The claim

After the ABC announced the loss of 250 jobs in its five year plan, the state of its funding was once again thrust into the national debate.

Communications Minister Paul Fletcher dismissed allegations of cuts to the budget of the national broadcaster in a press conference with Prime Minister Scott Morrison.

He said the ABC’s funding is laid out in the budget papers, and is increasing every year.

“If you look at the numbers in the budget papers, the ABC’s funding is rising. It’s all laid out in the budget papers.”

Is the ABC’s funding rising every year? RMIT ABC Fact Check investigates.

The verdict

Fletcher’s claim is misleading.

The budget papers show that nominal funding for the ABC’s operational budget increases marginally within the current triennial funding cycle from 2019-20 to 2021-22.

However, when Fletcher referred to what was “laid out in the budget papers” he neglected to mention that ABC funding is projected to decline in nominal terms in 2022-23, at the beginning of the next cycle.

More importantly, in making the claim, the minister has ignored the issue of real funding, which takes into account inflation.

This has been affected by the government’s indexation pause for the organisation, which freezes operational funding at 2018-19 levels regardless of rising costs.

The budget shows a year-on-year decline in real funding over the four years set out in the 2019-20 budget.

By 2022-23 Budget Paper No. 1 shows a 10.6% decline in real operational funding, while the Portfolio Budget Statements show a 7.7% decline.

In the context of the ABC’s decision to axe 250 jobs, this reduces its ability to maintain the same level of service from year to year because of rising costs.

Context for the claim

Fletcher made his claim in late June 2020 — the end of the 2019-20 financial year. The minister has given several media interviews on the subject, where he has made the same claim.

When asked by a journalist in the press conference whether he could guarantee there would be no further cuts to the ABC’s budget, Morrison backed Fletcher’s claim, saying: “There are no further cuts because there are no cuts.”

In the same press conference, Fletcher stressed the editorial and operational independence of the ABC in relation to the cut to 250 jobs:

“The ABC board and management has statutory independence. They’ve got a budget of over a billion dollars a year. That’s over a three year period, we’re in the first year of a three year funding period. Funding is rising every year in that three year period. And it’s for board and management to determine how they allocate their resources to best meet their charter.

“They released a five year strategic plan yesterday. Australians, I think, will rightly expect that that money is invested wisely and that there’s a clear strategic plan as to how the money is expended. But these are decisions for ABC board and management.”

In making his claim, Fletcher mentioned the change in funding between the years 2019-20 and 2021-21, and the change between 2020-21 and 2021-22.

However, the minister did not address the change in funding levels from 2018-19 to 2019-20, which are also laid out in the budget papers, nor the change between 2021-22 and 2022-23.

The minister also tweeted a screenshot of the budget papers in response to a tweet from Opposition Leader Anthony Albanese, which omitted the 2022-23 figures.

As Fletcher referred to what was “laid out in the budget papers”, Fact Check will use all years in the 2019-20 budget, which is the most recent budget handed down, to assess his claim.

Operation and transmission

Year-by-year funding for the ABC is set out in two places: in Budget Paper No. 1, titled Budget Strategy and Outlook; and in the portfolio budget statements for Communications and the Arts.

The two sets of numbers are not identical, but in both places the ABC’s budget is broken down into two separate programs: general operational activities; and transmission and distribution.

According to the Parliamentary Library, general operational activities “includes base operational funding that is provided on a three-year rolling basis as well as additional operational funding that is granted outside the triennium, including payments that are sometimes described as being in addition to base funding”.

Meanwhile, funding for transmission and distribution services recognises that the ABC does not own its own transmission network. Prior to 1999 the network was owned by the government, but it was privatised that year.

The distinction between these two components is important when talking about cuts to the ABC budget.

The communications and the arts budget portfolio papers for 2019-20 specify that the general operations program is to “provide Australian and international audiences with innovative and high-quality radio, television and digital media services,” while the transmission and distribution program is to “manage the broadcast and transmission of its radio and television services within Australia to maximise availability to audiences”.

