Treasury portfolio

The Treasury portfolio is responsible for activities aimed at achieving strong and sustainable economic and fiscal outcomes for Australians.

The Department of the Treasury is the lead entity in the portfolio and is responsible for the development, delivery and implementation of economic policy and advice. This includes advice on the economy, the budget, taxation, the financial sector, foreign investment, structural policy, superannuation, small business, housing affordability and international economic policy. Further information is available from the Treasury’s website.

In addition to the Department of the Treasury, there are 16 entities within the portfolio with a broad range of responsibilities, including revenue collection, consumer protection, financial regulation and the provision of official statistics. The portfolio includes the Australian Taxation Office (ATO) – audit considerations for the ATO are discussed separately.

In the 2022–23 Portfolio Budget Statements (PBS) for the Treasury portfolio (excluding the ATO), the aggregated budgeted expenses for 2022–23 total $206.7 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through the annual appropriation Acts.

The level of budgeted departmental and administered  expenses, and the average staffing level for entities in the GGS within this portfolio, are shown in Figure 1. The Department of the Treasury represents the largest proportion of the portfolio’s expenses, and administered expenses of the portfolio are the most material component, representing 99 per cent of the entire portfolio’s expenses.

Figure 1: Treasury portfolio – total expenses and average staffing level by entity

Note a: Excludes the Australian Taxation Office.

Source: ANAO analysis of 29 March 2022–23 PBS.

In determining the 2022–23 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments, reforms or changes in the operating environment.

The primary risks identified for the portfolio relate to the management of the Australian Government’s balance sheet, including debt and the increasing use of ‘alternative financing’ approaches.

Specific risks in the Treasury portfolio relate to governance, regulation, and asset management and sustainment.

Governance

Performance audits in the portfolio have highlighted the importance of reviewing and updating risk frameworks and risk assessments; implementing rigorous performance measurement, monitoring and reporting; and giving greater assurance over the quality of, and compliance with legislation, policies and procedures. 

Regulation

A number of government outcomes in the Treasury portfolio are delivered through portfolio entities, including financial regulators such as the Australian Prudential Regulation Authority, the Reserve Bank of Australia and the Australian Securities and Investments Commission. In response to the COVID-19 pandemic, over 80 regulatory changes have been made to provide greater flexibility and support to those impacted by the pandemic, including changes to assist the flow of credit and to recapitalise companies. This follows a renewed emphasis on the robustness of regulation of financial services arising from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The risk is whether regulatory activities, including probity management and compliance, remain effective while balancing competing policy objectives around robustness, flexibility and compliance costs.

Asset management and sustainment

Financial statements and performance audit activities are identifying an increase in the use of financial instruments such as concessional debt and equity to fund major government initiatives, often through government business enterprises. This emphasises the need for transparency on the longer-term costs and risks of these types of arrangements and debt management plans. 

There are also corporate Commonwealth entities funded to improve aspects of asset management, such as the National Housing Finance and Investment Corporation, which has been established to reduce pressure on housing affordability.  In response to the COVID-19 pandemic, measures were implemented across the Treasury portfolio to support the stimulus packages announced by government, as well as to provide stabilisation to financial markets and support the ongoing provision of credit to business. Given the use of corporate Commonwealth entities with significant asset management responsibilities and the significant increase in debt resulting from the COVID-19 pandemic and the associated Government response, asset management and the Commonwealth Government’s debt management remain areas of risk.

Overview

Entities within the Treasury portfolio, and the risk profile of each entity, are shown in Table 1. 

Table 1: Treasury portfolio entities and risk profile

Department of the Treasury

The Department of the Treasury is responsible for the development, delivery and implementation of economic analysis and authoritative policy advice on issues such as the economy, the budget, taxation, financial systems, foreign investment, retirement income, superannuation, small business and international economic policy. The Treasury also works with state and territory governments on key policy areas and manages federal financial relations.

The Treasury’s total budgeted expenses for 2022–23 are just under $184.5 billion, with 74 per cent of these expenses attributable to grants (Figure 2).

Figure 2: Treasury’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

Financial statements audit

There are two key risks for the Treasury’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage, both of which the ANAO considers potential key audit matters (KAMs).

