Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Nation-building Funds Bill 2008

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

 

 

2008

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

 

NATION-BUILDING FUNDS BILL 2008

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

(Circulated by authority of the Minister for Finance and Deregulation,

The Honourable Lindsay Tanner MP)





Glossary

The following abbreviations and acronyms are used in this Explanatory Memorandum.

 

Abbreviation/acronym

Definition

ABS

Australian Bureau of Statistics

Act

Nation-building Funds Bill 2008 as passed by the Parliament

Acts Interpretation Act

Acts Interpretation Act 1901

Agency

Future Fund Management Agency

BAF

Building Australia Fund

BAF portfolio Minister

Infrastructure Minister or Communications Minister or Energy Minister or Water Minister

BAF Portfolio Special Accounts

BAF Infrastructure Portfolio Special Account or BAF Communications Portfolio Special Account or BAF Energy Portfolio Special Account or BAF Water Portfolio Special Account

Bill

Nation-building Funds Bill 2008

COAG

Council of Australian Governments

Communications Department

Department of Broadband, Communications and the Digital Economy

Communications Minister

Minister for Broadband, Communications and the Digital Economy

Consumer Protection Act

Telecommunications (Consumer Protection and Service Standards) Act 1999

Corporations Act

Corporations Act 2001

Education Department

Department of Education, Employment and Workplace Relations

Education Minister

Minister for Education, Employment and Workplace Relations

EIF

Education Investment Fund

EIF designated Ministers

Education Minister and Research Minister

EIF portfolio Minister

Education Minister or Research Minister

EIF Portfolio Special Accounts

EIF Education Portfolio Special Account or EIF Research Portfolio Special Account

Energy Department

Department of Resources, Energy and Tourism

Energy Minister

Minister for Resources and Energy

Finance Department

Department of Finance and Deregulation

Finance Minister

Minister for Finance and Deregulation

Financial Sector (Shareholdings) Act

Financial Sector (Shareholdings) Act 1998

FMA Act

Financial Management and Accountability Act 1997

Funds

BAF, EIF and HHF

Future Fund Act

Future Fund Act 2006

Future Fund Board

Future Fund Board of Guardians

GGS

General Government Sector

Health Department

Department of Health and Ageing

Health Minister

Minister for Health and Ageing

HEEF

Higher Education Endowment Fund

HEEF Act

Higher Education Endowment Fund Act 2007

HHF

Health and Hospitals Fund

Infrastructure Australia Act

Infrastructure Australia Act 2008

Infrastructure Department

Department of Transport, Infrastructure, Regional Development and Local Government

Infrastructure Minister

Minister for Transport, Infrastructure, Regional Development and Local Government

ITAA

Income Tax Assessment Act 1997

Legislative Instruments Act

Legislative Instruments Act 2003

NBN

National Broadband Network

Research Department

Department of Innovation, Industry, Science and Research

Research Minister

Minister for Innovation, Industry, Science and Research

responsible Ministers

Finance Minister and Treasurer

Water Department

Department of the Environment, Water, Heritage and the Arts

Water Minister

Minister for Climate Change and Water



Outline

The Nation-building Funds Bill 2008 is part of a package of three Bills giving effect to the Government’s 2008-09 Budget announcement to establish:

·          three new financial asset funds to provide financing sources to meet the Government’s commitment to Australia’s future by investment in critical areas of infrastructure such as transport, communications, energy, water, education and health; and

·          a COAG Reform Fund as a vehicle through which:

-           capital transfers from the Funds may be disbursed to the States and Territories; and

-           funding provided in future budgets may be disbursed to the States and Territories.

The Bill:

·          Establishes three separate funds - the BAF, EIF and HHF - which, like the Future Fund, are financial asset funds consisting of cash and investments.

-           The BAF is focussed on capital investment in transport infrastructure (such as roads, rail, urban transport and ports), communications infrastructure (such as broadband), energy infrastructure and water infrastructure.

-           The EIF is focussed on capital investment in higher education infrastructure and vocational education and training infrastructure (that is, capital expenditure and renewal and refurbishment in universities and vocational education and training institutions, research facilities and major research institutions).

-           The HHF is focussed on capital investment in health infrastructure, such as the renewal and refurbishment of hospitals, medical technology equipment and major medical research facilities and projects.

·          Grants the Treasurer and the Finance Minister, as the responsible Ministers, the power to credit funds to the BAF, EIF and HHF through Special Accounts (which are also established by the Bill).

-           The Government will provide initial transfers to the BAF from the remaining proceeds of the Telstra 3 sale, the assets of the Communications Fund (which will be closed), and $7.5 billion from the 2007-08 budget surplus.

-           The Government will provide initial transfers to the EIF from the assets of the Higher Education Endowment Fund (which will be closed) and $2.5 billion from the 2007-08 budget surplus.

-           The Government will provide an initial transfer to the HHF of $5 billion from the 2007-08 budget surplus.

-           The Government may add to the BAF, EIF and HHF from future surpluses as appropriate.

·          Gives the Future Fund Board statutory responsibility for managing the investments of the BAF, EIF and HHF.  These powers are the same as provided for in the Future Fund Act.

·          Expands the Agency’s operational activities as a result of the Future Fund Board’s role in relation to the BAF, EIF and HHF.  The Agency’s role will remain the same - to provide executive support for the Future Fund Board and be responsible for the operational activities associated with the investment of the BAF, EIF and HHF.

·          Requires the responsible Ministers to issue Investment Mandates - a collection of Ministerial directions - to the Future Fund Board regarding the investment of the BAF, EIF and HHF.  The purposes of the Investment Mandates are same as provided for in the Future Fund Act.

·          Provides for Infrastructure Australia to give advice to:

-           the Infrastructure Minister regarding potential payments from the BAF in relation to the creation or development of transport infrastructure;

-           the Communications Minister regarding potential payments from the BAF in relation to the creation or development of communications infrastructure (except for eligible national broadband network matters);

-           the Energy Minister regarding potential payments from the BAF in relation to the creation or development of energy infrastructure; and

-           the Water Minister regarding potential payments from the BAF in relation to the creation or development of water infrastructure.

·          Establishes the EIF Advisory Board to give advice to:

-           the Education Minister regarding potential payments from the EIF in relation to the creation or development of higher education infrastructure, vocational education and training infrastructure and eligible education infrastructure; and

-           the Research Minister regarding potential payments from the EIF in relation to the creation or development of research infrastructure.

·          Establishes the HHF Advisory Board to give advice to the Health Minister regarding potential payments from the HHF in relation to the creation or development of health infrastructure.

·          Provides that a BAF portfolio Minister, an EIF portfolio Minister or the Health Minister is required to obtain and have regard to such advice where he or she recommends a payment may be directed from the BAF, EIF or HHF respectively, including where the payment will be channelled through the COAG Reform Fund.

·          Requires the Infrastructure Minister to formulate BAF evaluation criteria, in consultation with the Communications Minister, Energy Minister, Water Minister, the Treasurer and the Finance Minister, to be applied by Infrastructure Australia in giving advice to the Infrastructure Minister, the Communications Minister, the Energy Minister or the Water Minister.

·          Requires the Education Minister and the Research Minister together, as the ‘EIF designated Ministers’, to formulate EIF evaluation criteria, in consultation with the Treasurer and the Finance Minister, to be applied by the EIF Advisory Board in giving advice to the Education Minister or the Research Minister.

·          Requires the Health Minister to formulate HHF evaluation criteria, in consultation with the Treasurer and the Finance Minister, to be applied by the HHF Advisory Board in giving advice to the Health Minister.

-           The evaluation criteria framework is designed to ensure rigour around the use of resources from the BAF, EIF and HHF.

·          Provides for the Finance Minister to direct payments from the BAF, EIF and HHF Special Accounts.

-           Payments will be channelled through BAF Portfolio Special Accounts, EIF Portfolio Special Accounts and the HHF Health Portfolio Special Account to support expenditure in relevant infrastructure.

-           Where grant payments to States and Territories will be channelled through the COAG Reform Fund, the Finance Minister may direct that an amount be debited from the BAF, EIF or HHF and transferred to the applicable BAF Portfolio Special Account, EIF Portfolio Special Account or the HHF Health Portfolio Special Account, and subsequently credited to the COAG Reform Fund for that purpose.

·          Provides for the annual Appropriation Acts to declare that a specified amount is the general drawing rights limit in relation to a financial year.  This will limit the amount that may be covered by drawing rights under the FMA Act, and hence, the amount that can be paid from the BAF, EIF and HHF to support expenditure in relevant infrastructure in a financial year.

-           This mechanism is consistent with the Government’s objective that payments from the BAF, EIF and HHF are transparent and subject to parliamentary scrutiny.

-           Special arrangements apply to the determination of a general drawing rights limit covering the period up to 30 June 2009 in order to give effect to the Government’s announcement to fast track its nation-building agenda in response the global financial crisis.  The general drawing rights limit, in relation to the financial year ending 30 June 2009, will be that declared by the Finance Minister in writing.

·          Allows spending proposals from the BAF, EIF and HHF to include the acquisition, in the name of the Commonwealth, of financial assets (such as shares, debentures and trust units) in a company involved in the creation or development of relevant infrastructure.

·          Provides for the overall level of debits from the BAF, EIF and HHF in a financial year to be consistent with the Government’s objective that the level of spending from the Funds should depend primarily on the macroeconomic conditions.



Financial Impact Statement

·          The Government may make contributions to the BAF, EIF and HHF from realised budget surpluses.

·          Transfers to the BAF, EIF and HHF will not impact on the budget bottom line since the Government will be transferring funds within the GGS.

·          The Government is committed to providing:

-           initial transfers to the BAF from the remaining proceeds of the Telstra 3 sale, the assets of the Communications Fund (which will be closed), and $7.5 billion from the 2007-08 budget surplus.

-           initial transfers to the EIF from the assets of the Higher Education Endowment Fund (which will be closed) and $2.5 billion from the 2007-08 budget surplus.

-           an initial transfer to the HHF of $5 billion from the 2007-08 budget surplus.

·          It is intended that both the capital contributions and the earnings of the BAF, EIF and HHF will be available over time to finance specific infrastructure projects.  There is no cap on annual disbursements from the BAF, EIF and HHF.  However, the annual Appropriation Acts will set a general drawing rights limit for each financial year.  This will limit the amount that may be covered by drawing rights under the FMA Act, and hence, the amount that can be paid for the BAF, EIF and HHF to support relevant infrastructure expenditure in that year, including payments that are channelled through the COAG Reform Fund.

·          The BAF, EIF and HHF will be created within the GGS.  All earnings and expenditure from the Funds will impact on the budget aggregates.

·          All expenses associated with investment and administration of the BAF, EIF and HHF by the Future Fund Board, including funds manager’s fees, will be met from the BAF, EIF or HHF respectively.  There is provision for common costs of the BAF, EIF, HHF and the Future Fund to be apportioned.



 

NATION-BUILDING FUNDS BILL 2008

NOTES ON CLAUSES

 

Chapter 1—Preliminary

Clause 1 - Short Title

Clause 1 provides for the Act to be cited as the Nation-building Funds Act 2008.

Note :  The clauses in the Bill will become sections of the Act on Royal Assent.

Clause 2 - Commencement

Clause 2 is the commencement provision for the Bill.  The commencement dates for specific provisions are included in the table in subclause 2(1).

Item 1 of the table provides that the short title and commencement provisions (and anything not elsewhere covered by the table) commence on the day on which the Bill receives Royal Assent.

Item 2 of the table provides that all other provisions commence on 1 January 2009.  However, commencement of these provisions is subject to the Nation-building Funds (Consequential Amendments) Act 2008 receiving Royal Assent before 1 January 2009.

Clause 3 - Simplified outline

Clause 3 is an information provision which is intended to provide a high level introduction to the contents of the Bill, in order to aid readability.

Clause 4 - Definitions

Clause 4 provides definitions of the terms and expressions used in the Bill.  While these terms are largely self-explanatory, the following more significant defined terms are noted:

Agency means the Future Fund Management Agency, which will assist the Future Fund Board in managing the assets of the various Funds.

BAF evaluation criteria refers to the evaluation criteria to be developed by the Infrastructure Minister (in consultation with the Communications Minister, the Energy Minister and the Water Minister) under clause 120 and which are to be applied by Infrastructure Australia in giving advice about transport infrastructure, communications infrastructure, energy infrastructure and water infrastructure.

Building Australia Fund (or BAF) is the Fund to be established by Chapter 2 of the Bill to fund approved transport infrastructure and communications infrastructure payments.

Building Australia Fund Investment Mandate is the investment mandate for the BAF to be provided to the Future Fund Board by the Treasurer and the Finance Minister.

business entity means a company, a partnership, a trust or a body politic.

COAG Reform Fund means the Fund to be established under the COAG Reform Fund Bill 2008 for the purpose of making grants of financial assistance in relation to infrastructure projects to the States and Territories.

Education Investment Fund (or EIF) is the Fund to be established by Chapter 3 of the Bill to fund approved education and research infrastructure payments.

Education Investment Fund Investment Mandate is the investment mandate for the EIF to be provided to the Future Fund Board by the Treasurer and the Finance Minister.

EIF Advisory Board means the board to be established by clause 170.  The principal function of the board is to advise the EIF designated Ministers in relation to infrastructure matters referred to it by those Ministers.

EIF designated Ministers are the Education Minister and the Research Minister.

EIF evaluation criteria means the evaluation criteria to be developed by the Education Minister and the Research Minister under clause 172 and which are to be applied by the EIF Advisory Board in giving advice about education infrastructure and research infrastructure.

Future Fund Board means the Future Fund Board of Guardians, appointed under the Future Fund Act, and which will have responsibilities in relation to the management and investment of the Funds.

Health and Hospitals Fund (or HHF) is the Fund to be established by Chapter 4 of the Bill to fund approved health infrastructure payments.

Health and Hospitals Fund Investment Mandate is the investment mandate for the HHF to be provided to the Future Fund Board by the Treasurer and the Finance Minister.

HHF Advisory Board means the board to be established by clause 245.  The principal function of the board is to advise the Health Minister in relation to infrastructure matters referred to it by that Minister.

HHF evaluation criteria means the evaluation criteria to be developed by the Health Minister under clause 247 and which are to be applied by the HHF Advisory Board in giving advice about health infrastructure.

higher education institution means an institution that is specified in a legislative instrument to be made by the EIF designated Ministers.

national broadband network means a national telecommunications network for the high-speed carriage of communications.  The terms “carriage”, “communications” and “telecommunications network” have the same meanings as in the Telecommunications Act 1997 .  It is intended that the concept of “a national telecommunications network” would involve network that would have a presence in each State of Australia and in the Australian Capital Territory and the Northern Territory.  A note to this definition takes the reader to subclause 7(2) which makes it clear that a national broadband network is not necessarily required to extend to any or all of the external territories.

research institution means an institution that is specified in a legislative instrument to be made by the EIF designated Ministers.

responsible Ministers means the Treasurer and the Finance Minister who share certain responsibilities, including in relation to the crediting of amounts to the Funds and the setting of the Investment Mandates for the Future Fund Board.

vocational education and training provider means a person or body that is specified in a legislative instrument to be made by the EIF designated Ministers.

Clause 5 - Financial assets

Clause 5 provides a definition of financial asset , which is intended to be widely read, consistent with the definition of financial asset used for budget reporting purposes. This definition is derived from the Australian Bureau of Statistics (ABS) manual of concepts and classification principles used for publishing government finance statistics.  The ABS publication is based on a similar manual produced by the International Monetary Fund.

Consistent with the BAF, EIF and HHF being financial asset Funds, the Future Fund Board can only invest the BAF Special Account, EIF Special Account and HHF Special Account in financial assets.  Allowing the Future Fund Board to invest directly in non-financial assets would be inconsistent with the objectives of the policy and the Government’s broader fiscal policy and budget management.  The restriction extends to direct investments in real property, jewellery or artwork, for example.  However, the Future Fund Board may gain exposure to these types of assets through pooled property investments or other investment vehicles (listed and unlisted).

Regulations may also be made to clarify that an asset specified in the regulations is a financial asset for the purposes of the Act.  It is not intended that regulations would contradict the definition of a financial asset in the ABS publication - merely that it would provide the Future Fund Board with certainty in relation to whether certain assets would meet this definition.  For the same reason, the regulations may also clarify that an asset is not a financial asset.

The note at the end of clause 5 assists the reader by referring to subsection 13(3) of the Legislative Instruments Act in respect of any specification of an asset under the regulations.  The effect of subsection 13(3) of that Act is that the regulations, which specify assets for the purposes of this clause, may do so by reference to a class or classes of assets.

Clause 6 - Crown to be bound

Clause 6 provides that the Act binds the Crown in each of its capacities but does not make the Crown liable to be prosecuted for an offence.

Clause 7 - Extension to external Territories

Clause 7 provides that the Act extends to every external Territory, including Norfolk Island.  The effect of subclause 7(2) is to make it clear that a national broadband network (for the purposes of the Act) would not necessarily be required to extend to any external Territory.

Clause 8 - Extra-territorial application

Clause 8 provides for the geographical reach of this Act to be very wide - applying both within and outside of Australia — due to the possibility that the BAF, EIF and HHF may be invested in overseas markets.



CHAPTER 2 - BUILDING AUSTRALIA FUND

Part 2.1—Introduction

Clause 9 - Object

Clause 9 sets out the objects of Chapter 2, namely to enhance the Commonwealth’s ability to make payments in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure.

Clause 10 - Simplified outline

Clause 10 is an information provision which provides an overview of Chapter 2 to assist with readability.

Part 2.2—Building Australia Fund

Division 1—Introduction

Clause 11 - Simplified outline

Clause 11 is an information provision which provides an overview of Part 2.2 to assist with readability.

Division 2—Establishment of the Building Australia Fund etc.

Clause 12 - Establishment of the Building Australia Fund

Clause 12 establishes a financial asset fund — the Building Australia Fund (BAF) — consisting of amounts credited to a Building Australia Fund Special Account (see clause 13 below) and investments of the BAF.  The distinction between the cash and asset components relates to the need for cash to be duly appropriated, rather than a desire to distinguish between cash and other types of investments held in the BAF.

An investment of the Building Australia Fund is defined in Part 2.3 to include money invested in financial assets (including returns on those investments), derivatives acquired under clause 42 and other financial assets that the Future Fund Board becomes a holder of through a securities lending arrangement or otherwise.

Clause 13 - Establishment of the Building Australia Fund Special Account

Clause 13 establishes the Building Australia Fund Special Account (the Fund Account) — a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Any amounts credited to the BAF Special Account are quarantined from the rest of the Consolidated Revenue Fund and can only be debited from the BAF for the purposes set out in clauses 18, 19 and 20, or for the purposes of channelling funds to a BAF Portfolio Special Account and to the COAG Reform Fund, in order to make BAF related payments.

The note immediately following clause 13 is included to assist the reader by clarifying that, in addition to the processes set out in clauses 14, 15, 16 and 17, amounts can be credited to the BAF Special Account by an Appropriation Act.

Division 3—Credits of amounts to the Building Australia Fund

Clause 14 - Initial credits of amounts to the Building Australia Fund Special Account

The BAF will receive initial credits through instalments comprising an amount of $7.5 billion from the 2007-08 budget surplus, a portion of the proceeds of the Telstra 3 sale and the assets of the Communications Fund.

Clause 14 provides the mechanism for amounts to be credited to the BAF Special Account on a particular date or by set instalments on particular dates.  This mechanism will allow for relevant amounts from the 2007-08 budget surplus to be credited to the BAF.

Subclause 14(1) provides that initial contributions to the BAF will be credited to the BAF Special Account through a written determination or determinations by the responsible Ministers.  These contributions can be credited either in one lump sum or by instalments. 

Subclause 14(2) provides that the responsible Ministers must ensure that, by 30 June 2009, the BAF is credited with $7.5 billion.  This amount comprises of funds to be credited to the BAF from the 2007-08 budget surplus.

The notes at the end of subclause 14(2) assist the reader.  Note 1 refers to clause 16, which provides for the balance of the Communications Fund Special Account to be credited to the BAF.  Note 2 refers to clause 33, which provides for the BAF to inherit the investments of the Communications Fund.  Note 3 refers to clause 17, which provides for the balance of the Telstra Sale Special Account to be credited to the BAF.

Subclause 14(3) provides that the responsible Ministers must not make a determination under subclause 14(1) after 30 June 2009 - the date by which the credit of $7.5 billion must be made to the BAF.

Additional contributions to the BAF will be a subsequent credit under subclause 15(1).  For example, any amounts credited to the BAF from future budget surpluses would be credited under subclause 15(1) (see below).

Subclause 14(4) provides that determinations for crediting the initial contributions to the BAF Special Account cannot be revoked.

Subclause 14(5) deems that a determination to credit the initial contribution to the BAF is a legislative instrument for the purposes of section 5 of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds required to establish the BAF are about to be transferred.  The same approach was taken in equivalent provisions in the Future Fund Act.

Clause 15 - Subsequent credits of amounts to the Building Australia Fund Special Account—determinations by the responsible Ministers

Clause 15 allows for future Government contributions to be made to the BAF, which could be made out of future realised surpluses, subject to other policy priorities.

Subclause 15(1) provides that Government contributions to the BAF, subsequent to the initial contribution, are made through determinations by the responsible Ministers.  Such further credits can be made either in one lump sum or by instalments.

The note at the end of subclause 15(1) assists the reader by referring to subsection 33(3) of the Acts Interpretation Act.  This subsection deals with variations and revocations of instruments and provides that a power to make an instrument also includes a power to vary or revoke an instrument unless the contrary intention appears.

Subclause 15(2) requires the responsible Ministers to have regard to the object of the Chapter in making determinations to credit further amounts to the BAF.  Therefore, subsequent credits from the BAF will be made with reference to the need for future investment in transport, communications, energy and water infrastructure.

Subclause 15(3) provides that a determination to credit subsequent amounts to the BAF is a legislative instrument for the purpose of section 5 of the Legislative Instruments Act.  As such, the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds are about to be transferred.  The same approach was taken in equivalent provisions in the Future Fund Act.

Clause 16 - Credit of amount to the Building Australia Fund Special Account—balance of the Communications Fund Special Account

The Communications Fund was established by Part 9C of the Consumer Protection Act, which is proposed to be repealed by the Nation-building Funds (Consequential Amendments) Bill 2008.  The Communications Fund will be closed and its balance transferred to the BAF.  The Communications Fund consists of the Communications Fund Special Account and the investments of the Communications Fund.

Clause 16 provides for the balance of the Communications Fund Special Account (created under the proposed to be repealed section 158ZH of the Consumer Protection Act), as at immediately before the commencement of this section, to be credited to the BAF.  This credit will be made once the section commences.

The BAF inherits the investments of the Communications Fund under clause 33.

Clause 17 - Credit of amount to the Building Australia Fund Special Account—balance of the Telstra Sale Special Account

The Government has announced that proceeds from the Telstra 3 sale will be credited to the BAF.

Clause 17 provides that the responsible Ministers may make a written determination that, at a specified time, the balance of the Telstra Sale Special Account is to be credited to the BAF Special Account. 

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds required to establish the BAF are about to be transferred.  The same approach was taken in equivalent provisions in the Future Fund Act.

Note that the Telstra Sale Special Account was established as a Special Account under subsection 20(1) of the FMA Act, and it is intended that the account will be abolished, once the balance is credited, under subsection 20(3) of the FMA Act.

Division 4—Debits of amounts from the Building Australia Fund

Clauses 18 to 20 set out the purposes for which the BAF Special Account may be debited.  These purposes are split across three categories: purposes relating exclusively to the Fund, purposes relating to transitional arrangements for the transfer of investments from the Communications Fund, and purposes not related exclusively to the BAF, but which could be attributed to the BAF, Future Fund, EIF and HHF (for example, paying the remuneration and allowances of Future Fund Board members).

Clause 18 - Purposes of the Building Australia Fund Special Account—payments purposes and purposes related exclusively to the Building Australia Fund

Clause 18 sets out the purposes for which the BAF Special Account may be debited that relate exclusively to the BAF.

These purposes are:

·          making payments in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure; and

·          the payment of various expenses (associated with the investment and administration of the BAF) that can be exclusively attributed to the BAF.  While the range of such costs are as set out in clause 18, examples include paying the expenses of an investment of the BAF and paying expenses incurred by the Future Fund Board under a contract with investment managers.

The terms ‘the creation or development of transport infrastructure’, ‘the creation or development of communications infrastructure’, ‘the creation or development of energy infrastructure’ and ‘the creation or development of water infrastructure’ are intended to provide flexibility and a broad scope in relation to transport, communications, energy and water infrastructure projects that may be considered for funding from the BAF.  A payment in relation to the creation or development of transport infrastructure, communications infrastructure, energy infrastructure and water infrastructure can also have the extended meaning provided under clauses 21, 22, 24 and 25 respectively (see below).

While allowing for flexibility for infrastructure projects eligible to be considered for funding, the Government has indicated a clear focus for the BAF, EIF and HHF to assist with financing investment in the creation or development of infrastructure, consistent with a broader nation-building objective.  Accordingly, it is intended that funding would be directed towards capital expenditure, which could include associated labour costs related to the creation or development of infrastructure (where required).

However, consistent with the Government’s intention that the BAF provide financing for the creation or development of relevant infrastructure, it is not intended that expenditure of a recurrent nature relating to running costs (such as staff wages and maintenance) would be financed from the BAF.  Accordingly, where specific projects have an ongoing cost component, it is intended that such funding would be sourced through other means.  This could include direct funding from the budget (outside the BAF), or funding by the States or Territories in relation to proposals that are brought forward as part of the COAG reform agenda.

The term eligible national broadband network matter defines particular matters (related to the NBN) for which payments may be made from the BAF, in addition to transport infrastructure, communications infrastructure, energy infrastructure and water infrastructure.  Again, the focus is on the creation and development of relevant infrastructure, consistent with the Government’s objectives for the BAF.

The purpose of paragraph 18(1)(l) is to allow the BAF to be used to discharge any other expenses or liabilities incurred by the Future Fund Board that are exclusively incurred in connection with the BAF.  It is also intended to capture miscellaneous costs that may arise and are not covered by the other existing purposes.

A note at the end of subclause 18(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 18(2) provides that paragraphs 18(1)(b) and (c), relating to communications infrastructure and eligible national broadband network matters, do not limit each other in their application.

Subclause 18(3) provides that a payment under paragraphs 18(1)(a), (b), (c), (d) or (e) may be made by way of a grant of financial assistance or by a payment that is not a grant of financial assistance.  This provides flexibility in relation to payments from the BAF.

Other payments (i.e. payments that are not grants) include payments for the acquisition, in the name of the Commonwealth, of financial assets (such as shares, debentures and trust units) in a company involved in the creation or development of relevant infrastructure.  Other payments could also include public-private partnership payments.

The Commonwealth would also have the flexibility to make a payment (other than by a grant of financial assistance) to a State or Territory under an ordinary contractual obligation.

Note that under clauses 63, 70, 77 and 84, the Finance Minister may direct that a specified amount is to be debited from the BAF Special Account and credited to the BAF Infrastructure Portfolio Special Account, the BAF Communications Portfolio Special Account, the BAF Energy Portfolio Special Account or the BAF Water Portfolio Special Account, respectively.  Such a direction is to allow that amount to be debited from the BAF Infrastructure Portfolio Special Account, the BAF Communications Portfolio Special Account, the BAF Energy Portfolio Special Account or the BAF Water Portfolio Special Account for the purposes of making a specified payment in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, an eligible national broadband network matter, the creation or development of energy infrastructure or the creation or development of water infrastructure (see clauses 63, 70, 77 and 84 below).

Further note that, under clauses 89, 94, 99 and 104, the Finance Minister may direct that a specified amount is to be debited from the BAF Special Account and transferred, through the relevant BAF Portfolio Special Account, to the COAG Reform Fund Account (which will be established as a Special Account under the FMA Act on commencement of the COAG Reform Fund Act 2008 ).  Such a direction is to allow that amount to be subsequently debited from the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory in relation to the creation or development of relevant transport, communications, energy and water infrastructure (see clauses 89, 94, 99 and 104 below and also see section 6 the COAG Reform Fund Act 2008 , which sets out the purposes of the COAG Reform Fund).

Clause 19 - Purposes of the Building Australia Fund Special Account—transitional

The BAF inherits the investments of the Communications Fund under clause 33.  Clause 19 provides transitional arrangements to allow the BAF to be debited to pay any costs, expenses, obligations or liabilities incurred by the Commonwealth in connection with the Communications Fund, where those costs, expenses, obligations or liabilities were incurred (but not discharged) before the commencement of the BAF.

This includes costs relating to the acquisition of financial assets under the proposed to be repealed section 158ZO of the Consumer Protection Act (paragraph 19(a)), expenses of an investment of the Communications Fund under the proposed to be repealed section 158ZP of that Act (paragraph 19(b)) and the costs relating to the acquisition of derivatives under the proposed to be repealed section 158ZQ of that Act (paragraph 19(c)), together with any other miscellaneous costs, expenses, obligations or liabilities that were incurred before commencement of the BAF (paragraph 19(d)).

Note 1 at the end of clause 19 assists the reader by referring to section 21 of the FMA Act, which relates to debits from Special Accounts.

Note 2 informs the reader that the Communications Fund was established by the proposed to be repealed section 158ZG of the Consumer Protection Act.

Clause 20 - Purposes of the Building Australia Fund Special Account—purposes not related exclusively to the Building Australia Fund

Clause 20 relates to payment of various expenses for purposes that are not exclusively attributable to the BAF, but could be attributed to the BAF, Future Fund, EIF or HHF.  The intention of subclauses 20(a) to (g) is to allow common costs of the BAF, Future Fund, EIF and HHF to be paid initially by one Fund (with subsequent apportionment between the Funds).

A note at the end of clause 20 assists the reader by referring to section 21 of the FMA Act, which relates to debits from Special Accounts.

