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Tuesday, 9 February 1999
Page: 2209

Mrs BRONWYN BISHOP (Aged Care) (4:26 PM) —I am responding to the second reading debate on behalf of the Attorney-General. It is a lengthy response, which the Attorney-General wishes to place on the record, so I propose to read it on his behalf.

In closing the debate I thank the honourable members for Barton, Curtin and Calare for their contributions. I want to respond in detail to the contribution by the honourable member for Barton. Regrettably, his speech contained a large number of fallacies and factual errors. But, even more importantly, it missed the whole point of the reforms we are making. It is precisely because we believe passionately in the availability of high quality and cost-effective client focused legal service for the AGS that we are creating this new framework.

The bill provides for the establishment of the Australian Government Solicitor as a statutory authority separate from the Attorney-General's Department. It will provide the AGS with the independence and flexibility it requires in serving the important legal needs of the Commonwealth and its agencies. The bill also gives the Attorney-General the power to issue legal service directions in relation to Commonwealth legal work.

The first point I need to respond to is the statement by the honourable member for Barton that `the government has failed to sufficiently justify the course of action that it has taken'. He also stated that the government's course of action would `disarm to a degree one of our armouries of government'. If we do not act now there is a danger that an uncompetitive AGS will lose the support of its clients and fail to respond appropriately to the needs of the Commonwealth. The bill provides the framework for the discipline necessary to prevent this happening.

As the honourable member for Curtin pointed out, the government's actions in reforming the AGS and introducing this bill follow a comprehensive review of the delivery of legal services to the Commonwealth. The Logan review was established by the Attor ney-General to give effect to a coalition election promise. The Logan report, which was handed down in March 1997 after extensive consultations, contained a detailed analysis of the options it had examined. It is completely wrong to suggest, as the honourable member for Barton did, that the terms of reference for the Logan review were `skewed heavily' in favour of privatisation of the AGS. It is also completely wrong to suggest that the government's reforms are not implementing the recommendations of the Logan report.

The Attorney-General will say something shortly in this address that I am reading on his behalf about why the government does not favour privatisation. The point that needs to be made here—and made very firmly—is that the government's reforms for the AGS and the Commonwealth legal market generally are entirely consistent with what was recommended in the Logan report. That report was released publicly, and I invite honourable members to study its conclusions and its reasoning, which provide detailed justification for the course of action the government is taking.

The report noted the steps that had been taken by the previous government to open up most Commonwealth legal work to competition from the private sector. Indeed, as the previous Attorney-General, Michael Lavarch, proudly proclaimed in a media release back in 1994:

From 1 July 1995 . . . almost 75 per cent of the nonpolicy legal services provided to federal departments and agencies by the Attorney-General's legal practice will be open to competition.

Mr Lavarch was right when he said in the same media release: . . . introducing competition for the supply of government legal services is an important part of the reform agenda for the legal profession as a whole.

Logan concluded that the Attorney-General's legal practice had made considerable improvements, since Labor began the reform process, in both its efficiency and the quality of its services. However, it also concluded that significant further improvement was possible and desirable, particularly if the Government Solicitor were to continue to provide high quality, cost-effective legal services in an increasingly competitive environment. This point needs to be stressed. The reforms that the Logan report recommended are designed to enhance the position of the AGS. They are designed to ensure that it has the flexibility and independence necessary to compete with the private sector. It was the previous government's reforms to the AGS that set it on this course. However, those reforms had left it in no-man's-land'. They had left the AGS in a position where the majority of its work was open to competition, but it did not have the necessary tools to compete as effectively as it should.

That remains the position. As a commercial enterprise, the AGS is subject to the competitive neutrality principles which apply generally to government business enterprises. As a consequence, the AGS is required to make payments by way of a dividend and by way of tax equivalent payments as if it were a private law firm.

Although the bill provides a mechanism for formalising the arrangements for these payments, the reality is that the AGS is already required administratively to pay these amounts. What the opposition is seeking to do in blocking this bill is precisely what it is accusing the government of doing, namely, seeking to `disarm' an important government agency.

The Logan report concluded that the AGS would be able to operate more efficiently than at present if it had `significant employment flexibility' that is not available under the current or even the proposed public service regime. Consistent with the Logan report, the bill would give the AGS the flexibility to employ staff without the limitations of the current public service regime. The capacity to pay higher salaries will give AGS the capacity to compete with the private sector on a level playing field. It will also help the AGS to keep some of the very best people whom they now have practising in field of government law. We are not suggesting, as the honourable member for Barton said we were, that these lawyers were motivated solely by money.

Quite clearly, one of the major attractions for lawyers working in the AGS is the high level of interesting legal work that is available. However, not a thing said by the hon ourable member for Barton provides any justification for denying the AGS the kind of employment flexibility that the bill provides. If the AGS is going to operate commercially and return a profit, as it has been required to do since the Labor government implemented its reforms, then it must be allowed the freedom to make commercial judgments about employment of its staff.