• The management and valuation of the Natural Disaster Relief and Recovery Arrangements provision, due to the judgement involved in estimating costs expected to be incurred for those eligible for assistance under these arrangements. The Treasury is also reliant on state and territory governments to provide information to support these estimates. (KAM – Valuation of the Natural Disaster Relief and Recovery Arrangements provision)
• The stewardship over grant payments to states and territories under the Federal Financial Relations Act 2009, due to reliance on other Australian Government entities and state and territory governments to administer the programs and provide information to support payments. (KAM – Accuracy and occurrence of grants expense)

Australian Bureau of Statistics

The Australian Bureau of Statistics (ABS) is Australia’s national statistical agency. It provides official statistics on a range of economic, social, population and environmental matters of importance to governments, industry and the wider Australian community.

The ABS’s total budgeted assets for 2022–23 is just under $348.1 million, with 23 per cent of these assets attributable to intangibles and around 31 per cent attributable to land and buildings (Figure 3). The sale of goods and services contribute to 18 per cent of total budgeted revenues.

Figure 3: Australian Bureau of Statistics’ total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There are four key risks for the ABS’s 2021–22 financial statements.

• The valuation and impairment assessments of intangibles (software).
• The recognition of revenue from the rendering of services.
• The valuation and impairment of non-financial assets, leasehold improvements, and plant and equipment.
• The accuracy of census expenses.

Australian Office of Financial Management

The Australian Office of Financial Management (AOFM) is responsible for the management of Australian Government debt and certain financial assets. It issues Treasury Bonds, Treasury Indexed Bonds and Treasury Notes, manages the government’s cash balances and invests in high quality financial assets.

The AOFM’s total budgeted liabilities for 2022–23 are just over $1.0 trillion. Nearly all of these liabilities are attributable to Treasury Bonds and Notes, as shown in Figure 4.

Figure 4: Australian Office of Financial Management’s total financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There is one key risk for the AOFM’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage, and ANAO considers it a potential key audit matter (KAM) being the management and financial reporting of Australian Government securities, which are impacted by external market factors. (KAM – Valuation of Australian Government securities)

Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority (APRA) is responsible for the prudential regulation of the Australian financial services industry through the oversight of banks, credit unions, building societies, friendly societies, general insurers, life insurers, private health insurers, reinsurance companies and most of the superannuation industry. APRA is funded largely by the industries that it regulates.

APRA’s total budget revenues for 2022-23 are attributed to private health insurance risk equalisation receipts and financial institutions supervision levies. Private health insurance risk equalisation receipts of $450 million are forecast to be collected and paid as part of the APRA’s administration of the scheme. Financial institutions supervision levies are forecast to be $263.7 million, of which $218.9 million is forecast to be retained as departmental operational funding for the agency (Figure 5). Intangible assets contribute to 26% of total budgeted assets.

Figure 5: Australian Prudential Regulation Authority’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There are two key risks for APRA’s 2021–22 financial statements.

• The calculation and recognition of administered levy revenue, including the financial institutions supervisory levies, financial assistance levies and the private health insurance risk equalisation levy revenue and associated payments. This involves complex calculations that are prescribed by legislation.
• The recognition and valuation of internally developed software. Assessing the nature and extent of costs that can be capitalised under Australian accounting standards can be complex and subject to management judgement.

Australian Reinsurance Pool Corporation

The Australian Reinsurance Pool Corporation (ARPC), established by the Terrorism Insurance Act 2003, is responsible for administering the Terrorism Reinsurance Scheme, providing primary insurers with reinsurance for commercial property and associated business interruption losses arising from a declared terrorist incident.

ARPC’s total actual revenues for 2020–21 were $250.5 million, of which 98 per cent were attributable to premium revenue (Figure 6). Outwards retrocession premium expenses contributed to 40 per cent of total actual expenses.

Figure 6: Australian Reinsurance Pool Corporation’s total actual financial statements by category ($’000)

Source: ANAO analysis of Australian Reinsurance Pool Corporation’s 2020–21 annual report.

There are two key risks for ARPC’s 2021–22 financial statements.

• The recognition and reporting of premium revenue and unearned premium liability, which involves complex calculations and reliance on third-party information.
• The calculation and reporting of reinsurance expense, which involves the risk of inaccurate calculation of reinsurance premiums.

