Campaign Media Release

Treasurer Chris Bowen

Minister for Finance and Deregulation Penny Wong

$10 BILLION HOLE PUNCHED IN COALITION COSTINGS

Treasury, Department of Finance and Deregulation and Parliamentary Budget
Office figures released this morning have exposed a $10 billion hole in the
savings claimed by the Coalition yesterday.

Rather than the $31.6 billion save that Shadow Treasurer J oe Hockey spoke
about yesterday, these independent figures below show that total saves are
$20.8 billion.

This means there is a hole in the Coalitions costings of $10 billion.

This includes:

Claiming an additional $2 billion in savings from not proceeding with the
Low Income Superannuation Contribution. The correct saving is $1.7
billion across the forward estimates, not the $3.7 billion Mr Hockey is
claiming.

Claiming a saving of $5.2 billion from reducing Australian Public Service
staffing by 12,000. The Department of Finance has costed this saving at
around $2.8 billion, more than $2 billion less than Mr Hockey is claiming.
The Parliamentary Budget Office has also estimated that more than
20,000 public service jobs would have to be cut to deliver the $5.2 billion
in saving Mr Hockey is claiming.

The vast majority of the $5.1 billion claimed save from discontinuing free
permits in the J obs and Competitiveness Fund does not impact the
underlying cash balance.

Only $300 million of the $1.5 billion save from discontinuing the Clean
Energy Finance Corporation can be claimed as only this portion hits the
budget bottom line.

Documentation to support these figures is attached.

MELBOURNE
29 AUGUST 2013


Communications Unit: T 03 8625 5111 www.alp.org.au


Authorised by G. Wright, Australian Labor Party, 5/9 Sydney Avenue, Barton, ACT, 2600

~ Sensitive
~ ParHament of Australia
~ Parliamentary Budget Office
COSTING- OUTSIDE THE CARETAKER PERIOD
Summary of proposal:
Person/party requesting costing:
- - - --- -
Date costing request received:
Date costing completed:
Did the applicant request the
costing be confidential?
Agencies from which information
was obtained:
Expiry date for the costing:
Costing overview
This proposal would introduce a two yeat public service
temporary recruitment freeze where Commonwealth
employees who leave the Australian Public Service during
this period are not replaced. Uniformed and frontline service
positions are exempted from this freeze. The intention of the
proposal is to reduce the size of the Australian Public
Service.
The proposal will have effect from 1 July 2014.
7 March 2013.
11 April 2013.
Yes.
Department of Finance and Deregulation.
14 May 2013 (2013-14 Budget).
This proposal aims to reduce the Australian Public Service (APS) by 20,000 staff over two years
from 1 July 2014. Based on PBO modelling of the staffing levels under current policy settings, the
APS is already forecast to decline by 4,072 over this period reflecting estimated natural attrition of
17,925 staff, partially offset by estimated recruitment of 13,853 staff. Accordingly under a scenario
of no recruitment over the two year period, the APS would be reduced by a further 13,853 staff
bringing the estimated reduction in staff to 17,925. The remaining-reduction of2,075 staff
(required to meet the 20,000 target by the en4 of the 2015-16 financial year) would be achieved
through voluntary or forced redundancies.
Although the existing estimated net staff loss of 4,072 staff contributes to the targeted reduction of
20,000 positions, it does not generate savings as the impact of this staffing loss is already factored
into the budget and forward estimates.
Sensitive
Sensitive
POLICY COSTING - OUTSIDE THE CARETAKER PERIOD
This proposal is expected to increase both the underlying cash and fiscal balances by $4.3 billion
over the 2013-14 Budget forward estimates period. This impact is entirely due to a net decrease in
departmental expenses.
This proposal is expected to generate savings beyond the forward estimates period similar those
achieved in 2016-17, indexed for wages growth. This reflects the ongoing effect of staff numbers in
affected APS agencies being 20,000 lower relative to current policy settings.
This costing is considered to be of medium reliability as it relies on the assumption that the decision
of individuals to leave the public service will be in line with historical trends and that employee
expense estimates across the forward estimates are accurate.
The estimates in this costing will be affected by the separation rate. The average separation rate
across the Australian Public Service over 2010-11 and 2011-12 was 6.7 per cent according to the
Australian Public Service Commission, with the historical average since 2001-02 approximately
7.1 per cent. The most recent average of 6. 7 per cent has been used in costing this proposal.
This costing advice is valid until14 May 4013 when revised Budget estimates of average staffing
levels and employee expenses will become available.
r.

