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Financial Framework Legislation Amendment Bill (No. 1) 2012



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ISSN 1328-8091

Parliament of Australia Departmentof Parliamentary Services

Contents

Purpose .................................................................................................................................................... 2

Background .............................................................................................................................................. 2

Financial implications ............................................................................................................................... 3

Key provisions .......................................................................................................................................... 3

Schedule 1 - amending the Auditor-General Act 1997 ...................................................................... 3

Schedule 2 - amending the CAC Act ................................................................................................... 4

Schedule 3 - amending the Financial Framework Legislation Amendment Act 2010 ....................... 4

Schedule 4 - amending the FMA Act .................................................................................................. 4

Concluding comments ............................................................................................................................. 6

BILLS DIGEST NO. 123, 2011-12 14 March 2012

Financial Framework Legislation Amendment Bill (No. 1) 2012

Anne Holmes Economics Section

2 Financial Framework Legislation Amendment Bill (No. 1) 2012

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Financial Framework Legislation Amendment Bill (No. 1) 2012

Date introduced: 16 February 2012

House: House of Representatives

Portfolio: Finance and Deregulation

Commencement: Sections 1 to 3, and anything in the Bill not covered elsewhere in the table in clause 3, commence on Royal Assent. Schedule 5 also commences on Royal Assent. Part 1 of Schedule 2 and Schedule 4 commence on the day after the Bill receives Royal Assent. Schedule 1 and Part 2 of Schedule 2 commence on a day to be fixed by Proclamation or, if the provisions do not commence within the period of six months beginning on the day the Bill receives Royal Assent, they commence on the day after the end of that period. Schedule 3 items 1 and 2 commence immediately after 1 March 2011, that being the time specified in the Financial Framework Legislation Amendment Act 2010 for the commencement of items 7 and 8 of Schedule 5 to that Act, to which these items are related.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

To amend four Acts and repeal two Acts across three portfolios to clarify the Commonwealth’s financial framework and amend the governance and financial arrangements of existing government bodies.

Background

The financial framework underpins the appropriation, expenditure and use of money and resources within the Australian Government. It is an important feature of an accountable and transparent public sector and informs the daily work of Australian Government agencies, office holders and their employees. The main elements of the framework are two Acts and various items of policy guidance.1

The majority of Commonwealth government bodies are agencies which are regulated by either the Financial Management and Accountability Act 1997 (the FMA Act) or the Commonwealth Authorities and Companies Act 1997 (the CAC Act). The financial management responsibilities of agencies that

1. Department of Finance and Deregulation, ‘Financial Framework’, viewed 7 March 2012, http://www.finance.gov.au/financial-framework/index.html

Financial Framework Legislation Amendment Bill (No. 1) 2012 3

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are legally and financially part of the Commonwealth are set out in the FMA Act.2 The Act sets out requirements for the collection of public money, the maintenance of accounting records, and the control and management of public property. It also specifies the responsibilities of chief executives, and the power of the Finance Minister to make regulations and delegate powers.3

Entities that are separate financially and legally from the Commonwealth will generally be subject to the CAC Act.4 The CAC Act regulates certain aspects of:

• the corporate governance, financial management and reporting of Commonwealth authorities

(authorities), which are in addition to the requirements of their enabling legislation and • the corporate governance and reporting of Commonwealth companies (companies) which are in

addition to the requirements of the Corporations Act 2001.5

This Bill is one of a series of Bills which amend the legislation to address issues with the financial framework as they arise and attempt to ensure that the legislation remains up to date.

Financial implications

The Bill does not have any financial implications.

Key provisions

Schedule 1 - amending the Auditor-General Act 1997

The CAC Act used to refer to a ‘company in which the Commonwealth has a controlling interest.’ It was amended in 2008 to refer to a ‘Corporations Act company that the Commonwealth controls’, and a definition of the meaning of ‘controls’ was inserted in section 34 of the CAC Act.

The Auditor-General Act was not amended at that time, so it continued to refer to ‘a company in which the Commonwealth has a controlling interest.’ This item brings the Auditor-General Act into line with the CAC Act.

2. A list of FMA Act agencies is at http://www.finance.gov.au/publications/flipchart/docs/FMACACFlipchart.pdf 3. Department of Finance and Deregulation, ‘FMA Legislation’, viewed 7 March 2012, http://www.finance.gov.au/financial-framework/fma-legislation/index.html 4. A list of CAC Act agencies is at http://www.finance.gov.au/publications/flipchart/docs/FMACACFlipchart.pdf 5. Department of Finance and Deregulation, ‘CAC Legislation’, viewed 7 March 2012,

http://www.finance.gov.au/financial-framework/cac-legislation/index.html

4 Financial Framework Legislation Amendment Bill (No. 1) 2012

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Schedule 2 - amending the CAC Act

Part 1 amends the CAC Act so that directors of Commonwealth authorities and wholly-owned Commonwealth companies (other than Government Business Enterprises) will be required to prepare Budget estimates as directed by the Finance Minister (rather than their responsible Minister). According to the Explanatory Memorandum for the Bill, this reflects current practice, as is reflected in the debate in the House of Representatives.6

Part 2 seeks to ensure that, from 1 July 2012, directors of Commonwealth authorities and wholly owned Commonwealth companies notify the responsible Minister of decisions about certain significant events (such as creating a subsidiary). This replaces the existing section which requires them to notify the Minister about proposals, and is consistent with the requirements on companies to disclose significant events to their shareholders.