Clause 21 - Extended meaning of payment in relation to the creation or development of transport infrastructure

Clause 21 extends the meaning of the phrase payment in relation to the creation or development of transport infrastructure as it relates to the BAF Special Account.  The purpose of this clause is to allow payments from the BAF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of transport infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  The extended definition is intended to provide flexibility in how the Government invests in the creation or development of transport infrastructure.

Shares, debentures or units acquired under paragraphs 21(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 21(d) similarly applies in relation to business entities.

Paragraph 21(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Infrastructure Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the BAF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 121 of the Bill which provides that investment provisions do not apply to these assets.

Clause 22 - Extended meaning of payment in relation to the creation or development of communications infrastructure

Clause 22 extends the meaning of the phrase payment in relation to the creation or development of communications infrastructure ,as it relates to the purposes of the BAF Special Account.  The purpose of this clause is to allow payments from the BAF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of communications infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  The extended definition is intended to provide flexibility in how the Government invests in the creation or development of communications infrastructure outside of the NBN.

Shares, debentures or units acquired under paragraphs 22(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 22(d) similarly applies in relation to business entities.

Paragraph 22(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Communications Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the BAF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 121 of the Bill which provides that investment provisions do not apply to these assets.

Clause 23 - Eligible national broadband network matter

In the 2008-09 Budget, the Government announced that it would provide up to $4.7 billion in funding for the NBN, as part of its broader commitment in relation to finance critical infrastructure in areas such as transport, communications, education and health.

Clause 23 defines the term eligible national broadband network matter as it relates to purposes of the BAF Special Account.  Eligible national broadband network matters relate to the creation or development of a national broadband network and the supply of a broadband carriage service over a national broadband network, and incidental or ancillary matters.

National broadband network is defined in the Bill to mean a national telecommunications network for the high-speed carriage of communications.  The terms “carriage”, “communications” and “telecommunications network” have the same meanings as in the Telecommunications Act 1997 .  It is intended that the concept of “a national telecommunications network” would involve network that would have a presence in each State of Australia and in the Australian Capital Territory and the Northern Territory.  A note to this definition takes the reader to subclause 7(2) which makes it clear that a national broadband network is not necessarily required to extend to any or all of the external territories.

The definition of eligible national broadband network matter is not intended to prescribe a particular form of funding or investment, rather it is intended to provide flexibility in how the Government may ultimately invest in the NBN.  This might include a combination of forms of investment covered by clause 23.  While the Government has indicated that its preference is for an equity investment, it has also indicated that it will consider other options with a view to achieving the optimal outcome.

Shares, debentures or units acquired under paragraphs 23(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 23(d) similarly applies in relation to business entities.

Paragraph 23(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

Assets for use in connection with a national broadband network referred to in paragraph 23(g) covers the acquisition of physical assets (such as physical infrastructure to be used in connection with the network).

An acquisition of shares, debentures, units or financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Communications Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the BAF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 121 of the Bill which provides that investment provisions do not apply to these assets.

Clause 24 - Extended meaning of payment in relation to the creation or development of energy infrastructure

Clause 24 extends the meaning of the phrase payment in relation to the creation or development of energy infrastructure as it relates to the BAF Special Account.  The purpose of this clause is to allow payments from the BAF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of energy infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  The extended definition is intended to provide flexibility in how the Government invests in the creation or development of energy infrastructure.

Shares, debentures or units acquired under paragraphs 24(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 24(d) similarly applies in relation to business entities.

Paragraph 24(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Energy Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the BAF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 121 of the Bill which provides that investment provisions do not apply to these assets.

Clause 25 - Extended meaning of payment in relation to the creation or development of water infrastructure

Clause 25 extends the meaning of the phrase payment in relation to the creation or development of water infrastructure as it relates to the BAF Special Account.  The purpose of this clause is to allow payments from the BAF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of water infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  The extended definition is intended to provide flexibility in how the Government invests in the creation or development of water infrastructure.

Shares, debentures or units acquired under paragraphs 25(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 25(d) similarly applies in relation to business entities.

Paragraph 25(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Water Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the BAF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 121 of the Bill which provides that investment provisions do not apply to these assets.

Clause 26 - Future Fund Board must ensure that there is sufficient money in the Building Australia Fund Special Account to cover authorised payments etc.

Clause 26 requires the Future Fund Board to take all reasonable steps to ensure that the amount of money standing to the credit of the BAF Special Account is sufficient to cover amounts to be debited from the BAF to support expenditure in relevant infrastructure - namely, payments in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure.  It also includes payments to be channelled through BAF Portfolio Special Accounts, and through the COAG Reform Fund for grants of financial assistance to States and Territories, in relation to relevant infrastructure.

A note at the end of clause 26 is inserted to assist the reader by clarifying that the Future Fund Board may need to liquidate non-cash assets in accordance with clause 34 in order to comply with this clause.

Division 5—Inter-fund transfers

Clauses 27 to 29 - Transfers from the Building Australia Fund to the Future Fund, Education Investment Fund, and Health and Hospitals Fund

Clauses 27 to 29 allow for amounts to be transferred between the BAF and the Future Fund, EIF and HHF.  The purpose of this is to cover the situation where one Fund pays entirely for an expense that should properly be apportioned between two or more Funds.  The clauses allow the Finance Minister to direct one Fund is to be debited and the other Fund or Funds credited by a specified amount.

Corresponding transfers from the Future Fund, EIF and HHF into the BAF are provided for in this Bill.

Subclauses 27(3), 28(3) and 29(3) make it clear that directions of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Part 2.3—Investment of the Building Australia Fund

Clause 30 - Simplified outline

Clause 30 is an information provision which provides an overview of Part 2.3 to assist with readability.

Clause 31 - Objects of investment of the Building Australia Fund

Subclause 31(1) is intended to reinforce that amounts are invested by the Future Fund Board for the main objects of enhancing the Commonwealth’s ability to make payments in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure.

Subclause 31(2) sets out that the ancillary objects of the investment of the BAF are for enhancing the ability of the Commonwealth and the Future Fund Board to discharge costs, expenses, obligations and liabilities and make payments for the ancillary purposes as set out in paragraphs 18(1)(f) to (l), 19(a) to (d) and 20(a) to (g).

Clause 32 - Investment of the Building Australia Fund

Clause 32 is modelled on the investment powers under section 39 of the FMA Act. However, subclause 32(1) expands those powers to specifically provide for the investment of the BAF in a broad range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.  Specific conditions on the acquisition of derivatives are separately covered in clause 42.  This approach to investment of the BAF is consistent with similar arrangements for the Future Fund.

Investments of the BAF will be made in the name of the Future Fund Board (rather than the Commonwealth) to reinforce the position that the Future Fund Board manages the BAF at arm’s length from the Government.  However, beneficial ownership of the BAF remains with the Commonwealth at all times.

Subclause 32(3) provides that money invested in financial assets are ‘investments of the BAF’ and may be realised, disposed of or redeemed by the Future Fund Board.

Clause 33 - Building Australia Fund to inherit investments of the Communications Fund

The Communications Fund will be closed and its balance transferred to the BAF.

Clause 33 is a transitional provision relating to transfer of assets of the Communications Fund to the BAF.  It provides for the financial assets of the Communications Fund, which are held by the Commonwealth (and have continuously been held by the Commonwealth since commencement of the section), to become investments of the BAF.

The Commonwealth’s rights and powers associated with the assets may be exercised by the Future Fund Board and are taken to be a BAF investment function of the Future Fund Board.

The BAF inherits the balance of the Communications Fund Special Account under clause 16.

Clause 34 - Management of investments of the Building Australia Fund

Clause 34 sets out various matters relating to the management of investments of the BAF.

Subclauses 34(1) and (2) provide that income derived from an investment of the BAF, including a return of capital or another form of financial distribution, must be credited to the BAF Special Account.  This is consistent with the requirements under sections 81 and 83 of the Constitution (which, in effect, provide that public money forms part of the Consolidated Revenue Fund and can only be spent if authorised by an appropriation made by law).  In practice, any money that has not been invested must be held in an official bank account.  The requirement to hold the money in an official bank account is covered in the FMA Act.

Subclauses 34(3) to (5) relate to the arrangements that will apply in relation to the realisation of assets.   While subclauses 34(3) to (4) are self explanatory, subclause 34(5) allows the Future Fund Board to authorise, prior to an investment maturing, that the proceeds of this investment be automatically reinvested with the same entity.  This avoids the need for the proceeds of realisation of the investment to be treated as public money and credited to the Consolidated Revenue Fund only to be then reappropriated and reinvested.  Any reinvestment is an investment of the BAF.

Subclause 34(6) provides that section 39 of the FMA Act does not apply to an investment of the BAF.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  However, clause 32(1) provides for the investment of the BAF in a broader range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.

Clause 35 - Building Australia Fund Investment Mandate

It is appropriate that the Government, as manager of the economy and owner of the BAF, has a mechanism for articulating its overall expectations for how the BAF will be invested and managed by the Future Fund Board.  Clause 35 establishes a framework that enables the Government to give strategic guidance to the Future Fund Board while preserving the Board’s role in managing the investment of the BAF at arm’s length from the Government.  This approach is consistent with that existing in relation to the Future Fund.

Subclause 35(1) provides that the responsible Ministers have the power to give the Future Fund Board written directions in relation to the performance of its investment functions and the exercise of its powers.  The responsible Ministers must issue at least one direction to ensure that an Investment Mandate is in force at all times and to provide clarity and certainty to the Future Fund Board.  Note that Building Australia Fund investment function is defined in section 4.

Subclause 35(2) provides that any direction issued under subclause 35(1) has effect subject to the limitations set out in clause 36 - Limitation on Building Australia Fund Investment Mandate.

The fact that a direction has already been issued does not prohibit the responsible Ministers from issuing additional directions.  All of these directions together comprise the Investment Mandate (see subclauses 35(1) and 35(4)).

While the responsible Ministers can issue new directions at any time, the intention is that the Investment Mandate will reflect the nature of the Government’s policy.  Any new directions will therefore only be issued in light of significant policy changes or material changes in the investment environment faced by the BAF.

Subclause 35(3) provides that in setting an Investment Mandate, the responsible Ministers must have regard to maximising the return on the BAF, consistent with international best practice for institutional investment, enhancing the Commonwealth’s ability to make payments in relation to the objects of the BAF (set out in clause 9), and any other matters the Ministers consider to be relevant.  This requirement will give the Future Fund Board and the Parliament assurance that the responsible Ministers must consider the scope of their directions from an investment perspective, while ensuring that there is flexibility to take account of broader policy issues and national interest considerations.

Subclauses 35(5) and 35(6) provide that the Investment Mandate may include, but is not limited to, statements about policies the Future Fund Board must pursue in relation to risk and return and the allocation of the BAF to particular asset classes.  This may include restrictions or thresholds for investing the BAF in certain jurisdictions or asset classes and statements of the Government’s tolerance for losses.

Subclause 35(7) provides that any policies are subject to the limitations set out in clause 36.

Subclause 35(8) ensures that the Future Fund Board is not given conflicting directions regarding the Government’s tolerance for risk, its expectations for returns and any associated allocation of the BAF across asset classes.

To avoid doubt, subclause 35(9) makes it clear that the scope of the responsible Ministers’ power to issue directions to the Future Fund Board in relation to the investment of the BAF is bound by the Act.  For example, the responsible Ministers could not direct the Future Fund Board to use derivatives in a manner that contradicts clause 42 (which deals with the acquisition of derivatives by the Future Fund Board).

Subclause 35(10) provides that the Investment Mandate will not formally commence until at least 15 calendar days after it is issued.  This is to allow the Future Fund Board time to adjust to any revised directions issued by the responsible Ministers.  Importantly, the Future Fund Board will be able to know with certainty when the new direction will come into force.

Subclause 35(11) provides that directions under subclause 35(1), that set out certain rules that the Future Fund Board must comply with, are legislative in character and are therefore legislative instruments for the purposes of section 5 of the Legislative Instruments Act.  However, any directions issued by the responsible Ministers as part of the Investment Mandate are exempt from parliamentary disallowance provided by section 44 of the Legislative Instruments Act and exempt from sunsetting provided by section 54 of the Legislative Instruments Act).

As legislative instruments, any directions given to the Future Fund Board under this clause are required to be registered on the Federal Register of Legislative Instruments and tabled in the Parliament.

This approach enables the public and Parliament to hold the Government accountable for the directions it issues to the Future Fund Board without impeding the Government’s ability to manage its finances.

Subclauses 35(12) and 35(13) provide that, subject to the restrictions set out in the Act and the expectations of the Government as articulated in the Investment Mandate, the Future Fund Board has a statutory obligation to seek to maximise returns, consistent with international best practice for institutional investment and enhancing the Commonwealth’s ability to make payments in relation to the objects of the BAF (set out in clause 9).

This provision (together with subclause 35(8) ) establishes a clear hierarchy of priorities for the Future Fund Board — the responsibility to maximise returns is subordinate to the investment parameters set out by the Parliament and the Government.  This framework provides appropriate flexibility while still ensuring suitable accountability for any directions the Government gives the Future Fund Board regarding the investment of the BAF.

It also provides the Future Fund Board with clarity as to the extent of its accountability — the Future Fund Board must be able to demonstrate that it is pursuing policies and strategies that are clearly directed at maximising investment returns in a manner that is consistent with best practice.

It is expected that the Future Fund Board will adopt a best practice approach to a range of issues by learning from the experiences of other investors and funds of national significance.

The purpose of subclause 35(13) is to clarify that the subclause is the default position in the event that a direction under subclause 35(1) is not issued or is revoked.  However, a direction issued by the Ministers under subclause 35(1) will override subclause 35(12).

Clause 36 - Limitation on Building Australia Fund Investment Mandate

Clause 36 aims to ensure that the BAF is not invested in a way that is inconsistent with its objectives.  A similar clause exists in the Future Fund Act.

Subclause 36(1) specifies that the responsible Ministers cannot direct the Future Fund Board to use the assets of the BAF to invest in a particular financial asset, for example, shares in a particular infrastructure company.  It also prevents the responsible Ministers from issuing a Ministerial direction that has the effect of requiring the Future Fund Board to use the assets of the BAF to support a particular business entity, a particular activity or a particular business.

This clause does not limit the ability of the Investment Mandate to set out the policies as intended under the Bill, such as those to be pursued by the Future Fund Board in relation to matters of risk and return.

This clause does not limit the Commonwealth’s ability to acquire shares in a company, debentures in a company, units in a unit trust, or other vehicles that are allowed for the creation or development of relevant infrastructure under clauses 21, 22, 23, 24 and 25.  Such investments are external to the BAF and are not made by the Future Fund Board.

Clause 37 - Future Fund Board to be consulted on Building Australia Fund Investment Mandate

Consistent with the Future Fund arrangements, the responsible Ministers are required to consult the Future Fund Board on any changes or additions to the Investment Mandate.  Subclauses 37(1) and 37(3) achieve this by requiring the responsible Ministers to send a draft of the new direction to the Future Fund Board and inviting the Board to make a submission within a specified time limit.

The specified time limit will be determined on a case by case basis with regard to relevant circumstances and priorities at the time.  It may be the case that urgent changes are required in the national interest.  In this situation, it would be reasonable for the Future Fund Board to be asked to consider a draft direction quickly.  However, where there is less urgency, or the change in the Investment Mandate is quite substantial, it would be reasonable to provide the Future Fund Board with more time to consider a draft direction.

Subclause 37(2) provides that any submission received by the responsible Ministers from the Future Fund Board must be tabled in the Parliament with the new direction.  In this way, the Future Fund Board will be able to ensure that their views on the expected impact on their ability to maximise returns are publicly known.

Clause 38 - Compliance with Building Australia Fund Investment Mandate

Subclause 38(1) provides that it is the responsibility of the Future Fund Board to take all reasonable steps to ensure that all policies and decisions regarding the operation and investment of the BAF are in accordance with any directions (Investment Mandate) issued by the responsible Ministers. Since the Investment Mandate is intended to provide broad guidance to the Future Fund Board, it may contain directions that require the Board to apply its judgement on whether or not the BAF is complying with the Mandate.

Subclause 38(2) provides that if the Future Fund Board becomes aware of a breach of the Investment Mandate or judges that a policy does not comply with the Investment Mandate, it must inform the responsible Ministers in writing as soon as is practicable, including a proposed strategy to bring the operations of the BAF into accordance with the Investment Mandate.

Similarly, subclauses 38(3) and 38(4) provide that if the Government identifies areas where the Future Fund Board is not complying with the Investment Mandate, the responsible Ministers can issue written directions to the Board to take action to remedy the situation.  The Future Fund Board is required to comply with any such directions, noting that the responsible Ministers are the final arbiters on what is intended by the Investment Mandate.

Subclause 38(5) provides that any transactions undertaken by the Future Fund Board that are deemed later not to have complied with the Investment Mandate, are still valid and the Board is required to honour any commitment made.  This protects third parties who enter into transactions with the Future Fund Board or its agents in good faith.

Subclause 38(6) makes it clear that a direction under subclause 38(3) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Clause 39 - Future Fund Board must not trigger the takeover provisions of the Corporations Act 2001

To minimise market distortion and eliminate the potential for conflicts of interest for the Government as a market regulator, the Future Fund Board is prohibited from triggering the takeover provisions under section 606 of the Corporations Act.

Section 606 of the Corporations Act essentially prohibits acquisitions in relevant interests in the voting shares of a listed company, or unlisted company with more than 50 share holders, if a person’s voting power increases from a figure at or below 20% to a figure above 20% (or from a figure above 20% to a higher figure above 20% but below 90%) - unless the shares are acquired in one of the circumstances set out at section 611 of that Act.

However, it is the Government’s intention that the takeover threshold be adhered to quite strictly in relation to listed companies and unlisted companies with more than 50 shareholders.  Therefore, subclause 39(1) provides that the exceptions provided under section 611 of the Corporations Act (that is, exceptions to the prohibition in section 606) do not apply in relation to acquisitions by the Future Fund Board.

The prohibition on the Future Fund Board is not expected to have a material impact on the investment efficiency of the BAF as such limits are quite similar to those often used by other fund managers.  However, the Future Fund Board will need to have regard to the entirety of its interest (i.e. through investment of the BAF, Future Fund, EIF and HHF) in a particular company when the Board is proposing a particular acquisition in the context of the BAF.

Subclause 39(2) provides that if for some reason the Future Fund Board has not complied with section 606 of the Corporations Act (as it is applied to the Future Fund Board under clause 39), the relevant transactions will still be valid.  The aim of this provision is to ensure third parties are not adversely affected by any non compliance of the Future Fund Board.

A note at the end of the clause assists the reader by referring to section 39 of the Future Fund Act, which sets out the application of the Corporations Act to the Future Fund Board.

Note that the Future Fund Board is also prohibited from acquiring more than a 20% stake (as defined in the Financial Sector (Shareholdings) Act with a few minor adjustments) in a foreign publicly listed company.  This prohibition is found in section 84C of the Future Fund Act, but applies to the Future Fund Board’s activities in relation to the BAF, Future Fund, EIF and HHF.  Therefore, the Future Fund Board must take account of the overall level of its investment in a foreign listed company in complying with this provision.

Clause 40 - Borrowing

Clause 40 prohibits the Future Fund Board from borrowing money, except for short term borrowing associated with the settlement of transactions or in other circumstances prescribed in regulations (see subclause 40(3) below).

Consistent with the Future Fund Board’s broader role in relation to managing the assets of a number of funds (including the Future Fund), the eligibility of short term borrowing for transaction settlement is in line with the treatment of superannuation funds under the Superannuation Industry (Supervision) Act 1993 .

The overall aim of this clause is to ensure that the Future Fund Board is able to operate efficiently without exposing the budget to undue risk.

Subclause 40(3) provides that regulations may be made to specify circumstances in which it is considered appropriate for the Future Fund Board to be able to borrow.  Regulations may also be used to clarify any uncertainty on whether a particular activity constitutes borrowing.  While it is not anticipated that the Future Fund Board will have a need to borrow, this provision allows for unforseen events or changes in the investment environment without the need to amend the primary legislation.  The regulations would be disallowable by either House of the Parliament.

Clause 41 - Building Australia Fund investment policies

Subclauses 41(1), 41(3) and 41(7) provide that the Future Fund Board is required to formulate, publish and comply with a number of policies on its investment activities.

The aim of this provision is to ensure rigour and transparency around how the Future Fund Board performs its investment function in relation to the BAF, including risk management and performance assessment and benchmarks.

In addition to the specific matters set out in subclause 41(1)(a) to (d), the Future Fund Board is required to formulate, publish and comply with policies and any additional matters specified in regulations (see paragraph 41(1)(e) and subclause 41(7)).

A note at the end of subclause 41(1) reminds the reader that, under subsection 33(3) of the Acts Interpretation Act, the Future Fund Board is able to repeal, rescind, revoke, amend, or vary any such policies.

Subclause 41(2) provides that the policies that the Future Fund Board develops must not be incompatible with the Investment Mandate.

Subclause 41(4) provides that the Future Fund Board must publish the first set of policies on the internet as soon as is practicable following the commencement of this clause.

Subclauses 41(5) and 41(6) provide that the Future Fund Board must conduct reviews of these policies periodically and where the responsible Ministers change the Investment Mandate.  It is not expected that these reviews would be a formal process or that the results of the reviews would be required to be published.  However, if the review resulted in any changes to the policies, it is intended that the updated policies would be published on the internet.

Subclause 41(8) provides that if the Future Fund Board enters into a transaction which is not consistent with a policy that it has published under this clause, the transaction will still be valid.  This will ensure that third parties are not affected by any inconsistency with the Future Fund Board’s policies.  However, subclause 41(7) provides that the Future Fund Board is required to take all reasonable steps to comply with the policies it develops under subsection 41(1).

Subclause 41(9) makes it clear that the policies of the Future Fund Board are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 42 - Derivatives

Derivatives are widely used by financial market participants as a tool for risk management.  As the sophistication, size and mobility of capital markets around the world increases, investment managers are looking for more ways to maximise the returns on investments while minimising the volatility of results.  The types and volumes of derivatives being traded has grown exponentially as the underlying markets have created demand for these types of instruments.

Clause 42 provides for the Future Fund Board to make use of derivatives for certain purposes.  This includes as a risk management tool and to achieve indirect exposure to assets that it could not otherwise achieve.  The Future Fund Board may also use derivatives to reduce the transaction cost of achieving required exposures.  However, subclause 42(1) provides that it may not use derivatives for speculative purposes or for leverage.

Subclause 42(2) provides that the acquisition of derivatives under this clause cannot be inconsistent with the requirement under clause 41 for the Future Fund Board to formulate a policy on its investment strategy and take all reasonable steps to comply with that policy.

Subclauses 42(3) and 42(4) provide that derivatives must be held in the name of the Future Fund Board and are taken to be an investment of the BAF.  Similar to other investments, derivatives may be realised by the Future Fund Board under subclause 34(3).

Clause 43 - Additional financial assets

Clause 43 provides that if the Future Fund Board becomes a holder of another financial asset, for example through a capital distribution, that asset becomes an investment of the BAF and is therefore subject to all the restrictions and requirements for investments of the BAF.

Clause 44 - Securities lending arrangements

Clause 44 provides that the Future Fund Board is able to enter into securities lending arrangements.  Lending of securities is commonplace among institutional investors.  It may also take collateral as part of a securities lending arrangement.  Any collateral it takes is either credited to the BAF Special Account or becomes an investment of the BAF.

Clause 45 - Investment managers

Subclause 45(1) provides that the Future Fund Board is able to hire one or more investment managers.  Investment manager is defined broadly to include custodians, transition managers and other investment managers.  However, the Agency is excluded from this definition as it is generally expected that investment activities, such as acquiring derivatives or investing money, will be outsourced.

Unless approved by the responsible Ministers, the Future Fund Board must use investment managers to invest money in financial assets, acquire derivatives, enter into securities lending arrangements or realise financial assets.

Subclause 45(2) provides that the responsible Ministers may provide approval in writing for certain methods of investment, other than through investment managers, should it be prudent and cost effective to do so.

Subclauses 45(3) and 45(4) provide that the Future Fund Board is required to ensure that investment managers operate within the Act and must report on the state of investments of the BAF to the Board and the Agency.  It would be expected that such obligations are set out in the contractual arrangements between the Future Fund Board and the investment manager.

Clause 46 - Custody of securities

Clause 46 provides that section 40 of the FMA Act does not apply to investment of the BAF.

Section 40 of the FMA Act requires officials who receive any bonds, debentures or other securities in the course of their duties to deal with them in accordance with the Finance Minister’s Orders.  This provision is designed for departments of state who carry out a more limited range of investment activities than is envisaged for the Future Fund Board (and Agency) in relation to the BAF.  Further, making custodians and other investment managers comply with the Finance Minister’s Orders for investment purposes could impose an undue administrative burden.

While section 40 of the FMA Act is excluded, a framework for how the Future Fund Board must deal with securities that it receives in relation to the BAF is covered by clauses 34 and 44.

Clause 47 - Refund of franking credits

Under subsection 84B(1) of the Future Fund Act, the Future Fund Board is deemed to be an exempt institution that is eligible for a refund of franking credits under the ITAA.  As the Future Fund Board is exempt from income tax, it may have an investment bias towards assets whose return had not previously been subject to income tax (such as debt instruments or unfranked dividends).  Refunding franking credits removes any potential bias against franked dividends.

Clause 47 deals with refund of franking credits and provides that if the Future Fund Board receives a refund of a tax offset under the ITAA and the tax offset is attributable to the investment of the BAF, any refund received is credited to the BAF Special Account.

Clause 48 - Realisation of non-financial assets

Clause 48 requires the Future Fund Board to realise an asset that ceases to be a financial asset or any asset acquired by the Board (as an investment of the BAF) that is not a financial asset.  This could include circumstances where the Future Fund Board holds an asset which was mistakenly acquired by the Board, or given to the Board, or which ceases to be a financial asset due to a revision of the ABS government finance statistics manual, for example.

The clause provides that a non-financial asset is treated as a financial asset up to the time it is realised.  Paragraphs 48(1)(b) and 48(2)(b) ensure that the asset is considered an investment of the BAF and that relevant provisions relating to investments of the BAF apply to that asset for the time it is held by the Future Fund Board.

Clause 49 - Additional function of the Future Fund Board

Clause 49 provides that the functions of the Future Fund Board include the function of investing amounts in accordance with the Act.

Part 2.4—Payments

Division 1—Introduction

Clause 50 - Simplified outline

Clause 50 is an information provision which provides an overview of Part 2.4 to assist with readability.

The following diagram illustrates how payments may be made from the BAF.

 

It is the Government’s policy intention that payments from the BAF will be channelled through BAF Portfolio Special Accounts in line with BAF portfolio Ministers responsibilities for managing the delivery of infrastructure projects.  Grant payments will be disbursed to States and Territories, via the relevant BAF Portfolio Special Account, through the COAG Reform Fund.

Division 2—Direct payments

Clause 51 - Authorisation of payments

The Finance Minister has a central role in authorising payments (and directing payments to be channelled through Portfolio Special Accounts and the COAG Reform Fund - see below) from the BAF for projects agreed to by the Government through the annual budget process.  However, it is the Government’s intention that for any payments that have been authorised (or directed), relevant portfolio Ministers - in the case of the BAF, the Infrastructure Minister in relation to transport related matters, the Communications Minister in relation to communications related matters, the Energy Minister in relation to energy related matters and the Water Minister in relation to water related matters - will manage the delivery of projects (including obligations and any risks) associated with disbursements from the BAF.

Clause 51 allows the Finance Minister to authorise payments in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure.

It is not intended that payments in relation to broader communications related matters will limit each other in their application, which is confirmed by subclause 51(6) .  Accordingly, for example, the Finance Minister may authorise payments in relation to both communications infrastructure and an eligible national broadband network matter (i.e. where both aspects might exist in a particular case).

While the Finance Minister could authorise payments under each of subclauses 51(1), (2), (3), (4) and (5) through separate authorisation documents, subclause 51(7) allows flexibility for a single document to cover the authorisation of one or more payment(s) under any of subclauses 51(1), (2), (3), (4) and (5).  The aim of this is to provide for greater administrative efficiency in the authorisation of disbursements, where appropriate.

Payments authorised under clause 51 are made directly from the BAF Special Account to a State, Territory, or a person other than a State or Territory, noting that a person includes a partnership.

Payments that are channelled through the BAF Infrastructure Portfolio Special Account, the BAF Communications Portfolio Special Account, the BAF Energy Portfolio Special Account and the BAF Water Portfolio Special Account are dealt with separately in clauses 63, 70, 77 and 84 (see below).  It is intended that payments relating to transport infrastructure will be channelled through the Infrastructure Portfolio Special Account, that payments relating to communications infrastructure and eligible national broadband matters will be channelled through the Communications Portfolio Special Account, that payments relating to energy infrastructure will be channelled through the Energy Portfolio Special Account and that payments relating to water infrastructure will be channelled through the Water Portfolio Special Account.  This is consistent with the establishment of these Portfolio Special Accounts to ensure that clear accountability and reporting obligations rest with the relevant portfolio departments.  It is also consistent with portfolio Ministers’ responsibilities for managing the delivery of agreed projects.  However, the ability for the Finance Minster to authorise payments directly from the BAF Special Account provides maximum flexibility as to how funding may be provided in future.

Payments by way of a grant of financial assistance made to a State or Territory that are channelled through the COAG Reform Fund are dealt with separately in clauses 89, 94, 99 and 104 (see below).  It is intended that grants of financial assistance that are made to States and Territories will be initially transferred from the BAF to the relevant Portfolio Special Account and then channelled through the COAG Reform Fund.  This is consistent with the COAG Reform Fund being the vehicle through which capital transfers from the Funds, as well as other funding from the budget, will be distributed to States and Territories.

Subclause 51(8) makes it clear that authorisations of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Authorisations of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the law itself.

Clause 52 - Recommendations about payments

It is intended that portfolio Ministers will be responsible for preparing proposals to be brought forward for Government consideration as part of the annual budget process.  As part of this process, portfolio Ministers will make recommendations to the Finance Minister that payments are to be authorised from the BAF.  In this context, the Government has also made a commitment that all projects financed from the BAF, EIF and HHF will need to satisfy rigorous evaluation criteria assessed by independent bodies.