In response to a question in Senate Estimates in 2018, Mike Mrdak, the secretary of the then department of communications and the arts, referred to the “fixed contracts” involved with this program, in response to a question about ABC funding cuts.

Managing Director of the ABC David Anderson addressed the issue in a speech to the National Press Club on July 9:

“To break the budget down – roughly $185 million is spent annually on transmission and distribution. This includes long-term contracts for third parties that stretch out to 2035. This is the infrastructure the ABC needs to broadcast signals and digital content into Australian homes and businesses. This means reaching televisions, radios and, increasingly, phones, tablets and laptops. And without that infrastructure, no-one can access the content we produce.”

Tom Crowley, an associate at the Grattan Institute, told Fact Check “the GOA budget seems to cover all the ABC’s content, resourcing etc, whereas the transmission and distribution services funding just funds existing agreements with transmission service providers”.

Anderson described operational funding as “producing and acquiring all the content the ABC distributes”.

However, as noted by the Parliamentary Library, since 2014, any funds left over in the transmission and distribution budget could be rolled back into the ABC’s general operational budget, rather than returned to the federal budget.

There is little on the public record about how much of this funding the ABC has rolled into its operational budget since that change was made.

However, in an answer to a question on notice from Greens senator Sarah Hanson-Young in early 2020 about transmission spending, the ABC said: “The ABC’s annual transmission and distribution costs in the 2018-19 financial year were $182.4m,which includes digital content distribution and presentation and playout costs.”

This compares with the “estimated actual” for that year, which was slightly lower at $180.8 million according to the 2019-20 communications and the arts portfolio budget statements.

Fletcher spoke of the ABC’s budget being “over a billion dollars a year”.

That is the case if funding for the ABC’s transmission and distribution services is added to its operational budget.

But Fletcher made his claim in the context of the ABC’s announcement of job losses and program closures. The transmission and distribution budget funds fixed contracts with transmission and service providers, and has no impact on the changes announced in June.

Fact Check will analyse the ABC’s budget with and without the transmission figures, but given the context of the claim, greater weight is given to the operational budget.

Indexation pause

According to the Department of Finance, indexation is “the process by which the forward cost estimates are updated to reflect the forecast economic conditions of the year in which costs are expected to occur”.

In the 2018-19 budget, the government announced a pause on indexation of funding for the ABC’s general operational activities. The effect was to freeze the operational budget at 2018-19 levels for the next three years.

The communications and the arts portfolio budget statements for that year contain a measure which “reduces funding to the ABC by $14.623 million in 2019-20; $27.842 million in 2020-21; and $41.284 million in 2021-22”.

Upon the announcement of the loss of 250 jobs from the ABC this year, the national broadcaster’s chair, Ita Buttrose, noted these reductions announced in 2018-19 “forced this action upon us and although we knew what had to be done, our hearts were with our employees”.

“These funding cuts are unsustainable if we are to provide the media services that Australians expect of us. Indexation must be renewed,” she said.

Budget Paper No. 1 for 2018-19 notes that these reductions, along with “previous efficiency measures applied to the ABC and SBS” would result in a decrease in real terms for funding under the broadcasting sub-function, of which the ABC and the Special Broadcasting Service (SBS) are the only components.

The budget paper noted that the indexation pause applied only to the ABC’s base operational funding and “has no impact on funding for transmission and distribution”.

The pause also did not apply to what the Parliamentary Library describes as “tied funding”, which is still reflected in the ABC’s operational funding figures.

Funding for “Enhanced News Services” began under the Labor government, running for four years to 2015-16 at a cost of $69.4 million. The measure was extended in 2016-17 but with less funding and was scheduled to terminate after 2018-19.

In 2019-20, the government renewed this funding at a cost of $43.7 million over three years to “continue to support local news and current affairs services, particularly in regional areas”.

Though Budget Paper No. 1 for 2019-20 said this funding would “partially offset” the indexation pause, it’s important to note that the measure restored previously terminating funding.

What do the numbers say?

As mentioned, the numbers for the ABC’s operational funding are not identical in Budget Paper No. 1 and the Portfolio Budget Statements.

