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Senate Legislative and General Purpose Standing Committees—Consolidated reports on the consideration of bills—July-December 2016—Volume 3-Education and Employment; Environment and Communications; Finance and Public Administration; Foreign Affairs, Defence and Trade


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Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2016

Volume 3

Education and Employment Committee Environment and Communications Committee

Finance and Public Administration Committee

Foreign Affairs, Defence and Trade Committee

© Parliament of the Commonwealth of Australia 2016

ISSN 1834-4062

This document was printed by the Printing Unit, Department of the Senate, Parliament House, Canberra.

TABLE OF CONTENTS

Education and Employment Committee† · Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016*, dated November 2016 ............................................. 1

· VET Student Loans Bill 2016*, VET Student Loans (Charges) Bill 2016* and VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016*, dated November 2016 ............................... 53

† Volume 2 contains reports of the Education and Employment Committee

Environment and Communications Committee · Broadcasting Legislation Amendment (Media Reform) Bill 2016*, dated November 2016 .......................................................................................... 131

· Interactive Gambling Amendment Bill 2016*, dated November 2016 .................................................................................................... 185

Finance and Public Administration Committee · NIL ..............................................................................................................................

Foreign Affairs, Defence and Trade Committee · Civil Nuclear Transfers to India Bill 2016*, dated November 2016 ........................ 219

*Provisions of bill referred to committee.

The Senate

Education and Employment

Legislation Committee

Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016 [Provisions]

November 2016

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© Commonwealth of Australia 2016

ISBN: 978-1-76010-495-5

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE

Members

Senator Bridget McKenzie, Chair, NATS, VIC

Senator Gavin Marshall, Deputy Chair, ALP, VIC

Senator Sarah Hanson-Young, AG, SA

Senator James Paterson, LP, VIC

Senator John Williams, NATS, NSW

Senator the Hon Don Farrell, ALP, SA (from 23 November 2016)

Substitute Members

Senator Rachel Siewert, AG, WA (substituting Senator Hanson-Young from

10 November 2016)

Former Members

Senator Deborah O'Neill, ALP, NSW (to 8 November 2016)

Senator Kimberley Kitching, ALP, VIC (from 8 November to 22 November 2016)

Senator Catryna Bilyk, ALP, TAS (from 22 November to 23 November 2016)

Secretariat

Mr Stephen Palethorpe, Secretary

Dr Patrick Hodder, Principal Research Officer

Miss Jedidiah Reardon, Principal Research Officer

Ms Kate Campbell, Senior Research Officer

Ms Amy Walters, Research Officer

Mr Abe Williamson, Administration Officer

Committee web page: www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE ...................................................... iii

RECOMMENDATIONS ..................................................................................vii

Chapter 1.............................................................................................................. 1

Introduction .............................................................................................................. 1

Reference ................................................................................................................ 1

Conduct of the inquiry ............................................................................................ 1

Structure of the report ............................................................................................. 1

Compatibility with human rights ............................................................................ 2

Scrutiny of Bills Committee ................................................................................... 2

Financial Impact Statement .................................................................................... 2

Acknowledgements ................................................................................................ 3

Chapter 2.............................................................................................................. 5

Provisions of the bill ................................................................................................. 5

Background to the bill ............................................................................................ 5

Purpose and overview of the bill ............................................................................ 6

Chapter 3.............................................................................................................. 9

Issues raised by submitters ...................................................................................... 9

Introduction ............................................................................................................ 9

Definition of 'internship' ....................................................................................... 10

Details about the operation of the PaTH program ................................................ 12

Incentive payments to interns ............................................................................... 13

Churn culture ........................................................................................................ 15

Committee view .................................................................................................... 16

Labor Senators’ Dissenting Report ................................................................. 19

Below minimum wage payment ........................................................................... 21

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Inadequate safety and protection provisions ........................................................ 22

Displacement of jobs and placement churning ..................................................... 24

Lack of rights and support for participants .......................................................... 27

Lack of definition for an intern of internship ....................................................... 30

Sunset or review clause ........................................................................................ 31

Bill gives effect to a flawed program ................................................................... 31

Recommendations ................................................................................................ 34

Australian Greens' Dissenting Report ............................................................ 35

Introduction .......................................................................................................... 35

Limited remuneration for participants .................................................................. 36

Limited protections for participants ..................................................................... 37

Genuinely voluntary? ........................................................................................... 39

Displacement of existing employees and churning of interns .............................. 40

Appendix 1 ......................................................................................................... 43

Submissions ............................................................................................................. 43

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RECOMMENDATIONS

Recommendation 1

3.38 The committee recommends that the Department of Employment consider the issues raised in the submissions received by the committee, and in particular work to publish clear guidance on all aspects of the PaTH program so that job seekers and employers have clarity about their rights and responsibilities.