To ensure that all proposals ultimately funded from the BAF have met the Government’s broader commitment, BAF portfolio Ministers must ensure that relevant advice has been sought from Infrastructure Australia which supports their recommendation for a payment to be authorised from the BAF.

Note that in relation to communications related matters, subclauses 52(5) and (6) reflect that Infrastructure Australia will consider projects relating to communications infrastructure.  Infrastructure Australia will not consider proposals relating to eligible national broadband network matters as these will be considered through a separate process.

Consistent with the framework, subclauses 52(1), (4), (8) and (11) provide that the Finance Minister must not authorise a payment from the BAF unless the relevant BAF portfolio Minister has recommended the authorisation of the payment.

Subclauses 52(2), (5), (9) and (12) confirm the obligation on the BAF portfolio Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal for a payment from the BAF satisfies the relevant BAF evaluation criteria (Infrastructure Australia will not provide advice on proposals relating to eligible national broadband network matters, as above).

In deciding to make a recommendation that a payment be authorised from the BAF, subclauses 52(3), (6), (10) and (13) require the BAF portfolio Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

While Infrastructure Australia will not consider proposals relating to eligible national broadband network matters, subclause 52(7) provides that a payment must not be authorised unless the Communications Minister has recommended the payment.

Clause 53 - Grant to a State or Territory—transport infrastructure

Clause 53 is concerned with grants of financial assistance that are paid to a State or Territory for the purpose set out in paragraph 18(1)(a) - i.e. in relation to the creation or development of transport infrastructure.  Note that, in this case, the payment is not channelled through the BAF Infrastructure Portfolio Special Account or through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 53(3) provides for the Infrastructure Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the delivery of projects (including obligations and any risks) associated with disbursements from the BAF.

Clause 54 - Grant to a State or Territory—communications infrastructure etc.

Clause 54 is concerned with grants of financial assistance that are paid to a State or Territory for the purposes set out in paragraph 18(1)(b) and (c) - i.e. in relation to the creation or development of communications infrastructure and in relation to eligible national broadband matters.  Note that, in this case, the payment is not channelled through the Communications Portfolio Special Account or through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 54(3) provides for the Communications Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 55 - Grant to a State or Territory—energy infrastructure

Clause 55 is concerned with grants of financial assistance that are paid to a State or Territory for the purposes set out in paragraph 18(1)(d) - i.e. in relation to the creation or development of energy infrastructure.  Note that, in this case, the payment is not channelled through the BAF Energy Portfolio Special Account or through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 55(3) provides for the Energy Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 56 - Grant to a State or Territory—water infrastructure

Clause 56 is concerned with grants of financial assistance that are paid to a State or Territory for the purposes set out in paragraph 18(1)(e) - i.e. in relation to the creation or development of water infrastructure.  Note that, in this case, the payment is not channelled through the BAF Water Portfolio Special Account or through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 56(3) provides for the Water Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 57 - Grant to a person other than a State or Territory—transport infrastructure

Clause 57 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purpose set out in paragraph 18(1)(a) - i.e. in relation to the creation or development of transport infrastructure.  Note that, in this case, the payment is not channelled through the BAF Infrastructure Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 57(3) provides for the Infrastructure Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 58 - Grant to a person other than a State or Territory—communications infrastructure etc.

Clause 58 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purposes set out in paragraph 18(1)(b) and (c) - i.e. in relation to the creation or development of communications infrastructure and in relation to eligible national broadband matters.  Note that, in this case, the payment is not channelled through the Communications Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State are to be set out in a written agreement between the Commonwealth and the person.

Subclause 58(3) provides for the Communications Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 59 - Grant to a person other than a State or Territory—energy infrastructure

Clause 59 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purpose set out in paragraph 18(1)(d) - i.e. in relation to the creation or development of energy infrastructure.  Note that, in this case, the payment is not channelled through the BAF Energy Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 59(3) provides for the Energy Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 60 - Grant to a person other than a State or Territory—water infrastructure

Clause 60 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purpose set out in paragraph 18(1)(e) - i.e. in relation to the creation or development of water infrastructure.  Note that, in this case, the payment is not channelled through the BAF Water Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 60(3) provides for the Water Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 3—Channelling of payments through the BAF Infrastructure Portfolio Special Account

Clause 61 - Establishment of the BAF Infrastructure Portfolio Special Account

In line with the role of portfolio Ministers in managing agreed projects, clear accountability and reporting of disbursements from the BAF will rest within relevant portfolio departments.  For example, it is intended that the relevant portfolio department will be responsible for arranging for a specific payment to be made from the BAF based on the portfolio Minister’s agreement that project milestones (or other conditions) have been satisfactorily achieved.  It will also include ensuring that the FMA Act obligations, in relation to the efficient and effective use of public money, are being met in relation to such payments .

Clause 61 establishes the BAF Infrastructure Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the BAF Special Account and credited to the BAF Infrastructure Portfolio Special Account can only be subsequently debited from the BAF Infrastructure Special Account for the purpose in clause 62.

Clause 62 - Purpose of the BAF Infrastructure Portfolio Special Account

Subclause 62(1) describes the purpose of the BAF Infrastructure Portfolio Special Account, which is for making payments in relation to the creation or development of transport infrastructure.  The note immediately following subclause 62(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 62(2) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the BAF Special Account.

Clause 63 - Channelling of payments through the BAF Infrastructure Portfolio Special Account

Clause 63 provides the mechanism for specific amounts to be debited from the BAF Special Account and credited to the BAF Infrastructure Portfolio Special Account for the purposes of making payments in relation to the creation or development of transport infrastructure.

Subclause 63(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF Special Account to the BAF Infrastructure Portfolio Special Account.

Subclauses 63(2) confirms that such a direction must be given so as to allow that amount to be debited from the BAF Infrastructure Portfolio Special Account for making a specified payment in relation to the creation or development of transport infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the BAF Infrastructure Portfolio Special Account.

Subclause 63(3) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 63(4) makes it clear that a direction under subclause 63(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 63(5) requires the Finance Minister to give a copy of any direction to the Infrastructure Minister, on the basis that management of and responsibility for the BAF Infrastructure Portfolio Special Account sits within the Infrastructure portfolio.

Clause 64 - Recommendations about payments

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the BAF Infrastructure Portfolio Special Account, in the same way as other payments.

Therefore, the Infrastructure Minister must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be transferred from the BAF Special Account to the BAF Infrastructure Portfolio Special Account, for the purposes of making a payment in relation to the creation or development of transport infrastructure.

Consistent with this framework, subclause 64(1) provides that a direction to transfer an amount from the BAF Special Account to the BAF Infrastructure Portfolio Special Account must not be specified unless the Infrastructure Minister has recommended the specification of the grant.

Subclause 64(2) confirms the obligation on the Infrastructure Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF Special Account to the BAF Infrastructure Portfolio Special Account for the purposes of a payment being made, subclause 64(3) requires the Infrastructure Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 65 - Payments—debit from the BAF Infrastructure Portfolio Special Account

Clause 65 reflects the Government’s intention that the BAF Infrastructure Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the BAF rest with the relevant portfolio Minster and his or her department.  Accordingly, the BAF Infrastructure Portfolio Special Account is a vehicle by which payments from the BAF are authorised in order to support transport infrastructure expenditure.

The Infrastructure Minister is required to ensure that, as soon as practicable after an amount is credited to the BAF Infrastructure Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 65(3) provides for the amount to be re-credited to the BAF Special Account.

Clause 66 - Grant to a State or Territory—transport infrastructure

Clause 66 is concerned with grants of financial assistance that are paid to a State or Territory through the BAF Infrastructure Portfolio Special Account.  Note that grant payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 7 of Part 2.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 66(3) provides for the Infrastructure Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 67 - Grant to a person other than a State or Territory—transport infrastructure

Clause 67 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the BAF Infrastructure Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 67(3) provides for the Infrastructure Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 4—Channelling of payments through the BAF Communications Portfolio Special Account

Clause 68 - Establishment of the BAF Communications Portfolio Special Account

As indicated above, clear accountability and reporting of disbursements from the BAF will rest within relevant portfolio departments.

Clause 68 establishes the BAF Communications Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the BAF Special Account and credited to the BAF Communications Portfolio Special Account can only be subsequently debited from the BAF Communications Special Account for the purposes in clause 69.

Clause 69 - Purposes of the BAF Communications Portfolio Special Account

Subclause 69(1) describes the purposes of the BAF Communications Portfolio Special Account, which are for making payments in relation to the creation or development of communications infrastructure and in relation to eligible national broadband network matters.  The note immediately following subclause 69(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 69(2) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the BAF Special Account.

Clause 70 - Channelling of payments through the BAF Communications Portfolio Special Account

Clause 70 provides the mechanism for specific amounts to be debited from the BAF Special Account and credited to the BAF Communications Portfolio Special Account for the purposes of making payments in relation to the creation or development of communications infrastructure and in relation to eligible national broadband network matters.

Subclause 70(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF Special Account to the BAF Communications Portfolio Special Account.

Subclauses 70(2) confirms that such a direction must be given so as to allow that amount to be debited from the BAF Communications Portfolio Special Account for making a specified payment in relation to the creation or development of communications infrastructure or in relation to an eligible national broadband matter.  This will ensure that the agreed purpose is retained when that amount is channelled through the BAF Communications Portfolio Special Account.

Subclause 70(3) provides that directions in paragraphs 70(2)(a) and (b) do not limit each other, meaning that a direction could be made in respect of a specified payment relating to both communications infrastructure and in relation to an eligible national broadband matter (i.e. where both aspects might exist in a particular case).

Subclause 70(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 70(5) makes it clear that a direction under subclause 70(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 70(6) requires the Finance Minister to give a copy of any direction to the Communications Minister, on the basis that management of and responsibility for the BAF Communications Portfolio Special Account sits within the Communications portfolio.

Clause 71 - Recommendations about payments

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the BAF Communications Portfolio Special Account, in the same way as other payments.

Therefore, the Communications Minister must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be transferred from the BAF Special Account to the BAF Communications Portfolio Special Account, for the purposes of making a payment in relation to the creation or development communications infrastructure (other than a payment in relation to an eligible national broadband network matter).

Consistent with this framework, subclause 71(1) provides that a direction to transfer an amount from the BAF Special Account to the BAF Communications Portfolio Special Account must not be specified unless the Communications Minister has recommended the specification of the grant.

Subclause 71(2) confirms the obligation on the Communications Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF Special Account to the BAF Communications Portfolio Special Account for the purposes of a payment being made, subclause 71(3) requires the Communications Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Infrastructure Australia will not consider payments in relation to eligible national broadband network matters, as these will be considered through a separate process.  Subclause 71(4) deals with this exception and provides that such a payment must not be specified under this clause unless the Communications Minister has recommended the payment.

Clause 72 - Payments—debit from the BAF Communications Portfolio Special Account

Clause 72 reflects the Government’s intention that the BAF Communications Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the BAF rest with the relevant portfolio Minster and his or her department.  Accordingly, the BAF Communications Portfolio Special Account is a vehicle by which payments from the BAF are authorised in order to support communications infrastructure expenditure, including in relation to eligible national broadband network matters.

Accordingly, for amounts that are transferred from the BAF Communications Portfolio Special Account for the purposes of making a payment in relation to communications infrastructure or an eligible national broadband network matter, the Communications Minister is required to ensure that, as soon as practicable after an amount is credited to the BAF Communications Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 72(3) provides for the amount to be re-credited to the BAF Special Account.

Clause 73 - Grant to a State or Territory—communications infrastructure etc.

Clause 73 is concerned with grants of financial assistance that are paid to a State or Territory through the BAF Communications Portfolio Special Account.  Note that grants payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 7 of Part 2.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 73(3) provides for the Communications Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 74 - Grant to a person other than a State or Territory—communications infrastructure etc.

Clause 74 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the BAF Communications Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 74(3) provides for the Communications Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 5—Channelling of payments through the BAF Energy Portfolio Special Account

Clause 75 - Establishment of the BAF Energy Portfolio Special Account

As indicated above, clear accountability and reporting of disbursements from the BAF will rest within relevant portfolio departments.

Clause 75 establishes the BAF Energy Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the BAF Special Account and credited to the BAF Energy Portfolio Special Account can only be subsequently debited from the BAF Energy Special Account for the purpose in clause 76.

Clause 76 - Purpose of the BAF Energy Portfolio Special Account

Subclause 76(1) describes the purpose of the BAF Energy Portfolio Special Account, which are for making payments in relation to the creation or development of energy infrastructure.  The note immediately following subclause 76(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 76(2) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the BAF Special Account.

Clause 77 - Channelling of payments through the BAF Energy Portfolio Special Account

Clause 77 provides the mechanism for specific amounts to be debited from the BAF Special Account and credited to the BAF Energy Portfolio Special Account for the purposes of making payments in relation to the creation or development of energy infrastructure.

Subclause 77(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF Special Account to the BAF Energy Portfolio Special Account.

Subclauses 77(2) confirms that such a direction must be given so as to allow that amount to be debited from the BAF Energy Portfolio Special Account for making a specified payment in relation to the creation or development of energy infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the BAF Energy Portfolio Special Account.

Subclause 77(3) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 77(4) makes it clear that a direction under subclause 77(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 77(5) requires the Finance Minister to give a copy of any direction to the Energy Minister, on the basis that management of and responsibility for the BAF Energy Portfolio Special Account sits within the Energy portfolio.

Clause 78 - Recommendations about payments

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the BAF Energy Portfolio Special Account, in the same way as other payments.

Therefore, the Energy Minister must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be transferred from the BAF Special Account to the BAF Energy Portfolio Special Account, for the purposes of making a payment in relation to the creation or development energy infrastructure.

Consistent with this framework, subclause 78(1) provides that a direction to transfer an amount from the BAF Special Account to the BAF Energy Portfolio Special Account must not be specified unless the Energy Minister has recommended the specification of the grant.

Subclause 78(2) confirms the obligation on the Energy Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF Special Account to the BAF Energy Portfolio Special Account for the purposes of a payment being made, subclause 78(3) requires the Energy Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 79 - Payments—debit from the BAF Energy Portfolio Special Account

Clause 79 reflects the Government’s intention that the BAF Energy Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the BAF rest with the relevant portfolio Minster and his or her department.  Accordingly, the BAF Energy Portfolio Special Account is a vehicle by which payments from the BAF are authorised in order to support energy infrastructure expenditure.

Accordingly, for amounts that are transferred from the BAF Energy Portfolio Special Account for the purposes of making a payment in relation to energy, the Energy Minister is required to ensure that, as soon as practicable after an amount is credited to the BAF Energy Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 79(3) provides for the amount to be re-credited to the BAF Special Account.

Clause 80 - Grant to a State or Territory—energy infrastructure

Clause 80 is concerned with grants of financial assistance that are paid to a State or Territory through the BAF Energy Portfolio Special Account.  Note that grants payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 7 of Part 2.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 80(3) provides for the Energy Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 81 - Grant to a person other than a State or Territory—energy infrastructure

Clause 81 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the BAF Energy Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 81(3) provides for the Energy Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 6—Channelling of payments through the BAF Water Portfolio Special Account

Clause 82 - Establishment of the BAF Water Portfolio Special Account

As indicated above, clear accountability and reporting of disbursements from the BAF will rest within relevant portfolio departments.

Clause 82 establishes the BAF Water Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the BAF Special Account and credited to the BAF Water Portfolio Special Account can only be subsequently debited from the BAF Water Special Account for the purpose in clause 83.

Clause 83 - Purpose of the BAF Water Portfolio Special Account

Subclause 83(1) describes the purpose of the BAF Water Portfolio Special Account, which are for making payments in relation to the creation or development of water infrastructure.  The note immediately following subclause 63(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 83(2) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the BAF Special Account.

Clause 84 - Channelling of payments through the BAF Water Portfolio Special Account

Clause 84 provides the mechanism for specific amounts to be debited from the BAF Special Account and credited to the BAF Water Portfolio Special Account for the purposes of making payments in relation to the creation or development of water infrastructure.

Subclause 84(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF Special Account to the BAF Water Portfolio Special Account.

Subclauses 84(2) confirms that such a direction must be given so as to allow that amount to be debited from the BAF Water Portfolio Special Account for making a specified payment in relation to the creation or development of water infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the BAF Water Portfolio Special Account.

Subclause 84(3) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 84(4) makes it clear that a direction under subclause 84(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 84(5) requires the Finance Minister to give a copy of any direction to the Water Minister, on the basis that management of and responsibility for the BAF Water Portfolio Special Account sits within the Water portfolio.

Clause 85 - Recommendations about payments

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the BAF Water Portfolio Special Account, in the same way as other payments.

Therefore, the Water Minister must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be transferred from the BAF Special Account to the BAF Water Portfolio Special Account, for the purposes of making a payment in relation to the creation or development water infrastructure.

Consistent with this framework, subclause 85(1) provides that a direction to transfer an amount from the BAF Special Account to the BAF Water Portfolio Special Account must not be specified unless the Water Minister has recommended the specification of the grant.

Subclause 85(2) confirms the obligation on the Water Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF Special Account to the BAF Water Portfolio Special Account for the purposes of a payment being made, subclause 85(3) requires the Water Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 86 - Payments—debit from the BAF Water Portfolio Special Account

Clause 86 reflects the Government’s intention that the BAF Water Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the BAF rest with the relevant portfolio Minster and his or her department.  Accordingly, the BAF Water Portfolio Special Account is a vehicle by which payments from the BAF are authorised in order to support water infrastructure expenditure.

Accordingly, for amounts that are transferred from the BAF Water Portfolio Special Account for the purposes of making a payment in relation to water infrastructure, the Water Minister is required to ensure that, as soon as practicable after an amount is credited to the BAF Water Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 86(3) provides for the amount to be re-credited to the BAF Special Account.

Clause 87 - Grant to a State or Territory—water infrastructure

Clause 87 is concerned with grants of financial assistance that are paid to a State or Territory through the BAF Water Portfolio Special Account.  Note that grants payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 7 of Part 2.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 87(3) provides for the Water Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Clause 88 - Grant to a person other than a State or Territory—water infrastructure

Clause 88 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the BAF Water Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 88(3) provides for the Water Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 7—Channelling of State/Territory grants payments through the COAG Reform Fund

Subdivision A—Channelling of transport infrastructure grants

Clause 89 - Channelling of State/Territory grants payments through the COAG Reform Fund

The Government has indicated its intention that the COAG Reform Fund - a Special Account for the purposes of section 21 of the FMA Act - will be the vehicle through which grants of financial assistance will be disbursed to States and Territories.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.

Consistent with portfolio Ministers’ responsibilities in relation to managing payments, the authority to disburse amounts to States and Territories will be transferred from the BAF Special Account, through the relevant BAF Portfolio Special Account, to the COAG Reform Fund Special Account.

For this purpose, clause 89 provides the mechanism for specific amounts to be debited from the BAF and credited to the BAF Infrastructure Portfolio Special Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories in relation to the creation or development of transport infrastructure.

Subclause 89(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF to the BAF Infrastructure Portfolio Special Account.

Subclauses 89(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the BAF Infrastructure Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a State or Territory in relation to the creation or development of transport infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 89(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 89(5) makes it clear that a direction under subclause 89(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 89(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Infrastructure Minister.

Clause 90 - Recommendations about grants payments—transport infrastructure

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, BAF portfolio Ministers must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be paid from the BAF, through the relevant BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of making a grant of financial assistance to a State or Territory.

Consistent with this framework, subclause 90(1) provides that a direction to transfer an amount from the BAF, through the BAF Infrastructure Portfolio Special Account, to the COAG Reform Fund must not be specified unless the Infrastructure Minister has recommended the specification of the grant.

Subclause 90(2) confirms the obligation on the Infrastructure Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF, through the applicable BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 90(3) requires the Infrastructure Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 91 - Transfers from the BAF Infrastructure Portfolio Special Account to the COAG Reform Fund

Clause 91 applies to amounts that are transferred from the BAF into the BAF Infrastructure Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 91(2) requires the Infrastructure Minister to ensure that as soon as practicable after an amount is credited to the BAF Infrastructure Portfolio Special Account, he or she directs, in writing, that the amount is to be debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 91(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 91(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 91(5) makes it clear that a direction under subclause 91(2) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 91(6) requires the Infrastructure Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 92 - Grants payments—debit from the COAG Reform Fund

Clause 92 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the BAF, EIF and HHF, but rather will act as a vehicle by which amounts from the Funds, and direct funding from the budget, are distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 93 - Grant to a State or Territory—transport infrastructure

Clause 93 is concerned with grants of financial assistance in relation to transport infrastructure which are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 93(1) assists the reader by referring to subclause 92(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 93(3) provides for the Infrastructure Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Subdivision B—Channelling of communications infrastructure grants

Clause 94 - Channelling of State/Territory grants payments through the COAG Reform Fund

Similar to transport infrastructure grants, clause 94 provides the mechanism for specific amounts to be debited from the BAF and credited to the BAF Communications Portfolio Special Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories in relation to the creation or development of communications infrastructure.

Subclause 94(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF to the BAF Communications Portfolio Special Account.

Subclauses 94(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the BAF Communications Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a State or Territory in relation to the creation or development of communications infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 94(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 94(5) makes it clear that a direction under subclause 94(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 94(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Communications Minister.

Clause 95 - Recommendations about grants payments—communications infrastructure

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, BAF portfolio Ministers must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be paid from the BAF, through the BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of making a grant of financial assistance to a State or Territory.

Consistent with this framework, subclause 95(1) provides that a direction to transfer an amount from the BAF, through the BAF Communications Portfolio Special Account, to the COAG Reform Fund must not be specified unless the Communications Minister has recommended the specification of the grant.

Subclause 95(2) confirms the obligation on the Communications Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF, through the BAF Communications Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 95(3) requires the Communications Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 96 - Transfers from the BAF Communications Portfolio Special Account to the COAG Reform Fund

Clause 96 applies to amounts that are transferred from the BAF into the BAF Communications Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 96(2) requires the Communications Minister to ensure that as soon as practicable after an amount is credited to the BAF Communications Portfolio Special Account, he or she directs, in writing, that the amount is to be debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 96(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 96(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 96(5) makes it clear that a direction under subclause 96(2) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 96(6) requires the Communications Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 97 - Grants payments—debit from the COAG Reform Fund

Clause 97 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the BAF, EIF and HHF, but rather will act as a vehicle by which amounts from the Funds, and direct funding from the budget, are distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 98 - Grant to a State or Territory—communications infrastructure

Clause 98 is concerned with grants of financial assistance in relation to communications infrastructure that are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 98(1) assists the reader by referring to subclause 97(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 98(3) provides for the Communications Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant BAF portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Subdivision C—Channelling of energy infrastructure grants

Clause 99 - Channelling of State/Territory grants payments through the COAG Reform Fund

Similar to transport and communications infrastructure grants, clause 99 provides the mechanism for specific amounts to be debited from the BAF and credited to the BAF Energy Portfolio Special Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories in relation to the creation or development of energy infrastructure.

Subclause 99(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF to the BAF Energy Portfolio Special Account.

Subclauses 99(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the BAF Energy Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a State or Territory in relation to the creation or development of energy infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 99(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 99(5) makes it clear that a direction under subclause 99(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 99(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Energy Minister.

Clause 100 - Recommendations about grants payments—energy infrastructure

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, BAF portfolio Ministers must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be paid from the BAF, through the BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of making a grant of financial assistance to a State or Territory.

Consistent with this framework, subclause 100(1) provides that a direction to transfer an amount from the BAF, through the BAF Energy Portfolio Special Account, to the COAG Reform Fund must not be specified unless the Energy Minister has recommended the specification of the grant.

Subclause 100(2) confirms the obligation on the Energy Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF, through the BAF Energy Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 100(3) requires the Energy Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 101 - Transfers from the BAF Energy Portfolio Special Account to the COAG Reform Fund

Clause 101 applies to amounts that are transferred from the BAF into the BAF Energy Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 101(2) requires the Energy Minister to ensure that as soon as practicable after an amount is credited to the BAF Energy Portfolio Special Account, he or she directs, in writing, that the amount is to be debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 101(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 101(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 101(5) makes it clear that a direction under subclause 101(2) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 101(6) requires the Energy Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 102 - Grants payments—debit from the COAG Reform Fund

Clause 102 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the BAF, EIF and HHF, but rather will act as a vehicle by which amounts from the Funds, and direct funding from the budget, are distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 103 - Grant to a State or Territory—energy infrastructure

Clause 103 is concerned with grants of financial assistance in relation to energy infrastructure that are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 103(1) assists the reader by referring to subclause 102(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 103(3) provides for the Energy Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant BAF portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Subdivision D—Channelling of water infrastructure grants

Clause 104 - Channelling of State/Territory grants payments through the COAG Reform Fund

Similar to transport, communications and energy infrastructure grants, clause 104 provides the mechanism for specific amounts to be debited from the BAF and credited to the BAF Water Portfolio Special Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories in relation to the creation or development of water infrastructure.

Subclause 104(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the BAF to the BAF Water Portfolio Special Account.

Subclauses 104(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the BAF Water Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a State or Territory in relation to the creation or development of water infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 104(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 104(5) makes it clear that a direction under subclause 104(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 104(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Water Minister.

Clause 105 - Recommendations about grants payments—water infrastructure

The Government’s commitment to ensuring rigour in the payment process for the BAF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, BAF portfolio Ministers must ensure that relevant advice has been sought from Infrastructure Australia which supports a recommendation that a specified amount be paid from the BAF, through the BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of making a grant of financial assistance to a State or Territory.

Consistent with this framework, subclause 105(1) provides that a direction to transfer an amount from the BAF, through the BAF Water Portfolio Special Account, to the COAG Reform Fund must not be specified unless the Water Minister has recommended the specification of the grant.

Subclause 105(2) confirms the obligation on the Water Minister to receive relevant advice from Infrastructure Australia and to ensure that a proposal relating to a payment from the BAF satisfies the relevant BAF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the BAF, through the BAF Water Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 105(3) requires the Water Minister to have regard to the advice from Infrastructure Australia, together with any other matter he or she considers relevant.

Clause 106 - Transfers from the BAF Water Portfolio Special Account to the COAG Reform Fund

Clause 106 applies to amounts that are transferred from the BAF into the BAF Water Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 106(2) requires the Water Minister to ensure that as soon as practicable after an amount is credited to the BAF Water Portfolio Special Account, he or she directs, in writing, that the amount is to be debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 106(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 106(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 106(5) makes it clear that a direction under subclause 106(2) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 106(6) requires the Water Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 107 - Grants payments—debit from the COAG Reform Fund

Clause 107 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the BAF, EIF and HHF, but rather will act as a vehicle by which amounts from the Funds, and direct funding from the budget, are distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 108 - Grant to a State or Territory—water infrastructure

Clause 108 is concerned with grants of financial assistance in relation to water infrastructure that are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 108(1) assists the reader by referring to subclause 107(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 108(3) provides for the Water Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant BAF portfolio Ministers manage the obligations and risks associated with disbursements from the BAF.

Division 8—Total payments for a financial year

Clause 109 - General drawing rights limit in relation to a financial year

Clause 109 provides for the annual Appropriation Acts to declare that a specified amount is a general drawing rights limit in relation to a particular financial year.

The establishment of the BAF as a Special Account under section 21 of FMA Act means that the balance of the BAF Special Account, as it exists from time to time, is appropriated for the purposes set out in clauses 18, 19 and 20.  This reflects the clear intention to spend all the amounts credited to the BAF for the purposes identified in the Bill.

However, the Government also intends that payments against the BAF appropriation will be transparent and subject to parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.  Accordingly, while the annual Appropriation Acts will not appropriate amounts to be paid from the BAF, the intention is that these Acts would specify a maximum limit on the amount that can be paid out from the BAF in a particular financial year (including payments that are channelled through the COAG Reform Fund).  The purpose is to provide the Parliament with a mechanism by which it may supervise the rate at which the committed funds are to be expended.

The general drawing rights limit for the 2009-10 financial year and beyond would be included in an Appropriation Act.

In order to give effect to the Government’s announcement to fast track its nation-building agenda in response the global financial crisis, the general drawing rights limit in relation to the financial year ending 30 June 2009 will be that declared by the Finance Minister in writing.  This is because the Government will not be in a position to finally decide upon proposals to be funded in this initial period until after the Parliament rises for 2008. 

The general drawing rights limit referred to in clause 109 will operate by restricting the total amount that may be covered by drawing rights under the FMA Act, and hence, the amount that can be paid out from the BAF in a financial year to support relevant infrastructure expenditure - namely making payments in relation to the creation or development of transport infrastructure, communications infrastructure, energy infrastructure and water infrastructure.  (This includes where such payments are channelled through BAF Portfolio Special Accounts and the COAG Reform Fund.)

Limiting the ability to issue drawing rights is an effective mechanism because the FMA Act does not permit expenditure without the person making the payment having been issued with a valid drawing right.

Subclause 109(2) ensures that drawing rights under the FMA Act are not issued covering debits from the BAF to support relevant infrastructure expenditure which are in excess of the general drawing rights limit for that financial year.

Note that this framework does not apply to payments relating to eligible national broadband network matters.  The Government has committed an amount of up to $4.7 billion for proposals relating to the NBN.  Such proposals will be disbursed solely through the appropriation made by the BAF Special Account.

Subclause 109(3) provides that the declaration of the Finance Minister, in relation to the financial year ending on 30 June 2009, is to be a legislative instrument.  As such, it is required to be tabled in the Parliament and published on the Federal Register of Legislative Instruments.  However, the declaration will not be disallowable.  The Government considers that this would not be appropriate in the circumstances of this one-off instrument that will be required to enable payments to be made from the Funds as early as possible in 2009 to give effect to the Government’s announcement to fast track its nation-building agenda in response the global financial crisis.

Clause 110 - Drawing rights in relation to other financial years

As the general drawing rights limit for a financial year is particular to that year and will depend upon the level of spending that is agreed to by the Government, clause 110 confirms that a general drawing rights limit for one financial year will not limit the drawing rights that may be issued in relation to any other year.