Schedule 3 - amending the Financial Framework Legislation Amendment Act 2010

The Financial Framework Legislation Amendment Act 2010 was intended to update section 27A of the CAC Act to replace references to ‘at common law and in equity’ and ‘at common law or in equity’ with the phrase ‘under the general law’. However, the words ‘and’ and ‘or’ were transposed so that the intended amendment did not take effect. Schedule 3 is intended to remedy this. It would operate retrospectively.

The Explanatory Memorandum states that the retrospective commencement of this Schedule would not affect any entrenched or fundamental rights.7 The Senate Scrutiny of Bills Committee sought the Minister’s further advice as to whether the changes could possibly cause detriment to any person. Mr Richard Marles, Parliamentary Secretary for Pacific Island Affairs, in the second reading debate in the House of Representatives, advised the parliament that the changes could not possibly cause detriment to any person.8 The connection to common law and equity are retained within the meaning of general law.

Schedule 4 - amending the FMA Act

Item 3 of Schedule 4 clarifies the commencement date for the legislative instruments which create Special Accounts. These are determinations which are disallowable instruments, and this amendment makes it clear that such a determination may take effect on a date specified in the determination so long as it is later than the five sitting days after tabling, during which a motion of

6. See for example House of Representatives, Hansard, 1 March 2012, p. 87. 7. Explanatory Memorandum, Financial Framework Legislation Amendment Bill (No. 1) 2012, p. 5. 8. House of Representatives, Hansard, 1 March 2012, p. 94

Financial Framework Legislation Amendment Bill (No. 1) 2012 5

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disallowance could be moved.9 This will allow a Special Account that is to be used by a new government agency to start on the same day as the new agency.

Item 1 and items 4 to 8 amend the FMA Act in the light of a recent court case. In 2009 inthe case of Pape v Commissioner of Taxation10 the High Court held that sections 81 and 83 of the Australian Constitution only authorised the appropriation of money and were not a power to spend money. Item 1 creates a new definition of a ‘designated Special Account appropriation’ which relates to the Council of Australian Governments Reform Fund and the Special Accounts established by the Nation-building Funds Act 2008. The impact of Items 4 and 7 is that the concept of a drawing right (which at present is generally required for the spending of public money) applies to only these designated Special Account appropriations. Item 8 means that a drawing right has no effect if it purports to authorise a payment for which there is no available appropriation. The Explanatory Memorandum states:

This also focuses the role of the drawing right on the concept of making a payment, rather than the internal procedural matter of debiting an appropriation. The need for an appropriation would still apply for notional payments, through the continued operation of section 6 (which treats a notional payment between agencies, where both are within the Commonwealth, as equivalent to a real payment by an Agency to a recipient outside of the Commonwealth).

11

Items 5 and 6 remove the penalty attached to section 26 of the FMA Act on the basis that misuse of public funds can be dealt with by other penalties in the FMA Act, the Crimes Act 1914 and the Criminal Code Act 1995.

Item 10 ‘empowers the Finance Minister, on behalf of the Commonwealth, to exercise a discretion to “set off” amounts owed to the Commonwealth with amounts payable to the Commonwealth’.12 The purpose of this provision is to enable the Commonwealth to recover debts in a cost neutral and more effective manner. At present it is the chief executive of a Commonwealth agency who pursues a debt. They may have recourse to legal processes which are time consuming and costly. Currently this process must be followed even when that agency, or another Commonwealth agency, at the same time may be required to make a payment to the debtor. This provision would enable the debt to be held against money to be paid from another agency - that is, it would operate on a whole of government basis to rationalise the payment and receipt of money by the Commonwealth.

There is concern that this gives the Commonwealth too much power in a relationship with a member of the public. It can assert that a debt is owing, and the person involved may not have the resources to challenge the Commonwealth and may thus lose an entitlement. This issue was raised by Mr Steven Ciobo in the House of Representatives debate.13

9. Explanatory Memorandum, p. 17 10. (2009) 238 CLR 1. 11. Explanatory Memorandum, p. 20. 12. Explanatory Memorandum, p. 23. 13. House of Representatives, Hansard, 1 March 2012, p. 89

6 Financial Framework Legislation Amendment Bill (No. 1) 2012

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Mr Richard Marles, in the second reading debate in the House of Representatives, noted that:

‘The government does not intend that this provision be used in relation to a tax liability that may be payable to the Australian Taxation Office within the broad meaning of a tax liability under the Tax Administration Act 1953’. 14

However, the reservation expressed may apply to other dealings between the Commonwealth and the public.

Concluding comments

Most of the provisions of this Bill are largely technical and in the nature of tidying up the financial governance framework. There has been little commentary on the proposal in item 10 of Schedule 4 but the concerns raised in relation to the Commonwealth being able to assert that there is a debt warrant further investigation or clarification.

14. Ibid.

Financial Framework Legislation Amendment Bill (No. 1) 2012 7

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