The next point made by the member for Barton was that, in effect, departments and agencies were going to have to pay more for their legal services. He referred, in particular, to a rise in hourly rates implemented by the AGS last year. Again, the point is misconceived. The increase of around five per cent is the first for three years. It has been offset by very significant increases in productivity and reductions in the cost of property and other support services made in the last year. As a result, AGS has been able to confine the increase to modest levels.

The conclusion of the Logan report was that the high level of contestability of the Commonwealth legal market would lead to greater competition and thus improved efficiency in the provision of legal services to the Commonwealth. AGS's anticipation of the new regime demonstrates fully the force of Logan's advice to us on contestability.

In essence, client departments and agencies should achieve better value for their money by making better decisions about their use of resources, based on their recognition of real costs, whether they be with AGS, in-house lawyers or the private sector. There is no evidence to suggest that departments and agencies will be paying more for the same level of services. Of course, it is possible that, with the benefit of a better service, departments and agencies may choose to purchase more legal services from AGS or elsewhere than before—in particular, rather than having them performed in-house. They may also recognise the value of legal services to their work and choose to spend more of their running costs on them.

Given the critical importance of proper legal services in so many areas of government operations, I would be most concerned, as first law officer, if departments and agencies were not obtaining legal services to the full extent necessary. It would be extremely short-sighted, given the adverse financial and other consequences that can follow. I am not not aware of any evidence to suggest that the ongoing and proposed reforms are having, or will have, the impact on costs that is suggested. However, the situation will be kept under review.

It is yet another error to suggest that the government has not considered the possibility of departments and agencies engaging in-house lawyers as a result of the proposed reforms. Again, this was a matter that was considered in some detail in the Logan report. The introduction of recent budgetary reforms including accrual accounting requires departments and agencies to take into account the true cost of in-house lawyers and to ensure that they are operating in a manner which gives proper value for money when compared with the commercial services available from private law firms and the AGS.

One of the recommendations of the Logan report, which examined the position of in-house lawyers in some detail, was that departments and agencies should review their use of in-house lawyers in light of the government's policies on competitive tendering and contracting and competitive neutrality. The overall message given by the honourable member for Barton is one of doom and gloom for the AGS if the bill were enacted. Let me reject that completely. (Quorum formed)

As I have previously mentioned, most of the reforms that the honourable member for Barton complains of are already in place. In particular, the AGS is operating as an administratively separate unit from the Attorney-General's Department. It makes tax equivalent payments and it is making a profit from which dividends are payable. Contrary to the statement by the honourable member for Barton, the government is not placing an unrealistic burden on the AGS to make profits. As I mentioned before, the AGS has had this obligation since the adoption of the reforms by the former government.

In November 1994 the then Attorney-General, Michael Lavarch, and the then Minister for Finance, Mr Kim Beazley, signed the memorandum of understanding which required the then legal practice to prepare an annual business plan that included targets for rates of return. The MOU required the legal practice to pay a dividend based on the 10-year Treasury bond rate plus two percentage points for risk on the equity invested by the Commonwealth in the practice. In short, the financial arrangements under which the AGS is now operating are in essence no different from those which have operated since the 1993-94 financial year.

As I have said, the AGS is meeting its obligation to return a profit and I am confident that it will continue to do so. It is a strong, viable organisation and provides high quality essential legal advice, litigation and other important services to government and its agencies. The government is determined to ensure that this continues.

As the honourable member for Curtin rightly pointed out, the Logan report concluded that there was an important and continuing role for the government to retain its own solicitors. Government ownership is in the public interest. There are strong reasons why the sale of AGS assets would not be justified. The government therefore accepted the recommendation of the Logan report that privatisation not occur.

Another aspect of the doom and gloom prediction from the opposition arises from the limited client base which is permitted by the bill. As has always been the case, the AGS is limited by constitutional requirements and by its functions as the government solicitor to acting for government bodies and persons and bodies having a close connection with government. In fact, the bill expands somewhat on the persons and bodies for whom the AGS can act and makes it easier for it to do so.

However, the more important point is to reject any suggestion that this restriction will prevent the AGS from competing effectively with private law firms. The Logan report estimated that the size of the Commonwealth legal market is around $200 million per annum. The AGS has a large slice of this market and, given their expertise in the field, there is no reason to believe they will not continue to be a dominant force. Furthermore, the constitutional, cabinet, national security and international law work that is tied up in the AGS in view of their importance in a `whole of government' sense, provides some balance for the restricted field of clients available to the AGS. However, the point that has to be made again is that the restrictions on available clients applies regardless of the bill's enactment and the measures in the bill will assist the AGS.

