The International Monetary Fund (IMF) has not carried out a full-scale fiscal policy transparency assessment for Australia, but in 1999 it acknowledged the Australian Treasury's 1999 self-assessment as both objective and credible. The Treasury's assessment compared Australian fiscal policy transparency against the IMF's principles and found them generally in compliance, with some minor deficiencies. Since that time, the IMF has published several Article IV Consultation reports that describe Australia's fiscal policy framework as both transparent and effective, and consistent with the IMF's code of good practices, again noting only minor deficiencies. The IMF reports from 2004 to the present describe the Australian government's ongoing commitment to improving its already high standards. Australian fiscal policy is based on the principles of fiscal management set forth in the Charter of Budget Honesty Act, which mandates a balanced budget, on average, and requires that, in periods of strong economic growth, the government maintain a budget surplus on forward estimates. This policy framework has enabled Australia to enjoy the benefits of fiscal surpluses over most recent years, leading the IMF to observe in its 2008 Article IV Consultation's "Concluding Statement" that Australia's current fiscal position is "an enviable situation by international standards."

General Overview

The most recent formal assessment of Australia's compliance with the International Monetary Fund's (IMF) standards for fiscal policy transparency is a self-assessment that was published in 1999 by the Australian Treasury. The IMF itself offered its own appraisal of the validity and accuracy of that self-assessment in the same year, describing the self-assessment as a "generally fair assessment and description of transparency practices" at the time. In fact, the 1999 IMF review found no cause to doubt the credibility or objectivity of the assessment. The self-assessment asserted that Australia's fiscal policy framework was generally consistent with IMF principles. In its 2004 Article IV Consultation report, the IMF reported that Australia has "a transparent and effective fiscal policy framework" that is "consistent with the principal features of the IMF Code of Good Practices on Fiscal Transparency" (p. 9). However, certain minor inconsistencies did yet exist. A 2003 article by R. Simes reported that Australia had made a number of "important improvements" to both its rules for budget accounting and its fiscal transparency process, and that the push for reform was ongoing. Accrual accounting, for instance, has been introduced into the budget process.

As of the 2005 Article IV Consultation, the IMF reported that Australia's approach to fiscal policy remained prudent, based on the 1998 Charter of Budget Honesty Act. According to the IMF, that Act "laid out principles of sound fiscal management, within which the government set the objective of maintaining budget balance, on average, over the cycle" (p. 5). The 2005 IMF report added that, in periods of sound economic growth, the "government also aims to maintain a budget surplus on the forward estimates" (p. 5). By doing so, Australia has managed to "lock in" the gains it realized from the fiscal consolidation of the 1990s, achieved fiscal surpluses during the early 2000s, increased the government net worth as a percentage of GDP, and expected to cut net debt by the end of the 2005-2006 fiscal year.

More recently, the Statistical Issues Annex (Annex II) of the IMF's 2007 Article IV Consultation found that Australia's published economic and financial data were "adequate for surveillance purposes" (p. 3). Recent improvements have included initiatives by the Australian Bureau of Statistics to improve data quality and cooperation with the IMF's statistical team to improve accounting practices. According to the IMF's Special Data Dissemination Standard (SDDS) website, Australia is a subscriber to the SDDS and currently meets all specifications for coverage, timeliness, and periodicity of data, provides advance-release calendars, and provides summary methodologies for all requisite datasets. A 2004 report by the Organization for Economic Cooperation and Development (OECD) has called Australia a model for other OECD countries not only for its commitment to deep structural reforms, but also for its "adoption of fiscal and monetary frameworks that emphasized transparency and accountability and established stability-oriented macro policies as a constant, largely protected from political debate."

The Public Information Notice (PIN) appended to the 2005 IMF report confirmed that the last two decades have seen "wide-ranging structural reforms" along with a strengthening of fiscal policy frameworks, and credits these with contributing to the country's strong economic growth, low inflation, and consistent surpluses. According to the 2007 IMF report, Australia's fiscal position remained strong and the demographic problems associated with a rising population of the aging have been acknowledged. Australia's Future Fund was implemented in order to accommodate increased expenditures in the area of government-worker pension liabilities. The surpluses of prior years were expected to continue into the 2007-2008 budget year, although declining slightly and, over the medium term, were expected to remain somewhat flat. The strategy of balanced budget and, in growth years, maintenance of budget surpluses, was expected to continue, going forward. Surpluses have been deployed to reduce government debt or placed into the Future Fund. Some have also been used to cover necessary expenditures.

The Concluding Statement of the IMF's 2008 Article IV Consultation affirms Australia's strong fiscal position, calling it "an enviable situation by international standards." The IMF applauds the government's ongoing commitment to keep inflation under control, calling for more restraint in public spending and the identification of further areas where spending could be cut in the near term. Over the medium term, the IMF saw the possibility of tax reductions or increases in spending. Nonetheless, the Statement again points out the importance of keeping an eye on longer-term challenges, especially those stemming from the field of healthcare, and cautions that fiscal sustainability requires that the government be prepared to make adjustments early, should problems arise.

The Principles

Clarity of roles and responsibilities.

