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Financial Framework Legislation Amendment Bill (No. 2) 2012



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ISSN 1328-8091

Parliament of Australia Department of Parliamentary Services

Contents

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

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

Committee consideration ................................................................................................................... 3

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

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

Recoverable advance ..................................................................................................................... 4

Recoverable payments .................................................................................................................. 4

Recoverable death payment.......................................................................................................... 6

Transparency and accountability ................................................................................................... 6

Payment practices ......................................................................................................................... 7

Schedule 2 ...................................................................................................................................... 9

Concluding comments ............................................................................................................................. 9

BILLS DIGEST NO. 169, 2011-12 25 June 2012

Financial Framework Legislation Amendment Bill (No. 2) 2012 Leo Terpstra Economics Section Paula Pyburne Law and Bills Digest Section

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

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Financial Framework Legislation Amendment Bill (No. 2) 2012

Date introduced: 30 May 2012

House: Representatives

Portfolio: Finance and Deregulation

Commencement: Sections 1-3 on the day of Royal Assent; Schedules 1 and 2 on the day after the day of Royal Assent.

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

The purpose of the Financial Framework Legislation Amendment Bill (No. 2) 2012 (the Bill) is to amend 21 acts across six portfolios to ensure that issues relating to some Commonwealth payments are consistent with legislative and constitutional requirements.

Background

The Commonwealth financial framework underpins the appropriation, expenditure and use of money and resources within the Australian Government and is an important feature of an accountable and transparent public sector.1

The legislative basis for this framework is the Commonwealth of Australia Constitution Act (the Constitution), the Financial Management and Accountability Act 1997 (FMA Act), and the Commonwealth Authorities and Companies Act 1997 (CAC Act).2 The Constitution establishes that all money raised or received by the Executive government forms one Consolidated Revenue Fund (CRF)3,

and provides that money can be spent only if it is appropriated by law.4

In this way, the

Constitution ensures that Parliament controls the funding of the Executive.

1. Department of Finance and Deregulation, Financial Framework website, viewed 20 June 2012, http://www.finance.gov.au/financial-framework/index.html 2. Department of Finance and Deregulation, Is less more? Towards better Commonwealth Performance, Discussion paper, Commonwealth of Australia, Canberra, 2012, viewed 20 June 2012,

http://www.cfar.finance.gov.au/discussion-paper/ 3. Section 81, Constitution. 4. Section 83, Constitution.

Financial Framework Legislation Amendment Bill (No. 2) 2012 3

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However, the Constitution leaves it to the Parliament to make detailed legal provisions relating to government operations. Laws relating to the financial operations of government, such as the FMA Act and the CAC Act, provide the legislative basis for much of the financial framework.

Since 2004, amendments have been made to the financial framework principally to address specific, and often discrete, issues. This is the tenth Financial Framework Legislation Amendment Bill.

This Bill addresses issues raised by the Australian National Audit Office relating to particular breaches, or risks of breaches, of section 83 of the Constitution.5 Due to the complexity of identifying breaches of section 83 of the Constitution and resolving them, this Bill is the first in a series intended to address this issue. The Department of Finance and Deregulation is investigating the potential of a whole-of-government solution. 6

Committee consideration

In its report of 21 June 2012, the Senate Selection of Bills Committee decided not to refer this Bill to Committee for inquiry and report.7 Similarly, the Senate Standing Committee for the Scrutiny of Bills has advised that it had no comment on the Bill.8

Financial implications

According to the Explanatory Memorandum, the amendments in the Bill have no financial impact.9

Key provisions

The Minister’s second reading speech states that the Bill’s proposed amendments are of a technical nature but relate to routine financial practices designed to ensure that the Commonwealth’s financial framework remains effective and up-to-date.10

5. Australian National Audit Office, Audits of the financial statements of Australian Government Entities for the period ended 30 June 2011, http://www.anao.gov.au/Publications/Audit-Reports/2011-2012/Audits-of-the-Financial-Statements-of-Australian/Audit-brochure 6. Commissioner of Taxation, Annual Report 2010-11, Australian Taxation Office, Canberra, October 2011, p.47, viewed

