OUTCOME PERFORMANCE

Outcome Seven encompasses all the activities that Defence performs on behalf of the Government that are resourced by Defence's administered appropriation. The administered appropriation provides resources to Defence on a 'no win/no loss' basis for specific purposes. It also includes revenue items for which the receipts are to be returned to the Government. Outcome Seven consists of three outputs.

Output 7.1: Superannuation Support Services for Current and Retired Defence Personnel reports contributions and the movement in liabilities associated with the two military superannuation schemes: the Defence Force Retirement and Death Benefits Scheme (DFRDB) and the Military Superannuation and Benefits Scheme (MSBS). DFRDB was closed to new participants in 1991. Since then, MSBS has been available to all full-time members of the ADF. Both schemes are managed on Defence's behalf by ComSuper. Output 7.1 includes the member contributions and employer contributions to both schemes, the liability to the Commonwealth for benefits under both schemes, and the payment of the MSBS Retention Benefit. Since 1991, Defence has paid the MSBS Retention Benefit to eligible MSBS members after 15 years of continuous eligible service. The purpose of the Retention Benefit is to encourage members to serve until they have completed 20 years of service. Due to legislative amendments passed in 2005, the Retention Benefit is not available to members who enlisted after 6 October 2005.

Output 7.2: Housing Assistance for Current and Retired Defence Personnel reports dividends received on behalf of the Government from the Defence Housing Authority, and payments to the Authority to manage the Defence HomeOwner Scheme. The Scheme is established under the Defence Force (Home Loans Assistance) Act, 1990. It provides eligible members of the ADF with a subsidy on the interest payable on a home loan (see also Appendix 12). The Defence Housing Authority is classified as a Government Business Enterprise and is required to make a commercial rate of return for the Government. Through Defence, the Authority pays an annual dividend on its operating profit to the Government. The Commonwealth's Competitive Neutrality Guidelines require the Authority to make tax equivalent payments to the Government in lieu of paying state and territory taxes. Tax equivalent payments form part of the Authority's dividend return to the Government.

Output 7.3: Other Administered Revenues and Expenses encompasses all other revenues and expenses recorded by Defence as part of the administered appropriation. It includes interest received from the United States Federal Reserve Bank on foreign military sales advances, interest received on official bank accounts, net foreign exchange losses and gains, and reimbursements from the United Nations for contributions to United Nations-led operations.

Cost to Government

In 2005–06, the net cost of Outcome Seven was $2.0 billion, or $123.9m more than the revised estimate of $1.9 billion. Details by expense and revenue items are provided in TABLE 2.51, and an output view follows at TABLE 2.52.

Table 2.51 Outcome Seven—Superannuation and Housing Support Services for Current and Retired Defence Personnel

	Budget Estimate(1)	Additional Estimate(2)	Actual Result	Variation(3)	Variation(3)
	2005–06	2005–06	2005–06	2005–06	2005–06
	$'000	$'000	$'000	$'000	%
INCOME
Revenue
Non-taxation
Goods and services	1,500	1,500	983	–517	–34.5
Interest	2,500	2,500	5,265	2,765	110.6
Dividends	15,276	15,276	68,000	52,724	345.1
Military superannuation contributions	682,475	682,475	651,158	–31,317	–4.6
Other revenues	–	–	4,155	4,155	–
Total Non-taxation Revenue	701,751	701,751	729,561	27,810	4.0
Gains
Net Foreign Exchange Gain	–	–	1	1	–
Total Gains	–	–	1	1	–
Total Administered Income	701,751	701,751	729,562	27,811	4.0
Administered Expenses
Subsidies	9,250	10,000	9,781	–219	–2.2
Employees	2,530,100	2,592,100	2,744,427	152,327	5.9
Write down and impairment of assets	–	–	–	–	–
Other Expenses	–	–	–	–	–
Total Expenses	2,539,350	2,602,100	2,754,208	152,108	5.8
Losses
Net Foreign Exchange Loss	–	–	–	–	–
Total Losses	–	–	–	–	–
Total Administered Expenses	2,539,350	2,602,100	2,754,208	152,108	5.8
Net Cost of Outcome 7	1,837,599	1,900,349	2,024,646	124,297	6.5

Table 2.52 Breakdown of Outcome Seven by Output

	Budget Estimate(1)	Additional Estimate(2)	Actual Result	Variation(3)	Variation(3)
	2005–06	2005–06	2005–06	2005–06	2005–06
	$'000	$'000	$'000	$'000	%
Output 7.1—Superannuation Support Services for Current and Retired Defence Personnel	1,847,625	1,909,625	2,087,694	178,069	9.3
Output 7.2—Housing Assistance for Current and Retired Defence Personnel	–6,026	–5,276	–58,219	–52,943	1,003.5
Output 7.3—Other Administered Revenues and Expenses	–4,000	–4,000	–4,829	–829	20.7
Price to Government for Outcome Seven	1,837,599	1,900,349	2,024,646	124,297	6.5

Explanation of significant variations

Output 7.1—Superannuation Support Services for Current and Retired Defence Personnel

The net cost was $177.7m (9.3 per cent) more than planned due largely to the inclusion of additional allowances in the definition of 'salary' for superannuation purposes. The increase was offset by lower than expected military contributions.