Recommendation 2

3.45 The committee recommends that the bill be passed.

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Chapter 1 Introduction

Reference 1.1 On 13 October 2016, the Hon. Mr Angus Taylor MP, Assistant Minister for Cities and Digital Transformation, introduced into the House of Representatives the Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016 (the bill).1

1.2 On 10 November 2016, the Senate referred the provisions of the bill to the Senate Education and Employment Legislation Committee for inquiry and report by 21 November 2016.2

1.3 On 21 November 2016, the Senate approved an extension to the reporting date until 28 November 2016.3

Conduct of the inquiry 1.4 Details of the inquiry were made available on the committee's website. The committee also wrote to key stakeholders, groups and organisations to invite submissions.

1.5 The committee received 15 submissions, as detailed in Appendix 1.4

1.6 Given the short reporting timeframe, the committee decided not to hold public hearings for this inquiry.

Structure of the report 1.7 Chapter two of this report examines the background to, and detail of the bill and the related Prepare-Trial-Hire (PaTH) program, which aims to give young job seekers under 25 years of age the employability skills and real work experience they need to get a job.

1.8 Chapter three considers the key issues identified by submitters in relation to the bill, including the:

• use of the term 'internship';

• absence of greater detail about the PaTH program;

• level of the incentive payments to interns; and

1 Votes and Proceedings, No. 11, 13 October 2016, p. 212.

2 Journals of the Senate, No. 15, 10 November 2016, p. 448.

3 Journals of the Senate, No. 16, 21 November 2016, p. 494.

4 Submissions are available from the committee's website: www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Yo uthJobsPath.

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• possibility of a 'churn' culture in which employers dismiss interns once the

employer's subsidy payments have been received.

Compatibility with human rights 1.9 The Statement of Compatibility with Human Rights accompanying the Explanatory Memorandum noted that the bill engages the following rights:

• the right to social security (Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR));

• the right to an adequate standard of living (Article 11(1) ICESCR);

• the right to work (Article 6 ICESCR); and

• the right to equality and non-discrimination (Article 2(2) ICESCR and

Article 26 of the International Covenant on Civil and Political Rights).5

1.10 The statement concluded that the bill protects these rights and 'to the extent that the bill provides for differential treatment for young people, the measures taken are reasonable, necessary and proportionate to achieve a legitimate objective.'6

1.11 The Parliamentary Joint Committee on Human Rights assessed the bill as not raising human rights concerns.7

Scrutiny of Bills Committee 1.12 The Senate Standing Committee for the Scrutiny of Bills had no comment to make on the bill.8

Financial Impact Statement 1.13 The Explanatory Memorandum detailed that the internship payment amendments (Schedule 1) would have no financial impact while the Youth Bonus wage subsidy amendments (Schedule 2) would have the budgetary impact set out it Table 1.1.9

5 Statement of Compatibility with Human Rights, Explanatory Memorandum, p. 9.

6 Statement of Compatibility with Human Rights, Explanatory Memorandum, p. 9.

7 Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, Report 8 of 2016, 9 November 2016, p. 55.

8 Standing Committee for the Scrutiny of Bills, Index of Bills Considered by the Committee 2016, 9 November 2016, p. 7.

9 Explanatory Memorandum, p. 2.

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Table 1.1—financial impact

Year Expense ($ million)

2015-16 4.3

2016-17 0.4

2017-18 0.4

2018-19 0.4

2019-20 0.4

Total: 5.7

1.14 It should be noted that the financial impact described in the Explanatory Memorandum relates only to the cost of the PaTH program for the Department of Employment.10

Acknowledgements 1.15 The committee thanks the organisations which made submissions to this inquiry.

10 Commonwealth of Australia, 2016-17 Budget, Budget Paper No. 2, 3 May 2016, p. 85. For further information, see Chapter 2, paragraph 2.2.