CP

The Treasury Department's 1999 self assessment asserted that Australia's fiscal policy framework was largely consistent with the IMF's Code of Good Practices on Fiscal Transparency, with minor discrepancies. In this judgment, the IMF's 2004 Article IV Consultation report concurred. The IMF noted that, over recent years, Australia has undergone a series of policy and transparency improvements. The Treasury report notes that the Auditor-General Act of 1997 lays out the role of the executive branch in financial management, and adds that there is responsibility-sharing between the Treasurer and Department of Finance and Deregulation (DFD) with regard to fiscal policy and the budget. The government's roles and responsibilities in this area are defined clearly within the Australian Constitution. Other relevant legislation includes the Financial Management and Accountability Act of 1997 and the Commonwealth Authorities and Companies Act of the same year. General fiscal policy responsibility is allocated among the Ministers, whereas the Treasurer is accorded the responsibility for the tax system and the DFD has oversight on government spending. Revenues are pooled in a Consolidated Revenue Fund from which the Commonwealth appropriates monies. However, appropriations must be done through the law, and only the president is permitted to submit spending proposals to the Parliament.

Open budget processes

CP

The Treasury's 1999 self-assessment describes Australia's overall budget preparation process as generally "open and transparent." However, the report did note that there were minor exceptions, such as the failure of the government to follow IMF recommendations regarding the publication of the primary balance or cyclically adjusted budget balance. The Treasury adds that Australia employs a medium-term budget framework, and that the Charter of Budget Honesty Act of 1998 assures that the government will publish its annual fiscal strategy statements that include a specific statement of the long-term fiscal goals that provide the backdrop for short term policy. The statements also include an explanation of the government's strategic budget priorities, measures by which fiscal policy can be assessed, and the fiscal reporting requirements to which the Commonwealth government must adhere. The 2004 IMF Article IV Consultation report noted that since the self-assessment, Australia has remained constant in its commitment to improving its already high fiscal policy transparency standards, and described the fiscal framework as "transparent and effective," (p. 9). Writing in 2003, R. Simes notes that these improvements have affected both budget accounting rules and the transparency process. For instance, Australia offers a breakdown by component and taxes of four-year-forward spending estimates. It also offers "increasingly detailed economic forecasts for the year ahead and economic assumptions underpinning the budget estimates for the out-year" (p. 26). Greater detail with regard to public sector accounts and reconciliation analysis have also helped improve transparency and accountability.

Public availability of information.

CP

The IMF's 2004 Article IV Consultation described Australia's fiscal policy framework as "transparent and effective" (p. 9), echoing the findings of the Treasury's 1999 self-assessment. Minor inconsistencies were found to exist, but both reports took note of Australia's ongoing efforts at reform. In 2003, R. Simes reported that Australia's budget documents had long been of a high standard, making a rich set of data available to the public. According to Simes, the Charter of Budget Honesty Act of 1998 "aims to improve the discipline, transparency, and accountability applying to the conduct of fiscal policy" (p.26). According to the Treasury's 1999 self-assessment, that Act specifies that the various levels of Australian government provide strategy statements that include a presentation of the long-term objectives that provide the context within which short-term policies will operate, as well as the strategic priorities that provide the basis for the budget. In addition, the statement must provide the metrics by which policy outcomes are to be measured.

At the time of the 1999 Treasury self-assessment, it was noted that Australia did not yet fully meet the IMF's fiscal reporting requirements. According to the report, this failure was apparent in the area of "comparing outcomes and estimates for the two preceding years prior to the current year." In addition, the assessment found that Australian authorities did not provide a source to which interested parties might turn to get "up-to-date information on the time of release of fiscal reports, and the reporting of financial assets (including debt) is not make on a quarterly basis." Since the self-assessment, however, Australia has made some significant improvements. According to Simes, writing in 2003, transparency and accounting rules have been improved by including a breakdown by component and taxes of four-year-forward expenditure estimates; the provision of greater detail in year-ahead forecasts and the inclusion of the economic assumptions that underlay the out-year budget estimates; "detailed reconciliation analysis of the various policy and parameter changes" (p. 26); and, in general, greater detail with regard to public sector accounts data. According to the IMF's SDDS website, Australia is a subscriber to the SDDS and currently meets all specifications for coverage, timeliness, and periodicity of data, provides advance-release calendars, and provides summary methodologies for all requisite datasets.

Independent assurances of integrity.

CP

The IMF's 2004 Article IV Consultation described Australia's fiscal policy framework as "transparent and effective" (p. 9), echoing the findings of the Treasury's 1999 self-assessment. Minor inconsistencies were found to exist, but both reports took note of Australia's ongoing efforts at reform. Australia's Bureau of Statistics, the official statistical agency, is charged with assisting in enhancing statistical integrity, according to the Treasury's report. The Treasury also reported that the 1997 Auditor-General Act created both the office of Auditor-General and the National Audit Office. The Auditor-General is charged with conducting audits - both financial statement and performance audits - of all Commonwealth agencies, authorities, and government-owned and government-controlled companies. Audit results must be reported to the Parliament. The Act sets forth the guarantees by which the Auditor-General's office maintains its independence. The Treasury report adds that there is a twice-yearly publication requirement for the government's official macroeconomic forecasts. The public availability of such forecasts permits them to be scrutinized and compared by both public and private sector entities. In addition, the forecasts are subject to formal scrutiny by regular committees in the Senate. The report adds that "the Australian Treasury regularly publishes a review of the macroeconomic forecasts and actual outcomes at the end of the financial year."

According to the IMF's SDDS website, Australia is a subscriber to the SDDS and currently meets all specifications for coverage, quality, timeliness, and periodicity of data, provides advance-release calendars, and provides summary methodologies for all requisite datasets. The Treasury self-assessment notes that the 1922 Public Service Act, as well as the Public Service Regulations and other laws establish formal ethical standards that apply to the activities of all members of the public service. These standards cover such issues as confidentiality and eligibility for public service employment.