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.. ::_"I . . ,.. .---. -- . : i' . ::: . . q : - _ ' .. . ,." . . , .' '. :.' -v' .i' . : '"_. .. -: '. '*:J'!-
derlying cash balance ($m) 448.3 1,500.5 2,306.8
I Fiscal balance ($m) 448.3 1 1,500.5 2,306.8
(a) A positive number for the fiscal balance indicates a decrease In expenses in accrual terms. A positive number for the underlying
cash balance indicates a decrease in expenses in cash terms.
Key assumptions
As per the costing request, uniformed and frontline service positions are exempt from this
recruitment freeze. The PBO has applied the following exemptions:
The Australian Defence Force, Department of Human Services, Australian Federal Police,
Australian Customs and Border Protection Services are fully exempt, and
50 per cent of the Department of Agriculture, Fisheries and Forestry and 20 per cent of the
Department of Immigration and Citizenship are exempt to account for quarantine and security
roles.
The PBO has made the following assumptions in costing this proposal:
The best estimate of the growth rate in average staffing levels in 2016-17 is equal to the
2015-16 employee expenses growth rate. This growth rate is deflated for wages growth of
3.15 per cent which is consistent with the average growth in total remuneration packages for
non-SES staff observed during 2010-11 and 2011-12 as reported by the Australian Public
Service Commission.
Page 2 of4
Sensitive.
Sensitive
POLICY COSTING - OUTSIDE THE CARETAKER PERIOD
The average staff salary (including on-costs) across the Australian Public Service agencies
subject to the recruitment freeze is equal to $127,902 which is equivalent to an APS level6 in
2013-14. Where infonnation is not available on the average classification of staff within
individual agencies, this salary level has been used, otherwise agency specific salary levels have
been used. It is assumed that wages will grow at approximately 3.15 per cent per annum,
consistent with the average growth in total remuneration packages for non-SES staff observed
during 2010-11 and 2011-12 as reported by the Australian Public Service Commission.
The current average separation rate over 2010-11 and 2011-12 of specific agencies and across
the Australian Public Service is the best estimate of the future separation rate.
The separation of staff across the public service occurs evenly throughout the year.
El The average per person cost of a redundancy has been estimated at approximately $44,000. This
is based on an average salary (excluding on-costs) of$100,000, average service length of
8.8 years (2011-12 State of the Service report) with a payout equal to 2 weeks' salary per year of
service, pro-rated for months of service. An allowance for 5 weeks of accrued leave per person
has been included based on research by Roy Morgan on the average accrued annual leave
balances of Australian workers.
It is assumed that one third of voluntary or forced redundancies will occur in the first year of the
freeze, with the remaining occurring in the second year.
Methodology
This costing has been estimated using the following methodology:
Average staffing level forecasts for each entity subject to the freeze have been calculated using
existing forward estimates of departmental employee funding and deflating these estimates for
real wages growth of 3.15 per cent per annum. Using this series, an annual growth rate is
determined for each agency and applied to the 2012-13 estimates of staffing levels published in
Statement 6 of the 2012-13 Budget Paper No. 1.
Using data published by the Australian Public Service.Commission, the average separation rate
and salary level over 2010-11 and 2011-12 for 92 agencies subject to the freeze was calculated.
For the remaining agencies, the average separation rate (6. 7 per cent) and salary ($127 ,902)
across in-scope agencies was used.
The separation rate was then multiplied by the forecast staffing level to estimate the adjusted
staffing level allowing for natural attrition and no recruitment.
e Only agencies whose staffing level is forecast to grow, or fall by less than the separation rate are
assumed to generate savings {that is, agencies who are currently forecasting a fall in average
staff by more than would arise under the separation rate do not contribute any additional savings
to the hiring freeze as this is already factored into the budget estimates).
e The estimated staffing loss due to natural attrition is averaged over each year to reflect that only
a portion of an individual's salary will be recoverable as the resignation date approaches the end
of the financial year (that is, some staff will leave early in the year allowing the majority of the
salary for that year to be recovered, whereas others will leave late in the year).
Page 3 of4
Sensitive
Sensitive
POLICY COSTING- OUTSIDE THE CARETAKER PERIOD
The average staffing loss from natural attrition is multiplied by the average salary (indexed to
3.15 per cent for wages growth) for each agency where available to determine the savings
generated by this proposal.
-r
