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CampaignMediaReleaseTreasurer Chris BowenMinister for Finance and Deregulation Penny Wong

$10 BILLION HOLE PUNCHED IN COALITION COSTINGSTreasury, Department of Finance and Deregulation and Parliamentary BudgetOffice 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 spokeabout 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 $1.7billion across the forward estimates, not the $3.7 billion Mr Hockey isclaiming.

Claiming a saving of $5.2 billion from reducing Australian Public Servicestaffing by 12,000. The Department of Finance has costed this saving ataround $2.8 billion, more than $2 billion less than Mr Hockey is claiming.The Parliamentary Budget Office has also estimated that more than20,000 public service jobs would have to be cut to deliver the $5.2 billionin saving Mr Hockey is claiming.

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

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

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Documentation to support these figures is attached.

MELBOURNE29 AUGUST 2013

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

Author ised by G. Wright, Australian Labor Part y, 5/9 Sydney Avenue, Barton, ACT, 2600

http://www.alp.org.au/http://www.alp.org.au/

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~ Sensitive~ ParHament ofAustralia~ Parliamentary Budget OfficeCOSTING- OUTSIDE THE CARETAKER PERIOD

Summary ofproposal:

Person/party requesting costing:

- - - --- -Date costing request received:Date costing completed:Did the applicant request thecosting be confidential?Agencies from which informationwas obtained:Expiry date for the costing:

Costing overview

This proposal would introduce a two yeat public servicetemporary recruitment freeze where Commonwealthemployees who leave the Australian Public Service duringthis period are not replaced. Uniformed and frontline servicepositions are exempted from this freeze. The intention of heproposal is to reduce the size of the Australian PublicService.The proposal will have effect from 1 July 2014.

7 March 2013.11 April 2013.Yes.

Department ofFinance and Deregulation.

14 May 2013 (2013-14 Budget).

This proposal aims to reduce the Australian Public Service (APS) by 20,000 staffover two yearsfrom 1 July 2014. Based on PBO modelling of he staffing levels under current policy settings, theAPS is already forecast to decline by 4,072 over this period reflecting estimated natural attrition of17,925 staff, partially offset by estimated recruitment of 13,853 staff. Accordingly under a scenarioofno recruitment over the two year period, the APS would be reduced by a further 13,853 staffbringing the estimated reduction in staffto 17,925. The remaining-reduction of2,075 staff(required to meet the 20,000 target by the en4 of he 2015-16 financial year) would be achievedthrough voluntary or forced redundancies.Although the existing estimated net staffloss of4,072 staffcontributes to the targeted reduction of20,000 positions, it does not generate savings as the impact of this staffing loss is already factoredinto the budget and forward estimates.

Sensitive

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SensitivePOLICY COSTING - OUTSIDE THE CARETAKER PERIOD

This proposal is expected to increaseboth the underlying cash and fiscal balances by $4.3 billionover the 2013-14 Budget forward estimates period. This impact is entirely due to a net decrease indepartmental expenses.This proposal is expected to generate savings beyond the forward estimates period similar thoseachieved in 2016-17, indexed for wages growth. This reflects the ongoing effect of staffnumbers inaffected APS agencies being 20,000 lower relative to current policy settings.This costing is considered to be ofmedium reliability as it relies on the assumption that the decisionof individuals to leave the public service will be in line with historical trends and that employeeexpense estimates across the forward estimates are accurate.The estimates in this costing will be affected by the separation rate. The average separation rateacross the Australian Public Service over 2010-11 and 2011-12 was 6 .7 per cent according to theAustralian Publ ic Service Commission, with the historical average since 2001-02 approximately7.1 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 staffinglevels and employee expenses will become available.

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SensitivePOLICY COSTING - OUTSIDE THE CARETAKER PERIOD

The average staffsalary (including on-costs) across the Australian Public Service agenciessubject to the recruitment freeze is equal to $127,902 which is equivalent to an APS level6 in2013-14. Where infonnation is not available on the average classification ofstaff withinindividual agencies, this salary level has been used, otherwise agency specific salary levels havebeen 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 observedduring 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 acrossthe Australian Public Service is the best estimate of he future separation rate. The separation ofstaff 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. Thisis based on an average salary (excluding on-costs) of$100,000, average service length of8.8 years (2011-12 State of the Service report)with a payout equal to 2 weeks' salary per year ofservice, pro-rated for months ofservice. An allowance for 5weeks ofaccrued leave per personhas been included based on research by Roy Morgan on the average accrued annual leavebalances ofAustralian workers. It is assumed that one third ofvoluntary or forced redundancies will occur in the first year of hefreeze, with the remaining occurring in the second year.MethodologyThis costing has been estimated using the following methodology: Average staffing level forecasts for each entity subject to the freeze have been calculated usingexisting forward estimates ofdepartmental employee funding and deflating these estimates forreal wages growth of3.15 per cent per annum. Using this series, an annual growth rate isdetermined for each agency and applied to the 2012-13 estimates ofstaffing levels published inStatement 6 of he 2012-13 Budget Paper No. 1. Using data published by the Australian Public Service.Commission, the average separation rateand 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 adjustedstaffing 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 areassumed to generate savings {that is, agencies who are currently forecasting a fall in averagestaffbymore than would arise under the separation rate do not contribute any additional savingsto 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 onlya portion ofan individual's salary will be recoverable as the resignation date approaches the end

