5.3	2005‑06 EXPENSES AND FORWARD ESTIMATES
This chapter provides the 2004‑05 estimated outcome and 2005‑06 budget and forward estimates for expense items.  A discussion of the main expenditure items is also included.
Overview
General Government Sector expenses in 2005‑06 are expected to be $2.807 billion.  This represents an increase of $139.624m or 5.2% from the 2004‑05 estimated outcome.
Across the forward estimates, the increase in total expenses is generally in line with, the estimated increase in the consumer price index (CPI). 
As shown in figure 5.3.1, employee expenses are the most significant component of general government expenditure, accounting for 35% of total expenses in 2005‑06.  This increases to 47% with the inclusion of superannuation expenses.  The remainder comprises supplies and services expenses, grants and purchased services followed by depreciation and other expenses.
Figure 5.3.1
Components of General Government Expenditure 2005‑06

Table 5.3.1 provides a summary of the estimated outcome for 2004‑05, and forecasts for the 2005‑06 budget and forward years for general government expenditure.
Table 5.3.1
General Government Expenditure
 	2004-05	2005-06		2006-07	2007-08	2008-09	 	
 	Est.Outcome	Budget	Var	Estimate	Estimate	Estimate	 	
 	$'000	$'000	%	$'000	$'000	$'000	 	
 						 	 	
Expenditure							 	
 							 	
Employee Expenses	  935  516 	  988  618 	6 	  992  658 	1  006  547 	1  029  077 	 	
Superannuation Expenses	  286  067 	  319  568 	12 	  327  957 	  341  906 	  359  274 	 	
Supplies and Services Expenses	  578  358 	  590  187 	2 	  603  570 	  652  226 	  696  395 	 	
Depreciation Expenses	  164  007 	  172  488 	5 	  179  966 	  187  122 	  190  573 	 	
Borrowing Costs	  46  820 	  49  401 	6 	  49  418 	  52  105 	  53  623 	 	
Cost of Goods Sold	  27  518 	  40  423 	47 	  30  556 	  30  870 	  28  552 	 	
Grants and Purchased Services	  486  907 	  516  077 	6 	  524  503 	  540  031 	  562  178 	 	
Other Expenses	  112  187 	  98  078 	-13 	  111  951 	  118  654 	  122  712 	 	
Transfer Expenses	  30  375 	  32  611 	7 	  29  942 	  30  246 	  30  538 	 	
 							 	
Total Expenses	2  667  755 	2  807  451 	5 	2  850  521 	2  959  707 	3  072  922 	 	
								
Expenses of Associates and Joint Ventures	    72 	    0 	-100 	    0 	    0 	    0 		
 	 	 	 	 	 	 	 	
Note: Totals may not add due to rounding
Factors Affecting Expenditure Levels
Employee Expenses
Employee expenses will grow by 6% or $53.102m in 2005‑06 from the 2004‑05 estimated outcome.  The forward estimates include more modest growth in employee expenses over the forward years. 
Contributing to the increase are general wage increases from the finalisation of a number of Enterprise Bargaining Agreements, which were funded through the 2004-05 Appropriation Act No. 2, and the impact of natural salary advancement. 
Superannuation
Superannuation expenses will increase by $33.501m or 12% in 2005‑06 from the 2004‑05 estimated outcome.  The increase is due to the estimated growth in superannuation liabilities as a result of the latest actuarial estimates.

Supplies and Services Expenses
Supplies and services expenses increased by $11.829m or 2% in 2005‑06 from the 2004‑05 estimated outcome.  This marginal variance generally relates to the inclusion of the provision for Treasurer’s Advance, the impact of CPI increases, and the impact of new expenditure associated with budget initiatives.
Depreciation and Amortisation
Depreciation and amortisation is estimated to increase by $8.481m or 5% in 2005‑06 from the 2004‑05 estimated outcome.  This is mainly due to the increase in the level and value of the asset base.
Borrowing Costs
Borrowings costs are expected to increase by $2.581m or 6% in 2005-06 from the 2004-05 estimated outcome.  The increase reflects an increase in finance lease charges associated with increased fleet management activities.
Cost of Goods Sold
The cost of goods sold is expected to increase by $12.905m or 47% in 2005‑06 from the 2004‑05 estimated outcome.  This increase is due to expected increases in land development activities and an expected growth in fleet management activities.
Grants and Purchased Services
The forecast increase in grants and purchased services of $29.170m or 6% in 2005‑06 from the 2004‑05 estimated outcome represents the new expenditure associated with the Budget initiatives, an increase in capital grants to Calvary Hospital in 2005‑06 by ACT Health, and increased funding for non government schools from both the Commonwealth and ACT Governments.
Other Expenses
Other Expenses are estimated to decrease by $14.109m or 13% in 2005‑06 from the 2004‑05 estimated outcome.  The variation is largely associated with higher levels of expenditure in 2004-05 due to the recognition of one-off adjustments for insurance provisions arising from increases in medical malpractice and public liability claims.

Transfer Expenses
Transfer expenses relate to appropriation payments to the PTE Sector.
The forecast increase in transfer expenses of $2.236m in 2005‑06 from the 2004‑05 estimated outcome mainly reflects payments to Housing ACT for energy and water efficiency measures and supplementation for an increase in rates.
Community Service Obligations
Community Service Obligations (CSOs) primarily relate to Public Trading Enterprises.  The definition adopted by the ACT Government is the one proposed by the Steering Committee on National Performance Monitoring of Government Trading Enterprises, established under the aegis of the Special Premiers’ Conference in 1991, which states:
“A Community Service Obligation arises when a government specifically requires a public enterprise to carry out activities relating to outputs or inputs, with identified public benefit objectives, which it would not elect to do on a commercial basis, and which the government does not require other businesses in the public or private sector to undertake, or which it would only do commercially at higher prices.”
In the ACT, the Government agreed to extend the policy to other business units regardless of whether the unit is formally a Territory Owned Corporation or a Statutory Authority, and irrespective of its organisational structure. 
The separate identification of CSOs provides transparency on the full costs of services, and the financial implications of government decisions in the provision of services to specific targeted groups in the community.
Table 5.3.2 lists Community Service Obligations funded in the 2005‑06 Budget.

Table 5.3.2
CSOs Funded in 2005‑06 Budget
Policy/Purchasing Department	CSO Provided by	2005‑06 Price
$’000	Description	
Department of Treasury	
	Exhibition Park in Canberra	313	Compensation for charging below market rates, as a result of Ministerial direction, or in agreements entered into by the ACT Government.	
Department of Urban Services	
	Yarralumla Nursery	145	Free plant issue scheme.	
	ACT Forests	2  138	Provision and upkeep of public use areas within ACT Forests.	
	ACTION	52  994	Funding provided to ACTION to operate network services.	
Department of Disability, Housing and Community Services	
	ACTEW	1  000	Half cost of water use for schools and churches.	
	ACTEW	1  741	Half cost of sewerage services to churches and hospitals.	
	ACTEW	31	Compensation for water and sewerage rates for lease granted under the (repealed) Church Land Act 1924.	
	ACTEW	5  781	Rebates on electricity bills to pensioners.	
	ACTEW	3  092	Rebates on water and sewerage charges to pensioners.	
	ACTEW	119	Administration cost for rebates.	
	Community Health	760	Part subsidy to taxi fares for eligible persons with disability.	
Department of Justice and Community Safety	
	Office of Public Trustee	438	Financial management under Guardianship Management and Property Tribunal’s determinations and under power of attorney, welfare funerals.	
Total		68  552