Clause 111 - No drawing rights to be issued if there is no general drawing rights limit in relation to a financial year

Clause 111 has the effect that if annual Appropriation Acts, or a Finance Minister declaration for the year ending 30 June 2009, do not declare that an amount is a general drawing rights limit for a financial year, drawing rights must not be issued covering payments from the BAF to support relevant infrastructure expenditure.  This approach is consistent with the Government’s intention that disbursements from the BAF will be transparent and allow for appropriate parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.

Clause 112 - Total payments to depend primarily on the macroeconomic circumstances

In establishing the BAF, EIF and HHF, the Government has made a commitment that spending proposals from the Funds would be delivered in line with the prevailing macroeconomic conditions.

To meet its commitment, the Government’s intention is that spending from the BAF, EIF and HHF should depend primarily on the macroeconomic circumstances.  In line with this principle, the Government has indicated an expectation that the Australian Loan Council will advise governments on the macroeconomic impacts of funding infrastructure spending and whether a given funding envelope can be delivered within the prevailing macroeconomic conditions, consistent with the Government’s inflation target.

Clause 112 applies to amounts paid out from the BAF to support relevant infrastructure expenditure.  It confirms the Government’s policy principle that payments from the BAF in relation to transport infrastructure, communications infrastructure (excluding eligible national broadband network matters), energy infrastructure and water infrastructure should depend primarily on the macroeconomic circumstances.

This is achieved specifically by subclause 112(2) , which requires the Finance Minister, in debiting amounts to be paid from the BAF Special Account, to have regard to the principle that amounts paid out from the BAF to support relevant infrastructure expenditure should depend primarily on the macroeconomic circumstances.

Subclause 112(2) allows flexibility for the Government to update the methodology for determining the macroeconomic circumstances.  For example, while the Government has indicated that the Australian Loan Council will provide relevant advice, it may also wish to take account of other budgetary factors in setting the spending envelope for the Funds in a given financial year.

Part 2.5—Reporting obligations etc.

Clause 113 -Finance Minister may require Future Fund Board to prepare reports or give information

Clause 113 provides that the Finance Minister may write to the Future Fund Board requiring the Board to prepare a report or specified information on certain matters relating to the performance of the Board.  This report or information must be provided within the timeframe outlined in the Finance Minister’s request.

Subclause 113(4) provides that the Finance Minister may choose to publish this report or information.

Subclauses 113(5) and 113(6) make it clear that such reports and documents are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 114 - Keeping the responsible Ministers informed etc.

Clause 114 requires the Future Fund Board to notify the responsible Ministers of any information the responsible Ministers should know, including by providing any written information to the Finance Minister.  This could include significant investment results, concerns regarding fraud and any non compliance with the Board’s policy on conflicts of interest.

Clause 115 - Finance Minister may give reports to other Ministers etc.

Clause 115 allows flexibility for the Finance Minister to give reports, documents and other information to the Treasurer and the BAF portfolio Ministers.  This includes reports and documents under clauses 113 and 114 and any other information obtained by the Finance Minister under the Act.

Part 2.6—Miscellaneous

Clause 116 - Infrastructure Australia to advise Infrastructure Minister about transport infrastructure

It is the Government’s intention that infrastructure spending proposals relating to transport, communications, energy and water will be rigorously evaluated by an independent advisory body.

The BAF advisory body function will be undertaken by Infrastructure Australia, which is an independent body established under the Infrastructure Australia Act to advise governments on Australia’s future infrastructure needs and related infrastructure issues.  Infrastructure Australia’s functions in relation to the BAF are conferred on it in accordance with paragraph 5(2)(k) of the Infrastructure Australia Act and are in addition to the functions conferred on it that Act.

Specific proposals relating to the NBN will not be assessed by Infrastructure Australia.  Rather, these will be assessed through a separate process.

Clause 116 establishes Infrastructure Australia’s function to advise the Infrastructure Minister in relation to proposals that are referred to it by that Minister.  Consistent with this function, each matter that is referred to Infrastructure Australia by the Infrastructure Minister must be a matter concerned with making payments from the BAF in relation to the creation or development of transport infrastructure.

In line with the Government’s intention that proposals are rigorously assessed, subclause 116(2) requires Infrastructure Australia to apply the BAF evaluation criteria when advising the Infrastructure Minister in relation to matters referred to it under this clause.

Subclause 116(3) confirms that the function of Infrastructure Australia under subclause 116(1) is in addition to its functions under the Infrastructure Australia Act. 

Clause 117 - Infrastructure Australia to advise Communications Minister about communications infrastructure

As for transport infrastructure above, clause 117 establishes Infrastructure Australia’s function to advise the Communications Minister in relation to matters that are referred to it by that Minister.  Consistent with this function, each matter referred to Infrastructure Australia by the Communications Minister must be a matter concerned with making payments from the BAF in relation to the creation or development of communications infrastructure.

Note that Infrastructure Australia will not consider spending proposals relating to eligible national broadband network matters, as these proposals will be assessed through a separate process.

In line with the Government’s intention that proposals are rigorously assessed, subclause 117(2) requires Infrastructure Australia to apply the BAF evaluation criteria when advising the Communications Minister in relation to matters referred to it under this clause.

Subclause 117(3) confirms that the function of Infrastructure Australia under subclause 117(1) is in addition to its functions under the Infrastructure Australia Act. 

Subclauses 117(4) and (5) require all communications between the Communications Minister and Infrastructure Australia to be made through the Infrastructure Minister.

Clause 118 - Infrastructure Australia to advise Energy Minister about energy infrastructure

As for transport and communications infrastructure above, clause 118 establishes Infrastructure Australia’s function to advise the Energy Minister in relation to matters that are referred to it by that Minister.  Consistent with this function, each matter referred to Infrastructure Australia by the Energy Minister must be a matter concerned with making payments from the BAF in relation to the creation or development of energy infrastructure.

In line with the Government’s intention that proposals are rigorously assessed, subclause 118(2) requires Infrastructure Australia to apply the BAF evaluation criteria when advising the Energy Minister in relation to matters referred to it under this clause.

Subclause 118(3) confirms that the function of Infrastructure Australia under subclause 118(1) is in addition to its functions under the Infrastructure Australia Act. 

Subclauses 118(4) and (5) require all communications between the Energy Minister and Infrastructure Australia to be made through the Infrastructure Minister.

Clause 119 - Infrastructure Australia to advise Water Minister about water infrastructure

As for transport, communications and energy infrastructure above, clause 119 establishes Infrastructure Australia’s function to advise the Water Minister in relation to matters that are referred to it by that Minister.  Consistent with this function, each matter referred to Infrastructure Australia by the Water Minister must be a matter concerned with making payments from the BAF in relation to the creation or development of water infrastructure.

In line with the Government’s intention that proposals are rigorously assessed, subclause 119(2) requires Infrastructure Australia to apply the BAF evaluation criteria when advising the Water Minister in relation to matters referred to it under this clause.

Subclause 119(3) confirms that the function of Infrastructure Australia under subclause 119(1) is in addition to its functions under the Infrastructure Australia Act. 

Subclauses 119(4) and (5) require all communications between the Water Minister and Infrastructure Australia to be made through the Infrastructure Minister.

Clause 120 - BAF evaluation criteria

Clause 120 requires the Infrastructure Minister to formulate BAF evaluation criteria to be applied by Infrastructure Australia when giving advice under clauses 116, 117, 118 and 119.

As the BAF evaluation criteria will be made by legislative instrument, the instrument is required to be registered on the Federal Register of Legislative Instruments and tabled in the Parliament.  It will also be disallowable by either House of the Parliament.

The purpose of subclause 120(2) is to acknowledge that there may be certain differences in specific criteria applied by Infrastructure Australia in giving advice relating to transport infrastructure (under clause 116), communications infrastructure (under clause 117), energy infrastructure (under clause 118) or water infrastructure (under clause 119).  This reflects the different nature of the transport, communications, energy, and water sectors, with the result that specific criteria may be relevant only in relation to transport, communications, energy or water.

However, in addition to any transport, communications, energy and water specific criteria, it is expected the BAF evaluation criteria will include common criteria to be applied by Infrastructure Australia in relation to advice that is provided under all of clauses 116, 117, 118 and 119.

Subclause 120(3) requires the Infrastructure Minister to consult with the Communications Minister, the Energy Minister, the Water Minister and the responsible Ministers before formulating the BAF evaluation criteria .  The intention of the requirement for consultation with the responsible Ministers is to ensure that there is a common and rigorous approach in the evaluation criteria framework across the BAF, EIF and HHF that is consistent with the nation-building objectives of the Funds and in line with the Government’s overarching principles that projects financed from the Funds should:

·          address national infrastructure priorities;

·          demonstrate high benefits and effective use of resources;

·          efficiently address infrastructure needs; and

·          demonstrate they achieve established standards in implementation and management.

Subclause 120(4) is intended to ensure that the Infrastructure Minister formulates the BAF evaluation criteria consistent with the operation of the Government’s broader framework for spending proposals to be rigorously assessed by independent advisory bodies.

Clause 121 - Investment provisions do not apply to certain assets

Clause 121 relates to shares, debentures, trust units and financial assets held in the name of the Commonwealth.  These assets are acquired using money from the BAF Special Account in line with the purposes of making a payment in relation to the creation or development of transport infrastructure, the creation or development of communications infrastructure, an eligible national broadband network matter, the creation or development of energy infrastructure and the creation or development of water infrastructure (including where the payment was channelled through the Portfolio Special Accounts).

This clause is not concerned with investments of the BAF which are managed by the Future Fund Board.

Accordingly, subclauses 121(2) and (3) provide that Part 2.3 of the Bill (which relates to investments of the BAF managed by the Future Fund Board) and section 39 of the FMA Act do not apply to these assets.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  Therefore, it is appropriate that Commonwealth investment in the creation or development of transport infrastructure, the creation or development of communications infrastructure, eligible national broadband network matters, the creation or development of energy infrastructure and the creation or development of water infrastructure through the acquisition of shares, debentures, trust units or other financial assets are exempted from the application of section 39 of that Act.

Clause 122 - Delegation by the Finance Minister

Under subclause 122(1) , the Finance Minister may, in writing, delegate his or her powers under clauses 27, 28, 29, 51, 63, 70, 77, 84, 89, 94, 99 or  104 to the Secretary of the Finance Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Finance Minister’s powers under clauses 51, 63, 70, 77, 84, 89, 94, 99 and 104 relate to the making of authorisations for payments from the BAF and directing that specified amounts be transferred from the BAF Special Account to BAF Portfolio Special Accounts, or from the BAF Special Account, through a BAF Portfolio Special Account, to the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory.  Delegation of these functions to the Secretary of, or SES official in, the Finance Department is consistent with the efficient administration of these matters.

Subclause 122(3) allows the Finance Minister to delegate, in writing, his or her functions under clauses 27, 28 and 29 of the Act, to the Chair of the Future Fund Board or to an SES employee (or acting SES employee) in the Agency.  The Finance’s Minister’s functions under these provisions allow for amounts to be transferred between the BAF and the Future Fund, EIF and HHF for the purposes of apportioning shared costs which are initially paid by one Fund.  Accordingly, the Minister delegating this function to officials in the Department, the Chair of the Future Fund Board or an SES official in the Agency is considered to be a normal administrative arrangement for the efficient handling of these matters.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

It is envisaged that the delegate will be accountable to the Finance Minister for his or her actions under any delegation.  Subclauses 122(2) and (4) reinforce this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 123 - Delegation by the Treasurer

Subclauses 92(2), 97(2), 102(2) and 107(2) place an obligation on the Treasurer to ensure that where money is transferred from a BAF Portfolio Special Account to the COAG Reform Fund for the purposes of making a specified grant to a State or Territory, that the COAG Reform Fund is debited for that purpose as soon as is practicable.  This is consistent with the Government’s intention that the COAG Reform Fund is a vehicle through which transfers and other funds will be disbursed to States and Territories.

Clause 123 allows the Treasurer to, in writing, delegate his or her functions under subclauses 92(2), 97(2), 102(2) and 107(2) to the Secretary of the Treasury Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the clause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

Delegation of these functions to the Secretary of, or SES official in, the Treasury Department is consistent with the efficient administration of this matter.

Clause 124 - Delegation by the Infrastructure Minister

Under subclause 124(1) , the Infrastructure Minister may, in writing, delegate his or her powers under clauses 53, 57, 65, 66, 67, 91 or 93 to the Secretary of the Infrastructure Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Infrastructure Minister’s functions under these provisions allow for the Infrastructure Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.  The functions under clauses 65 and 91 relate to the obligation on the Infrastructure Minister to ensure that where money is credited to the BAF Infrastructure Portfolio Special Account for the purposes of making a payment in relation to transport infrastructure or to allow for the transfer that amount to the COAG Reform Fund for that purpose, that the BAF Infrastructure Portfolio Special Account is debited for that purpose as soon as is practicable.  Delegation of these functions to the Secretary of, or SES official in, the Infrastructure Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Infrastructure Minister for his or her actions under any delegation.  Subclause 124(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 125 - Delegation by the Communications Minister

Under subclause 125(1) , the Communications Minister may, in writing, delegate his or her powers under clauses 54, 58, 72, 73, 74, 96 or 98 to the Secretary of the Communications Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Communications Minister’s functions under these provisions allow for the Communications Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.  The functions under clauses 72 and 96 relate to the obligation on the Communications Minister to ensure that where money is credited to the BAF Communications Portfolio Special Account for the purposes of making a payment in relation to communications infrastructure or to allow for the transfer of that amount to the COAG Reform Fund for that purpose, that the BAF Communications Portfolio Special Account is debited for that purpose as soon as is practicable.  Delegation of these functions to the Secretary of, or SES official in, the Communications Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Communications Minister for his or her actions under any delegation.  Subclause 125(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 126 - Delegation by the Energy Minister

Under subclause 126(1) , the Energy Minister may, in writing, delegate his or her powers under clauses 55, 59, 79, 80, 81, 101 or 103 to the Secretary of the Energy Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Energy Minister’s functions under these provisions allow for the Energy Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.  The functions under clauses 79 and 101 relate to the obligation on the Energy Minister to ensure that where money is credited to the BAF Energy Portfolio Special Account for the purposes of making a payment in relation to energy infrastructure or to allow for the transfer of that amount to the COAG Reform Fund for that purpose, that the BAF Energy Portfolio Special Account is debited for that purpose as soon as is practicable.  Delegation of these functions to the Secretary of, or SES official in, the Energy Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Energy Minister for his or her actions under any delegation.  Subclause 126(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 127 - Delegation by the Water Minister

Under subclause 127(1) , the Water Minister may, in writing, delegate his or her powers under clauses 56, 60, 86, 87, 88, 106 or 108 to the Secretary of the Water Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Water Minister’s functions under these provisions allow for the Water Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.  The functions under clauses 86 and 106 relate to the obligation on the Water Minister to ensure that where money is credited to the BAF Water Portfolio Special Account for the purposes of making a payment in relation to water infrastructure or to allow for the transfer of that amount to the COAG Reform Fund for that purpose, that the BAF Water Portfolio Special Account is debited for that purpose as soon as is practicable.  Delegation of these functions to the Secretary of, or SES official in, the Water Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Water Minister for his or her actions under any delegation.  Subclause 127(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.



CHAPTER 3 - EDUCATION INVESTMENT FUND

Part 3.1—Introduction

Clause 128—Object

Clause 128 sets out the objects of Chapter 3, namely to enhance the Commonwealth’s ability to make payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.

Clause 129—Simplified outline

Clause 129 is an information provision which provides an overview of Chapter 3 to assist with readability.

Part 3.2—Education Investment Fund

Division 1—Introduction

Clause 130—Simplified outline

Clause 130 is an information provision which provides an overview of Part 3.2 to assist with readability.

Division 2—Establishment of the Education Investment Fund etc.

Clause 131—Establishment of the Education Investment Fund

Clause 131 establishes a financial asset fund — the Education Investment Fund (EIF) — consisting of amounts credited to an Education Investment Fund Special Account (see clause 132 below) and investments of the EIF.  The distinction between the cash and asset components relates to the need for cash to be duly appropriated, rather than a desire to distinguish between cash and other types of investments held in the EIF.

An investment of the Education Investment Fund is defined in Part 3.3 to include money invested in financial assets (including returns on those investments), derivatives acquired under clause 161 and other financial assets that the Future Fund Board becomes a holder of through a securities lending arrangement or otherwise.

Clause 132—Establishment of the Education Investment Fund Special Account

Clause 132 establishes the Education Investment Fund Special Account — a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Any amounts credited to the EIF Special Account are quarantined from the rest of the Consolidated Revenue Fund and can only be debited from the EIF for the purposes set out in clauses 136, 137 and 138, or for the purposes of channelling funds to an EIF Portfolio Special Account and to the COAG Reform Fund, in order to make EIF related payments.

The note immediately following clause 132 is included to assist the reader by clarifying that, in addition to the processes set out in clauses 133, 134 and 135, amounts can be credited to the EIF Special Account by an Appropriation Act.

Division 3—Credits of amounts to the Education Investment Fund

Clause 133 - Initial credits of amounts to the Education Investment Fund Special Account

The EIF will receive initial credits through instalments comprising the assets of the HEEF and $2.5 billion from the 2007-08 budget surplus.

Clause 133 provides the mechanism for amounts to be credited to the EIF Special Account on a particular date or by set instalments on particular dates.  This mechanism will allow for the $2.5 billion from the 2007-08 budget surplus to be credited to the EIF.

Subclause 133(1) provides that initial contributions to the EIF will be credited to the EIF Special Account through a written determination or determinations by the responsible Ministers.  These contributions can be credited either in one lump sum or by instalments. 

Subclause 133(2) provides that the responsible Ministers must ensure that, by 30 June 2009, the EIF is credited with $2.5 billion.  This amount comprises of funds to be credited to the EIF from the 2007-08 budget surplus.

The notes at the end of subclause 133(2) assist the reader.  Note 1 refers to clause 135, which provides for the balance of the HEEF Special Account to be credited to the EIF.  Note 2 refers to clause 152, which provides for the EIF to inherit the investments of the HEEF.

Subclause 133(3) provides that the responsible Ministers must not make a determination under subclause 133(1) after 30 June 2009 - the date by which the total initial credit of $2.5 billion must be made to the EIF.

Additional contributions to the EIF will be a subsequent credit under subclause 134(1).  For example, any amounts credited to the EIF from future budget surpluses would be credited under subclause 134(1) below.

Subclause 133(4) provides that determinations for crediting the initial contributions to the EIF Special Account cannot be revoked.

Subclause 133(5) deems that a determination to credit the initial contribution to the EIF is a legislative instrument for the purposes of section 5 of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds required to establish the EIF are about to be transferred.  This same approach was taken in equivalent provisions in the Future Fund Act.

Clause 134 - Subsequent credits of amounts to the Education Investment Fund Special Account—determinations by the responsible Ministers

Clause 134 allows for future Government contributions to be made to the EIF, which could be made out of future realised surpluses subject to other policy priorities.

Subclause 134(1) provides that Government contributions to the EIF, subsequent to the initial credits, are made through determinations by the responsible Ministers.  Such further contributions can be made either in one lump sum or by instalments.

The note at the end of subclause 134(1) assists the reader by referring to subsection 33(3) of the Acts Interpretation Act.  This subsection deals with variations and revocations of instruments and provides that a power to make an instrument also includes a power to vary or revoke an instrument unless the contrary intention appears.

Subclause 134(2) requires the responsible Ministers to have regard to the object of the Chapter in making determinations to credit further amounts to the EIF.  Therefore, subsequent credits from the EIF will be made with reference to the need for future investment in education infrastructure, vocational education and training infrastructure and research infrastructure.

Subclause 134(3) provides that a determination to credit subsequent amounts to the EIF is a legislative instrument for the purpose of section 5 of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds are about to be transferred.  This same approach was taken in equivalent provisions in the Future Fund Act.

Clause 135 - Credit of amount to the Education Investment Fund Special Account—balance of the Higher Education Endowment Fund Special Account

The HEEF was established by section 11 of the proposed to be repealed HEEF Act.  The HEEF consists of the HEEF Special Account and the investments of the HEEF.  The HEEF will be closed and its balance transferred to the EIF.

Clause 135 provides for the balance of the HEEF Special Account (created under the proposed to be repealed HEEF Act) as at immediately before the commencement of this section to be credited to the EIF.  This credit will be made once the section commences.

The EIF inherits the investments of the HEEF under clause 152.

Division 4—Debits of amounts from the Education Investment Fund

Clauses 136 to 138 set out the purposes for which the EIF Special Account may be debited. These purposes are split across three categories: purposes relating exclusively to the EIF, purposes relating to transitional arrangements for the transfer of investments from the HEEF, and purposes not related exclusively to the EIF, but which could be attributed to the EIF, Future Fund, BAF and HHF (for example, paying the remuneration and allowances of Future Fund Board members).

Clause 136 - Purposes of the Education Investment Fund Special Account—payments purposes and purposes related exclusively to the Education Investment Fund

Clause 136 sets out the purposes for which the EIF Special Account may be debited that relate exclusively to the EIF.

These purposes are:

·          making payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and making transitional HEEF payments; and

·          the payment of various expenses (associated with the investment and administration of the EIF) that can be exclusively attributed to the EIF.  While the range of such costs are as set out in clause 136, examples include paying the expenses of an investment of the EIF and paying expenses incurred by the Future Fund Board under a contract with investment managers.

The terms ‘creation or development of higher education infrastructure’, ‘the creation or development of research infrastructure’, and ‘the creation or development of vocational education and training infrastructure’ provide flexibility and a broad scope in relation to higher education, research and vocational education and training infrastructure projects that may be considered for funding from the EIF.

To provide future flexibility (such as to allow the EIF to be extended to school infrastructure), clause 143 allows the designated Ministers to determine that a specified matter relating to education infrastructure is a designated education infrastructure-related matter (see below).

While allowing for flexibility for infrastructure projects eligible to be considered for funding, the Government has indicated a clear focus for the EIF, BAF and HHF to assist with financing investment in the creation or development of infrastructure, consistent with a broader nation-building objective.  Accordingly, it is intended that funding would be directed towards capital expenditure, which could include associated labour costs related to the creation or development of infrastructure (where required).

However, consistent with the Government’s intention that the EIF provide financing for the creation or development of relevant infrastructure, it is not intended that expenditure of a recurrent nature relating to running costs (such as staff wages and maintenance) would be financed from the EIF.  Accordingly, where specific projects have an ongoing cost component, it is intended that such funding would be sourced through other means.  This could include direct funding from the budget (outside the EIF), or funding by the States or Territories in relation to proposals that are brought forward as part of the COAG reform agenda.

The terms ‘creation or development of eligible education infrastructure’ and ‘transitional HEEF payment’ define particular matters for which payments may be made from the EIF, in addition to payments that are made in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure and the creation or development of vocational education and training education infrastructure.  Again, the focus is on the creation and development of relevant infrastructure, consistent with the Government’s objectives for the EIF.

The purpose of paragraph 136(1)(i) is to allow the EIF to be used to discharge any other expenses or liabilities incurred by the Future Fund Board that are exclusively incurred in connection with the EIF.  It is also intended to capture miscellaneous costs that may arise and are not covered by the other existing purposes.

A note at the end of subclause 136(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 136(2) provides that paragraphs 136(1)(a), (b), (c), (d) and (e), relating to payments in relation to higher education infrastructure, research infrastructure, vocational education and training infrastructure, eligible education infrastructure and transitional HEEF payments, do not limit each other in their application.

Subclause 136(3) provides that a payment under paragraphs 136(1)(a), (b), (c) or (d) may be made by way of a grant of financial assistance or by a payment that is not a grant of financial assistance.  This provides flexibility in relation to payments from the EIF made in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure and the creation or development of eligible education infrastructure.

Other payments (i.e. payments that are not grants) include payments for the acquisition, in the name of the Commonwealth, of financial assets (such as shares, debentures and trust units) in a company involved in the creation or development of relevant infrastructure.  Other payments could also include public-private partnership payments.

In addition, the Commonwealth would also have the flexibility to make a payment (other than by a grant of financial assistance) to a State or Territory under an ordinary contractual obligation.

Note that under clauses 183 and 190, the Finance Minister may direct that a specified amount is debited from the EIF Special Account and credited to the EIF Education Portfolio Special Account or the EIF Research Portfolio Special Account respectively.  Such a direction is to allow that amount to be debited from the EIF Education Portfolio Special Account or the EIF Research Portfolio Special Account for the purposes of making a specified payment in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and HEEF transitional payments (see clauses 183 and 190 below).

Further note that, under clause 194, the Finance Minister may direct that a specified amount is debited from the EIF Special Account and transferred, through the EIF Education Portfolio Special Account, to the COAG Reform Fund Account (which will be established as a Special Account under the FMA Act on commencement of the COAG Reform Fund Act 2008 ).  Such a direction is to allow that amount to be subsequently debited from the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory in relation to the creation or development of relevant education infrastructure (see clause 194 below and also see section 6 the COAG Reform Fund Act 2008 , which sets out the purposes of the COAG Reform Fund).

Clause 137 - Purposes of the Education Investment Fund Special Account—transitional

The EIF inherits the investments of the HEEF under clause 152.  Clause 137 provides transitional arrangements to allow the EIF to be debited to pay any costs, expenses, obligations or liabilities incurred by the Commonwealth in connection with the HEEF, where those costs, expenses, obligations or liabilities were incurred (but not discharged) before the commencement of the EIF.

This includes costs relating to the acquisition of financial assets under Part 3 of the proposed to be repealed HEEF Act, expenses of an investment of the HEEF, the costs relating to the acquisition of derivatives under the proposed to be repealed HEEF Act.  It also includes costs relating to a contract with an investment manager, a bank account and a contract of insurance where the costs were incurred before commencement of the EIF, together with any other miscellaneous costs, expenses, obligations or liabilities that were incurred before commencement of the EIF.

Note 1 at the end of clause 137 assists the reader by referring to section 21 of the FMA Act, which relates to debits from Special Accounts.

Note 2 informs the reader that the HEEF was established by the repealed HEEF Act.

Clause 138 - Purposes of the Education Investment Fund Special Account—purposes not related exclusively to the Education Investment Fund

Clause 138 relates to payment of various expenses for purposes that are not exclusively attributable to the EIF, but could be attributed to the EIF, Future Fund, BAF or HHF.  The intention of subclauses 138(a) to (g) is to allow common costs of the EIF, Future Fund, BAF and HHF to be paid initially by one Fund (with subsequent apportionment between the Funds).

A note at the end of clause 138 assists the reader by referring to section 21 of the FMA Act, which relates to debits from Special Accounts.

Clause 139 - Payments in relation to the creation or development of higher education infrastructure

Clause 139 defines the phrase payment in relation to the creation or development of higher education infrastructure as it relates to the purposes of the EIF Special Account.  Paragraph (a) encompasses payments to higher education institutions in relation to the creation or development of education infrastructure.  The purpose of paragraph (b) is to allow payments from the EIF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of education infrastructure (including incidental or ancillary matters), as it relates to the higher education sector.  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  This is intended to provide flexibility in how the Government invests in the creation or development higher education infrastructure.

Shares, debentures or units acquired under subparagraphs 139(b)(i), (ii) or (iii) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Subparagraph 139(b)(iv) similarly applies in relation to business entities.

Subparagraph 139(b)(ii), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under paragraph 139(b) will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Education Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the EIF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 206 of the Bill which provides that investment provisions do not apply to these assets.

Clause 140 - Payments in relation to the creation or development of research infrastructure

Clause 140 defines the phrase payment in relation to the creation or development research infrastructure as it relates to the purposes of the EIF Special Account.  Paragraph (a) encompasses payments to research institutions in relation to the creation or development of research infrastructure.  The purpose of paragraph (b) is to allow payments from the EIF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of research infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  This is intended to provide flexibility in how the Government invests in research infrastructure.

Shares, debentures or units acquired under subparagraphs 140(b)(i), (ii) or (iii) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Subparagraph 140(b)(iv) similarly applies in relation to business entities.

Subparagraph 140(b)(ii), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under paragraph 140(b) will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Research Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the EIF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 206 of the Bill which provides that investment provisions do not apply to these assets.

Clause 141 - Payments in relation to the creation or development of vocational education and training infrastructure

Clause 141 defines the phrase payment in relation to the creation or development of vocational education and training infrastructure as it relates to the purposes of the EIF Special Account.  Paragraph (a) encompasses payments to vocational education and training providers in relation to the creation or development of education infrastructure.  The purpose of paragraph (b) is to allow payments from the EIF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of education infrastructure (including incidental or ancillary matters), as it relates to the vocational education and training sector.  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as the acquisition of other types of financial assets in other business entities.  This is intended to provide flexibility in how the Government invests in education infrastructure as it relates to the creation or development vocational education and training sector.

Shares, debentures or units acquired under subparagraphs 141(b)(i), (ii) or (iii) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Subparagraph 141(b)(iv) similarly applies in relation to business entities.

Subparagraph 141(b)(ii), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under paragraph 141(b) will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Education Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the EIF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 206 of the Bill which provides that investment provisions do not apply to these assets.

Clause 142 - Payments in relation to the creation or development of eligible education infrastructure

Clause 142 defines the phrase payment in relation to the creation or development of eligible education infrastructure as it relates to the purposes of the EIF Special Account.  Paragraph (a) encompasses payments in relation to one or more designated education infrastructure-related matters.  The purpose of paragraph (b) is to allow payments from the EIF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of education infrastructure (including incidental or ancillary matters), as it relates to education infrastructure specified in a legislative instrument made by the EIF designated Ministers for the purpose of this paragraph (see also clause 143).  This is intended to provide flexibility in how the Government invests in education infrastructure as it relates to education infrastructure that is specified in a legislative instrument under clause 143.

Shares, debentures or units acquired under subparagraphs 142(b)(i), (ii) or (iii) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Subparagraph 142(b)(iv) similarly applies in relation to business entities.

Subparagraph 142(b)(ii), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under paragraph 142(b) will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Education Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the EIF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 206 of the Bill which provides that investment provisions do not apply to these assets.