Australian Securities and Investments Commission

The Australian Securities and Investments Commission (ASIC) is Australia’s integrated corporate, financial services, markets and consumer credit regulator, supporting a fair, strong and efficient financial system for all Australians. ASIC’s core responsibility is to maintain and facilitate the performance of Australia’s financial system and promote confident and informed participation by investors and consumers.

ASIC’s total budgeted liabilities for 2022–23 are just over $884.6 million, with almost 60 per cent of these liabilities attributable to other provisions, as shown in Figure 7. Other revenues, other fees from regulatory services and other taxes contribute to 81 per cent of total budgeted revenues.

Figure 7: Australian Securities and Investments Commission’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There are three key risks for ASIC’s 2021–22 financial statements.

• The estimation of the Commonwealth’s future liability for repayment of unclaimed monies, which uses a complex valuation model.
• The estimation and recognition of cost recovery levies, which are complex and require a year end estimate due to timing differences between the determination and issuance of levy invoices.
• The recognition of ASIC’s diverse administered revenue streams, involving complex calculations that are prescribed in a number of Acts and regulations. ASIC’s administered revenue streams are captured by different input channels and systems, and in some cases are subject to changes driven by annual review by the government.

National Housing Finance and Investment Corporation

The National Housing Finance and Investment Corporation (NHFIC) commenced in 2018–19 and is established by the National Housing Finance and Investment Corporation Act 2018. NHFIC is responsible for the establishment and operation of an Affordable Housing Bond Aggregator, which provides finance to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors; the establishment and operation of the National Housing Infrastructure Facility, which provides grants and finance to support the creation of housing-related infrastructure; and the Australian Government’s First Home Loan Deposit Scheme, which supports eligible buyers to purchase their first home. The scheme commenced on 1 January 2020 and is administered by NHFIC.

NHFIC’s total actual assets for 2020–21 were just over $2.5 billion, with 76 per cent of these attributable to loans and advances, as shown in Figure 8. Other interest-bearing liabilities contribute to the majority of total actual liabilities.

Figure 8: National Housing Finance and Investment Corporation’s total actual financial statements by category ($’000)

Source: ANAO analysis of the National Housing Finance and Investment Corporation’s 2020–21 annual report.

There are two key risks for NHFIC’s 2021–22 financial statements.

• The accounting for, and assessment of, concessional loans, which are complex and involve the application of judgement surrounding the selection and application of indices such as market rates. NHFIC’s aim is to improve housing outcomes by reducing pressure on housing affordability, which will be undertaken by providing concessional finance to registered community housing providers.
• The significant value of bonds issued under the Affordable Housing Bond Aggregator and the subsequent fair value measurement, which may require the use of judgement of bonds.

Reserve Bank of Australia

The objectives of the Reserve Bank of Australia (RBA) are to determine and implement monetary policy that contribute to the stability of the currency and maintain full employment, work to maintain a strong financial system and efficient payments system and issue the nation’s banknotes. As well as being a policymaking body, the RBA provides selected banking services to a range of Australian Government entities and to a number of overseas central banks and official institutions. The RBA is also responsible for the management of Australia’s gold and foreign exchange reserves.

The RBA’s total actual assets for 2020–21 were just under $539.9 billion, of which 88 per cent were attributable to Australian dollar investments and almost 11 per cent were attributable to foreign currency investments, as shown in Figure 9. Australian banknotes on issue represent 18 per cent of total actual liabilities.

Figure 9: Reserve Bank of Australia’s total actual financial statements by category $’000)

Source: ANAO analysis of the Reserve Bank of Australia’s 2020–21 annual report.

There are two key risks for the RBA’s 2021–22 financial statements, both of which the ANAO considers potential key audit matters (KAMs).

• The valuation of Australian dollar securities and foreign currency investments, due to the complexity in determining the fair value of a range of investments. In addition, there is an inherent risk of significant financial impact due to fluctuations in the value of the Australian dollar and the volume of Australian bond holdings. (KAM – Valuation of Australian dollar securities and foreign currency investments)
• The accuracy of the liability for Australian banknotes on issue, due to the dependence on the assumption that all Australian banknotes on issue retain their legal tender status. In addition, there is a high volume of note production and the supply and security of banknotes is structurally significant to the economy. (KAM – Accuracy of the liability for Australian banknotes on issue)