Output 7.2—Housing Assistance for Current and Retired Defence Personnel

The net cost was $52.9m less than planned due to a higher than expected dividend paid by the Defence Housing Authority and the inclusion of tax equivalent payments in the dividend payment.

Table 2.53 Explanations of Common Variations Across Defence Outcomes

Explanation of Variation	Outcome $m
	One	Two	Three	Four	Five	Six	Total
Goods and Services
The reclassification of revenue from DMO for Military Employees from Other revenue.	6.6	37.6	70.8	35.1	8.0	2.5	160.6
Higher than anticipated revenue from DMO in relation to services provided by the Vice Chief of the Defence Force Group and the Defence Science and Technology Organisation.	1.6	7.8	14.7	7.8	1.3	0.8	34.0
Lower than expected revenue from Foreign Governments, including for fuel sales.	-0.6	-3.2	-3.7	-2.1			-9.6
Lower revenue for military employee recoveries from DMO due to unanticipated military vacancies.	-0.6	-2.8	-5.2	-2.6	-0.5	-0.3	-12.0
Progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.	12.7	-1.8	-10.0	5.4	-5.7	-0.6	-0.0
Variation Goods and Services	19.7	37.6	66.6	43.6	3.1	2.4	173.0
The reclassification of revenue from DMO for Military Employees to Goods and Services.	-6.6	-37.6	-70.8	-35.1	-8.0	-2.5	-160.6
Other minor revenue variances.		-0.1	-0.1				-0.2
Variation Other Revenues	-6.6	-37.7	-70.9	-35.1	-8.0	-2.5	-160.8
Higher revenue primarily due to continued sock-taking activities undertaken during the year that identified specialist military equipment repairable items that have exceeded the capitalisation threshold.	18.3	73.5	96.6	84.3	3.7	9.9	286.3
Variation Assets Now Recognised	18.3	73.5	96.6	84.3	3.7	9.9	286.3
Actuarial gain through the revaluation of the potential liability to meet the cost of certain potential common law claims which might emerge in the Voyager/Melbourne cases.	0.5	2.1	2.2	2.1	0.2	0.2	7.2
Resources received free of charge from ANAO.	0.3	1.4	1.5	1.4	0.1	0.1	4.8
Resources received free of charge from DMO.	0.1	0.4	0.4	0.4	0.0	0.0	1.3
Explanation of Variation	Outcome $m
	One	Two	Three	Four	Five	Six	Total
Variation Other Gains	0.9	3.8	4.1	3.8	0.3	0.4	13.3
The bringing to account of leave expenses late in 2004-05 rather than 2005-06 as budgeted.	-1.1	-4.7	-8.8	-4.7	-0.4	-0.7	-20.4
Other minor variations including for variations in planned and housing costs.	-0.9	-4.0	-7.2	-4.0	-0.3	-0.6	-17.0
Adjustment of Workers Compensation Premiums to suppliers expense as a result of a new Finance Minister's Order.	-0.9	-3.6	-6.9	-3.6	-0.3	-0.5	-15.8
Underspend in Defence People Plan due to delays in preparing proposals for approval for various initiatives.	-0.6	-2.5	-4.7	-2.5	-0.2	-0.4	-10.8
Lower than anticipated number of reservists due to ongoing difficulties with recruitment and retention.	-0.5	-2.2	-4.1	-2.2	-0.1	-0.4	-9.6
Lower Superannuation Guarantee Charge, direct rent bill and FBT payments than expected.	-0.3	-1.2	-2.3	-1.2	-0.1	-0.2	-5.3
Higher than anticipated per capita expenditure for Intelligence employees.						6.0	6.0
Progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.	-9.7	6.3	-15.8	7.2	3.3	8.7	-0.0
Variation Employees	-14.0	-11.9	-49.8	-11.0	1.9	11.9	-72.9
The decision to capitalise (rather than expense) the acquisition service fee for supply of goods and services to related entities as it represents the labour costs of acquiring assets.	-15.5	-60.9	-34.2	-67.7	-0.2	-4.0	-182.5
Decreased DMO sustainment expenses, due primarily to decision to capitalise part of the sustainment contract expenses as SME Repairable Items.	-11.1	-43.5	-24.4	-48.4	-0.1	-2.9	-130.4
Reduction in expenditure corresponding to the reduced appropriation from government for a classified communications project and naval aviation contribution.	-3.7	-28.2	-5.4	-8.4	-1.5	-10.0	-57.2