of he financial year (that is, some staff will leave early in the year allowing the majority of thesalary for that year to be recovered, whereas others will leave late in the year).Page 3 of4

Sensitive

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SensitivePOLICY COSTING- OUTSIDE THE CARETAKER PERIOD

The average staffing loss from natural attrition is multiplied by the average salary (indexed to3.15 per cent for wages growth) for each agency where available to determine the savingsgenerated by this proposal.

-r

The difference between the 20,000 target and the number of staff hat would be lost during a twoyear recruitment freeze (17,925 positions) is assumed to be the number ofvoluntary or forcedredundancies (2,075 positions). For 2014-15, one third of his number and in 2015-16, two thirds of this number is multiplied bythe average redundancy payout ($44,000) to determine the costof edundancies, with the savingsfrom 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 ofaverage staffing level (ASL)

of agencies in the Australian Government general government sector Australian Public Service Commission -

- APS Statistical Bulletin - 2011-12http:/ www.apsc.gov.aulabout-the-apse/parliamentary/aps-statistical-bulletin/20 11-12

- 2011 Remuneration Report- Total Remuneration Packagehttp://www apse. gov au/publications-and-media/current-publications/remunerationsurveys/20 11-remuneration-survey-summary

- 2011-12 Stateof he Service report - lengthof servicehttp://www.apsc.gov.au/about-the-apsc/parliamentary/state-of-the-service/new-sosr/appendix-1-workforce-trends

Roy Morgan research-Australian workers hoarding leavehttp://rac.eom.au/About-U s/RAC-eNews/20 12/February-20 12/Australian-workers-hoardingleave.amx

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PROTECTEDTREASURY EXECUTIVE MINUTE

Minute No.5 August 2013

TreasurerESTIMATES OF SELECTED MEASURES, REPEAL OF THOSE MEASURES ANDUPDATED PROFILES FOR CARBON AND MRRTTiming: At your conveniencePurpose: Your Office requested a series of hypothetical costings to repeal or reverse selectedmeasures 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 MineralsResource Rent Tax (MRRT).

The estimated impacts for the selected measures are provided in underlying cashbalance terms over the forward estimates period. These are detailed in the tables belowin Additional Information.

These estimated impacts of repealing or reversing various policies should be consideredindicative only. DoFD has not been consulted in relation to expense changes andadministrative costs associated with the repeal or removal have not been considered.

No other areas have been consulted in the preparation of his minute.

Contacr011i

PROTECTED

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PROTECTEDADDITIONAL INFORMATIONCurrent impact for each policy** (in UCB terms -$billion)

13-14 14-15 15-16 16-17 TotalInstant Asset Tax write-off (6.5k to $1k) -1.16 -1.14 -0.97 -0.96 -4.23Phasing down interest withholding tax on 0.0 -0.08 -0.15 -0.15 -0.38financial institutionsLoss carry back -0.15 -0.25 -0.30 -0.30 -1.00LISC -0.81 -0.94 -0.92 -0.90 -3.57SG rate increase -0.12 -0.36 -0.70 -1.14 -2.32Raising the SG guarantee age limit from 70 to 75 0.02 -0.02 -0.02 -0.02 -0.04Raising the SG guarantee age limit from 70 to 0.02 -0.03 -0.03 -0.03 -0.07uncappedSuper 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 ofthese 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 16-17Instant Asset Tax write-off(6.5k to $1k)# 0.0 0.90 0.90 0.70Phasing down interest withholding tax on 0.0 0.08 0.15 0.15financial institutionsLoss carry back 0.0 0.30 0.30 0.30LISC (excluding departmental impacts)* 0 0 0.8 0.9Defer SG rate increase by 2 yrs (increase to 9.5% 0 0.2 0.6 0.8now in 16-17)Reducing the SG guarantee age limit from 75 to 0.0 -0.01 0.01 0.0170Reducing the SG guarantee age limit from 0.0 -0.02 0.03 0.03uncapped to 70Super 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 beenconsulted 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 madewhen estimating the potential saving :from reversing these measures.

2PROTECTED

Total2.500.380.90

1.71.6

0.010.04

0.8

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