20 June 2012, http://www.ato.gov.au/content/downloads/cr00295453ar1011.pdf 7. Selection of Bills Committee, Report no. 7 of 2012, The Senate, Canberra, 21 June 2012, viewed 22 June 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=selectionbills_ctte/reports/2 012.htm 8. Standing Committee for the Scrutiny of Bills, Alert digest no. 6 of 2012, The Senate, Canberra, 20 June 2012, viewed

22 June 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=scrutiny/alerts/2012/index.h tm 9. Explanatory Memorandum, p. 3.

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

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The Bill is divided into two parts:

• Schedule 1 amends 21 Acts to establish a framework for dealing with overpayments; to improve

the management of administration processes that run the risk of breaching the requirements of section 83 of the Constitution; and to address inconsistencies with existing legislation and current administration practices. It also adopts accountability mechanisms that require agencies to publicly report the use of certain provisions contained in the Bill11 • Schedule 2 makes legal certain pensions and lump sum payments made in breach of the Defence

Force Retirement and Death Benefits Act 1973 and other legislation, including section 83 of the Constitution.

Recoverable advance

Item Act being amended New sections

124 Taxation Administration Act 1953 Proposed section 15B

Item 124 of Schedule 1 to the Bill amends the Taxation Administration Act 1953 (TAA) to prevent non-compliance with section 83 of the Constitution in relation to some payments by the Commissioner of Taxation (the Commissioner).12 Proposed section 15B of the TAA allows the Commissioner to make a ‘recoverable advance’ where the Commissioner knows, or has reasonable grounds to know, that the payment exceeds the amount that the law requires or would permit, but the costs to the community of taking the necessary steps to make the correct payment are greater than the amount of the excess. Where a recoverable advance is made, the amount of the advance is a debt due to the Commonwealth which can be recovered in a court of competent jurisdiction.

Recoverable payments

Item Act being amended New sections

43 Defence Force Retirement and Death Benefits Act 1973 Proposed section 124B

10. G Gray (Special Minister of State and Minister for the Public Service and Integrity), ‘Second reading speech: Financial Framework Legislation Amendment Bill (No. 2) 2012’, House of Representatives, Debates, 30 May 2012, p. 14, viewed 20 June 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F4a17e30 d-c43b-48b9-83ed-4280fc00314c%2F0048%22

11. Explanatory Memorandum, p. 6. 12. P Cleary, ‘Taxman paid out $590m in mistakes’, The Australian, 28 January 2012, p. 7, viewed 20 June 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F1375891%22 and I McIlwraith, ‘Treasury fouls up, but it’s just a minor breach’, The Sydney Morning Herald, 2 November 2011.

Financial Framework Legislation Amendment Bill (No. 2) 2012 5

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66 Governor-General Act 1974 Proposed section 4C

72 Local Government (Financial Assistance) Act 1995 Proposed section 18A

73 Military Superannuation and Benefits Act 1991 Proposed section 16B

78 Parliamentary Contributory Superannuation Act 1948 Proposed section 24AA

120 Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Act 2008 Proposed section 5

122 Superannuation Act 1976 Proposed section 156B

123 Superannuation Act 1990 Proposed section 39A

124 Taxation Administration Act 1953 Proposed section 15C

The amendments in the table above, with the exception of those relating to the Local Government (Financial Assistance) Act 1995 and the Taxation Administration Act 1953, set out in similar terms the authorisation for the Commonwealth to make certain payments to a person as a ‘benefit’ where the Commonwealth does not know at the time of making the payment that it exceeds the amount that the law otherwise requires, or would permit. This allows the payment to be covered by the standing appropriation. Payments made under these amendments are a debt due to the Commonwealth which can be recovered in a court of competent jurisdiction. In cases where the person who has received the replacement payment has an entitlement to a benefit, the amount of the replacement payment can be recovered by deduction from the benefit.