Reduced expenditure on operations carried forward to 2006-07	-26.5						-26.5
Other minor variances in suppliers expense including for the reclassification of workers compensation premiums from employee expenses.	0.1	4.5	8.1	3.5	1.0	0.3	17.5
Explanation of Variation	Outcome $m
	One	Two	Three	Four	Five	Six	Total
Expenditure on a classified intelligence project						20.0	20.0
Increases in inventory consumption including expenses relating to fuel sales to foreign governments as well as higher fuel prices during the year.	3.7	18.0	22.5	20.2	1.5	2.5	68.3
Progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.	-36.4	-25.5	77.1	-18.7	-3.9	7.3	0.0
Variation Suppliers	-89.4	-135.6	43.7	-119.5	-3.2	13.2	-290.8
Variation in the timing and quantum of grant payments	-0.1	-0.3	-0.6	-0.3	0.1	0.0	-1.2
Variation Grants	-0.1	-0.3	-0.6	-0.3	0.1	0.0	-1.2
Adjustment to reflect the discounting expense for site restoration.	1.2	9.0	9.3	11.7	0.2	0.0	31.4
Higher than anticipated lease payments including as a result of the recognition of the Benalla property lease as a finance lease.	0.1	1.1	1.2	1.0	0.3	0.3	4.0
Discounting of non-current employee liabilities.	0.1	1.0	1.3	0.9	0.2	0.2	3.7
Variation Finance Cost	1.4	11.1	11.8	13.6	0.7	0.5	39.1
Higher than planned depreciation due to the transfer of commercial motor vehicles from DMO to Defence, the revaluation activities associated with the Defence estate, higher than anticipated expenditure on the major capital facilities program and the associated depreciation flow on from the capitalisation of the acquisition service fee and the decision to replace rather than repair some repairable items.	0.5	28.9	12.4	23.0	0.1	1.4	66.2
Component, impairment and useful life reviews conducted on Navy assets, together with deferral of decommissioning costs resulting higher than expected depreciation for Outcome Two.		82.0					82.0
Reconciliation of the Intelligence asset base						-25.9	-25.9
Progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.	-4.5	41.9	-53.3	13.0	0.4	2.4	-0.0
Explanation of Variation	Outcome $m
	One	Two	Three	Four	Five	Six	Total
Variation Depreciation and Amortisation	-4.0	152.8	–40.9	36.0	0.5	-22.1	122.3
Higher than planned inventory write down after stock takes and adjustments made to bring inventory into its current replacement cost as required by AIFRS.	0.8	130.8	88.9	55.3	0.1	0.1	276.0
Higher building and infrastructure write-offs after a review by independent valuers.	10.0	98.4	59.2	38.2	3.0	7.4	216.2
Increased SME write-downs including from AUC impairment reviews.	0.4	135.3	8.9	6.5	0.0	0.0	151.1
A range of other minor write-downs, including of financial assets, intangibles and heritage and cultural assets.	0.1	7.5	1.0	0.5	0.0	0.1	9.1
Progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations.	0.0	10.5	-12.7	0.3	-0.3	2.1	-0.0
Variation Write-down and Impairment of Assets	11.3	382.5	145.3	100.8	2.8	9.7	652.4
Timing difference between when invoices for transactions in foreign currencies are entered in the financial system for payment and the date they are paid.	0.0	0.1	0.7	0.0	-0.1	0.0	0.8
Variation Net Foreign Exchange Losses	0.0	0.1	0.7	0.0	-0.1	0.0	0.8
Defence did not budget for a loss or a gain on the sale of assets. The small variations result from minor differences between the proceeds from the sales of assets and the book value of the assets being sold.	-0.5	-1.1	-4.6	-2.1	-0.2	11.4	3.0
Variation Net Losses From Sale of Assets	-0.5	-1.1	-4.6	-2.1	-0.2	11.4	3.0
Other Expenses were lower than expected due to timing delays in one-off, lump sum compensation payments together with other minor expenses.	-1.0	-3.4	-8.9	-3.1	-0.2	-0.4	-16.9
Variation Other Expenses	-1.0	-3.4	-8.9	-3.1	-0.2	-0.4	-16.9
Total Outcome Variation	–128.5	317.1	0.3	–82.1	3.3	13.9	124.0
Revenues from Government							69.2
Total Variation							193.2

Back to top