Budget Paper No. 1 provides figures on a cash basis, while the portfolio budget statements provide these figures on an accrual basis.

“The major difference is that accruals counts future spending commitments in the year they’re committed to, whereas cash counts them in the year they happen,” Crowley said.

Both operational and transmission figures are included in both papers. The transmission figures are the same in both papers, while the operational figures differ.

In the 2019-20 budget, Budget Paper No. 1 lists $181 million for transmission for the 2018-19 financial year, which is the same in the PBS after rounding.

But Budget Paper No. 1 lists a figure of $916 million for the operational budget, as opposed to $865 million in the PBS.

A spokesman for the Department of Finance told Fact Check that the figures in the budget portfolio statements labelled “ordinary annual services (Appropriation Bill No. 1)” match the funding legislated for general operational activities in Appropriation Bill (No. 1) 2019-2020, which is the bill which proposes “appropriations from the Consolidated Revenue Fund (CRF) for the ordinary annual services of the government”.

However, Stephen Bartos, a visiting fellow at the Australian National University’s Crawford School for Public Policy, and a former deputy secretary of the Australian Department of Finance and Administration, told Fact Check this table was generally considered a less reliable source, and that the figures found in Budget Paper No. 1 are circulated “by the Treasurer and Minister for Finance are the most authoritative sources, and carefully checked to make sure they match up with the appropriation numbers”.

Crowley said: “It would be more common for purposes like this to use BP1 rather than the PBS, but both are ‘correct’ on different terms”.

Fact Check has used both sets of figures to assess Fletcher’s claim.

The PBS for 2019-20 show an increase in nominal funding for the operational budget between the first two years, from $865 million to $879 million, increasing by about $1 million each year until 2021-22, and falling again by $1 million in 2022-23; Fletcher neglected to mention this decrease in funding when making his claim.

Budget Paper No. 1 shows a decrease in nominal funding between 2018-19 and 2019-20 from $916 million to $900 million. Funding then increases in both years to $903 million in 2021-22, before falling again to $902 million in 2022-23.

This means on both measures, there is a nominal decrease in operational funding in at least one year, as laid out in the 2019-20 budget.

Adding in the transmission and distribution budget shows an increase in nominal terms every year, except in Budget Paper No. 1, which shows a nominal decrease in 2019-20.

What about real funding?

Nominal funding provides only a simplistic picture of an organisation’s ability to maintain its services. To ascertain whether the ABC can keep up with its costs year-on-year, real funding (adjusted for inflation) needs to be considered.

Using funding and inflation figures from the 2019-20 budget, the Grattan Institute agreed to calculate the level of operational funding for the ABC for each year in real terms, which has been graphed below.

In every year, real funding, expressed in 2018-19 dollars, decreases. Budget Paper No. 1 shows a 10.6% decline in operational funding by 2022-23, while the PBS show a 7.7% decline.

This is reflected in the commentary in Budget Paper No. 1 which says: “Expenses under the broadcasting sub-function are expected to decrease by 2.9% in real terms from 2018-19 to 2019-20, and by 5.3% in real terms from 2019-20 to 2022-23.”

The “broadcasting sub-function” includes both operational and transmission funding for both the ABC and SBS. ABC operational funding is by far the largest component.

Despite the indexation pause not applying to the transmission budget, the picture is the same when adding in the transmission figures. This is because the transmission budget is much smaller than the operational budget.

Crowley told Fact Check the two sets of funding figures in the two budget papers make Fletcher’s claim slightly ambiguous in nominal terms, but leaving that aside, “we still think the most pertinent measure is the real measure, and real funding is declining whichever way you look at it,” calling the claim “misleading”.

David Hayward, the former dean of the School of Global, Urban and Social Studies at RMIT University, told Fact Check that indexation, which the government has paused for the ABC, is “critical” for government organisations like the ABC to ensure funding keeps pace with costs.

“The ABC’s Enterprise Agreement alone commits it to wage increases of 2% per annum in the three years to 2021. Since their inception in the 1980s, the triennial agreements included indexation as a core component to try to give the ABC certainty in its real funding (adjusted for cost increases) over three years,” Emeritus Professor Hayward said in an email.