Yet another opposition fallacy was evident when they spoke about the mechanism under the bill to enable me to issue legal service directions. In addition, they had not done their homework in stating that the Office of Legal Services Coordination in the Attorney-General's Department, which is responsible for the administration of these directions, is staffed by three people. When the Office of Legal Services Coordination was first established it was staffed by two lawyers and an administrative assistant. The honourable member for Barton is, however, badly out of date. (Quorum formed)

(Extension of time granted)

I had just made the point, on behalf of the Attorney-General, that the restrictions on the availability of clients to the AGS, regardless of the bill's enactment and the measures in the bill, will be to assist the AGS. Since the Office of Legal Services Coordination establishment was first made, in light of a further assessment of its current and expected future work the number of positions for lawyers has been increased from two to six. Apart from the director's position, the next most senior position will be filled with the return to the department in March of this year by an experienced SES band 1 officer.

The fact that the department has found these extra resources for the OLSC in a period of very tight funding is indicative of the very high priority accorded to that office's functions. Furthermore, the level of resources provided for these functions will be kept under review. The Attorney-General takes his role as first law officer very seriously and can assure the House that he will not allow this role to suffer because of the lack of resources for the OLSC. Since the office was established in 1997, it has established a good working relationship with government departments and agencies. It has also been active in monitoring compliance with the existing legal services policies and guidelines. It has also publicised these policies and guidelines on its web site and has become the first port of call for departments' and agencies' queries about legal services.

Two additional points should be made in relation to the enforcement of legal services directions. First, the establishment of OLSC has meant that AGS is no longer responsible for enforcement of legal services policies and guidelines. OLSC is better placed to carry out this function because it does not have to be concerned with the possible damage to a commercial relationship which AGS faced when it told clients that they were not allowed to take action inconsistent with these policies and guidelines. Secondly, and most importantly, the passage of the Judiciary Amendment Bill will greatly enhance OLSC's position in enforcing the legal services directions because of the statutory force given to the directions. The need for this power was very effectively explained by the honourable member for Curtin.

Once again, in seeking to block this bill the opposition is doing exactly the opposite of what they are saying when they complain about the very few teeth that are given to enforce the directions. Enforcement of the directions will be a very important part of the Attorney-General's role as the first law officer. In the debate on the bill the arguments from both the honourable member for Calare and the honourable member for Barton reveal that they had misunderstood fundamental aspects of the thinking behind the bill. In particular, the member for Calare stated that the AGS will not be able to compete effectively because of its public interest responsibilities. The public interest responsibilities relevant to the current debate are not those of the AGS but rather of the Attorney-General. The AGS does not have public interest responsibilities of its own but rather performs these functions in its capacity as the government's solicitor.

It is the Attorney-General's responsibilities as first law officer which in effect necessitate the AGS behaving in a manner consistent with the Attorney's public interest responsibilities. The Attorney-General's public interest responsibilities stem from his primary role as first law officer. This encompasses general responsibility for Commonwealth laws, the legal system and the Commonwealth's role within the system. In particular, the Attorney-General has an adviser role as the principal legal adviser to the cabinet and to the Commonwealth government. The Attorney-General is also the final arbiter of legal advice within the executive branch of government, and it is part of this role to ensure that the Commonwealth takes a consistent view in relation to key legal issues.

The Attorney-General is responsible for ensuring that a whole of government approach is taken in relation to legal advice. This means that legal advice to the government must be consistent and take account of the whole of government's interests. Cabinet should not therefore make decisions on the basis of narrow advice obtained by one agency for its own purposes. Another facet of the Attorney-General's first law officer responsibilities is his role in the conduct of litigation involving the Commonwealth. Suits involving the Commonwealth are handled in the name of the Attorney-General and cases involving constitutional issues are brought to his attention under the provisions of the Judiciary Act.

The Attorney-General's role in litigation also includes a whole of government interest, in particular where litigation raises sensitive political or policy issues for the government or where litigation is likely to have a flow-on effect on government activities. The Attorney-General also has a particular role where litigation affects or involves a range of departments or agencies and they need to be coordinated.

The Attorney-General's interest in more general matters concerning Commonwealth litigation includes establishing policy on the pleading of statutes of limitation and the regulation of counsel fees. The maintenance of the model litigant policy is also one of his particular responsibilities. In performing these responsibilities, the Attorney-General has established policies and guidelines for the conduct of Commonwealth litigation. These policies and guidelines must be adhered to by all Commonwealth departments and agencies when they are involved in litigation.

The identity of particular legal service providers, whether AGS or private law firms, is irrelevant. The policies and guidelines established apply to the conduct of all Commonwealth legal work. It should be clear from these comments that it would be entirely inconsistent with the purpose of the legal services directions for them to be enforceable by private litigants, as the honourable member for Barton proposed.

Let me conclude by emphasising the two key points as to why the reforms in the bill are not only desirable but essential to achieve the same objectives that the opposition seeks to achieve. Firstly, the reforms will strengthen the position of the AGS by enabling it to operate more efficiently and effectively in providing legal services to the Commonwealth. The bill will enable the AGS to compete on a level playing field with private law firms and introduce efficiencies to the benefit of departments and agencies. Secondly, the power to issue legal services directions will strengthen the position of the Attorney-General in achieving a comprehensive set of directions and policies to govern the delivery of legal services throughout the Commonwealth. I commend the bill to the House.

Question resolved in the affirmative.

Bill read a second time.