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Chapter 2 Provisions of the bill

Background to the bill 2.1 The Youth Jobs Prepare-Hire-Trial program (PaTH program) was announced in the 2016-17 Budget as part of the government's commitment to 'get more than 100 000 vulnerable young people into jobs in the growing Australian economy by giving them real work experience with real employers that leads to real jobs.'1

2.2 The 2016-17 Budget allocated $850 million to the Youth Employment Package, which is made up of initiatives that focus particularly on youth and employability skills.2 The largest element of the Youth Employment Package is the PaTH program, which focusses on job seekers under the age of 25 and a Budget allocation of $752 million over the forward estimates. This allocation is divided between the Department of Human Services, the Department of Social Services, and the Department of Employment.3

2.3 The Department of Employment noted in its consultation paper on the PaTH program that 'the Business Council of Australia, the Australian Chamber of Commerce and Industry and employers more generally have consistently indicated that young people need to improve their employability skills and their level of work experience.'4

2.4 The PaTH program comprises three stages which create a pathway towards employment:

• Prepare - employability skills training;

• Trial - an internship placement of up to 12 weeks with financial incentives to participate for both businesses and job seekers; and

• Hire - more accessible and increased wage subsidies for youth.5

2.5 These three stages involve the following arrangements:

• Employability skills training: this will be conducted across six weeks in two training blocks. The first block of training includes basic skills such as teamwork and communication, while the second block focuses on job

1 Commonwealth of Australia, 2016-17 Budget, Budget Overview, Budget Paper No.1, 3 May 2016, p. 1.

2 Department of Employment, Employability Skills Training - Consultation Paper, 18 August 2016, p. 2.

3 Commonwealth of Australia, 2016-17 Budget, Budget Paper No. 2, 3 May 2016, p. 85.

4 Department of Employment, Employability Skills Training - Consultation Paper, 18 August 2016, p. 3.

5 Department of Employment, Employability Skills Training - Consultation Paper, 18 August 2016, p. 2.

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preparation. The training will be provided by training providers from an Employability Skills Training Panel.

• Internship placements: in this part of the program a job seeker will work for 15 to 25 hours per week for between four and twelve weeks. This work is deemed to be voluntary and the internship arrangement is between the job seeker and the host business. While participating in the internship placement, the job seeker will receive a fortnightly payment of $200 in addition to their income support payments. Businesses which take on a job seeker receive an up-front payment of $1000.

• Youth Bonus Wage Subsidies: if the host business offers job seekers in the PaTH Program an employment position, that business receives a Youth Bonus Wage Subsidy of up to $6500. The subsidy is increased to $10 000 for more disadvantaged job seekers. The subsidies are paid on a flexible basis over 6 months.6

2.6 In developing the PaTH program, the Department of Employment released a discussion paper on 18 August 2016 which sought feedback on the first stage of the program: employability skills training. Feedback was sought from industry groups and advocacy organisations by 31 August 2016. The Department notes on its website that over 70 submissions were received in response to the consultation paper and that as a result the Department is 'adjusting the design of the program.'7

2.7 The Department has opened applications for training organisations to apply to conduct the skills part of the PaTH program. The internship placement part of the program is scheduled to start from 1 April 2017.8

2.8 The details of the PaTH program itself have been publicised through the Budget 2016-17, consultation undertaken by the Department of Employment, and via the Department of Employment's website.

Purpose and overview of the bill 2.9 The Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016 (the bill) will implement aspects of the payments and entitlements relating to the second and third components of the PaTH program).

2.10 As part of an internship under the PaTH program, job seekers will be paid a fortnightly incentive payment of $200 in addition to their social security payments. As discussed below, should interns be offered a job after their internship period, as part of the PaTH program these interns will have their income support payments temporarily suspended rather than cancelled.9

6 Department of Employment, Submission 14, pp. 4-5.

7 www.employment.gov.au/youth-jobs-path (accessed 20 November 2016).

8 www.employment.gov.au/youth-jobs-path (accessed 20 November 2016).

9 Explanatory Memorandum, pp. 1-2.

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2.11 The bill provides amendments to existing legislation10 so that the incentive payments of young job seekers in the PaTH program can be implemented without adversely impacting eligible job seekers' existing income support payments. The bill itself does not implement the additional payments to eligible job seekers nor payments to participating businesses.

Internship payments

2.12 Schedule 1 of the bill amends the Social Security Act 1991 and the Veterans' Entitlements Act 1986 to allow additional fortnightly incentive payments of $200 to be made to those participating in the internships component of the PaTH program without affecting their income support payments.11

2.13 The amendments describe the payment as being made under the Commonwealth program Youth Jobs PaTH and the recipients as individuals placed in an internship in that program.12

2.14 The bill does not contain a definition of the term 'internship', however the Explanatory Memorandum states the criteria for eligibility in the PaTH program:

To be eligible to participate, a person must:

• be 17 to 24 years old;

• have been in jobactive, Transition to Work or Disability

Employment Services for 6 months or more; and

• be on income support payments…

Participants [in the PaTH program] will attend host businesses for 15 to 25 hours a week. They will undertake unpaid work experience and will not be employees of their host businesses.13

Youth Bonus wage subsidy

2.15 The PaTH program also includes financial incentives for businesses to take on job seeker placements. These include an up-front payment of $1000 for businesses that taken on an intern, and a Youth Bonus wage subsidy of up to $6500 (or $10 000 for disadvantaged job seekers) for offering employment to an eligible young job seeker.14 However these payments are not implemented under the bill.

