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Legislative Assembly for the ACT: 2004 Week 7 Hansard (1 July) . . Page.. 3276..


instances as an increase in the outcome, that is, as a positive variance (for example, Budget Paper 4, page 303);

(3) Where a department anticipates a decrease in a deficit, why is this described in some instances as a reduction in the outcome, that is, as a positive variance (for example, Budget Paper 4, pages 137, 245);

(4) Where a department anticipates an increase in a deficit, why is this described in some instances as a decrease in the outcome, that is, as a negative variance (for example, Budget Paper 4, page 236);

(5) What are the reasons for these differing treatments of outcomes of financial performance.

Mr Quinlan

: The answer to the member's question is as follows:

Treasury has an established protocol to report year on year variance in the budget statements. The formula used by Treasury's financial management system is:

(2004-05 Budget less 2003-04 Estimated Outcome) x 100%

2003-04 Estimated Outcome

Under the protocol, the increases and decreases in revenue and expenses follow the usual sign convention. In relation to operating results (particularly the operating deficit) however, the convention is:

an increase in operating deficit is reported as a negative variance; and

a decrease in operating deficit is reported as a positive variance.

Notably, this part of the sign convention is opposite to the results from a 'rigorous' application of the mathematical formula used to calculate variance. It has been adopted to assist lay readers in gauging performance at a glance, i.e., a decrease in operating deficit from one year to the next is an improvement in performance (positive variance, rather than a negative as dictated by the formula), and vice versa.

The current financial management system calculates variances on all line items through the standard formula, and manual adjustments are made to the variance on operating deficit calculated by the system.

The examples provided in Questions (1) and (3) reflect the protocol.

The example provided in Question (2), relating to Justice and Legal Services Output Class, is an omission to manually change the sign of the variance.

Question (4) refers to ACT Forests, where the operating result has improved from -$19.104m to -$8.773m. The deficit has not increased as suggested in the question.

Treasury advises that mathematically speaking, an increase in the deficit from the estimated outcome year to the budget year will result in a positive variance. Conversely, a reduction in the size of the deficit from the estimated outcome year to the budget year will result in a negative variance.

Treasury will investigate automating such adjustments to overcome the inherent problems of a process that requires manual intervention.

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