For the Local Government (Financial Assistance) Act 1995 proposed section 18A provides that overpayments which are made to a State under that Act may be recovered by deduction from future amounts authorised by the Local Government (Financial Assistance) Act 1995 that the state is entitled to be paid.

For the TAA, proposed section 15C provides that the Commissioner may make payments in circumstances where the Commissioner does not know at the time of making the payment that it exceeds the amount that the law would otherwise require or permit. In that case, the amount of the payment will be supported by the standing appropriation in section 16 of the TAA. The overpaid amount is a debt due to the Commonwealth which may be recovered in a court of competent jurisdiction. In the alternative, the recoverable payment may be recovered by deduction from an amount that is payable to the recipient by the Commonwealth under a taxation law.

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

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Recoverable death payment

Item Act being amended New sections

43 Defence Force Retirement and Death Benefits Act 1973 Proposed section 124C

66 Governor-General Act 1974 Proposed section 4D

73 Military Superannuation and Benefits Act 1991 Proposed section 16C

78 Parliamentary Contributory Superannuation Act 1948 Proposed section 24AB

120 Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Act 2008 Proposed section 6

122 Superannuation Act 1976 Proposed section 156C

123 Superannuation Act 1990 Proposed section 39B

The amendments in the table above set out in similar terms the authority of the Commonwealth to make recoverable death payments. The amendments provide that amounts paid by way of superannuation between the date of death of the person and the date of the notification of the death, are taken to have been paid to the deceased person’s estate. The payment is then a debt due to the Commonwealth by the person’s legal personal representative.

Transparency and accountability

Item Act being amended New sections

43 Defence Force Retirement and Death Benefits Act 1973 Proposed section 124D

66 Governor-General Act 1974 Proposed section 4E

73 Military Superannuation and Benefits Act 1991 Proposed section 16D

78 Parliamentary Contributory Superannuation Act 1948 Proposed section 24AC

120 Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Act 2008 Proposed section 7

122 Superannuation Act 1976 Proposed section 156D

123 Superannuation Act 1990 Proposed section 39C

Financial Framework Legislation Amendment Bill (No. 2) 2012 7

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124 Taxation Administration Act 1953 Proposed section 15D

The amendments in the table above set out in similar terms the requirement to report about recoverable payments and recoverable death payments. (It should be noted that the TAA does not provide for recoverable death payments but must comply with the reporting requirements in the same term in respect of recoverable advances and recoverable payments.)

Those provisions define the term ‘reporting period’ as a financial year or a shorter period specified in a legislative instrument by the relevant Minister, or the Finance Minister (however specified). Similarly, the term ‘applicable publication period’ for a reporting period is defined as being four months, or a lesser number of months that is specified in a legislative instrument made by the relevant Minister, or the Finance Minister (however specified).

During the applicable publication period for a reporting period the Secretary or the Chief Executive (however specified) must publish a report setting out the number of recoverable payments or recoverable advances made during the reporting period and the total amount of those payments, as well as the number of recoverable death payments made during the reporting period and the total amount of those payments. There are also provisions which allow for deferred reporting—but there are no exemptions from reporting.

According to the Explanatory Memorandum, the report may be included in the agency’s annual report or on its website.13 A number of agencies currently do this, for example, Australian Taxation Office.14

Payment practices

Item Act being amended New sections

33-40 Dairy Produce Act 1986 Proposed subsections 6(4),

6(4A)-(4C) and 6(8)-(9)

44-51 Egg Industry Service Provision Act 2002 Proposed subsections 8(3),

8(3A)-(3C) and 8(7)-(8)

54-63 Forestry Marketing and Research and Development Services Act 2000 Proposed subsections 9(4), 9(4A)-(4C) and 9(8)-(9)

67-69 Horticulture Marketing and Research and Development Proposed subsections 16(7A)-(7D) and 16(8A)-

13. Explanatory Memorandum, p. 8. 14. Australian National Audit Office, op. cit., p. 50.

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

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Services Act 2000 (8B)

79-87 Pig Industry Act 2001 Proposed subsections

10(8), 10(8A)-(8C), 10(11A) and 10(15)

90-113 Primary Industries and Energy Research and Development Act 1989 Proposed subsections 32(1), 32(1A)-(1D), 110(1)

and 101(1A)-(1D)

125-131 Wool Services Privatisation Act 2000 Proposed subsections

31(7), 31(7A)-(7C) and 31(8C)-(8D)

The amendments in the table above generally relate to primary industry services bodies which are funded by various statutory industry levies on the one hand, and by matching payments from the Commonwealth on the other.