10 The bill amends the Social Security Act 1991, the Social Security (Administration) Act 1999, and the Veterans' Entitlements Act 1986.

11 See Item 1 and Item 2 of Schedule 1, which respectively ensure that internship payments made to participants in the PaTH program are not treated as income under the Social Security Act 1991 and the Veterans' Entitlements Act 1986.

12 Items 1 and 2, Schedule 1.

13 Explanatory Memorandum, p. 4.

14 Parliamentary Library, Bills Digest no. 37 of 2016-17, 10 November 2016, p. 3.

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2.16 Instead, the Youth Bonus wage subsidy schedule of the bill simply allows a job seeker's income support payments to be suspended rather than cancelled once they have taken up paid employment.

2.17 Schedule 2 amends the Social Security (Administration) Act 1999 (Administration Act) to allow a job seeker's income support payments to be temporarily suspended rather than cancelled once they take up paid employment. Should the job seeker lose their employment within six months through no fault of their own, their income support payments can then be reactivated without the need to reapply.15

2.18 Item 3 of Schedule 2 amends the Administration Act to provide for the suspension (instead of cancellation) of a person's social security payments by creating a new section 95C. The Secretary will have the power to determine the suspension of payments provided the Secretary is satisfied that the person has ceased to be qualified for payments due to employment by a Youth Bonus wage subsidy employer.16

2.19 The new subsection 95C(4) defines a Youth Bonus wage subsidy employer as an employer eligible to receive the subsidy in respect of a person under the Youth Jobs PaTH.

15 Proposed section 95C of the Social Security (Administration) Act 1999.

16 Proposed subsection 95C(1) of the Social Security (Administration) Act 1999.

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Chapter 3

Issues raised by submitters

Introduction 3.1 The committee received 15 submissions regarding the bill, and the majority of these submissions are generally supportive of the bill and the PaTH program.

3.2 For instance, the Australian Chamber of Commerce and Industry (ACCI), submitted that it strongly supports the Youth Jobs PaTH initiative 'as an important avenue to secure jobs for young unemployed Australians'.1 ACCI indicated that the PaTH program is:

…vital in ensuring jobseekers have a better chance to be well prepared for the workplace, with the ultimate aim of securing a job. Tens of thousands of young Australians will get their first opportunity in the workforce via the Youth Jobs PaTH program, with PaTH providing "real job" work experience that many young job seekers lack.2

3.3 The Brotherhood of St Laurence also supported the bill and the PaTH program:

The demands of a rapidly changing modern Australian economy are proving profoundly testing for a significant proportion of young Australians. Youth unemployment - at around 13 per cent nationally - now sits at double the rate of overall unemployment. The Brotherhood of St Laurence (BSL) welcomes the introduction of the Prepare, Trial, Hire (PaTH) program as a positive investment in addressing this issue, by providing young unemployed people with the opportunity to gain the real world work experience they need to move into employment.3

3.4 Submitters were united in their views on the impact of youth unemployment and the urgent need to provide the means for young job seekers to find secure work. For example, the Australian Council of Social Service (ACOSS) submitted:

It is unacceptable that in Australia there are 130,000 young people who are unemployed, and over half a million people of all ages who are unemployed long-term.4

3.5 Organisations such as Interns Australia, UnitingCare Australia, Per Capita, Anglicare Australia, Jobs Australia, ACOSS, and Children and Young People with Disability Australia (CYDA) raised several issues with the bill and the PaTH program, including for example:

• lack of definition around the term 'internship';

1 Australian Chamber of Commerce and Industry, Submission 5, p. 1.

2 Australian Chamber of Commerce and Industry, Submission 5, p. 1.

3 Brotherhood of St Laurence, Submission 9, p. 1.

4 Australian Council of Social Service, Submission 15, p. 1.

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• absence of greater detail about the operation of the PaTH program in general;

• amount of the incentive payments provided to interns under the program; and

• development of a 'churn' culture.