Clause 143 - Designated education infrastructure-related matters

Clause 143 allows for the EIF designated Ministers to determine that a specified matter relating to education infrastructure is a designated education infrastructure related matter.  The aim of this provision is to allow flexibility for the EIF to be extended in future consistent with government policy, for example in relation to schools infrastructure, as further contributions are made to the EIF.

A determination under this clause is a legislative instrument for the purposes of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and registered on the Federal Register of Legislative Instruments.  The instrument is disallowable by either House of the Parliament.

Clause 144 - Transitional HEEF payments

Clause 144 defines the phrase transitional HEEF payment as it relates to the purposes of the EIF Special Account.  The purpose of this clause is to allow for grants to be made to eligible higher education institutions in relation to capital expenditure and in relation to research facilities, under a 2009 HEEF Funding Round which commenced on 6 June 2008 (i.e. prior to the proposed repeal of the HEEF Act and closure of the HEEF).  It is intended that proposals arising from the 2009 HEEF Funding Round will be eligible for funding from the EIF under these arrangements.  However, a transitional HEEF payment requires a pre-1 July 2009 recommendation of the EIF designated Ministers consistent with this purpose being to allow an existing HEEF funding process to be completed.

Subclause 144(2) provides that expressions used in this clause have the same meaning as they had in the HEEF Act.

Clause 145 - Future Fund Board must ensure that there is sufficient money in the Education Investment Fund Special Account to cover authorised payments etc.

Clause 145 requires the Future Fund Board to take all reasonable steps to ensure that the amount of money standing to the credit of the EIF Special Account is sufficient to cover amounts to be debited from the EIF to support expenditure in relevant infrastructure - namely, grants of financial assistance and other payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.  It also includes payments to be channelled through the EIF Portfolio Special Accounts, and the COAG Reform Fund for grants of financial assistance to States and Territories, in relation to relevant infrastructure.

A note at the end of clause 145 is inserted to assist the reader by clarifying that the Future Fund Board may need to liquidate non-cash assets in accordance with clause 153 in order to comply with this clause.

Division 5—Inter-fund transfers

Clauses 146 to 148 - Transfers from the Education Investment Fund to the Future Fund, Building Australia Fund, and Health and Hospitals Fund

Clauses 146 to 148 allow for amounts to be transferred between the EIF and the Future Fund, BAF and HHF.  The purpose of this is to cover the situation where one Fund pays entirely for an expense that should properly be apportioned between two or more Funds.  The clauses allow the Finance Minister to direct that one Fund be debited and the other Fund or Funds credited by a specified amount.

Corresponding transfers from the Future Fund, BAF and HHF into the EIF are provided for in this Bill.

Subclauses 146(3), 147(3) and 148(3) make it clear that directions of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Part 3.3—Investment of the Education Investment Fund

Clause 149 - Simplified outline

Clause 149 is an information provision which provides an overview of Part 3.3 to assist with readability.

Clause 150 - Objects of investment of the Education Investment Fund

Subclause 150(1) is intended to reinforce that amounts are invested by the Future Fund Board for the main objects of enhancing the Commonwealth’s ability to make payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.

Subclause 150(2) sets out that the ancillary objects of the investment of the EIF are for enhancing the ability of the Commonwealth and the Future Fund Board to discharge costs, expenses, obligations and liabilities and make payments for the ancillary purposes as set out in paragraphs 136(1)(f) to (l), 137(a) to (g) and 138(a) to (g).

Clause 151 - Investment of the Education Investment Fund

Clause 151 is modelled on the investment powers under section 39 of the FMA Act. However, subclause 151(1) expands those powers to specifically provide for the investment of the EIF in a broad range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.  Specific conditions on the acquisition of derivatives are separately covered in clause 161.  This approach to investment of the EIF is consistent with similar arrangements for the Future Fund.

Investments of the EIF will be made in the name of the Future Fund Board (rather than the Commonwealth) to reinforce the position that the Future Fund Board manages the EIF at arm’s length from the Government.  However, beneficial ownership of the EIF remains with the Commonwealth at all times.

Subclause 151(3) provides that money invested in financial assets are ‘investments of the EIF’ and may be realised, disposed of or redeemed by the Future Fund Board.

Clause 152 - Education Investment Fund to inherit investments of the Higher Education Endowment Fund

The HEEF will be closed and its balance transferred to the EIF.

Clause 152 is a transitional provision relating to transfer of assets of the HEEF to the EIF.  It provides for the financial assets of the HEEF, which are held by the Commonwealth (and have continuously been held by the Commonwealth since commencement of the section), to become investments of the EIF.

The Commonwealth’s rights and powers associated with the assets may be exercised by the Future Fund Board and are taken to be an EIF investment function of the Future Fund Board.

The EIF inherits the balance of the HEEF Special Account under clause 135.

Clause 153 -Management of investments of the Education Investment Fund

Clause 153 sets out various matters relating to the management of investments of the EIF.

Subclauses 153(1) and (2) provide that income derived from an investment of the EIF, including a return of capital or another form of financial distribution, must be credited to the EIF Special Account.  This is consistent with the requirements under sections 81 and 83 of the Constitution (which, in effect, provide that public money forms part of the Consolidated Revenue Fund and can only be spent if authorised by an appropriation made by law).  In practice, any money that has not been invested must be held in an official bank account.  The requirement to hold the money in an official bank account is covered in the FMA Act.

Subclauses 153(3) to (5) relate to the arrangements that will apply in relation to the realisation of assets.   While subclauses 153(3) to (4) are self explanatory, subclause 153(5) allows the Future Fund Board to authorise, prior to an investment maturing, that the proceeds of this investment be automatically reinvested with the same entity.  This avoids the need for the proceeds of realisation of the investment to be treated as public money and credited to the Consolidated Revenue Fund only to be then reappropriated and reinvested. Any reinvestment is an investment of the EIF. 

Subclause 153(6) provides that section 39 of the FMA Act does not apply to an investment of the EIF.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  However, clause 151(1) provides for the investment of the EIF in a broader range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.

Clause 154 - Education Investment Fund Investment Mandate

It is appropriate that the Government, as manager of the economy and owner of the EIF, has a mechanism for articulating its overall expectations for how the EIF will be invested and managed by the Future Fund Board.  Clause 154 establishes a framework that enables the Government to give strategic guidance to the Future Fund Board while preserving the Board’s role in managing the investment of the EIF at arm’s length from the Government.  This approach is consistent with that existing in relation to the Future Fund.

Subclause 154(1) provides that the responsible Ministers have the power to give the Future Fund Board written directions in relation to the performance of its investment functions and the exercise of its powers.  The responsible Ministers must issue at least one direction to ensure that an Investment Mandate is in force at all times and to provide clarity and certainty to the Future Fund Board.  Note that the Education Investment Fund investment function is defined in clause 4.

Subclause 154(2) provides that any direction issued under subclause 154(1) has effect subject to the limitations set out in clause 155 - Limitation on Education Investment Fund Investment Mandate.

The fact that a direction has already been issued does not prohibit the responsible Ministers from issuing additional directions.  All of these directions together comprise the Investment Mandate (see subclauses 154(1) and 154(4)).

While the responsible Minister can issue new directions at any time, the intention is that the Investment Mandate will reflect the nature of the Government’s policy.  Any new directions will therefore only be issued in light of significant policy changes or material changes in the investment environment faced by the EIF.

Subclause 154(3) provides that in setting an Investment Mandate, the responsible Ministers must have regard to maximising the return on the EIF consistent with international best practice for institutional investment, enhancing the Commonwealth’s ability to make payments in relation to the objects of the EIF (set out in clause 128), and any other matters the Ministers consider to be relevant.  This requirement will give the Future Fund Board and the Parliament assurance that the responsible Ministers must consider the scope of their directions from an investment perspective, while ensuring that there is flexibility to take account of broader policy issues and national interest considerations.

Subclauses 154(5) and 154(6) provide that the Investment Mandate may include, but is not limited to, statements about policies the Future Fund Board must pursue in relation to risk and return and the allocation of the EIF to particular asset classes.  This may include restrictions or thresholds for investing the EIF in certain jurisdictions or asset classes and statements of the Government’s tolerance for losses.

Subclause 154(7) provides that any policies are subject to the limitations set out in clause 155.

Subclause 154(8) ensures that the Future Fund Board is not given conflicting directions regarding the Government’s tolerance for risk, its expectations for returns and any associated allocation of the EIF across asset classes.

To avoid doubt, subclause 154(9) makes it clear that the scope of the responsible Ministers’ power to issue directions to the Future Fund Board in relation to the investment of the EIF is bound by the Act.  For example, the responsible Ministers could not direct the Future Fund Board to use derivatives in a manner that contradicts clause 161 (which deals with the acquisition of derivatives by the Future Fund Board).

Subclause 154(10) provides that the Investment Mandate will not formally commence until at least 15 calendar days after it is issued.  This is to allow the Future Fund Board time to adjust to any revised directions issued by the responsible Ministers.  Importantly, the Future Fund Board will be able to know with certainty when the new direction will come into force.

Subclause 154(11) provides that directions under subclause 154(1), that set out certain rules that the Future Fund Board must comply with, are legislative in character and are therefore legislative instruments for the purposes of section 5 of the Legislative Instruments Act.  However, any directions issued by the responsible Ministers as part of the Investment Mandate are exempt from parliamentary disallowance (provided for by section 44 of the Legislative Instruments Act) and exempt from sunsetting (provided for by section 54 of the Legislative Instruments Act).

As legislative instruments, any directions given to the Future Fund Board under this clause are required to be registered on the Federal Register of Legislative Instruments and tabled in Parliament.

This approach enables the public and the Parliament to hold the Government accountable for the directions it issues to the Future Fund Board without impeding the Government’s ability to manage its finances.

Subclauses 154(12) and 154(13) provide that, subject to the restrictions set out in the Act and the expectations of the Government as articulated in the Investment Mandate, the Future Fund Board has a statutory obligation to seek to maximise returns, consistent with international best practice for institutional investment and enhancing the Commonwealth’s ability to make payments in relation to the objects of the EIF (set out in clause 128).

This provision (together with subclause 154(8) ) establishes a clear hierarchy of priorities for the Future Fund Board — the responsibility to maximise returns is subordinate to the investment parameters set out by the Parliament and the Government.  This framework provides appropriate flexibility while still ensuring suitable accountability for any directions the Government gives the Future Fund Board regarding the investment of the EIF.

It also provides the Future Fund Board with clarity as to the extent of its accountability — the Future Fund Board must be able to demonstrate that it is pursuing policies and strategies that are clearly directed at maximising investment returns in a manner that is consistent with best practice.

It is expected that the Future Fund Board will adopt a best practice approach to a range of issues by learning from the experiences of other investors and funds of national significance.

The purpose of subclause 154(13) is to clarify that the subclause is the default position in the event that a direction under subclause 154(1) is not issued or is revoked.  However, a direction issued by the Ministers under subclause 154(1) will override subclause 154(12).

Clause 155 - Limitation on Education Investment Fund Investment Mandate

Clause 155 aims to ensure that the EIF is not invested in a way that is inconsistent with its objectives.  A similar clause exists in the Future Fund Act.

Subclause 155(1) specifies that the responsible Ministers cannot direct the Future Fund Board to use the assets of the EIF to invest in a particular financial asset, for example, shares in a particular infrastructure company.  It also prevents the responsible Ministers from issuing a Ministerial direction that has the effect of requiring the Future Fund Board to use the assets of the EIF to support a particular business entity, a particular activity or a particular business.

This clause does not limit the ability of the Investment Mandate to set out the policies as intended under the Bill, such as those to be pursued by the Future Fund Board in relation to matters of risk and return.

This clause does not limit the Commonwealth’s ability to acquire shares in a company, debentures in a company, units in a unit trust, or other vehicles that are allowed for the creation or development of relevant infrastructure under clauses 139, 140, 141 and 142.  Such investments are external to the EIF and are not made by the Future Fund Board.

Clause 156 - Future Fund Board to be consulted on Education Investment Fund Investment Mandate

Consistent with the Future Fund arrangements, the responsible Ministers are required to consult the Future Fund Board on any changes or additions to the Investment Mandate.  Subclauses 156(1) and 156(3) achieve this by requiring the responsible Ministers to send a draft of the new direction to the Future Fund Board and inviting the Board to make a submission within a specified time limit.

The specified time limit will be determined on a case by case basis with regard to relevant circumstances and priorities at the time.  It may be the case that urgent changes are required in the national interest.  In this situation, it would be reasonable for the Future Fund Board to be asked to consider a draft direction quickly.  However, where there is less urgency, or the change in the Investment Mandate is quite substantial, it would be reasonable to provide the Future Fund Board with more time to consider a draft direction.

Subclause 156(2) provides that any submission received by the responsible Ministers from the Future Fund Board must be tabled in Parliament with the new direction.  In this way, the Future Fund Board will be able to ensure that their views on the expected impact on their ability to maximise returns are publicly known.

Clause 157 - Compliance with Education Investment Fund Investment Mandate

Subclause 157(1) provides that it is the responsibility of the Future Fund Board to take all reasonable steps to ensure that all policies and decisions regarding the operation and investment of the EIF are in accordance with any directions (Investment Mandate) issued by the responsible Ministers. Since the Investment Mandate is intended to provide broad guidance to the Future Fund Board, it may contain directions that require the Board to apply its judgement on whether or not the EIF is complying with the Mandate.

Subclause 157(2) provides that if the Future Fund Board becomes aware of a breach of the Investment Mandate or judges that a policy does not comply with the Investment Mandate, it must inform the responsible Ministers in writing as soon as is practicable, including a proposed strategy to bring the operations of the EIF into accordance with the Investment Mandate.

Similarly, subclauses 157(3) and 157(4) provide that if the Government identifies areas where the Future Fund Board is not complying with the Investment Mandate, the responsible Ministers can issue written directions to the Board to take action to remedy the situation.  The Future Fund Board is required to comply with any such directions, noting that the responsible Ministers are the final arbiters on what is intended by the Investment Mandate.

Subclause 157(5) provides that any transactions undertaken by the Future Fund Board that are deemed later not to have complied with the Investment Mandate, are still valid and the Board is required to honour any commitment made.  This protects third parties who enter into transactions with the Future Fund Board or its agents in good faith.

Subclause 157(6) makes it clear that a direction under subclause 157(3) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Clause 158 - Future Fund Board must not trigger the takeover provisions of the Corporations Act 2001

To minimise market distortion and eliminate the potential for conflicts of interest for the Government as a market regulator, the Future Fund Board is prohibited from triggering the takeover provisions under section 606 of the Corporations Act.

Section 606 of the Corporations Act essentially prohibits acquisitions in relevant interests in the voting shares of a listed company, or unlisted company with more than 50 share holders, if a person’s voting power increases from a figure at or below 20% to a figure above 20% (or from a figure above 20% to a higher figure above 20% but below 90%) - unless the shares are acquired in one of the circumstances set out at section 611 of that Act.

However, it is the Government’s intention that the takeover threshold be adhered to quite strictly in relation to listed companies and unlisted companies with more than 50 shareholders. Therefore, subclause 158(1) provides that the exceptions provided under section 611 of the Corporations Act (that is, exceptions to the prohibition in section 606) do not apply in relation to acquisitions by the Future Fund Board.

The prohibition on the Future Fund Board is not expected to have a material impact on the investment efficiency of the EIF as such limits are quite similar to those often used by other fund managers.  However, the Future Fund Board will need to have regard to the entirety of its interest (i.e. through investment of the EIF, Future Fund, BAF and HHF) in a particular company when the Board is proposing a particular acquisition in the context of the EIF.

Subclause 158(2) provides that if for some reason the Future Fund Board has not complied with section 606 of the Corporations Act (as it is applied to the Future Fund Board under clause 158), the relevant transactions will still be valid.  The aim of this provision is to ensure third parties are not adversely affected by any non compliance of the Future Fund Board.

A note at the end of the clause assists the reader by referring to section 39 of the Future Fund Act, which sets out the application of the Corporations Act to the Future Fund Board.

Note that the Future Fund Board is also prohibited from acquiring more than a 20% stake (as defined in the Financial Sector (Shareholdings) Act with a few minor adjustments) in a foreign publicly listed company.  This prohibition is found in section 84C of the Future Fund Act, but applies to the Future Fund Board’s activities in relation to the EIF, Future Fund, BAF and HHF.  Therefore, the Future Fund Board must take account of the overall level of its investment in a foreign listed company in complying with this provision.

Clause 159 - Borrowing

Clause 159 prohibits the Future Fund Board from borrowing money, except for short term borrowing associated with the settlement of transactions or in other circumstances prescribed in regulations (see subclause 159(3) below).

Consistent with the Future Fund Board’s broader role in relation to managing the assets of a number of funds (including the Future Fund), the eligibility of short term borrowing for transaction settlement is in line with the treatment of superannuation funds under the Superannuation Industry (Supervision) Act 1993 .

The overall aim of this clause is to ensure that the Future Fund Board is able to operate efficiently without exposing the budget to undue risk.

Subclause 159(3) provides that regulations may be made to specify circumstances in which it is considered appropriate for the Future Fund Board to be able to borrow.  Regulations may also be used to clarify any uncertainty on whether a particular activity constitutes borrowing.  While it is not anticipated that the Future Fund Board will have a need to borrow, this provision allows for unforseen events or changes in the investment environment without the need to amend the primary legislation.  The regulations would be disallowable by either House of the Parliament.

Clause 160 - Education Investment Fund investment policies

Subclauses 160(1), 160(3) and 160(7) provide that the Future Fund Board is required to formulate, publish and comply with a number of policies on its investment activities.

The aim of this provision is to ensure rigour and transparency around how the Future Fund Board performs its investment function in relation to the EIF, including risk management and performance assessment and benchmarks.

In addition to the specific matters set out in paragraphs 160(1)(a) to (d), the Future Fund Board is required to formulate, publish and comply with policies and any additional matters specified in regulations (see paragraph 160(1)(e) and subclause 160(7)).

A note at the end of subclause 160(1) reminds the reader that under subsection 33(3) of the Acts Interpretation Act, the Future Fund Board is able to repeal, rescind, revoke, amend, or vary any such policies.

Subclause 160(2) provides that the policies that the Future Fund Board develops must not be incompatible with the Investment Mandate.

Subclause 160(4) provides that the Future Fund Board must publish the first set of policies on the internet as soon as is practicable following the commencement of this clause.

Subclauses 160(5) and 160(6) provide that the Future Fund Board must conduct reviews of these policies periodically and where the responsible Ministers change the Investment Mandate.  It is not expected that these reviews would be a formal process or that the results of the reviews would be required to be published.  However, if the review resulted in any changes to the policies, it is intended that the updated policies would be published on the internet.

Subclause 160(8) provides that if the Future Fund Board enters into a transaction which is not consistent with a policy that it has published under this clause, the transaction will still be valid.  This will ensure that third parties are not affected by any inconsistency with the Future Fund Board’s policies.  However, subclause 160(7) provides that the Future Fund Board is required to take all reasonable steps to comply with the policies it develops under subsection 160(1).

Subclause 160(9) makes it clear that the policies of the Future Fund Board are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 161 - Derivatives

Derivatives are widely used by financial market participants as a tool for risk management.  As the sophistication, size and mobility of capital markets around the world increases, investment managers are looking for more ways to maximise the returns on investments while minimising the volatility of results.  The types and volumes of derivatives being traded has grown exponentially as the underlying markets have created demand for these types of instruments.

Clause 161 provides for the Future Fund Board to make use of derivatives for certain purposes.  This includes as a risk management tool and to achieve indirect exposure to assets that it could not otherwise achieve.  The Future Fund Board may also use derivatives to reduce the transaction cost of achieving required exposures.  However, subclause 161(1) provides that it may not use derivatives for speculative purposes or for leverage.

Subclause 161(2) provides that the acquisition of derivatives under this clause cannot be inconsistent with the requirement under clause 160 for the Future Fund Board to formulate a policy on its investment strategy and take all reasonable steps to comply with that policy.

Subclauses 161(3) and 161(4) provide that derivatives must be held in the name of the Future Fund Board and are taken to be an investment of the EIF.  Similar to other investments, derivatives may be realised by the Future Fund Board under subclause 153(3).

Clause 162 - Additional financial assets

Clause 162 provides that if the Future Fund Board becomes a holder of another financial asset, for example through a capital distribution, that asset becomes an investment of the EIF and is therefore subject to all the restrictions and requirements for investments of the EIF.

Clause 163 - Securities lending arrangements

Clause 163 provides that the Future Fund Board is able to enter into securities lending arrangements.  Lending of securities is commonplace among institutional investors.  It may also take collateral as part of a securities lending arrangement.  Any collateral it takes is either credited to the EIF Special Account or becomes an investment of the EIF.

Clause 164 - Investment managers

Subclause 164(1) provides that the Future Fund Board is able to hire one or more investment managers.  Investment manager is defined broadly to include custodians, transition managers and other investment managers.  However, the Agency is excluded from this definition as it is generally expected that investment activities, such as acquiring derivatives or investing money, will be outsourced.

Unless approved by the responsible Ministers, the Future Fund Board must use investment managers to invest money in financial assets, acquire derivatives, enter into securities lending arrangements or realise financial assets.

Subclause 164(2) provides that the responsible Ministers may provide approval in writing for certain methods of investment, other than through investment managers, should it be prudent and cost effective to do so.

Subclauses 164(3) and 164(4) provide that the Future Fund Board is required to ensure that investment managers operate within the Act and must report on the state of investments of the EIF to the Board and the Agency.  It would be expected that such obligations are set out in the contractual arrangements between the Future Fund Board and the investment manager.

Clause 165 - Custody of securities

Clause 165 provides that section 40 of the FMA Act does not apply to investment of the EIF.

Section 40 of the FMA Act requires officials who receive any bonds, debentures or other securities in the course of their duties to deal with them in accordance with the Finance Minister’s Orders.  This provision is designed for departments of state who carry out a more limited range of investment activities than is envisaged for the Future Fund Board (and Agency) in relation to the EIF.  Further, making custodians and other investment managers comply with the Finance Minister’s Orders for investment purposes could impose an undue administrative burden.

While section 40 of the FMA Act is excluded, a framework for how the Future Fund Board must deal with securities that it receives in relation to the EIF is covered by clauses 153 and 163.

Clause 166 - Refund of franking credits

Under subsection 84B(1) of the Future Fund Act, the Future Fund Board is deemed to be an exempt institution that is eligible for a refund of franking credits under the ITAA.  As the Future Fund Board is exempt from income tax, it may have an investment bias towards assets whose return had not previously been subject to income tax (such as debt instruments or unfranked dividends).  Refunding franking credits removes any potential bias against franked dividends.

Clause 166 deals with refund of franking credits and provides that if the Future Fund Board receives a refund of a tax offset under the ITAA and the tax offset is attributable to the investment of the EIF, any refund received is credited to the EIF Special Account.

Clause 167 - Realisation of non-financial assets

Clause 167 requires the Future Fund Board to realise an asset that ceases to be a financial asset or any asset acquired by the Board (as an investment of the EIF) that is not a financial asset.  This could include circumstances where the Future Fund Board holds an asset which was mistakenly acquired by the Board, or given to the Board, or which ceases to be a financial asset due to a revision of the ABS government finance statistics manual, for example.

The clause provides that a non-financial asset is treated as a financial asset up to the time it is realised.  Paragraphs 167(1)(b) and 167(2)(b) ensure that the asset is considered an investment of the EIF and that relevant provisions relating to investments of the EIF apply to that asset for the time it is held by the Future Fund Board.

Clause 168 - Additional function of the Future Fund Board

Clause 168 provides that the functions of the Future Fund Board include the function of investing amounts in accordance with the Act.

Part 3.4—Payments

Division 1—Introduction

Clause 169—Simplified outline

Clause 169 is an information provision which provides an overview of Part 3.4 to assist with readability.

The following diagram illustrates how payments may be made from the EIF.

It is the Government’s policy intention that payments from the EIF will be channelled through EIF Portfolio Special Accounts in line with EIF portfolio Ministers’ responsibilities for managing the delivery of infrastructure projects.  Grant payments will be disbursed to States and Territories, via the relevant EIF Portfolio Special Account, through the COAG Reform Fund.

Division 2—Education Investment Fund Advisory Board

It is the Government’s intention that spending proposals for the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure and the creation or development of eligible education infrastructure will be rigorously evaluated by an independent advisory body.

The EIF advisory body function will be undertaken by the EIF Advisory Board, which is to be an independent body established under this Chapter to advise the Education Minister about matters referred to it by the Education Minister and the Research Minister about matters referred to it by the Research Minister.

The Education Minister and Research Minister, as EIF designated Ministers , will be responsible for appointment of members to the EIF Advisory Board and also for terminating appointments.

The EIF Advisory Board will also advise the EIF designated Ministers about the making of transitional HEEF payments.

Division 2 establishes the EIF Advisory Board and sets out provisions relating to its function, operation and membership.

Clause 170 - Education Investment Fund Advisory Board

The EIF Advisory Board is established by subclause 170(1) .  Note that a reference to the EIF Advisory Board means the Education Investment Fund Advisory Board as defined in section 4.

Subclauses 170(2) to (4) relate to appointments to the EIF Advisory Board.  The EIF designated Ministers may appoint members to the EIF Advisory Board in writing.  The maximum term of an appointment is three years.  However, the EIF designated Ministers may also appoint a member for a shorter term as set out in the instrument of appointment.

Members may also be appointed for a subsequent term.  The note at the end of subclause 170(3) refers to subsection 33(4A) of the Acts Interpretation Act, which provides for ‘appoint’ to include re-appoint.

The purpose of subclause 170(4) is to ensure that members appointed to the EIF Advisory Board have a high level of knowledge and experience in an area that is relevant to the EIF Advisory Board’s function.  While a potential appointee’s level of skill and experience will be at the EIF designated Ministers’ discretion, examples may include expertise in higher education, vocational education and training, finance and economics, or experience as a scientist or research scientist.

Subclause 170(5) provides for the EIF designated Ministers to terminate appointments to the EIF Advisory Board.

Under subclause 170(6) , the EIF designated Ministers may issue written directions to the EIF Advisory Board regarding the way in which it carries out its functions and the procedures to be followed at meetings.  This could include, for example, the timeframe for providing advice to the Education Minister and Research Minister, frequency and quorum requirements for meetings and the recording of meeting minutes.

Subclause 170(7) makes it clear that directions to the EIF Advisory Board are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 171 - Functions of the EIF Advisory Board

Clause 171 sets out the function of the EIF Advisory Board to provide advice to the Education Minister about matters which are referred to it by the Education Minister and to the Research Minister about matters referred to it by the Research Minister.  The EIF Advisory Board may also advise the EIF designated Ministers (i.e. the Education Minister and the Research Minister) about matters referred to it by the EIF designated Ministers.

Consistent with the Government’s intention to establish the EIF Advisory Board to consider relevant proposals, subclause 171(2) requires that each matter that is referred to the EIF Advisory Board by the Education Minister must be a matter that relates to making payments in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure and the creation or development of eligible education infrastructure.

Similarly, subclause 171(3) requires that each matter that is referred to the EIF Advisory Board by the Research Minister must be a matter that relates to making payments in relation to the creation or development of research infrastructure.

Subclause 171(4) requires the EIF Advisory board to apply the EIF evaluation criteria when providing advice to the Education Minister or the Research Minister.  This is consistent with the Government’s intention that spending proposals will be rigorously assessed (see below).

Under subclause 171(5) , the EIF Advisory Board may also advise about other matters relating to the object or operation of Chapter 3 (see clause 128) that do not relate to the making of a particular payment.

Subclauses 171(6) and (7) relate to HEEF transitional payments and set out an additional function of the EIF Advisory Board to advise the EIF designated Ministers about matters that are referred to it prior to 1 July 2009.  The 1 July 2009 date will allow sufficient time for matters in the 2009 HEEF Funding Round to be referred to the EIF Advisory Board by the EIF designated Ministers.  In giving advice to the EIF designated Ministers about such matters, the EIF Advisory Board must apply the provisions of the ‘Higher Education Endowment Fund (HEEF) Application and Assessment Procedures for the 2009 Funding Round’ which was attached to the Higher Education Endowment Fund Advisory Board Directions No. 1 of 2008 (Directions), as in force prior to commencement of this section.  A regulation-making power may modify these documents as appropriate reflecting that the 2009 HEEF Funding Round will be completed under the EIF.

Clause 172 - EIF evaluation criteria

Clause 172 requires the EIF designated Ministers (being the Education Minister and the Research Minister) to formulate EIF evaluation criteria to be applied by the EIF Advisory Board when giving advice under subclause 171(1).

The purpose of subclause 172(2) is to acknowledge that the criteria applied by the EIF Advisory Board in giving advice in relation to matters referred by the Education Minister (under paragraph 171(1)(a)) may be different to the criteria to be applied when it provides advice in relation to matters referred by the Research Minister (under paragraph 171(1)(b)).  This reflects that there may be different factors affecting higher education versus research, with the result that specific criteria may be relevant only in relation to higher education infrastructure and other criteria may only be relevant in relation to research infrastructure.

However, in addition to any education or research specific criteria, the EIF evaluation criteria may include common criteria to be applied by the EIF Advisory Board in relation to advice that is provided both under paragraph 171(1)(a) and paragraph 171(1)(b).

As the EIF evaluation criteria will be made by legislative instrument, the instrument is required to be registered on the Federal Register of Legislative Instruments and tabled in Parliament.  It will also be disallowable by either House of the Parliament.

Subclause 172(3) requires the EIF designated Ministers to consult with the responsible Ministers before formulating the EIF evaluation criteria .  The intention of this requirement is to ensure that there is a common and rigorous approach in the evaluation criteria framework across the EIF, BAF and HHF that is consistent with the nation-building objectives of the Funds and in line with the Government’s overarching principles that projects financed from the Funds should:

·          address national infrastructure priorities;

·          demonstrate high benefits and effective use of resources;

·          efficiently address infrastructure needs; and

·          demonstrate they achieve established standards in implementation and management.

Subclause 172(4) is intended to ensure that the EIF designated Ministers formulate the EIF evaluation criteria consistent with the operation of the Government’s broader framework for spending proposals to be rigorously assessed by independent advisory bodies.