The difference between the 20,000 target and the number of staff that would be lost during a two
year recruitment freeze (17,925 positions) is assumed to be the number of voluntary or forced
redundancies (2,075 positions).
For 2014-15, one third of this number and in 2015-16, two thirds of this number is multiplied by
the average redundancy payout ($44,000) to determine the cost of redundancies, with the savings
from the salaries and on-costs recognised in each of the following years.
The total saving is found by adding the savings from staff1ost through natural attrition and the
net saving from stafflost through redundancies.
Data sources
2012-13 Budget Paper No. 1- Statement 6: Table C5: Estimates of average staffing level (ASL)
of agencies in the Australian Government general government sector
Australian Public Service Commission -
- APS Statistical Bulletin - 2011-12
http:/ /www.apsc. gov.aul about-the-apse/parliamentary/ aps-statistical-bulletin/20 11-12
- 2011 Remuneration Report- Total Remuneration Package
http://www .apse. gov .au/publications-and-media/current-publications/remuneration-
surveys/20 11-remuneration-survey-summary
- 2011-12 State of the Service report - length of service
http://www.apsc.gov.au/about-the-apsc/parliamentary/state-of-the-service/new-sosr/appendix-
1-workforce-trends
Roy Morgan research- Australian workers hoarding leave
http://rac.eom.au/ About-U s/RAC-eN ews/20 12/F ebruary-20 12/ Australian-workers-hoarding-
leave.amx
Page 4 of4
S e t i ~ f t i v e
PROTECTED
TREASURY EXECUTIVE MINUTE
Minute No.
5 August 2013
Treasurer
ESTIMATES OF SELECTED MEASURES, REPEAL OF THOSE MEASURES AND
UPDATED PROFILES FOR CARBON AND MRRT
Timing: At your convenience
Purpose: Your Office requested a series of hypothetical costings to repeal or reverse selected
measures along with updated profiles for the Carbon Pricing Mechanism and the MRRT.
Recommendation: That you:
Note the estimated impacts on revenue as detailed in the tables included in this Minute.
Noted Signature: ...... ................................ .
KEY POINTS
As requested by your Office, we have provided the following tables on selected
measures:
the current estimated impact on revenue for the selected measures;
the estimated impact of repealing or reversing these selected measures; and
.... ./ .... ./2013
to provide updated profiles for the Carbon Pricing Mechanism and the Minerals
Resource Rent Tax (MRRT).
The estimated impacts for the selected measures are provided in underlying cash
balance terms over the forward estimates period. These are detailed in the tables below
in Additional Information.
These estimated impacts of repealing or reversing various policies should be considered
indicative only. DoFD has not been consulted in relation to expense changes and
administrative costs associated with the repeal or removal have not been considered.
No other areas have been consulted in the preparation of this minute.
Contacr011i
PROTECTED
PROTECTED
ADDITIONAL INFORMATION
Current impact for each policy** (in UCB terms -$billion)
13-14 14-15 15-16 16-17 Total
Instant Asset Tax write-off (6.5k to $1k) -1.16 -1.14 -0.97 -0.96 -4.23
Phasing down interest withholding tax on
0.0 -0.08 -0.15 -0.15 -0.38
financial institutions
Loss carry back -0.15 -0.25 -0.30 -0.30 -1.00
LISC -0.81 -0.94 -0.92 -0.90 -3.57
SG rate increase -0.12 -0.36 -0.70 -1.14 -2.32
Raising the SG guarantee age limit from 70 to 75 0.02 -0.02 -0.02 -0.02 -0.04
Raising the SG guarantee age limit from 70 to
0.02 -0.03 -0.03 -0.03 -0.07
uncapped
Super contribution caps- higher caps over 50s -0.20 -0.31 -0.32 -0.34 -1.17
**Income Support Bonus ts not mcluded.
The financial impacts in the table above reflect the most recent estimates available. Some of
these estimates have been updated for parameter changes since announcement.
Estimates of the impact on revenue of repealing or reversing the selected measures,
from 1 July 2014, are detailed in the table below:
Re_l!_eal or reversal from 1 July 2014** (in UCB terms -$billion)
13-14 14-15 15-16 16-17
Instant Asset Tax write-off(6.5k to $1k)# 0.0 0.90 0.90 0.70
Phasing down interest withholding tax on
0.0 0.08 0.15 0.15
financial institutions
Loss carry back 0.0 0.30 0.30 0.30
LISC (excluding departmental impacts)* 0 0 0.8 0.9
Defer SG rate increase by 2 yrs (increase to 9.5%
0 0.2 0.6 0.8
now in 16-17)
Reducing the SG guarantee age limit from 75 to
0.0 -0.01 0.01 0.01
70
Reducing the SG guarantee age limit from
0.0 -0.02 0.03 0.03
uncapped to 70
Super contribution caps - higher caps over 50s 0 0.2 0.3 0.3
*Additional departmental costs of around $20-30 million per annum. The Department of Finance has not been
consulted in relation to the expense estimates of reversal.
** Income Support Bonus is not included.
# Assumes the merged pooling arrangements for small business entities (SBE) remain in place.
No allowance for additional departmental expenses (except where noted) has been made
when estimating the potential saving :from reversing these measures.
2
PROTECTED
Total
2.50
0.38
0.90
1.7
1.6
0.01
0.04
0.8

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