3.4 Capital funding and
budgeting
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The budget sector capital works process enables the Government to consider asset acquisition and enhancement options effectively and to establish priorities. Capital funds can then be applied to new projects and investments to satisfy government objectives, and to obtain best value for money for the State.

Sources of capital funding

If it is determined that public sector capital funding is appropriate for an asset, funds are obtained from a range of sources, such as those referred to below:

Commonwealth programs
Commonwealth programs may provide capital funding to States in order to fulfil particular Commonwealth - State objectives. In these cases, the same evaluation criteria apply as for all State-funded investment proposals, ensuring that Commonwealth-funded projects complement State capital investments, and enhance them where possible.

State dedicated funds
Some capital investment projects are funded from State dedicated funds.

Annual capital works allocations
All investment proposals not eligible for Commonwealth funding or State dedicated funding are considered for commitment against the normal annual allocations estimated to be available for future capital works.

Securing funding for an asset
All proposals to acquire new assets, enhance existing assets or develop increased private sector capacity to provide public services must be evaluated in accordance with evaluation guidelines and methodologies endorsed by the Department of Treasury and Finance, and must identify:

  • the full costs associated with the proposal;
  • all impacts on future budget supported expenditure and receipts;
  • the net impacts on service delivery capacity, quality, range and efficiency; and
  • the arrangements and timetable proposed for implementation.7

Where asset plans involve capital expenditure (for either new projects, or enhancements to an existing asset), an investment proposal for each individual proposal must be prepared for consideration by the appropriate Government committee.

Requirements of each investment proposal
Soundly based investment proposals demonstrate clearly that their benefits exceed their costs. They will be based on the asset strategy and will detail the links between the proposal and both the service delivery strategy and the entity's corporate plan. They will also show that relevant asset and non-asset based service options have been considered.

Advice on the required contents of a capital investment proposal is issued by the Department of Treasury and Finance.

Proposals must address the evaluation criteria, indicate the preferred funding source and set out the full costs, benefits and risks. Proposals must also address the ongoing operating and maintenance cost implications, and identify the recurrent funding needed for this purpose. This information should be used by the entity to support the logic underpinning the ranking of proposals.

Ranking and evaluation of investment proposals
In ranking and prioritising investment proposals, entities must take into account the role that the proposed assets will play in service delivery, and the relative importance of the services themselves.

The entity must then submit its proposals, in ranked order, to the Department of Treasury and Finance, irrespective of the proposed source of funds. (Projects to be supported from dedicated and external fund sources must also be fully evaluated and prioritised according to the particular processes that apply to those funds sources.)

Consideration of investment proposals
All submissions requiring approval for capital funding are made to the Budget and Expenditure Review Committee (BERC). 8

The Department of Treasury and Finance will assess investment proposals for subsequent consideration by BERC. The Department of Treasury and Finance reviews the investment proposals lodged by each entity, and applies ‘across Government’ criteria. This will result in the proposals being ranked in a whole-of-government context (eg the first three proposals ranked by one entity may be deemed to have a higher priority than the proposal ranked first by another entity).

The criteria considered by the Department of Treasury and Finance include:

The Department of Treasury and Finance then forwards the proposals, ranked in whole-of-government priority order, to BERC for its consideration and approval. BERC formally assesses all proposals, including any recurrent financial impacts.

Assessing the Condition of Constructed Assets
Department of Planning and Development,
Office of Building, 1995

Budget Information Paper No. 1 –
Public Sector Capital Works, 1994–95
Victorian Government, 1994

Budget Information Paper No. 2 –
Budget Performance and Outlook, 1994–95
Victorian Government, 1994

Infrastructure Investment Policy
for Victoria
Department of Treasury (Victoria), 1994

Investment Evaluation Guidelines (forthcoming)
Department of Treasury and Finance, (Victoria)

Department of Planning and Development,
Office of Building
Telephone 61 3) 9651 5800

Department of Treasury and Finance,
Budget and Resource Management
Telephone 61 3) 9651 5344

Department of Treasury and Finance,
Project Finance and Evaluation
Telephone 61 3) 9651 5771


7 Budget Sector Asset Management Principles
Budget and Expenditure Review Committee, 1993
8 Budget Sector Asset Management Principles
Budget and Expenditure Review Committee, 1993
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