Clause 173 - Remuneration and allowances

Clause 173 provides for the Remuneration Tribunal to determine the remuneration of members of the EIF Advisory Board.  However, the clause allows the EIF designated Ministers to determine such remuneration if no determination is made by the Remuneration Tribunal.

The Regulations may prescribe allowances, in addition to remuneration, to be paid to EIF Advisory Board members.

Clause 174 - Disclosure of interests

Clause 174 sets out a procedure to cover a situation where an EIF Advisory Board member has a material personal interest in a matter that will be considered by the EIF Advisory Board.  Note that a ‘material personal interest’ is intended to be a broader test than simply a monetary gain.  For example, a material personal interest may involve a direct or indirect advantage or benefit to the extent that it has the capacity to influence how the member would assess a particular proposal.

Subclause 174(2) requires the member to disclose such an interest to the EIF Advisory Board and to the EIF designated Ministers.  The disclosure must also be recorded in the meeting minutes.

Subclause 174(4) requires the EIF designated Ministers to terminate the appointment of an EIF Advisory Board member who does not, without reasonable excuse, disclose a material personal interest.

Subclause 174(5) confirms that termination under this clause does not limit the EIF designated Ministers’ broader power to terminate a member under subclause 170(5).

Clause 175 - Resignation

Clause 175 provides for a member to resign from the EIF Advisory Board by providing a written notice to either the Education Minister or the Research Minister.  The resignation will take effect once received by the EIF portfolio Minister concerned, or the notice of resignation may contain an alternative date.

Division 3—Direct payments

Clause 176 - Authorisation of payments

The Finance Minister has a central role in authorising payments (and directing payments to be channelled through Portfolio Special Accounts and through the COAG Reform Fund - see below) from the EIF for projects agreed to by the Government through the annual budget process.  However, it is the Government’s intention that for any payments that have been authorised (or directed), relevant portfolio Ministers - in the case of the EIF, the Education Minister in relation to education related matters, and the Research Minister in relation to research related matters - will manage the delivery of projects (including obligations and any risks) associated with disbursements from the EIF.

Clause 176 allows the Finance Minister to authorise payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.

It is not intended that the payments listed above will limit each other, which is confirmed by subclause 176(6) .  Accordingly, for example, the Finance Minister may authorise payments in relation to both higher education infrastructure and research infrastructure (i.e. where more than one aspect might exist in a particular case).

While the Finance Minister could authorise payments under each of subclauses 176(1), (2), (3), (4) and (5) through separate authorisation instruments, the clause has been drafted with flexibility to also allow a single instrument covering the authorisation of one or more payment(s) under any of subclauses 176(1), (2), (3), (4) or (5).  The aim of this is to provide for greater administrative efficiency in the authorisation of disbursements, where appropriate.

Payments authorised under clause 176 are made directly to a State, Territory, or a person other than a State or Territory, noting that a person includes a partnership. 

Payments that are channelled through the EIF Education Portfolio Special Account and the EIF Research Portfolio Special Account are dealt with separately in clauses 183 and 190.  It is intended that payments relating to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments will be channelled through the EIF Education Portfolio Special Account and that payments relating to the creation or development of research infrastructure will be channelled through the EIF Research Portfolio Special Account.  This is consistent with the establishment of these Portfolio Special Accounts to ensure that clear accountability and reporting obligations rest with the relevant portfolio departments.  It is also consistent with portfolio Ministers’ responsibilities for managing the delivery of agreed projects.  However, the ability for the Finance Minster to authorise payments directly from the EIF Special Account provides maximum flexibility as to how funding may be provided in future.

Payments by way of a grant of financial assistance made to a State or Territory that are channelled through the COAG Reform Fund are dealt with separately in clause 194 (see below).  It is intended that grants of financial assistance that are made to States and Territories will be initially transferred from the EIF to the EIF Education Portfolio Special Account and then channelled through the COAG Reform Fund. This is consistent with the COAG Reform Fund being the vehicle through which capital transfers from the Funds, as well as other funding from the budget, will be distributed to States and Territories.

Subclause 176(8) makes it clear that authorisations of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Authorisations of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the law itself.

Clause 177 - Recommendations about payments

It is intended that portfolio Ministers will be responsible for preparing proposals to be brought forward for Government consideration as part of the annual budget process.  As part of this process, portfolio Ministers will make recommendations to the Finance Minister that payments be authorised from the EIF.  In this context, the Government has also made a commitment that all projects financed from the EIF, BAF and HHF will need to satisfy rigorous evaluation criteria assessed by independent bodies.

To ensure that all proposals ultimately funded from the EIF have met the Government’s broader commitment, EIF portfolio Ministers must ensure that relevant advice has been sought from the EIF Advisory Board which supports their recommendation for a payment to be authorised from the EIF.

Consistent with the framework, subclauses 177(1) and (4) provide that the Finance Minister must not authorise a payment from the EIF unless the relevant EIF portfolio Minister has recommended the authorisation of the payment.

Subclauses 177(2) and (5) confirm the obligation on the EIF portfolio Minister to receive relevant advice from the EIF Advisory Board and ensure that a proposal for a payment from the EIF satisfies the relevant EIF evaluation criteria.

In deciding to make a recommendation that a payment be authorised from the EIF, subclauses 177(3) and (6) require the relevant EIF portfolio Minister to have regard to the advice from the EIF Advisory Board, together with any other matter he or she considers relevant.

Subclauses 177(7) to (9) relate to transitional HEEF payments.  The EIF designated Ministers must make a recommendation to the Finance Minister regarding transitional HEEF payments before 1 July 2009.  However, the EIF designated Ministers must not make such a recommendation unless the EIF Advisory Board has given advice about the payment.

In deciding to make a recommendation that a payment be authorised from the EIF, subclause 177(9) requires the EIF designated Ministers to have regard to the advice from the EIF Advisory Board, together with any other matter they consider relevant.

Clause 178 - Grant to a State or Territory—education infrastructure etc.

Clause 178 is concerned with grants of financial assistance that are paid to a State or Territory for the purposes set out in paragraphs 136(1)(c) or (d) - i.e. grants payments in relation to the creation or development of vocational education and training infrastructure and the creation or development of eligible education infrastructure.  Note that, in this case, the payment is not channelled through the EIF Education Portfolio Special Account or through the COAG Reform Fund.

Also note that grants payments to States and Territories does not include higher education infrastructure, research infrastructure or transitional HEEF payments as these involve payments to eligible higher education institutions which are not in State or Territory jurisdictions.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 178(3) provides for the Education Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Clause 179 - Grant to a person other than a State or Territory—education infrastructure etc.

Clause 179 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purposes set out in paragraph 136(1)(a), (c), (d) or (e) - i.e. grants payments in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.  Note that, in this case, the payment is not channelled through the EIF Education Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 179(3) provides for the Education Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Clause 180 - Grant to a person other than a State or Territory—research infrastructure

Clause 180 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purposes set out in paragraph 136(1)(b) - i.e. grants payments in relation to the creation or development of research infrastructure.  Note that the payment is not channelled through the EIF Research Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 180(3) provides for the Research Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Division 4—Channelling of payments through the EIF Education Portfolio Special Account

Clause 181 - Establishment of the EIF Education Portfolio Special Account

In line with the role of portfolio Ministers in managing agreed projects, clear accountability and reporting of disbursements from the EIF will rest within relevant portfolio departments.  For example, it is intended that the relevant portfolio department will be responsible for arranging for a specific payment to be made from the EIF based on the EIF portfolio Minister’s agreement that project milestones (or other conditions) have been satisfactorily achieved.  It will also include ensuring that the FMA Act obligations, in relation to the efficient and effective use of public money, are being met in relation to such payments .

Clause 181 establishes the EIF Education Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the EIF Special Account and credited to the EIF Education Portfolio Special Account can only be subsequently debited from the EIF Education Special Account for the purposes in clause 182.

Clause 182 - Purposes of the EIF Education Portfolio Special Account

Subclause 182(1) describes the purposes of the EIF Education Portfolio Special Account, which are for making payments in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.  The note immediately following subclause 182(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 182(2) confirms that the purposes listed above do not limit each other.

Subclause 182(3) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the EIF Special Account.

Clause 183 - Channelling of payments through the EIF Education Portfolio Special Account

Clause 183 provides the mechanism for specific amounts to be debited from the EIF Special Account and credited to the EIF Education Portfolio Special Account for the purposes of making payments in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.

Subclause 183(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the EIF Special Account to the EIF Education Portfolio Special Account.

Subclauses 183(2) confirms that such a direction must be given so as to allow that amount to be debited from the EIF Education Portfolio Special Account for making a specified payment in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure or making a transitional HEEF payment.  This will ensure that the agreed purpose is retained when that amount is channelled through the EIF Education Portfolio Special Account.

Subclause 183(3) confirms that the above payments do not limit each other.

Subclause 183(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 183(5) makes it clear that a direction under subclause 183(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 183(6) requires the Finance Minister to give a copy of any direction to the Education Minister, on the basis that management of and responsibility for the EIF Education Portfolio Special Account sits within the Education portfolio.

Clause 184 - Recommendations about payments—education infrastructure

The Government’s commitment to ensuring rigour in the payment process for the EIF also applies to payments that are channelled through the EIF Education Portfolio Special Account, in the same way as other payments.

Therefore, the Education Minister must ensure that relevant advice has been sought from the EIF Advisory Board which supports a recommendation that a specified amount be transferred from the EIF Special Account to the EIF Education Portfolio Special Account, for the purposes of making a payment in relation to the creation or development of higher education infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.

Consistent with this framework, subclause 184(1) provides that a direction to transfer an amount from the EIF Special Account to the EIF Education Portfolio Special Account must not be specified unless the Education Minister has recommended the specification of the payment.

Subclause 184(2) confirms the obligation on the Education Minister to receive relevant advice from the EIF Advisory Board and to ensure that a proposal relating to a payment from the EIF satisfies the relevant EIF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the EIF to the EIF Education Portfolio Special Account for the purposes of a payment being made, subclause 184(3) requires the Education Minister to have regard to the advice from the EIF Advisory Board, together with any other matter he or she considers relevant.

Subclauses 184(4) to (6) relate specifically to transitional HEEF payments.  Subclause 184(4) requires the EIF designated Ministers to make a recommendation about the specification of a transitional HEEF payment before 1 July 2009.  However, the EIF designated Ministers must not make such a recommendation unless the EIF Advisory Board has given advice about the payment.

In deciding to make a recommendation that an amount be directed from the EIF to the EIF Education Portfolio Special Account, subclause 184(6) requires the EIF designated Ministers to have regard to the advice, together with any other matter they consider relevant.

Clause 185 - Payments—debit from the EIF Education Portfolio Special Account

Clause 185 reflects the Government’s intention that the EIF Education Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the EIF rest with the relevant EIF portfolio Minster and his or her department.  Accordingly, the EIF Education Portfolio Special Account is a vehicle by which payments from the EIF are authorised in order to support higher education infrastructure, vocational education and training infrastructure, eligible education infrastructure and HEEF transitional expenditure.

The Education Minister is required to ensure that, as soon as practicable after an amount is credited to the EIF Education Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 185(3) provides for the amount to be re-credited to the EIF Special Account.

Clause 186 - Grant to a State or Territory—education infrastructure etc.

Clause 186 is concerned with grants of financial assistance that are paid to a State or Territory through the EIF Education Portfolio Special Account.  Note that grants payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 6 of Part 3.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 186(3) provides for the Education Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Clause 187 - Grant to a person other than a State or Territory—education infrastructure etc.

Clause 187 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the EIF Education Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 187(3) provides for the Education Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Division 5—Channelling of payments through the EIF Research Portfolio Special Account

Clause 188 - Establishment of the EIF Research Portfolio Special Account

As indicated above, clear accountability and reporting of disbursements from the EIF will rest within relevant portfolio departments.

Clause 188 establishes the EIF Research Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the EIF Special Account and credited to the EIF Research Portfolio Special Account can only be subsequently debited from the EIF Research Portfolio Special Account for the purposes in clause 189.

Clause 189 - Purposes of the EIF Research Portfolio Special Account

Subclause 189(1) describes the purposes of the EIF Research Portfolio Special Account, which are for making payments in relation to the creation or development of research infrastructure and making transitional HEEF payments.  The note immediately following subclause 189(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 189(2) confirms that the purposes listed above do not limit each other.

Subclause 189(3) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the Special Account.

Clause 190 - Channelling of payments through the EIF Research Portfolio Special Account

Clause 190 provides the mechanism for specific amounts to be debited from the EIF Special Account and credited to the EIF Research Portfolio Special Account for the purposes of making payments in relation to the creation or development of research infrastructure.

Subclause 190(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the EIF Special Account to the EIF Research Portfolio Special Account.

Subclause 190(2) confirms that such a direction must be given so as to allow that amount to be debited from the EIF Research Portfolio Special Account for making a specified payment in relation to the creation or development of research infrastructure or making a specified transitional HEEF payment.  This will ensure that the agreed purpose is retained when that amount is channelled through the EIF Research Portfolio Special Account.

Subclause 190(3) confirms that the above payments do not limit each other.

Subclause 190(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 190(5) makes it clear that a direction under subclause 190(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 190(6) requires the Finance Minister to give a copy of any direction to the Research Minister, on the basis that management of and responsibility for the EIF Research Portfolio Special Account sits within the Research portfolio.

Clause 191 - Recommendations about payments—research infrastructure and transitional HEEF payments

The Government’s commitment to ensuring rigour in the payment process for the EIF also applies to payments that are channelled through the EIF Research Portfolio Special Account, in the same way as other payments.

Therefore, the Research Minister must ensure that relevant advice has been sought from the EIF Advisory Board which supports his or her recommendation that a specified amount be transferred from the EIF Special Account to the EIF Research Portfolio Special Account, for the purposes of making a payment in relation to research infrastructure.

Consistent with this framework, subclause 191(1) provides that a direction to transfer an amount from the EIF Special Account to the EIF Research Portfolio Special Account must not be specified unless the Research Minister has recommended the specification of the grant.

Subclause 191(2) confirms the obligation on the Research Minister to receive relevant advice from the EIF Advisory Board and to ensure that a proposal relating to a payment from the EIF satisfies the relevant EIF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the EIF to the EIF Research Portfolio Special Account for the purposes of a payment being made, subclause 191(3) requires the Research Minister to have regard to the advice from the EIF Advisory Board, together with any other matter he or she considers relevant.

Subclauses 191(4) to (6) relate specifically to transitional HEEF payments.

Subclause 191(4) requires the EIF designated Ministers to make a recommendation about the specification of a transitional HEEF payment before 1 July 2009.  However, the EIF designated Ministers must not make such a recommendation unless the EIF Advisory Board has given advice about the payment.

In deciding to make a recommendation that an amount be directed from the EIF to the EIF Research Portfolio Special Account, subclause 191(6) requires the EIF designated Ministers to have regard to the advice, together with any other matter they consider relevant.

Clause 192 - Payments—debit from the EIF Research Portfolio Special Account

Clause 192 reflects the Government’s intention that the EIF Research Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the EIF rest with the relevant EIF portfolio Minster and his or her department.  Accordingly, the EIF Research Portfolio Special Account is a vehicle by which payments from the EIF are authorise in order to support expenditure on research infrastructure.

The Research Minister is required to ensure that, as soon as practicable after an amount is credited to the EIF Research Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 192(3) provides for the amount to be re-credited to the EIF Special Account.

Clause 193 - Grant to a person other than a State or Territory—research infrastructure

Clause 193 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the EIF Research Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 193(3) provides for the Research Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Division 6—Channelling of State/Territory grants payments through the COAG Reform Fund

Clause 194 - Channelling of State/Territory grants payments through the COAG Reform Fund

The Government has indicated its intention that the COAG Reform Fund - a Special Account for the purposes of section 21 of the FMA Act - will be the vehicle by which grants of financial assistance to States and Territories will be disbursed.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.

Consistent with portfolio Ministers responsibilities in relation to managing payments, the authority to disburse amounts to States and Territories will be transferred from the EIF, through the relevant EIF Portfolio Special Account, to the COAG Reform Fund.

For this purpose, clause 194 provides the mechanism for specific amounts to be debited from the EIF and credited to the EIF Education Portfolio Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories.

Subclause 194(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the EIF to the EIF Education Portfolio Special Account.

Subclauses 194(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the from the EIF Education Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a vocational education and training provider or a grant to a State or Territory in relation to a designated education infrastructure-related matter.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 194(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 194(5) makes it clear that a direction under subclause 194(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 194(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Education Minister.

Clause 195 - Recommendations about grants payments

The Government’s commitment to ensuring rigour in the payment process for the EIF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, the Education Minister must ensure that relevant advice has been sought from the EIF Advisory Board which supports his or her recommendation that a specified amount be paid from the EIF to the EIF Education Portfolio Special Account and then transferred to the COAG Reform Fund, for the purposes of making a grant of financial assistance to a State or Territory.  Note that only certain payments from the EIF would be made to States and Territories and channelled through the COAG Reform Fund - for example, payments in relation to research infrastructure are not made to States and Territories and, accordingly, are not channelled through the COAG Reform Fund.

Consistent with this framework, subclause 195(1) provides that a direction to transfer an amount from the EIF, through the EIF Education Portfolio Special Account to the COAG Reform Fund must not be specified unless the Education Minister has recommended the specification of the grant.

Subclause 195(2) confirms the obligation on the Education Minister to receive relevant advice from the EIF Advisory Board and to ensure that a proposal relating to a payment from the EIF satisfies the relevant EIF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the EIF, through the EIF Education Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 195(3) requires the Education Minister to have regard to the advice from the EIF Advisory Board, together with any other matter he or she considers relevant.

Clause 196 - Transfers from the EIF Education Portfolio Special Account to the COAG Reform Fund

Clause 196 applies to amounts that are transferred from the EIF into the EIF Education Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 196(2) requires the Education Minister to ensure that as soon as practicable after an amount is credited to the EIF Education Portfolio Special Account, he or she directs, in writing, that the amount is debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 196(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 196(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 196(5) makes it clear that a direction under subclause 196(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 196(6) requires the Education Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 197 - Grants payments—debit from the COAG Reform Fund

Clause 197 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the BAF, EIF and HHF, but rather will act as a vehicle by which payments from the Funds, and direct funding from the budget, will be distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 198 - Grant to a State or Territory—education infrastructure

Clause 198 is concerned with grants of financial assistance to vocational education and training providers in relation to education infrastructure and grants in relation to designated education infrastructure-related matters that are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 198(1) assists the reader by referring to subclause 197(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 198(3) provides for the Education Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the EIF.

Division 7—Total payments for a financial year

Clause 199 - General drawing rights limit in relation to a financial year

Clause 199 provides for the annual Appropriation Acts to declare that a specified amount is a general drawing rights limit in relation to a particular financial year.

The establishment of the EIF as a Special Account under section 21 of FMA Act, means that the balance of the EIF Special Account, as it exists from time to time, is appropriated for the purposes set out in clauses 136, 137, and 138.  This reflects the clear intention to spend all the amounts credited to the EIF for the purposes identified in the Bill.

However, the Government also intends that payments against the EIF appropriation will be transparent and subject to parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.  Accordingly, while the annual Appropriation Acts will not appropriate amounts to be paid from the EIF, the intention is that these Acts would specify a maximum limit on the amount that can be paid out from the EIF in a particular financial year (including payments that are channelled through the COAG Reform Fund).  The purpose is to provide the Parliament with a mechanism by which it may supervise the rate at which the committed funds are to be expended.

The general drawing rights limit for the 2009-10 financial year and beyond would be included in an Appropriation Act. 

In order to give effect to the Government’s announcement to fast track its nation-building agenda in response the global financial crisis, in relation to the financial year ending 30 June 2009, the general drawing rights limit will be that declared by the Finance Minister in writing.  This is because the Government will not be in a position to finally decide upon proposals to be funded in this initial period until after the Parliament rises for 2008. 

The general drawing rights limit referred to in clause 199 will operate by restricting the total amount that may be covered by drawing rights under the FMA Act, and hence, the amount that can be paid out for the main purposes of the EIF - namely making payments in relation to the creation or development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments.  (This includes payments channelled through EIF Portfolio Special Accounts or through the COAG Reform Fund.)

Limiting the ability to issue drawing rights is an effective mechanism because the FMA Act does not permit expenditure without the person making the payment having been issued with a valid drawing right.

Subclause 199(2) ensures that drawing rights under the FMA Act are not issued covering debits from the EIF to support relevant infrastructure expenditure which are in excess of the general drawing rights limit for that financial year.

Subclause 199(3) provides that the declaration of the Finance Minister, in relation to the financial year ending on 30 June 2009, is to be a legislative instrument.  As such, it is required to be tabled in the Parliament and published on the Federal Register of Legislative Instruments.  However, the declaration will not be disallowable.  The Government considers that this would not be appropriate in the circumstances of this one-off instrument that will be required to enable payments to be made from the Funds as early as possible in 2009 to give effect to the Government’s announcement to fast track its nation-building agenda in response to the global financial crisis.

Clause 200 - Drawing rights in relation to other financial years

As the general drawing rights limit for a financial year is particular to that year and will depend upon the level of spending that is agreed to by the Government, clause 200 confirms that a general drawing rights limit for one financial year will not limit the drawing rights that may be issued in relation to any other year.

Clause 201 - No drawing rights to be issued if there is no general drawing rights limit in relation to a financial year

Clause 201 has the effect that if annual Appropriation Acts, or a Finance Minister declaration for the year ending 30 June 2009, do not declare that an amount is a general drawing rights limit for a financial year, drawing rights must not be issued covering payments from the EIF to support relevant infrastructure expenditure.  This approach is consistent with the Government’s intention that disbursements from the EIF will be transparent and allow for appropriate parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.

Clause 202 - Total payments to depend primarily on the macroeconomic circumstances

In establishing the EIF, BAF and HHF, the Government has made a commitment that spending proposals from the Funds would be delivered in line with the prevailing macroeconomic conditions.

To meet its commitment, the Government’s intention is that spending from the Funds should depend primarily on the macroeconomic circumstances.  In line with this principle, the Government has indicated an expectation that the Australian Loan Council will advise governments on the macroeconomic impacts of funding infrastructure spending and whether a given funding envelope can be delivered within the prevailing macroeconomic conditions, consistent with the Government’s inflation target.

Clause 202 applies to payments from the EIF which support relevant infrastructure expenditure.  It confirms the Government’s policy principle that payments from the EIF in relation to higher education infrastructure, research infrastructure, vocational education and training infrastructure, eligible education infrastructure and transition HEEF payments should depend primarily on the macroeconomic circumstances.

This is achieved specifically by subclause 202(2) , which requires the Finance Minister, in debiting amounts to be paid from the EIF Special Account, to have regard to the principle that payments from the EIF should depend primarily on the macroeconomic circumstances.

Subclause 202(2) allows flexibility for the Government to update the methodology for determining the macroeconomic circumstances.  For example, while the Government has indicated that the Australian Loan Council will provide relevant advice, it may also wish to take account of other budgetary factors in setting the spending envelope for the Funds in a financial year.

Part 3.5—Reporting obligations etc.

Clause 203 - Finance Minister may require Future Fund Board to prepare reports or give information

Clause 203 provides that the Finance Minister may write to the Future Fund Board requiring the Board to prepare a report or specified information on certain matters relating to the performance of the Board.  This report or information must be provided within the timeframe outlined in the Finance Minister’s request.

Subclause 203(4) provides that the Finance Minister may choose to publish this report or information.

Subclauses 203(5) and 203(6) make it clear that such reports and documents are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 204 - Keeping the responsible Ministers informed etc.

Clause 204 requires the Future Fund Board to notify the responsible Ministers of any information the responsible Ministers should know, including by providing any written information to the Finance Minister.  This could include significant investment results, concerns regarding fraud and any non compliance with the Board’s policy on conflicts of interest.

Clause 205 - Finance Minister may give reports to other Ministers etc.

Clause 205 allows flexibility for the Finance Minister to give reports, documents and other information to the Treasurer and the EIF portfolio Ministers.  This includes reports and documents under clauses 203 and 204 and any other information obtained by the Finance Minister under the Act.

Part 3.6—Miscellaneous

Clause 206 - Investment provisions do not apply to certain assets

Clause 206 relates to shares, debentures, trust units and other financial assets held in the name of the Commonwealth.  These assets are  acquired using money from the EIF Special Account in line with the purposes of making a payment in relation to the creation and development of higher education infrastructure, the creation or development of research infrastructure, the creation or development of vocational education and training infrastructure, the creation or development of eligible education infrastructure and transitional HEEF payments (including where the payment was channelled through the Portfolio Special Accounts).

This clause is not concerned with investments of the EIF which are managed by the Future Fund Board.

Accordingly, subclauses 206(2) and (3) provide that Part 3.3 of the Bill (which relates to investments of the EIF managed by the Future Fund Board) and section 39 of the FMA Act do not apply to these assets.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  Therefore, it is appropriate that Commonwealth investment in transport infrastructure, communications infrastructure and eligible national broadband network matters through the acquisition of shares, debentures, trust units or other financial assets are exempted from the application of section 39 of that Act.

Clause 207 - Delegation by the Finance Minister

Under subclause 207(1) , the Finance Minister may, in writing, delegate his or her powers under clauses 146, 147, 148, 176, 183, 190 or 194 to the Secretary of the Finance Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Finance Minister’s powers under clauses 176, 183, 190 and 194 relate to the making of authorisations for payments from the EIF and directing that specified amounts be transferred from the EIF Special Account to EIF Portfolio Special Accounts, or from the EIF Special Account, through the EIF Education Portfolio Special Account, to the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory.  Delegation of these functions to the Secretary of, or SES official in, the Finance Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Finance Minister for his or her actions under any delegation.  Subclauses 207(2) and (4) reinforce this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 208 - Delegation by the Treasurer

Subclause 197(2) places an obligation on the Treasurer to ensure that where money is transferred from a EIF Portfolio Special Account to the COAG Reform Fund for the purposes of making a specified grant to a State or Territory, that the COAG Reform Fund is debited for that purpose as soon as is practicable.  This is consistent with the Government’s intention that the COAG Reform Fund is a vehicle through which transfers and other funds will be disbursed to States and Territories.

Clause 208 allows the Treasurer to, in writing, delegate his or her functions under subclause 197(2) to the Secretary of the Treasury Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the clause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

Delegation of this function to the Secretary of, or SES official in, the Treasury Department is consistent with the efficient administration of this matter.

Clause 209 - Delegation by the Education Minister

Under subclause 209(1) , the Education Minister may, in writing, delegate his or her powers under clauses 178, 179, 185, 186, 187, 196 or 198 to the Secretary of the Education Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Education Minister’s functions under these provisions allow for the Education Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.

The functions under clauses 185 and 196 relate to the obligation on the Education Minister to ensure that where money is credited to the EIF Education Portfolio Special Account for the purposes of making particular payments, that the EIF Education Portfolio Special Account is debited for that purpose as soon as is practicable.  This includes making payments in relation to higher education infrastructure, vocational education and training infrastructure, eligible education infrastructure or transitional HEEF payments or for the purposes of transferring that amount to the COAG Reform Fund for the purpose of making a grant of financial assistance to a vocational education and training provider in relation to education infrastructure or a grant in relation to a designated education infrastructure-related matter.  Delegation of these functions to the Secretary of, or SES official in, the Education Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Education Minister for his or her actions under any delegation.  Subclause 209(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 210 - Delegation by the Research Minister

Under subclause 210(1) , the Research Minister may, in writing, delegate his or her powers under clauses 180, 192 or 193 to the Secretary of the Research Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Research Minister’s functions under these provisions allow for the Research Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.  Delegation of these functions to the Secretary of, or SES official in, the Research Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Research Minister for his or her actions under any delegation.  Subclause 210(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.





CHAPTER 4 - HEALTH AND HOSPITALS FUND

Part 4.1—Introduction

Clause 211—Object

Clause 211 sets out the objects of Chapter 4, namely to enhance the Commonwealth’s ability to make payments in relation to the creation or development of health infrastructure.

Clause 212—Simplified outline

Clause 212 is an information provision which provides an overview of Chapter 4 to assist with readability.

Part 4.2—Health and Hospitals Fund

Division 1—Introduction

Clause 213—Simplified outline

Clause 213 is an information provision which provides an overview of Part 4.2 to assist with readability.

Division 2—Establishment of the Health and Hospitals Fund etc.

Clause 214 - Establishment of the Health and Hospitals Fund

Clause 214 establishes a financial asset fund — the Health and Hospitals Fund (HHF) — consisting of amounts credited to a Health and Hospitals Fund Special Account (see clause 215 below) and investments of the HHF.  The distinction between the cash and asset components relates to the need for cash to be duly appropriated, rather than a desire to distinguish between cash and other types of investments held in the HHF.

An investment of the Health and Hospitals Fund is defined in Part 4.3 to include money invested in financial assets (including returns on those investments), derivatives acquired under clause 236 and other financial assets that the Future Fund Board becomes a holder of through a securities lending arrangement or otherwise.

Clause 215 - Establishment of the Health and Hospitals Fund Special Account

Clause 215 establishes the Health and Hospitals Fund Special Account — a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Any amounts credited to the HHF Special Account are quarantined from the rest of the Consolidated Revenue Fund and can only be debited from the HHF for the purposes set out in clauses 218 and 219, or for the purposes of channelling funds to the HHF Health Portfolio Special Account and to the COAG Reform Fund in order to make HHF related payments.

The note immediately following clause 215 is included to assist the reader by clarifying that, in addition to the processes set out in clauses 216 and 217, amounts can be credited to the HHF Special Account by an Appropriation Act.

Division 3—Credits of amounts to the Health and Hospitals Fund

Clause 216 - Initial credits of amounts to the Health and Hospitals Fund Special Account

The HHF will receive initial credits totalling $5 billion, by 30 June 2009, comprising funds from the 2007-08 budget surplus.

Clause 216 provides the mechanism for amounts to be credited to the HHF Special Account on a particular date or by set instalments on particular dates.  This mechanism will allow for the $5 billion from the 2007-08 budget surplus to be credited to the HHF.

