m less than the final forecast as shown at Table 1.6.

Use of Cash in 2005–06

During the course of the year Defence reduced its level of cash reserves by $275.5m as shown in Table 1.6 and after allowing for the changed treatment of funds in the FMS bank account ($268.2m), Defence had an underlying cash overspend of $7.3m. The FMS bank balance has been recorded as a prepayment in DMO's accounts rather than as cash in Defence's bank account. Details of cash inflows and cash outflows are shown in Table 1.7, with details of the appropriation receivable shown in Table 1.8.

Table 1.6 End of Year Cash Position

	Additional Estimate	Final Forecast	Actual Result	Variation
	$'000	$'000	$'000	$'000
Cash at Bank	161,249	161,249	36,221	–125,028
Appropriation Receivable	481,894	499,094	348,614	–150,480
Total—Defence	643,143	660,343	384,835	–275,508

 

Table 1.7 Use of Cash by Defence in 2005–06

	2005–06 Actual Result $'000
Sources of Cash
2005–06 Opening Cash at Bank(1)	254,901
Appropriations Bills No 1, 3 & 5 (Price of Outcomes)	15,967,141
Appropriations Bills No 2, 4 & 6 (Equity Injection)	1,159,680
Own-source Revenue(2)	703,006
GST Refund from Australian Taxation Office(3)	383,800
Effect of Exchange Rate Movements	–793
Cash from Official Public Account	–
Subtotal: Cash Available	18,467,735
Use of Cash
Employee Payments	6,097,005
Suppliers	6,149,927
GST Expense	383,800
Other Operating Cash Used (grants, borrowing costs and other)	43,630
Purchase of Land and Buildings	340,458
Purchase of Specialist Military Equipment	3,612,489
Purchase of Property, Plant and Equipment(4)	512,797
Purchase of Inventory	1,139,754
Repayments of Debt	105,739
Cash Transfer to Official Public Account	45,915
Subtotal: Cash Used	18,431,514
2005–06 Closing Cash at Bank	36,221

Table 1.8 Current Status of the Appropriation Receivable

	2005–06
	Budget Estimate	Additional Estimate	Revised Additional Estimate	Actual Result	Variation
	$'000	$'000	$'000	$'000	$'000
2005–06 Opening Appropriation Receivable position	667,401	538,609	538,609	538,609	–
Movements:
Cash used to meet employee liabilities	–32,181	–32,181	–32,181	–32,181	–
Operation Catalyst	–2,500	–2,500	–2,500	–2,500	–
Transfer of DMO's component of appropriation receivable	–40,270	–40,270	–40,270	–40,270	–
2004–05 Operations funding rephased into 2005–06 or returned to government	–	–18,100	–18,100	–18,100	–
Communications Project handback	–	–22,000	–22,000	–22,000	–
DHA supplementation return	–	–11,664	–11,664	–11,664	–
Additional drawdowns	–	–	–	–150,480	–150,480
Operation Slipper carryover to 2006–07	–	–	17,200	17,200	–
Military Employees funding quarantined from 2005–06	–	70,000	70,000	70,000	–
Appropriation Receivable—Closing Position	592,450	481,894	499,094	348,614	–150,480

Current Status of the Appropriation Receivable

During the course of the financial year, Defence drew down the appropriation receivable by $190.0m from $538.6m to $348.6m. This was $150.5m less than the 2005–06 final forecast of $499.1m. Since 2002–03, Defence has reduced the level of funds held in the appropriation receivable from $870.2m to $348.6m.

Status of Defence White Paper Funding

Defence's departmental funding over the period 2001–02 to 2010–11 continues to be based primarily on the allocations approved by the Government in the context of the 2000 Defence White Paper. An additional $28.5 billion in today's prices was added to the Defence budget over the ten-year period ending 2010–11. The additional Defence White Paper funding being applied to:

• the Defence Capability Plan, containing a program of capital investment in addition to the investment program already planned at that time (+$19.8 billion);
• provision for two per cent real per capita growth in personnel costs from 2004–05 onwards, reflecting the cost of maintaining a highly skilled workforce in a sustainable way (+$4.8 billion);
• provision for the through-life support costs of the capability enhancements in the Defence Capability Plan (+$2.9 billion); and
• funding of a number of baseline cost pressures, including offsetting some of these through administrative savings (+$1.0 billion).

After taking account of the reprogramming of the Defence Capability Plan, which was agreed by the Government in the 2004–05 and 2005–06 Budgets, and the bring forward of funds in the Defence Capability Plan that was agreed by the Government in the 2006–07 Budget, additional Defence White Paper funding already allocated by the Government totals $9.3 billion of which $6.3 billion has been spent to 2005–06. An additional $13.3 billion is included in the forward estimates. The remaining funding, totalling $6.0 billion, is to be provided over the period 2010–11 to 2013–14.

Table 1.9 White Paper expenditure to date and future allocations (Portfolio Budget Statements 2006–07, Out-turned) ⁽¹⁾

		2001–02 $m	2002–03 $m	2003–04 $m	2004–05 $m	2005–06 $m	2006–07 $m	2007–08 $m	2008–09 $m	2009–10 $m	2010–11 $m	2011–12 $m	2012–13 $m	2013–14 $m	Total $m
	Major Capital Equipment
	Original Allocation	510	1,051	1,506	1,552	1,722	2,325	2,411	2,282	2,796	3,429	–	–	–	19,584
	Defence Capability Program (DCP) reprogramming agreed in 2002–03 Budget	–	–200	–	–	–	–	–	224	–	–	–	–	–	24
	DCP reprogramming agreed in 2003–04 Budget	–	–	–542	–201	–146	–94	–	159	457	339	167	–	–	139
	DCP reprogramming agreed in 2004–05 Budget	–	–	–	–75	–314	–389	–137	–	203	137	194	302	216	138
	DCP reprogramming agreed in 2005–06 Budget	–	–	–	–	300	–	–	–	–106	–108	–111	–	–	–25
	DCP reprogramming agreed in 2006–07 Budget	–	–	–	–	–	154	207	52	212	–	–	–337	–343	–55
A	Defence Capability Plan	510	851	964	1,276	1,563	1,996	2,481	2,717	3,563	3,797	250	–35	–127	19,805
	Through-Life Support Costs for DCP Projects
	Original Allocation	–	–	–	195	242	296	430	509	601	640	–	–	–	2,913
	Reprogramming	–	8	21	–134	–64	–5	–	13	84	76	–	–	–	–1
B	Through-life Support for DCP Projects	–	8	21	61	178	290	430	522	686	716	–	–	–	2,912
C	Two per cent Real Growth in Personnel Costs	–	–	–	238	380	525	668	819	982	1,199	–	–	–	4,812
D	Operating Costs	–	–	–	117	135	143	147	152	158	159	–	–	–	1,009
	Total (A+B+C+D)	510	859	985	1,692	2,255	2,954	3,726	4,210	5,388	5,871	250	–35	–127	28,538

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