The amendments inserted into each of the listed Acts provide in similar terms that the matching payments by the Commonwealth are capped at a maximum of 0.5 per cent of an industry’s Gross Value of Production (GVP) and that it is a condition of payment that where an industry body has

received more than the capped amount (when the amount is finally calculated), it will pay to the Commonwealth an amount equal to the excess.

To determine an industry’s GVP, the relevant Secretary or Minister relies on data provided by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). However the latest, most accurate figures may not be available so payment may inadvertently exceed the funding ceiling of 0.5 per cent of industry GVP. The Bill amends the relevant Acts to prevent inadvertent breaches of section 83 of the Constitution if payments are later found to exceed the cap. The amendments validate the making of matching payments as well the recovery of any inadvertent overpayments.

Under the existing provisions of the Australian Animal Health Council (Live-stock Industries) Act 1996 the Commonwealth is required to pay the Australian Animal Health Council (the Council) the net amount of certain levies, charges and penalties less the Commonwealth’s administrative costs collecting and recovering those amounts. The amendments in items 1-23 of Schedule 1 to the Bill will make it a condition of a payment by the Commonwealth to the Council, that the Commonwealth pay the Council the total amount of the levies, charges and penalties and the Council will owe to the Commonwealth an amount equal to the costs incurred by the Commonwealth in collecting or recovering levies, charges or penalties and in administering payments to the Council. The

Financial Framework Legislation Amendment Bill (No. 2) 2012 9

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Commonwealth may then offset those amounts against payments that the Commonwealth must make to the Council in the future.15

An amendment in similar terms is made in respect of monies paid by the Commonwealth to the Australian Maritime Safety Authority.16 It is intended that these amendments will not lead to any direct transfers of cash money between the Commonwealth and the relevant agency but merely underpin the accounting practices already in place.

Another example in the current Bill of aligning legislation with current practices is by making it legislatively clear that payments from the National Residue Survey Account (a Special Account under the FMA Act) are supported by the appropriation.17 According to the Explanatory Memorandum these amendments will ‘address a technical breach where approval of the program is delayed by an administrative process’.18

Schedule 2

Items 1-6 of Schedule 2 to the Bill validate certain pensions and lump sum payments made under the Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act) to regularise the treatment of certain benefit recipients, consistent with existing practice. Currently these payments are made in breach of the DFRDB Act and section 83 of the Constitution.19

Members of the Defence Force Retirement and Death Benefits (DFRDB) scheme (which closed in 1991) who re-entered the Australian Defence Force, needed to elect which scheme to join—the DFRDB or the new scheme, the Military and Superannuation Benefits (MSB) scheme. Many did not elect or the election that was made was incorrect, so that benefits paid to some DFRDB recipients were not supported by a valid appropriation.

Schedule 2 to the Bill validates elections between 1 October 1991 and 30 June 2008 of DFRDB scheme members who should have been placed into the MSB scheme.

Concluding comments

Not all of the amendments in this Bill address known breaches of section 83 of the Constitution. Some address circmstances where a breach of section 83 has not been established, but is a possibility.

15. Items 1-23 of Schedule 1 to the Bill, amending the Australian Animal Health Council (Live-stock Industries) Funding Act 1996. 16. Item 24 of Schedule 1 to the Bill, amending the Australian Maritime Safety Authority Act 1990. 17. Items 75 and 76 of Schedule 1 to the Bill, amending the National Residue Survey Administration Act 1992. 18. Explanatory Memorandum, p. 9. 19. Explanatory Memorandum, p. 59.

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

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