Subclause 216(1) provides that the initial contribution to the HHF will be credited to the HHF Special Account through a written determination or determinations by the responsible Ministers.  The contribution can be credited either in one lump sum or by instalments.

Subclause 216(2) provides that the responsible Ministers must ensure that, by 30 June 2009, the HHF is credited with $5 billion.

Subclause 216(3) provides that the responsible Ministers must not make a determination under subclause 216(1) after 30 June 2009 - the date by which the total initial credit of $5 billion must be made to the HHF.

Additional contributions to the HHF will be a subsequent credit under subclause 217(1).  For example, any amounts credited to the HHF from future budget surpluses would be credited under subclause 217(1) below.

Subclause 216(4) provides that determinations for crediting the initial contributions to the HHF Special Account cannot be revoked.

Subclause 216(5) deems that a determination to credit the initial contribution to the HHF is a legislative instrument for the purposes of section 5 of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds required to establish the HHF are about to be transferred.  The same approach was taken in equivalent provisions in the Future Fund Act.

Clause 217 - Subsequent credits of amounts to the Health and Hospitals Fund Special Account—determinations by the responsible Ministers

Clause 217 allows for future Government contributions to be made to the HHF, which could be made out of future realised surpluses subject to other policy priorities.

Subclause 217(1) provides that Government contributions to the HHF, subsequent to the initial contribution, are made through determinations by the responsible Ministers.  Such further credits can be made either in one lump sum or by instalments.

The note at the end of subclause 217(1) assists the reader by referring to subsection 33(3) of the Acts Interpretation Act.  This subsection deals with variations and revocations of instruments and provides that a power to make an instrument also includes a power to vary or revoke an instrument unless the contrary intention appears.

Subclause 217(2) requires the responsible Ministers to have regard to the object of the Chapter in making determinations to credit further amounts to the HHF.  Therefore, subsequent credits from the HHF will be made with reference to the need for future investment in health infrastructure.

Subclause 217(3) provides that a determination to credit subsequent amounts to the HHF is a legislative instrument for the purpose of section 5 of the Legislative Instruments Act.  As such the instrument is required to be tabled in Parliament and published on the Federal Register of Legislative Instruments.

However, the determination, as a ministerial direction, is not disallowable.  Such determinations would usually be regarded as administrative, rather than legislative, in character.  It is not appropriate that they be disallowable as they are a one-off instrument that is made when the funds are about to be transferred.  The same approach was taken in equivalent provisions in the Future Fund Act.

Division 4—Debits of amounts from the Health and Hospitals Fund

Clauses 218 and 219 set out the purposes for which the HHF Special Account may be debited. These purposes are split across two categories: purposes relating exclusively to the Fund and purposes not related exclusively to the HHF, but which could be attributed to the HHF, Future Fund, BAF and EIF (for example, paying the remuneration and allowances of Future Fund Board members).

Clause 218 - Purposes of the Health and Hospitals Fund Special Account—payments purposes and purposes related exclusively to the Health and Hospitals Fund

Clause 218 sets out the purposes for which the HHF Special Account may be debited that relate exclusively to the HHF.

These purposes are:

·          making payments in relation to the creation or development of health infrastructure; and

·          payment of various expenses (associated with the investment and administration of the HHF) that can be exclusively attributed to the HHF.  While the range of such costs are as set out in clause 218, examples include paying the expenses of an investment of the HHF and paying expenses incurred by the Future Fund Board under a contract with investment managers.

The term ‘creation or development of health infrastructure’ is intended to provide flexibility and a broad scope in relation to health infrastructure projects that may be considered for funding from the HHF.  A payment in relation to the creation or development of health infrastructure can have the extended meaning provided under clause 220 (see below).

While allowing for flexibility for infrastructure projects eligible to be considered for funding, the Government has indicated a clear focus for the HHF, BAF and EIF to assist with financing investment in the creation or development of infrastructure, consistent with a broader nation-building objective.  Accordingly, it is intended that funding would be directed towards capital expenditure, which could include associated labour costs related to the creation or development of infrastructure (where required).

However, consistent with the Government’s intention that the HHF provide financing for the creation or development of relevant infrastructure, it is not intended that expenditure of a recurrent nature relating to running costs (such as staff wages and maintenance) would be financed from the HHF.  Accordingly, where specific projects have an ongoing cost component, it is intended that such funding would be sourced through other means.  This could include direct funding from the budget (outside the HHF), or funding by the States or Territories in relation to proposals that are brought forward as part of the COAG reform agenda.

The purpose of paragraph 218(1)(h) is to allow the HHF to be used to discharge any other expenses or liabilities incurred by the Future Fund Board that are exclusively incurred in connection with the HHF.  It is also intended to capture miscellaneous costs that may arise and are not covered by the other existing purposes.

A note at the end of subclause 218(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 218(2) provides that a payment under paragraph 218(1)(a) may be made by way of a grant of financial assistance or by a payment that is not a grant of financial assistance.  This provides flexibility in relation to payments from the HHF.

Other payments (i.e. payments that are not grants) include payments for the acquisition, in the name of the Commonwealth, of financial assets (such as shares, debentures and trust units) in a company involved in the creation or development of relevant infrastructure.  Other payments could also include public-private partnership payments. 

In addition, the Commonwealth would also have the flexibility to make a payment (other than by a grant of financial assistance) to a State or Territory under an ordinary contractual obligation.

Note that under clause 257, the Finance Minister may direct that a specified amount is debited from the HHF Special Account and credited to the HHF Health Portfolio Special Account.  Such a direction is to allow that amount to be debited from the HHF Health Portfolio Special Account for the purposes of making a specified payment in relation to the creation or development of health infrastructure.

Further note that, under clause 262, the Finance Minister may direct that a specified amount is debited from the HHF Special Account and transferred, through the HHF Health Portfolio Special Account, to the COAG Reform Fund Account (which will be established as a Special Account under the FMA Act on commencement of the COAG Reform Fund Act 2008 ).  Such a direction is to allow that amount to be subsequently debited from the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory in relation to the creation or development of health infrastructure (see clause 262 below and also see section 6 the COAG Reform Fund Act 2008 , which sets out the purposes of the COAG Reform Fund).

Clause 219 - Purposes of the Health and Hospitals Fund Special Account—purposes not related exclusively to the Health and Hospitals Fund

Clause 219 relates to payment of various expenses for purposes that are not exclusively attributable to the HHF, but could be attributed to the HHF, Future Fund, BAF or EIF.  The intention of subclauses 219(a) to (g) is to allow common costs of the HHF, Future Fund, BAF and EIF to be paid initially by one Fund (with subsequent apportionment between the Funds).

A note at the end of clause 219 assists the reader by referring to section 21 of the FMA Act, which relates to debits from Special Accounts.

Clause 220 - Extended meaning of payment in relation to the creation or development of health infrastructure

Clause 220 extends the meaning of the phrase payment in relation to the creation or development of health infrastructure as it relates to the purposes of the HHF Special Account.  The purpose of this clause is to allow payments from the HHF for the acquisition, in the name of the Commonwealth, of financial assets in entities involved in the creation or development of health infrastructure (including incidental or ancillary matters).  Flexibility is provided for the acquisition of shares, debentures and trust units in companies, as well as for the acquisition of other types of financial assets in other business entities.  The extended definition is intended to provide flexibility in how the Government invests in the creation or development of health infrastructure.

Shares, debentures or units acquired under paragraphs 220(a), (b) or (c) allow for investment at the time a relevant company is formed, as well as investment in relevant existing companies.  Paragraph 220(d) similarly applies in relation to business entities.

Paragraph 220(b), relating to debentures, covers the provision of financial assistance to a company by way of loan. This is consistent with the definition of ‘debenture’ in the Act, which provides that the term has the same meaning as in the Corporations Act.

An acquisition of shares, debentures, units or other financial assets under this clause will be in the name of the Commonwealth and will be managed by the Commonwealth.  It is intended that the Health Minister will manage the Commonwealth’s ownership obligations as well as exposures and risks associated with the assets, on behalf of the Commonwealth.

As these financial assets will not be part of the HHF, the Future Fund Board will not be involved in the acquisition or management of these assets.  See also clause 274 of the Bill which provides that investment provisions do not apply to these assets.

Clause 221 - Future Fund Board must ensure that there is sufficient money in the Health and Hospitals Fund Special Account to cover authorised payments etc.

Clause 221 requires the Future Fund Board to take all reasonable steps to ensure that the amount of money standing to the credit of the HHF Special Account is sufficient to cover amounts to be debited from the HHF to support expenditure in relevant infrastructure - namely, grants of financial assistance and other payments in relation to the creation or development of health infrastructure.  It also includes payments to be channelled through the HHF Health Portfolio Special Account, and the COAG Reform Fund for grants of financial assistance to States and Territories, in relation to health infrastructure.

A note at the end of clause 221 is inserted to assist the reader by clarifying that the Future Fund Board may need to liquidate non-cash assets in accordance with clause 228 in order to comply with this clause.

Division 5—Inter-fund transfers

Clauses 222 to 224 - Transfers from the Health and Hospitals Fund to the Future Fund, Building Australia Fund and Education Investment Fund

Clauses 222 to 224 allow for amounts to be transferred between the HHF and the Future Fund, BAF and EIF.  The purpose of this is to cover the situation where one Fund pays entirely for an expense that should properly be apportioned between two or more Funds.  The clauses allow the Finance Minister to direct one Fund be debited and the other Fund or Funds credited by a specified amount.

Corresponding transfers from the Future Fund, BAF and EIF into the HHF are provided for in this Bill.

Subclauses 222(3), 223(3) and 224(3) make it clear that directions of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Part 4.3—Investment of the Health and Hospitals Fund

Clause 225 - Simplified outline

Clause 225 is an information provision which provides an overview of Part 4.3 to assist with readability.

Clause 226 - Objects of investment of the Health and Hospitals Fund

Subclause 226(1) is intended to reinforce that amounts are invested by the Future Fund Board for the main purposes of enhancing the Commonwealth’s ability to make payments in relation to the creation or development of health infrastructure.

Subclause 226(2) sets out that the ancillary objects of the investment of the HHF are for enhancing the Commonwealth’s and the Future Fund Board’s ability to discharge costs, expenses, obligations and liabilities and make payments as mentioned in paragraphs 218(1)(b) to (h) and 219(a) to (g).

Clause 227 - Investment of the Health and Hospitals Fund

Clause 227 is modelled on the investment powers under section 39 of the FMA Act. However, subclause 227(1) expands those powers to specifically provide for the investment of the HHF in a broad range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.  Specific conditions on the acquisition of derivatives are separately covered in clause 236.  This approach to investment of the HHF is consistent with similar arrangements for the Future Fund.

Investments of the HHF will be made in the name of the Future Fund Board (rather than the Commonwealth) to reinforce the position that the Future Fund Board manages the HHF at arm’s length from the Government.  However, beneficial ownership of the HHF remains with the Commonwealth at all times.

Subclause 227(3) provides that money invested in financial assets are ‘investments of the HHF’ and may be realised, disposed of or redeemed by the Future Fund Board.

Clause 228 -Management of investments of the Health and Hospitals Fund

Clause 228 sets out various matters relating to the management of investments of the HHF.

Subclauses 228(1) and (2) provide that income derived from an investment of the HHF, including a return of capital or another form of financial distribution, must be credited to the HHF Special Account.  This is consistent with the requirements under sections 81 and 83 of the Constitution (which, in effect, provide that public money forms part of the Consolidated Revenue Fund and can only be spent if authorised by an appropriation made by law).  In practice, any money that has not been invested must be held in an official bank account.  The requirement to hold the money in an official bank account is covered in the FMA Act.

Subclauses 228(3) to (5) relate to the arrangements that will apply in relation to the realisation of assets.   While subclauses 228(3) to (4) are self explanatory, subclause 228(5) allows the Future Fund Board to authorise, prior to an investment maturing, that the proceeds of this investment be automatically reinvested with the same entity.  This avoids the need for the proceeds of realisation of the investment to be treated as public money and credited to the Consolidated Revenue Fund only to be then reappropriated and reinvested. Any reinvestment is an investment of the HHF.

Subclause 228(6) provides that section 39 of the FMA Act does not apply to an investment of the HHF.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  However, clause 227(1) provides for the investment of the HHF in a broader range of financial assets, which could include cash, interest bearing securities and global property securities, with the use of derivatives for risk management.

Clause 229 - Health and Hospitals Fund Investment Mandate

It is appropriate that the Government, as manager of the economy and owner of the HHF, has a mechanism for articulating its overall expectations for how the HHF will be invested and managed by the Future Fund Board.  Clause 229 establishes a framework that enables the Government to give strategic guidance to the Future Fund Board while preserving the Board’s role in managing the investment of the HHF at arm’s length from the Government.  This approach is consistent with that existing in relation to the Future Fund.

Subclause 229(1) provides that the responsible Ministers have the power to give the Future Fund Board written directions in relation to the performance of its investment functions and the exercise of its powers.  The responsible Ministers must issue at least one direction, to ensure that an Investment Mandate is in force at all times and to provide clarity and certainty to the Future Fund Board.  Note that Health and Hospitals Fund investment function is defined in section 4.

Subclause 229(2) provides that any direction issued under subclause 229(1) has effect subject to the limitations set out in clause 230 - Limitation on Health and Hospitals Fund Investment Mandate.

The fact that a direction has already been issued does not prohibit the responsible Ministers from issuing additional directions.  All of these directions together comprise the Investment Mandate (see subclauses 229(1) and 229(4)).

While the responsible Minister can issue new directions at any time, the intention is that the Investment Mandate will reflect the nature of the Government’s policy.  Any new directions will therefore only be issued in light of significant policy changes or material changes in the investment environment faced by the HHF.

Subclause 229(3) provides that in setting an Investment Mandate, the responsible Ministers must have regard to maximising the return on the HHF consistent with international best practice for institutional investment, enhancing the Commonwealth’s ability to make payments in relation to the objects of the HHF (set out in clause 211), and any other matters the Ministers consider to be relevant.  This requirement will give the Future Fund Board and the Parliament assurance that the responsible Ministers must consider the scope of their directions from an investment perspective, while ensuring that there is flexibility to take account of broader policy issues and national interest considerations.

Subclauses 229(5) and 229(6) provide that the Investment Mandate may include, but is not limited to, statements about policies the Future Fund Board must pursue in relation to risk and return and the allocation of the HHF to particular asset classes.  This may include restrictions or thresholds for investing the HHF in certain jurisdictions or asset classes and statements of the Government’s tolerance for losses.

Subclause 229(7) provides that any policies are subject to the limitations set out in clause 230.

Subclause 229(8) ensures that the Future Fund Board is not given conflicting directions regarding the Government’s tolerance for risk, its expectations for returns and any associated allocation of the HHF across asset classes.

To avoid doubt, subclause 229(9) makes it clear that the scope of the responsible Ministers’ power to issue directions to the Future Fund Board in relation to the investment of the HHF is bound by the Act.  For example, the responsible Ministers could not direct the Future Fund Board to use derivatives in a manner that contradicts clause 236 (which deals with the acquisition of derivatives by the Future Fund Board).

Subclause 229(10) provides that the Investment Mandate will not formally commence until at least 15 calendar days after it is issued.  This is to allow the Future Fund Board time to adjust to any revised directions issued by the responsible Ministers.  Importantly, the Future Fund Board will be able to know with certainty when the new direction will come into force.

Subclause 229(11) provides that directions under subclause 229(1), that set out certain rules that the Future Fund Board must comply with, are legislative in character and are therefore legislative instruments for the purposes of section 5 of the Legislative Instruments Act.  However, any directions issued by the responsible Ministers as part of the Investment Mandate are exempt from parliamentary disallowance (as provided for by section 44 of the Legislative Instruments Act) and exempt from sunsetting (as provided for by section 54 of the Legislative Instruments Act).

As legislative instruments, any directions given to the Future Fund Board under this clause are required to be registered on the Federal Register of Legislative Instruments and tabled in Parliament.

This approach enables the public and the Parliament to hold the Government accountable for the directions it issues to the Future Fund Board without impeding the Government’s ability to manage its finances.

Subclauses 229(12) and 229(13) provide that, subject to the restrictions set out in the Act and the expectations of the Government as articulated in the Investment Mandate, the Future Fund Board has a statutory obligation to seek to maximise returns, consistent with international best practice for institutional investment and enhancing the Commonwealth’s ability to make payments in relation to the objects of the HHF (set out in clause 211).

This provision (together with subclause 229(8) ) establishes a clear hierarchy of priorities for the Future Fund Board — the responsibility to maximise returns is subordinate to the investment parameters set out by the Parliament and the Government.  This framework provides appropriate flexibility while still ensuring suitable accountability for any directions the Government gives the Future Fund Board regarding the investment of the HHF.

It also provides the Future Fund Board with clarity as to the extent of its accountability — the Future Fund Board must be able to demonstrate that it is pursuing policies and strategies that are clearly directed at maximising investment returns in a manner that is consistent with best practice.

It is expected that the Future Fund Board will adopt a best practice approach to a range of issues by learning from the experiences of other investors and funds of national significance.

The purpose of subclause 229(13) is to clarify that the subclause is the default position in the event that a direction under subclause 229(1) is not issued or is revoked.  However, a direction issued by the responsible Ministers under subclause 229(1) will override subclause 229(12).

Clause 230 - Limitation on Health and Hospitals Fund Investment Mandate

Clause 230 aims to ensure that the HHF is not invested in a way that is inconsistent with its objectives.  A similar clause exists in the Future Fund Act.

Subclause 230(1) specifies that the responsible Ministers cannot direct the Future Fund Board to use the assets of the HHF to invest in a particular financial asset, for example, shares in a particular infrastructure company.  It also prevents the responsible Ministers from issuing a Ministerial direction that has the effect of requiring the Future Fund Board to use the assets of the HHF to support a particular business entity, a particular activity or a particular business.

This clause does not limit the ability of the Investment Mandate to set out the policies as intended under the Bill, such as those to be pursued by the Future Fund Board in relation to matters of risk and return.

This clause does not limit the Commonwealth’s ability to acquire shares in a company, debentures in a company, units in a unit trust, or other vehicles that are allowed for the creation or development of relevant infrastructure under clause 220.  Such investments are external to the HHF and are not made by the Future Fund Board.

Clause 231 - Future Fund Board to be consulted on Health and Hospitals Fund Investment Mandate

Consistent with the Future Fund arrangements, the responsible Ministers are required to consult the Future Fund Board on any changes or additions to the Investment Mandate.  Subclauses 231(1) and 231(3) achieve this by requiring the responsible Ministers to send a draft of the new direction to the Future Fund Board and inviting the Board to make a submission within a specified time limit.

The specified time limit will be determined on a case by case basis with regard to relevant circumstances and priorities at the time.  It may be the case that urgent changes are required in the national interest.  In this situation, it would be reasonable for the Future Fund Board to be asked to consider a draft direction quickly.  However, where there is less urgency, or the change in the Investment Mandate is quite substantial, it would be reasonable to provide the Future Fund Board with more time to consider a draft direction.

Subclause 231(2) provides that any submission received by the responsible Ministers from the Future Fund Board must be tabled in Parliament with the new direction.  In this way, the Future Fund Board will be able to ensure that their views on the expected impact on their ability to maximise returns are publicly known.

Clause 232 - Compliance with Health and Hospitals Fund Investment Mandate

Subclause 232(1) provides that it is the responsibility of the Future Fund Board to take all reasonable steps to ensure that all policies and decisions regarding the operation and investment of the HHF are in accordance with any directions (Investment Mandate) issued by the responsible Ministers. Since the Investment Mandate is intended to provide broad guidance to the Future Fund Board, it may contain directions that require the Board to apply its judgement on whether or not the HHF is complying with the Mandate.

Subclause 232(2) provides that if the Future Fund Board becomes aware of a breach of the Investment Mandate or judges that a policy does not comply with the Investment Mandate, it must inform the responsible Ministers in writing as soon as is practicable, including a proposed strategy to bring the operations of the HHF into accordance with the Investment Mandate.

Similarly, subclauses 232(3) and 232(4) provide that if the Government identifies areas where the Future Fund Board is not complying with the Investment Mandate, the responsible Ministers can issue written directions to the Board to take action to remedy the situation.  The Future Fund Board is required to comply with any such directions, noting that the responsible Ministers are the final arbiters on what is intended by the Investment Mandate.

Subclause 232(5) provides that any transactions undertaken by the Future Fund Board that are deemed later not to have complied with the Investment Mandate, are still valid and the Board is required to honour any commitment made.  This protects third parties who enter into transactions with the Future Fund Board or its agents in good faith.

Subclause 232(6) makes it clear that a direction under subclause 232(3) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Clause 233 - Future Fund Board must not trigger the takeover provisions of the Corporations Act 2001

To minimise market distortion and eliminate the potential for conflicts of interest for the Government as a market regulator, the Future Fund Board is prohibited from triggering the takeover provisions under section 606 of the Corporations Act.

Section 606 of the Corporations Act essentially prohibits acquisitions in relevant interests in the voting shares of a listed company, or unlisted company with more than 50 share holders, if a person’s voting power increases from a figure at or below 20% to a figure above 20% (or from a figure above 20% to a higher figure above 20% but below 90%) - unless the shares are acquired in one of the circumstances set out at section 611 of that Act.

However, it is the Government’s intention that the takeover threshold be adhered to quite strictly in relation to listed companies and unlisted companies with more than 50 shareholders.  Therefore, subclause 233(1) provides that the exceptions provided under section 611 of the Corporations Act (that is, exceptions to the prohibition in section 606) do not apply in relation to acquisitions by the Future Fund Board.

The prohibition on the Future Fund Board is not expected to have a material impact on the investment efficiency of the HHF as such limits are quite similar to those often used by other fund managers.  However, the Future Fund Board will need to have regard to the entirety of its interest (i.e. through investment of the HHF, Future Fund, BAF and EIF) in a particular company when the Board is proposing a particular acquisition in the context of the HHF.

Subclause 233(2) provides that if for some reason the Future Fund Board has not complied with section 606 of the Corporations Act (as it is applied to the Future Fund Board under clause 233), the relevant transactions will still be valid.  The aim of this provision is to ensure third parties are not adversely affected by any non compliance of the Future Fund Board.

A note at the end of the clause assists the reader by referring to section 39 of the Future Fund Act, which sets out the application of the Corporations Act to the Future Fund Board.

Note that the Future Fund Board is also prohibited from acquiring more than a 20% stake (as defined in the Financial Sector (Shareholdings) Act with a few minor adjustments) in a foreign publicly listed company.  This prohibition is found in section 84C of the Future Fund Act, but applies to the Future Fund Board’s activities in relation to the HHF, Future Fund, BAF and EIF.  Therefore, the Future Fund Board must take account of the overall level of its investment in a foreign listed company in complying with this provision.

Clause 234 - Borrowing

Clause 234 prohibits the Future Fund Board from borrowing money, except for short term borrowing associated with the settlement of transactions or in other circumstances prescribed in regulations (see subclause 234(3) below).

Consistent with the Future Fund Board’s broader role in relation to managing the assets of a number of funds (including the Future Fund), the eligibility of short term borrowing for transaction settlement is in line with the treatment of superannuation funds under the Superannuation Industry (Supervision) Act 1993 .

The overall aim of this clause is to ensure that the Future Fund Board is able to operate efficiently without exposing the budget to undue risk.

Subclause 234(3) provides that regulations may be made to specify circumstances in which it is considered appropriate for the Future Fund Board to be able to borrow.  Regulations may also be used to clarify any uncertainty on whether a particular activity constitutes borrowing.  While it is not anticipated that the Future Fund Board will have a need to borrow, this provision allows for unforseen events or changes in the investment environment without the need to amend the primary legislation.  The regulations would be disallowable by the Parliament.

Clause 235 - Health and Hospitals Fund investment policies

Subclauses 235(1), 235(3) and 235(7) provide that the Future Fund Board is required to formulate, publish and comply with a number of policies on its investment activities.

The aim of this provision is to ensure rigour and transparency around how the Future Fund Board performs its investment function in relation to the HHF, including risk management and performance assessment and benchmarks.

In addition to the specific matters set out in paragraphs 235(1)(a) to (d), the Future Fund Board is required to formulate, publish and comply with policies and any additional matters specified in regulations (see paragraph 235(1)(e) and subclause 235(7)).

A note at the end of subclause 235(1) reminds the reader that under subsection 33(3) of the Acts Interpretation Act, the Future Fund Board is able to repeal, rescind, revoke, amend, or vary any such policies.

Subclause 235(2) provides that the policies that the Future Fund Board develops must not be incompatible with the Investment Mandate.

Subclause 235(4) provides that the Future Fund Board must publish the first set of policies on the internet as soon as is practicable following the commencement of this clause.

Subclauses 235(5) and 235(6) provide that the Future Fund Board must conduct reviews of these policies periodically and where the responsible Ministers change the Investment Mandate.  It is not expected that these reviews would be a formal process or that the results of the reviews would be required to be published.  However, if the review resulted in any changes to the policies, it is intended that the updated policies would be published on the internet.

Subclause 235(8) provides that if the Future Fund Board enters into a transaction which is not consistent with a policy that it has published under this clause, the transaction will still be valid.  This will ensure that third parties are not affected by any inconsistency with the Future Fund Board’s policies.  However, subclause 235(7) provides that the Future Fund Board is required to take all reasonable steps to comply with the policies it develops under subsection 235(1).

Subclause 235(9) makes it clear that the policies of the Future Fund Board are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 236 - Derivatives

Derivatives are widely used by financial market participants as a tool for risk management.  As the sophistication, size and mobility of capital markets around the world increases, investment managers are looking for more ways to maximise the returns on investments while minimising the volatility of results.  The types and volumes of derivatives being traded has grown exponentially as the underlying markets have created demand for these types of instruments.

Clause 236 provides for the Future Fund Board to make use of derivatives for certain purposes.  This includes as a risk management tool and to achieve indirect exposure to assets that it could not otherwise achieve.  The Future Fund Board may also use derivatives to reduce the transaction cost of achieving required exposures.  However, subclause 236(1) provides that it may not use derivatives for speculative purposes or for leverage.

Subclause 236(2) provides that the acquisition of derivatives under this clause cannot be inconsistent with the requirement under clause 235 for the Future Fund Board to formulate a policy on its investment strategy and take all reasonable steps to comply with that policy.

Subclauses 236(3) and 236(4) provide that derivatives must be held in the name of the Future Fund Board and are taken to be an investment of the HHF.  Similar to other investments, derivatives may be realised by the Future Fund Board under subclause 228(3).

Clause 237 - Additional financial assets

Clause 237 provides that if the Future Fund Board becomes a holder of another financial asset, for example through a capital distribution, that asset becomes an investment of the HHF and is therefore subject to all the restrictions and requirements for investments of the HHF.

Clause 238 - Securities lending arrangements

Clause 238 provides that the Future Fund Board is able to enter into securities lending arrangements.  Lending of securities is commonplace among institutional investors.  It may also take collateral as part of a securities lending arrangement.  Any collateral it takes is either credited to the HHF Special Account or becomes an investment of the HHF.

Clause 239 - Investment managers

Subclause 239(1) provides that the Future Fund Board is able to hire one or more investment managers.  Investment manager is defined broadly to include custodians, transition managers and other investment managers.  However, the Agency is excluded from this definition as it is generally expected that investment activities, such as acquiring derivatives or investing money, will be outsourced.

Unless approved by the responsible Ministers, the Future Fund Board must use investment managers to invest money in financial assets, acquire derivatives, enter into securities lending arrangements or realise financial assets.

Subclause 239(2) provides that the responsible Ministers may provide approval in writing for certain methods of investment, other than through investment managers, should it be prudent and cost effective to do so.

Subclauses 239(3) and 239(4) provide that the Future Fund Board is required to ensure that investment managers operate within the Act and must report on the state of investments of the HHF to the Board and the Agency.  It would be expected that such obligations are set out in the contractual arrangements between the Future Fund Board and the investment manager.

Clause 240 - Custody of securities

Clause 240 provides that section 40 of the FMA Act does not apply to investment of the HHF.

Section 40 of the FMA Act requires officials who receive any bonds, debentures or other securities in the course of their duties to deal with them in accordance with the Finance Minister’s Orders.  This provision is designed for departments of state who carry out a more limited range of investment activities than is envisaged for the Future Fund Board (and Agency) in relation to the HHF.  Further, making custodians and other investment managers comply with the Finance Minister’s Orders for investment purposes could impose an undue administrative burden.

While section 40 of the FMA Act is excluded, a framework for how the Future Fund Board must deal with securities that it receives in relation to the HHF is covered by clauses 228 and 238.

Clause 241 - Refund of franking credits

Under subsection 84B(1) of the Future Fund Act, the Future Fund Board is deemed to be an exempt institution that is eligible for a refund of franking credits under the ITAA.  As the Future Fund Board is exempt from income tax, it may have an investment bias towards assets whose return had not previously been subject to income tax (such as debt instruments or unfranked dividends).  Refunding franking credits removes any potential bias against franked dividends.

Clause 241 deals with refund of franking credits and provides that if the Future Fund Board receives a refund of a tax offset under the ITAA and the tax offset is attributable to the investment of the HHF, any refund received is credited to the HHF Special Account.

Clause 242 - Realisation of non-financial assets

Clause 242 requires the Future Fund Board to realise an asset that ceases to be a financial asset or any asset acquired by the Board (as an investment of the HHF) that is not a financial asset.  This could include circumstances where the Future Fund Board holds an asset which was mistakenly acquired by the Board, or given to the Board, or which ceases to be a financial asset due to a revision of the ABS government finance statistics manual, for example.

The clause provides that a non-financial asset is treated as a financial asset up to the time it is realised.  Paragraphs 242(1)(b) and 242(2)(b) ensure that the asset is considered an investment of the HHF and that relevant provisions relating to investments of the HHF apply to that asset for the time it is held by the Future Fund Board.

Clause 243 - Additional function of the Future Fund Board

Clause 243 provides that the functions of the Future Fund Board include the function of investing amounts in accordance with the Act.

