Government Sector Finance Act 2018

The Act affects every NSW government department, statutory body, and other entity classified as a GSF agency or reporting GSF agency. This includes:

Government departments and statutory authorities: Must comply with the full suite of financial management, reporting, and accountability obligations.

Accountable authorities: The heads of GSF agencies have personal responsibility for ensuring the agency complies with the Act, and must exercise due diligence in financial management.

Government officers: Any person in a GSF agency must comply with the applicable requirements when performing financial management functions on behalf of the agency.

Universities: For some provisions (reporting requirements and certain accountable authority obligations), universities and their controlled entities are treated as GSF agencies.

Contracting parties: Persons receiving grants, act of grace payments, or entering financial arrangements with GSF agencies are subject to the terms and conditions imposed under the Act.

Budget and appropriations (Part 4): GSF agencies must manage expenditure within the Budget control authority issued by the Treasurer or Minister. Budget Papers must be tabled each year. Agencies cannot incur expenditure except as authorised by an appropriation Act or another law.

Expenditure conditions (Part 5): Expenditure must be proper (that is, for the agency's purposes, efficient, and effective) and money must not be spent except as authorised. Gifts of public property (section 5.6) and transfers for no or inadequate consideration require specific authorisation.

Act of grace payments (section 5.7): Ministers may authorise act of grace payments in special circumstances. The recipient must comply with any terms and conditions imposed. Breach of conditions permits recovery as a debt. For nominated act of grace payments, the Chief Commissioner of State Revenue may enforce compliance as if it were a tax liability.

Financial arrangements (Part 6): GSF agencies cannot enter financial arrangements except as authorised by the Act. Banking account arrangements, borrowings, guarantees, insurance, foreign currency transactions, and other financial services must comply with the Act's requirements.

Reporting (Part 7): Reporting GSF agencies must prepare annual GSF financial statements and provide them to the Auditor-General (section 7.6). Annual reporting information must be tabled in Parliament. The Treasurer must prepare Consolidated State Financial Statements.

Treasurer's powers (Part 4): The Treasurer may issue Budget control authorities, approve special transfers between appropriations, and authorise the Special Deposits Account arrangements.

Ministerial delegation for act of grace payments (section 5.7(4)): Ministers may delegate the power to make act of grace payments only to the accountable authority of a GSF agency, a person employed in a Public Service agency responsible to that Minister, or a prescribed person.

Chief Commissioner of State Revenue (section 5.7(3A), (3B)): For nominated act of grace payments, the Chief Commissioner may enforce compliance with terms and conditions as if they were tax liabilities, including use of Parts 8 and 9 of the Taxation Administration Act 1996.

Secretary of Finance (various sections): Has functions throughout the Act including approval of certain financial arrangements, direction on banking account structuring, and guidance on financial reporting.

Recovery of act of grace payments (section 5.7(3) and (3A)): Where a term or condition of an act of grace payment is contravened, the payment may be recovered as a debt by the Crown or, for nominated payments, by the Chief Commissioner as if it were unpaid tax.

Financial arrangement breaches: GSF agencies that enter financial arrangements without proper authorisation are subject to disciplinary and accountability consequences within the public sector accountability framework.

The Act does not itself create criminal offences. Enforcement is primarily through accountability mechanisms, audit, Parliamentary scrutiny, and civil debt recovery.

Budget Papers (section 4.1): Must be tabled in Parliament in connection with the Budget Bill each year, covering forward estimates for at least three years beyond the Budget year.

Annual financial statements (section 7.6): Must be prepared for each annual reporting period (generally the financial year ending 30 June) and provided to the Auditor-General within a period prescribed by the regulations.

Consolidated State Financial Statements (section 7.17): Must be prepared within a period prescribed by regulations after the end of the NSW Government's annual reporting period.

Constitution Act 1902 (NSW): The Consolidated Fund is created by section 39 of the Constitution Act. Appropriations require parliamentary authority. The Government Sector Finance Act implements those constitutional requirements and provides the detailed framework for managing appropriated money.

Government Sector Audit Act 1983 (NSW): The Auditor-General and Audit Office operate under this Act to audit GSF financial statements. The Government Sector Finance Act cross-references the audit report requirements in that Act.

Taxation Administration Act 1996 (NSW): For nominated act of grace payments, enforcement mechanisms under Parts 8 and 9 of the Taxation Administration Act apply as if the payment were a tax liability.

State Owned Corporations Act 1989 (NSW): Company State owned corporations (as defined) are treated differently from ordinary GSF agencies; the Government Sector Finance Act applies to them only to the extent specified.

Act of grace payments are not deductible from insurance losses: The Federal Court in Swiss Re International SE v LCA Marrickville [2021] FCA 1206 confirmed that grants made under section 5.7 (including COVID-19 business support grants) are acts of grace. As a matter of their essential character, they are merciful beneficences and are not taken into account to reduce an insured's loss under an indemnity insurance contract. Insurance lawyers advising on business interruption claims involving government grant receipts must apply this characterisation.

Budget control authority is separate from appropriation: An appropriation Act gives Parliament's authority to spend; a Budget control authority under section 5.1 is the administrative mechanism by which that authority is devolved to the agency. Both must be in place for valid expenditure.

University treatment varies by provision: Universities and their controlled entities are treated as GSF agencies only for specified purposes. They are not subject to the full Act. Their accountable authority is their governing body (Senate, Council, or Board), not a chief executive.

Gifts of public property require authorisation (section 5.6): Government agencies cannot give away public property, even for nominal consideration, without specific authorisation under section 5.6 or another law. This catches common commercial practices like gifting assets on decommissioning or transferring assets below market value between agencies.

Example 1: COVID-19 small business grants under section 5.7 During the COVID-19 pandemic, the NSW Government made act of grace payments to eligible small businesses under section 5.7. As confirmed by the Federal Court in Swiss Re International SE v LCA Marrickville [2021] FCA 1206 (at [406]-[408]), these payments were acts of grace in the sense of merciful beneficences by the NSW Government to eligible businesses. A business that received a COVID-19 grant under section 5.7 was not required to bring that grant into account as a deduction from its insured loss under a business interruption insurance policy.

Example 2: Agency expenditure without budget authority A NSW government department commits to a contract for IT services that exceeds its Budget control authority. The expenditure is not authorised under the Government Sector Finance Act. The accountable authority is responsible for the non-compliance and must report it. The Auditor-General may qualify the agency's annual financial statements if the breach is material.

Example 3: Financial arrangement approval A statutory body proposes to enter a derivative arrangement to hedge foreign currency risk on a major construction project. Under Part 6, the arrangement must be authorised in accordance with the Act. The accountable authority must obtain the required approval and ensure the arrangement is properly documented and reported.