The production of drama is another example of a rising cost. Screen Australia notes that the average cost per hour to produce Australian TV drama rose 7% between 2017-18 and 2018-19 — well above the rate of consumer price inflation.

Emeritus Professor Hayward added that while it was accurate to say that nominal funding was increasing, “put in the context of the issue to which the comments were addressed — the ABC’s need to shed 250 jobs and cut services — they are misleading in that the government is not giving the ABC sufficient funding to keep these people employed and keep the services going in the way they would have been had indexation been maintained”.

“Remember: the ongoing impact of the reduced funding from indexation is over $40m (the base has shrunk). That’s why the ABC has shrunk its workforce.”

In an interview with Sky News on July 3, Fletcher did not address the impact of the cut to real funding on the ABC’s operational budget, despite being asked several times.

The impact of COVID-19 on inflation

The 2019-20 budget was the last to be handed down before the coronavirus pandemic.

As it was written over a year before the COVID-19 pandemic forced the closure of thousands of businesses and put millions into the unemployment queue, its projections for inflation will likely diverge from the reality.

However, Crowley said the 2019-20 inflation estimates were used in the Grattan Institute’s calculations “because they’re dated the same as the funding numbers, so they’re most appropriate measuring stick”.

“Based on the best information available to the government when it decided how much to fund, the funding amounted to a real cut,” he said.

Bartos told Fact Check that for now, the inflation figures in the Mid-Year Economic and Fiscal Outlook, delivered in December 2019, are the official figures for inflation in Australia.

These figures are similar in magnitude to those published in the 2019-20 budget, though MYEFO doesn’t contain projections beyond 2020-21.

“So one caveat is that in the current economic climate the previously published inflation forecasts are out of date but we have not yet had an official update,” Bartos said.

But he noted that the ABC’s funding indexation is not indexed to the CPI, rather “it uses an ABS index that is a mix of wages and capital costs as its measure of inflation”.

“CPI is close enough, it’s what most readers think of when they think about inflation,” he added.

Anderson addressed the issue of ABC indexation in answer to a question at the National Press Club:

“Again, another mystery about how the indexation is derived and the indexation has been with the ABC since the mid-’80s, as with other agencies — how it’s derived, I can’t tell you. I heard of a phrase called ‘wacky six’. I don’t know what that means. But I do know that the indexation that has been applied to the ABC’s budget previously, and over time, is still not enough to cover what is the rising cost of the ABC and the activities that we have, in all the places that we do.”

Fact Check name checked

In defending his claim, Fletcher referred to a previous article written by RMIT ABC Fact Check to bolster his case.

In response to an interview with Opposition Leader Anthony Albanese by ABC presenter Patricia Karvelas, he tweeted:

“No, @PatsKarvelas, you cannot ‘call them cuts for this purpose’. Per your brethren at @ABCFactCheck: ‘Fact Check deems that an adjustment to future spending does not represent a “cut” when the overall level of spending continues to rise.'”

Fact Check has made clear its position on this issue of “cuts” over the years in a number of different pieces of work. In 2018, economics and finance editor Josh Gordon wrote about health spending:

“This is a simple function of demography and economics: as the population continues to swell, as we age, and as prices go up, so too does the level of spending required just to keep pace. Spending ever more is nothing to crow about if it’s just about maintaining existing standards.

“Take health care, for example. If the cost of providing a service such as health care is rising more rapidly than government spending on that service, spending in real terms would have fallen. This would not be a good outcome for the public, even with record funding.”

In the article to which the minister refers, Fact Check found then opposition leader Bill Shorten’s claim that Morrison cut $1.2 billion from the aged care budget was misleading.

This is because the overall level of Commonwealth funding for aged care continued to rise year-on-year in nominal terms, in real terms, and as a dollar amount per aged care resident per day.

ABC funding, however, does not meet these criteria, as it decreases year-on-year in real terms. It therefore can be, and should be, referred to as a cut.

Principal researcher: Matt Martino, online editor

Sources