Part 4.4—Payments

Division 1—Introduction

Clause 244—Simplified outline

Clause 244 is an information provision which provides an overview of Part 4.4 to assist with readability.

The following diagram illustrates how payments may be made from the HHF.

 

It is the Government’s policy intention that payments from the HHF will be channelled through the HHF Health Portfolio Special Account in line with the Heath Minister’s responsibility for managing the delivery of infrastructure projects.  Grant payments will be disbursed to States and Territories, via the HHF Health Portfolio Special Account, through the COAG Reform Fund.

Division 2—Health and Hospitals Fund Advisory Board

It is the Government’s intention that all health infrastructure spending proposals will be rigorously assessed by an independent advisory body.

The HHF advisory body function will be undertaken by the HHF Advisory Board, which is to be an independent body established under this Chapter to advise the Health Minister about matters referred to it by the Health Minister.

The Health Minister will be responsible for appointment of members to the HHF Advisory Board and also for terminating appointments.

Division 2 establishes the HHF Advisory Board and sets out provisions relating to its function, operation and membership.

Clause 245 - Health and Hospitals Fund Advisory Board

The HHF Advisory Board is established by subclause 245(1) .  Note that a reference to the HHF Advisory Board means the Health and Hospitals Fund Advisory Board as is defined in section 4.

Subclauses 245(2) to (4) relate to appointments to the HHF Advisory Board.  The Health Minister may appoint members to the HHF Advisory Board in writing.  The maximum term of an appointment is three years.  However, the Health Minister may also appoint a member for a shorter term as set out in the instrument of appointment.

Members may also be appointed for a subsequent term.  The note at the end of subclause 245(3) refers to subsection 33(4A) of the Acts Interpretation Act, which provides for ‘appoint’ to include re-appoint.

The purpose of subclause 245(4) is to ensure that members appointed to the HHF Advisory Board have a high level of knowledge and experience in an area that is relevant to the HHF Advisory Board’s function.  While a potential appointee’s level of skill and experience will be at the Health Minister’s discretion, examples may include expertise in health and medical research or finance and economics, or experience as a health practitioner or clinician.

Subclause 245(5) provides for the Health Minister to terminate appointments to the HHF Advisory Board.

Under subclause 245(6) , the Health Minister may issue written directions to the HHF Advisory Board regarding the way in which it carries out its functions and the procedures to be followed at meetings.  This could include, for example, the timeframe for providing advice to the Health Minister, frequency and quorum requirements for meetings and the recording of meeting minutes.

Subclause 245(7) makes it clear that directions to the HHF Advisory Board are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 246 - Function of the HHF Advisory Board

Clause 246 sets out the function of the HHF Advisory Board to provide advice to the Health Minister about matters which are referred to it by the Health Minister.

Consistent with the Government’s intention to establish the HHF Advisory Board to consider relevant proposals, subclause 246(2) requires that each matter that is referred to the HHF Advisory Board by the Health Minister must be a matter that relates to the main purpose of the HHF - namely, the making of payments in relation to the creation or development of health infrastructure.  The HHF Advisory Board may also advise about other matters referred to it relating to the object or operation of Chapter 4 (see clause 211), that do not relate to the making of a particular payment.

Subclause 246(3) requires the HHF Advisory board to apply the HHF evaluation criteria when providing advice to the Health Minister.  This is consistent with the Government’s intention that health infrastructure spending proposals will be rigorously assessed (see below).

Clause 247 - HHF evaluation criteria

Clause 247 requires the Health Minister to formulate HHF evaluation criteria to be applied by the HHF Advisory Board when giving advice under subclause 246(1).

As the HHF evaluation criteria will be made by legislative instrument, the instrument is required to be registered on the Federal Register of Legislative Instruments and tabled in Parliament.  It will also be disallowable by either House of the Parliament.

Subclause 247(2) requires the Health Minister to consult with the responsible Ministers before formulating the HHF evaluation criteria .  The intention of this requirement is to ensure that there is a common and rigorous approach in the evaluation criteria framework across the HHF, BAF and EIF that is consistent with the nation-building objectives of the Funds and in line with the Government’s overarching principles that projects financed from the Funds should:

·          address national infrastructure priorities;

·          demonstrate high benefits and effective use of resources;

·          efficiently address infrastructure needs; and

·          demonstrate they achieve established standards in implementation and management.

Subclause 247(3) is intended to ensure that the Health Minister formulates the HHF evaluation criteria consistent with the operation of the Government’s broader framework for spending proposals to be rigorously assessed by independent advisory bodies.

Clause 248 - Remuneration and allowances

Clause 248 provides for the Remuneration Tribunal to determine the remuneration of members of the HHF Advisory Board.  However, the clause allows the Health Minister to determine such remuneration if no determination is made by the Remuneration Tribunal.

The Regulations may prescribe allowances, in addition to remuneration, to be paid to HHF Advisory Board members.

Clause 249 - Disclosure of interests

Clause 249 sets out a procedure to cover a situation where an HHF Advisory Board member has a material personal interest in a matter that will be considered by the HHF Advisory Board.  Note that a ‘material personal interest’ is intended to be a broader test than simply a monetary gain.  For example, a material personal interest may involve a direct or indirect advantage or benefit to the extent that it has the capacity to influence how the member would assess a particular proposal.

Subclause 249(2) requires the member to disclose such an interest to the HHF Advisory Board and to the Health Minister.  The disclosure must also be recorded in the meeting minutes.

Subclause 249(4) requires the Health Minister to terminate the appointment of an HHF Advisory Board member who does not, without reasonable excuse, disclose a material personal interest. 

Subclause 249(5) confirms that termination under this clause does not limit the Health Minister’s broader power to terminate a member under subclause 245(5).

Clause 250 - Resignation

Clause 250 provides for a member to resign from the HHF Advisory Board by providing a written notice to the Health Minister.  The resignation will take effect once received by the Health Minister, or the notice of resignation may contain an alternative date.

Division 3—Direct payments

Clause 251 - Authorisation of payments

The Finance Minister has a central role in authorising payments (and directing payments to be channelled through the HHF Health Portfolio Special Account and through the COAG Reform Fund - see below) from the HHF for projects agreed to by the Government through the annual budget process.  However, it is the Government’s intention that for any payments that have been authorised (or directed), relevant portfolio Ministers - in the case of the HHF, the Health Minister - will manage the delivery of projects (including obligations and any risks) associated with disbursements from the HHF for agreed projects.

Clause 251 allows the Finance Minister to authorise payments in relation to the creation or development of health infrastructure.

While the Finance Minister could authorise payments under subclauses 251(1) through separate authorisation instruments, the clause has been drafted with flexibility to also allow a single instrument covering the authorisation of one or more payment(s).  The aim of this is to provide for greater administrative efficiency in the authorisation of disbursements, where appropriate.

Payments authorised under clause 251 are made directly from the HHF Special Account to a State, Territory, or a person other than a State or Territory, noting that a person includes a partnership.  Payments that are channelled through the HHF Health Portfolio Special Account are dealt with separately in clause 257 (see below).  It is intended that payments relating to the creation or development of health infrastructure will be channelled through the HHF Health Portfolio Special Account, consistent with the establishment of this Portfolio Special Account, to ensure that clear accountability and reporting obligations rest with the relevant portfolio departments.  It is also consistent with the Health Minister’s responsibilities for managing the delivery of agreed projects.  However, the ability for the Finance Minister to authorise payments directly from the HHF Special Account provides maximum flexibility as to how funding may be provided in future.

Payments by way of a grant of financial assistance made to a State or Territory that are channelled through the COAG Reform Fund are dealt with separately in clause 262 (see below).  It is intended that grants of financial assistance that are made to States and Territories will be initially transferred from the HHF to the HHF Health Portfolio Special Account and then channelled through the COAG Reform Fund. This is consistent with the COAG Reform Fund being the vehicle through which capital transfers from the Funds, as well as other funding from the budget, will be distributed to States and Territories. 

Subclause 251(3) makes it clear that authorisations of the Finance Minister are not legislative instruments.  These provisions are merely declaratory in nature.  Authorisations of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the law itself.

Clause 252 - Recommendations about payments

It is intended that the Health Minister will be responsible for preparing proposals to be brought forward for Government consideration as part of the annual budget process.  As part of this process, the Health Minister will make recommendations to the Finance Minister that payments be authorised from the HHF.  In this context, the Government has also made a commitment that all projects financed from the HHF, BAF and EIF will need to satisfy rigorous evaluation criteria assessed by independent bodies.

To ensure that all proposals ultimately funded from the HHF have met the Government’s broader commitment, the Health Minister must ensure that relevant advice has been sought from the HHF Advisory Board which supports his or her recommendation for a payment to be authorised from the HHF.

Consistent with the framework, subclauses 252(1) provides that the Finance Minister must not authorise a payment from the HHF unless the Health Minister has recommended the authorisation of the payment.

Subclauses 252(2) confirms the obligation on the Health Minister to receive relevant advice from the HHF Advisory Board and to ensure that a proposal for a payment from the HHF satisfies the HHF evaluation criteria.

In deciding to make a recommendation that a payment be authorised from the HHF, subclauses 252(3) requires the Health Minister to have regard to the advice from the HHF Advisory Board, together with any other matter he or she considers relevant.

Clause 253 - Grant to a State or Territory

Clause 253 is concerned with grants of financial assistance that are paid to a State or Territory for the purposes set out in paragraph 218(1)(a) - i.e. in relation to the creation or development of health infrastructure.  Note that, in this case, the payment is not channelled through the HHF Health Portfolio Special Account or through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 253(3) provides for the Health Minister to enter into such agreements on behalf of the Commonwealth.  This is consistent with the Government’s intention that the relevant portfolio Minister will manage the obligations and risks associated with disbursements from the HHF.

Clause 254 - Grant to a person other than a State or Territory

Clause 254 is concerned with grants of financial assistance that are paid to a person other than a State or Territory for the purpose set out in paragraph 218(1)(a) - i.e. in relation to the creation or development of health infrastructure.  Note that, in this case, the payment is not channelled through the HHF Health Portfolio Special Account.  Also, these payments are only paid directly to a recipient (and not through the COAG Reform Fund which is a mechanism to disburse funds to States and Territories).

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 254(3) provides for the Health Minister to enter into such agreements on behalf of the Commonwealth.  This is consistent with the Government’s intention that the relevant portfolio Minister manages the obligations and risks associated with disbursements from the HHF.

Division 4—Channelling of payments through the HHF Health Portfolio Special Account

Clause 255 - Establishment of the HHF Health Portfolio Special Account

In line with the role of portfolio Ministers in managing agreed projects, clear accountability and reporting of disbursements from the HHF will rest within the Health Department.  For example, it is intended that the Health Department will be responsible for arranging for a specific payment to be made from the HHF based on the Health Minister’s agreement that project milestones (or other conditions) have been satisfactorily achieved.  It will also include ensuring that the FMA Act obligations, in relation to the efficient and effective use of public money, are being met in relation to such payments .

Clause 255 establishes the HHF Health Portfolio Special Account - a Special Account for the purposes of section 21 of the FMA Act.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Amounts that are debited from the HHF Special Account and credited to the HHF Health Portfolio Special Account can only be subsequently debited from the HHF Health Special Account for the purpose in clause 256.

Clause 256 - Purpose of the HHF Health Portfolio Special Account

Subclause 256(1) describes the purpose of the HHF Health Portfolio Special Account, which is for making payments in relation to the creation or development of health infrastructure.  The note immediately following subclause 256(1) assists the reader by referring to section 21 of the FMA Act, which deals with debits from Special Accounts.

Subclause 256(2) confirms that a payment may be made in the form of a grant of financial assistance or by a payment other than a grant, consistent with the purposes of the HHF Special Account.

Clause 257 - Channelling of payments through the HHF Health Portfolio Special Account

Clause 257 provides the mechanism for specific amounts to be debited from the HHF Special Account and credited to the HHF Health Portfolio Special Account for the purposes of making payments in relation to the creation or development of health infrastructure.

Subclause 257(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the HHF Special Account to the HHF Health Portfolio Special Account.

Subclauses 257(2) confirms that such a direction must be given so as to allow that amount to be debited from the HHF Health Portfolio Special Account for making a specified payment in relation to the creation or development of health infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the HHF Health Portfolio Special Account.

Subclause 257(3) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 257(4) makes it clear that a direction under subclause 257(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 257(5) requires the Finance Minister to give a copy of any direction to the Health Minister, on the basis that management of and responsibility for the HHF Health Portfolio Special Account sits within the Health portfolio.

Clause 258 - Recommendations about payments

The Government’s commitment to ensuring rigour in the payment process for the HHF also applies to payments that are channelled through the HHF Health Portfolio Special Account, in the same way as other payments.

Therefore, the Health Minister must ensure that relevant advice has been sought from the HHF Advisory Board which supports a recommendation that a specified amount be transferred from the HHF Special Account to the HHF Health Portfolio Special Account, for the purposes of making a payment in relation to the creation or development of health infrastructure.

Consistent with this framework, subclause 258(1) provides that a direction to transfer an amount from the HHF Special Account to the HHF Health Portfolio Special Account must not be specified unless the Health Minister has recommended the specification of the grant.

Subclause 258(2) confirms the obligation on the Health Minister to receive relevant advice from the HHF Advisory Board and to ensure that a proposal relating to a payment from the HHF satisfies the HHF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the HHF to the HHF Health Portfolio Special Account for the purposes of a payment being made, subclause 258(3) requires the Health Minister to have regard to the advice from the HHF Advisory Board, together with any other matter he or she considers relevant.

Clause 259 - Payments—debit from the HHF Health Portfolio Special Account

Clause 259 reflects the Government’s intention that the HHF Health Portfolio Special Account is established for the purposes of ensuring clear accountability and reporting of disbursements from the HHF rest with the Health Minster and his or her department.  Accordingly, the HHF Health Portfolio Special Account is a vehicle by which payments from the HHF are authorised in order to support health infrastructure expenditure.

The Health Minister is required to ensure that, as soon as practicable after an amount is credited to the HHF Health Portfolio Special Account, that amount is debited for the purposes of making the payment.  However, if the payment cannot be made, subclause 259(3) provides for the amount to be re-credited to the HHF Special Account.

Clause 260 - Grant to a State or Territory

Clause 260 is concerned with grants of financial assistance that are paid to a State or Territory through the HHF Health Portfolio Special Account.  Note that grants payments that are paid to States and Territories through the COAG Reform Fund are dealt with separately in Division 5 of Part 4.4 (see below).

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 260(3) provides for the Health Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that the Health Minister will manage the obligations and risks associated with disbursements from the HHF.

Clause 261 - Grant to a person other than a State or Territory

Clause 261 is concerned with grants of financial assistance that are paid to a person other than a State or Territory which are channelled through the HHF Health Portfolio Special Account.

The clause provides that the terms and conditions upon which the financial assistance is granted to the person are to be set out in a written agreement between the Commonwealth and the person.

Subclause 261(3) provides for the Health Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that the Health Minister manages the obligations and risks associated with disbursements from the HHF.

Division 5—Channelling of State/Territory grants payments through the COAG Reform Fund

Clause 262 - Channelling of State/Territory grants payments through the COAG Reform Fund

The Government has indicated its intention that the COAG Reform Fund - a Special Account for the purposes of section 21 of the FMA Act - will be the vehicle by which grants of financial assistance to States and Territories will be disbursed.  A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.

Consistent with portfolio Ministers responsibilities in relation to managing payments, the authority to disburse amounts to States and Territories will be transferred from the HHF through the HHF Health Portfolio Special Account, to the COAG Reform Fund.

For this purpose, clause 262 provides the mechanism for specific amounts to be debited from the HHF and credited to the HHF Health Portfolio Special Account.  Such amounts will then be transferred to the COAG Reform Fund in order to enable specified grants of financial assistance to be paid to States and Territories in relation to the creation or development of health infrastructure.

Subclause 262(1) allows the Finance Minister to make a direction to effectively transfer specified amounts from the HHF to the HHF Health Portfolio Special Account.

Subclauses 262(2) and (3) confirm that such a direction must be given so as to allow that amount to be transferred from the from the HHF Health Portfolio Special Account to the COAG Reform Fund for making a specified grant of financial assistance to a State or Territory in relation to the creation or development of health infrastructure.  This will ensure that the agreed purpose is retained when that amount is channelled through the COAG Reform Fund.

Subclause 262(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 262(5) makes it clear that a direction under subclause 262(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 262(6) requires the Finance Minister to give a copy of any direction to the Treasurer (on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio) and also the Health Minister.

Clause 263 - Recommendations about grants payments

The Government’s commitment to ensuring rigour in the payment process for the HHF also applies to payments that are channelled through the COAG Reform Fund, in the same way as other payments.

Therefore, the Health Minister must ensure that relevant advice has been sought from the HHF Advisory Board which supports a recommendation that a specified amount be paid from the HHF to the HHF Health Portfolio Special Account and then transferred to the COAG Reform Fund, for the purposes of making a grant of financial assistance to a State or Territory.

Consistent with this framework, subclause 263(1) provides that a direction to transfer an amount from the HHF, through the HHF Health Portfolio Special Account to the COAG Reform Fund must not be specified unless the Health Minister has recommended the specification of the grant.

Subclause 263(2) confirms the obligation on the Health Minister to receive relevant advice from the HHF Advisory Board and to ensure that a proposal relating to a payment from the HHF satisfies the HHF evaluation criteria.

In deciding to make a recommendation that an amount be directed from the HHF, through the HHF Health Portfolio Special Account, to the COAG Reform Fund for the purposes of a grant payment being made, subclause 263(3) requires the Health Minister to have regard to the advice from the HHF Advisory Board, together with any other matter he or she considers relevant.

Clause 264 - Transfers from the HHF Health Portfolio Special Account to the COAG Reform Fund

Clause 264 applies to amounts that are transferred from the HHF into the HHF Health Portfolio Special Account, which will be subsequently transferred to the COAG Reform Fund to be disbursed to States and Territories.

Accordingly, for such amounts, subclause 264(2) requires the Health Minister to ensure that as soon as practicable after an amount is credited to the HHF Health Portfolio Special Account, he or she directs, in writing, that the amount is debited from that Account and credited to the COAG Reform Fund on a specified day.

Under subclause 264(3) , such a direction must be given to allow the amount to be debited from the COAG Reform Fund for the purposes of making a grant payment to a State or Territory.

Subclause 264(4) allows flexibility for 2 or more directions to be set out in a single document in order to provide for administrative efficiency, where appropriate.

Subclause 264(5) makes it clear that a direction under subclause 264(1) is not a legislative instrument.  This provision is merely declaratory in nature.  Directions of this type are administrative in character because they are merely the application of a legal power in a particular case; they do not determine or alter the content of the law itself.

Subclause 264(6) requires the Health Minister to give a copy of any direction to the Treasurer on the basis that management of and responsibility for the COAG Reform Fund sits within the Treasury portfolio.

Clause 265 - Grants payments—debit from the COAG Reform Fund

Clause 265 reflects the Government’s intention that the COAG Reform Fund is not an asset fund like the HHF, BAF and EIF, but rather will act as a vehicle by which payments from the Funds, and direct funding from the budget, is distributed to States and Territories.

The Treasurer is required to ensure that, as soon as practicable after an amount is credited to the COAG Reform Fund, that amount is debited for the purposes of making the grant.

Clause 266 - Grant to a State or Territory

Clause 266 is concerned with grants of financial assistance in relation to health infrastructure that are paid to a State or Territory through the COAG Reform Fund.

The note immediately following subclause 266(1) assists the reader by referring to subclause 265(2) which deals with payments channelled through the COAG Reform Fund.

The clause provides that the terms and conditions upon which the financial assistance is granted to the State or Territory are to be set out in a written agreement between the Commonwealth and the State or Territory.

Subclause 266(3) provides for the Health Minister to enter into such agreement on behalf of the Commonwealth.  This is consistent with the Government’s intention that relevant portfolio Ministers manage the obligations and risks associated with disbursements from the HHF.

Division 6—Total payments for a financial year

Clause 267 - General drawing rights limit in relation to a financial year

Clause 267 provides for the annual Appropriation Acts to declare that a specified amount is a general drawing rights limit in relation to a particular financial year.

The establishment of the HHF as a Special Account under section 21 of FMA Act, means that the balance of the HHF Special Account, as it exists from time to time, is appropriated for the purposes set out in clauses 218 and 219.  This reflects the clear intention to spend all the amounts credited to the HHF for the purposes identified in the Bill.

However, the Government also intends that payments against the HHF appropriation will be transparent and subject to parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.  Accordingly, while the annual Appropriation Acts will not appropriate amounts to be paid from the HHF, the intention is that these Acts would specify a maximum limit on the amount that can be paid out from the HHF in a particular financial year (including payments that are channelled through the COAG Reform Fund).  The purpose is to provide the Parliament with a mechanism by which it may supervise the rate at which the committed funds are to be expended.

The general drawing rights limit for the 2009-10 financial year and beyond would be included in an Appropriation Act. 

In order to give effect to the Government’s announcement to fast track its nation-building agenda in response the global financial crisis, in relation to the financial year ending 30 June 2009, the general drawing rights limit will be that declared by the Finance Minister in writing.  This is because the Government will not be in a position to finally decide upon proposals to be funded in this initial period until after the Parliament rises for 2008.

The general drawing rights limit referred to in clause 267 will operate by restricting the total amount that may be covered by drawing rights under the FMA Act, and hence, that may be paid from the HHF in a financial year for its main purposes - namely making payments in relation to health infrastructure.  This includes payments channelled through the HHF Health Portfolio Special Account and through the COAG Reform Fund.

Limiting the ability to issue drawing rights is an effective mechanism because the FMA Act does not permit expenditure without the person making the payment having been issued with a valid drawing right.

Subclause 267(2) ensures that drawing rights under the FMA Act are not issued covering debits from the HHF to support health infrastructure expenditure which are in excess of the general drawing rights limit for that financial year.

Subclause 267(3) provides that the declaration of the Finance Minister, in relation to the financial year ending on 30 June 2009, is to be a legislative instrument.  As such, it is required to be tabled in the Parliament and published on the Federal Register of Legislative Instruments.  However, the declaration will not be disallowable.  The Government considers that this would not be appropriate in the circumstances of this one-off instrument that will be required to enable payments to be made from the Funds as early as possible in 2009 to give effect to the Government’s announcement to fast track its nation-building agenda in response to the global financial crisis.

Clause 268 - Drawing rights in relation to other financial years

As the general drawing rights limit for a financial year is particular to that year and will depend upon the level of spending that is agreed to by the Government, clause 268 confirms that a general drawing rights limit for one financial year will not limit the drawing rights that may be issued in relation to any other year.

Clause 269 - No drawing rights to be issued if there is no general drawing rights limit in relation to a financial year

Clause 269 has the effect that if annual Appropriation Acts, or a Finance Minister declaration for the year ending 30 June 2009, do not declare that an amount is a general drawing rights limit for a financial year, drawing rights must not be issued covering payments from the HHF to support health infrastructure expenditure.  This approach is consistent with the Government’s intention that disbursements from the HHF will be transparent and allow for appropriate parliamentary scrutiny with the aim of ensuring a managed and orderly rate of expenditure.

Clause 270 - Total payments to depend primarily on the macroeconomic circumstances

In establishing the HHF, BAF and EIF, the Government has made a commitment that spending proposals from the Funds would be delivered in line with the prevailing macroeconomic conditions.

To meet its commitment, the Government’s intention is that spending from the Funds should depend primarily on the macroeconomic circumstances.  In line with this principle, the Government has indicated an expectation that the Australian Loan Council will advise governments on the macroeconomic impacts of funding infrastructure spending and whether a given funding envelope can be delivered within the prevailing macroeconomic conditions, consistent with the Government’s inflation target.

Clause 270 applies to payments from the HHF which support health infrastructure expenditure.  It confirms the Government’s policy principle that payments from the HHF in relation to health infrastructure should depend primarily on the macroeconomic circumstances.

This is achieved specifically by subclause 270(2) , which requires the Finance Minister, in debiting amounts to be paid from the HHF Special Account, to have regard to the principle that payments from the HHF to support relevant infrastructure expenditure should depend primarily on the macroeconomic circumstances.

Subclause 270(2) allows flexibility for the Government to update the methodology for determining the macroeconomic circumstances.  For example, while the Government has indicated that the Australian Loan Council will provide relevant advice, it may also wish to take account of other budgetary factors in setting the spending envelope for the Funds in a financial year.

Part 4.5—Reporting obligations etc.

Clause 271 - Finance Minister may require Future Fund Board to prepare reports or give information

Clause 271 provides that the Finance Minister may write to the Future Fund Board requiring the Board to prepare a report or specified information on certain matters relating to the performance of the Board.  This report or information must be provided within the timeframe outlined in the Finance Minister’s request.

Subclause 271(4) provides that the Finance Minister may choose to publish this report or information.

Subclauses 271(5) and 271(6) make it clear that such reports and documents are not legislative instruments, because they are administrative in character.  They do not determine or alter the content of the law.

Clause 272 - Keeping the responsible Ministers informed etc.

Clause 272 requires the Future Fund Board to notify the responsible Ministers of any information the responsible Ministers should know, including by providing any written information to the Finance Minister.  This could include significant investment results, concerns regarding fraud and any non compliance with the Board’s policy on conflicts of interest.

Clause 273 - Finance Minister may give reports to other Ministers etc.

Clause 273 allows flexibility for the Finance Minister to give reports, documents and other information to the Treasurer and the Health Minister.  This includes reports and documents under clauses 271 and 272 and any other information obtained by the Finance Minister under the Act.

Part 4.6—Miscellaneous

Clause 274 - Investment provisions do not apply to certain assets

Clause 274 relates to shares, debentures, trust units and other financial assets held in the name of the Commonwealth and acquired using money from the HHF Special Account in line with the purposes of making a payment in relation to the creation or development of health infrastructure (including where the payment was channelled through the HHF Health Portfolio Special Account).

This clause is not concerned with investments of the HHF which are managed by the Future Fund Board.

Accordingly, subclauses 274(2) and (3) provide that Part 4.3 of the Bill (which relates to investments of the HHF managed by the Future Fund Board) and section 39 of the FMA Act do not apply to these assets.  Section 39 of the FMA Act authorises the Finance Minister to invest public money in only a limited range of investments, such as government bonds and bank deposits.  Therefore, it is appropriate that Commonwealth investment in the creation or development of health infrastructure through the acquisition of shares, debentures, trust units or other financial assets are exempted from the application of section 39 of that Act.

Clause 275 - Delegation by the Finance Minister

Under subclause 275(1) , the Finance Minister may, in writing, delegate his or her powers under clauses 222, 223, 224, 251, 257 or 262 to the Secretary of the Finance Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Finance Minister’s powers under clauses 251, 257 and 262 relate to the making of authorisations for payments from the HHF and directing that specified amounts be transferred from the HHF Special Account to the HHF Health Portfolio Special Account, or from the HHF Special Account, through the HHF Health Portfolio Special Account, to the COAG Reform Fund for the purposes of making a specified grant of financial assistance to a State or Territory.  Delegation of these functions to the Secretary of, or SES official in, the Finance Department is consistent with the efficient administration of these matters.

Subclause 275(3) allows the Finance Minister to delegate, in writing, his or her functions under clauses 222, 223 or 224 of the Act, to the Chair of the Future Fund Board or to an SES employee (or acting SES employee) in the Agency.  The Finance Minister’s functions under these provisions allow for amounts to be transferred between the HHF and the Future Fund, BAF and EIF for the purposes of apportioning shared costs which are initially paid by one fund.  Accordingly, the Minister delegating this function to officials in the Department, the Chair of the Future Fund Board or an SES official in the Agency is considered to be a normal administrative arrangement for the efficient handling of these matters.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

It is envisaged that the delegate will be accountable to the Finance Minister for his or her actions under any delegation.  Subclauses 275(2) and (4) reinforce this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.

Clause 276 - Delegation by the Treasurer

Subclause 265(2) places an obligation on the Treasurer to ensure that where money is transferred from the HHF Health Portfolio Special Account to the COAG Reform Fund for the purposes of making a specified grant to a State or Territory, that the COAG Reform Fund is debited for that purpose as soon as is practicable.  This is consistent with the Government’s intention that the COAG Reform Fund is a vehicle through which transfers and other funds will be disbursed to States and Territories.

Clause 276 allows the Treasurer to, in writing, delegate his or her function under subclause 265(2) to the Secretary of the Treasury Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

Delegation of this function to the Secretary of, or SES official in, the Treasury Department is consistent with the efficient administration of this matter.

Clause 277 - Delegation by the Health Minister

Under subclause 277(1) , the Health Minister may, in writing, delegate his or her powers under clauses 253, 254, 259, 260, 261, 264 or 266 to the Secretary of the Health Department or to an SES employee (or acting SES employee) in that Department.

A note at the end of the subclause assists the reader by referring to the relevant section of the Acts Interpretation Act in relation to the expressions ‘SES employee’ and ‘acting SES employee’.

The Health Minister’s functions under these provisions allow for the Health Minister, on behalf of the Commonwealth, to enter into a written agreement with a recipient of a grant of financial assistance, in which the terms and conditions of that grant are set out.

The functions under clauses 259 and 264 relate to the obligation on the Health Minister to ensure that where money is credited to the HHF Health Portfolio Special Account for the purposes of making payments in relation to health infrastructure or to allow for the transfer of that amount to the COAG Reform Fund for that purpose, that the HHF Health Portfolio Special Account is debited for that purpose as soon as is practicable.  Delegation of these functions to the Secretary of, or SES official in, the Health Department is consistent with the efficient administration of these matters.

It is envisaged that the delegate will be accountable to the Health Minister for his or her actions under any delegation.  Subclause 277(2) reinforces this intention by requiring the delegate to comply with any direction of the Minister in exercising powers under a delegation.





 

CHAPTER 5 - REGULATIONS

Clause 278 - Regulations

Clause 278 provides that the Governor-General may make regulations covering matters required to be prescribed in this Act, or matters that it would be convenient to prescribe for the purposes of this Act.