3.6 This chapter examines these issues.

Definition of 'internship' 3.7 Interns Australia noted that the bill refers to payments made to an individual placed in an internship, but it does not provide a definition of 'internship'. As highlighted in Chapter 2, the only definition of internship is in the Explanatory Memorandum. Interns Australia expressed concern about the lack of a definition:

The term is not defined in Australian employment law, and recent case law has highlighted that many internships are employment relationships. Not only does the use of this term create confusion about the rights of the participants in the Youth Jobs PaTH program, it creates confusion about the rights of individuals undertaking internships in other areas, intensifying the creation of a corrosive unpaid internships 'culture'…5

3.8 UnitingCare Australia raised similar concerns about the need for a definition of internship. Its submission cited the Fair Work Ombudsman's 2013 report Unpaid work arrangements - exploitation or experience and argued that:

The guidance offered by the Ombudsman seems to suggest the Youth Jobs PaTH program internships may constitute employment relationships and as such should enjoy the protections offered to those relationships. Alternatively, the program could be considered as part of the National Work Experience Program, but greater clarity is required to determine the nature and treatment of the internships.6

3.9 UnitingCare Australia also reported concerns about interns' access to workers' compensation schemes, given the ambiguity around the definition of internship:

It is unclear the extent to which different schemes operating in states and territories will extend to provide the appropriate protections for young people undertaking PaTH. As previously noted, this issues largely relates to ambiguity around the nature of work that will be undertaken whilst participating in the program, and if this subsequently defines participants as 'volunteers' or 'employees' - the former may prevent their ability to access workers’ compensation. Further consideration is required regarding how protections can be provided for young people voluntarily undertaking work placement through the program.7

3.10 The Department of Employment's submitted that host businesses would be required to comply with state and federal workplace health and safety legislation and

5 Interns Australia, Submission 1, pp. 1-2.

6 UnitingCare Australia, Submission 4, p. 5.

7 UnitingCare Australia, Submission 4, p. 5.

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will, as part of participation in the PaTH program, undergo a risk assessment by employment service providers.8

3.11 Further, the Department explained that it has insurance arrangements in place to cover job seekers and these will be extended to interns in the PaTH program.9 The arrangements include:

• Group Personal Accident Insurance which covers job seekers that are injured while participating in approved activities, including travel to and from the activity;

• Combined Liability Insurance which covers job seekers' liability arising from their negligence that cause personal injury to third parties or damage to third parties property while participating in an approved activity.10

3.12 According to the Department of Employment, 'unpaid work experience, including in the private sector, has been a feature of Australian Government employment services and an accepted activity for job seekers to undertake for decades.'11 Further, the Department pointed out:

The importance of work experience was recognised as part of the Social Security Legislation Amendment (Employment Services Reform) Act 2009. These amendments were primarily designed to ensure that job seekers can undertake certain work experience activities and placements that are not approved programs of work (but are approved in the sense of being approved activities in an Employment Pathway Plan), without being treated as employees.12

3.13 The Department's submission is clear regarding the employment status of participants in the PaTH program:

PaTH interns are not employees. PaTH internship placements, as with National Work Experience Program placements, will be covered by these provisions and designed to be supervised work experience placements, not a job. Accordingly, merely participating in an internship in accordance with a Job Plan (Employment Pathway Plan) will not make that person an employee under the Fair Work Act 2009.13

3.14 The Explanatory Memorandum also clarifies the nature of the internships:

Both businesses and eligible young job seekers will be able to choose to participate in an internship. Further, businesses and eligible young job seekers will be able to co-design internship placements... They [interns]

8 Department of Employment, Submission 14, p. 8.

9 Department of Employment, Submission 14, p. 8.

10 Department of Employment, Submission 14, p. 8.

11 Department of Employment, Submission 14, p. 6.

12 Department of Employment, Submission 14, p. 6.

13 Department of Employment, Submission 14, p. 6.

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will undertake unpaid work experience and will not be employees of their host businesses.14

Details about the operation of the PaTH program 3.15 Jobs Australia expressed concerns that the details of the PaTH program had not been included with the bill:

Other aspects of Youth Jobs PaTH internships, in addition to those set out in the Bill, should therefore be the subject of legislation which can be considered and scrutinised by the parliament, rather than being implemented by administrative means which might seek to exempt interns and the employers providing placements from the provisions of the Fair Work Act and other relevant legislated workplace protections and requirements.15

3.16 Interns Australia called for greater detail to be provided around:

• The creation of 120,000 new workers over four years who are classified as 'interns', without any detail on what the rights of those interns would be;

• The expansion of the notion of internships under the PaTH program into industries such as retail, hospitality and motor trades; and

• The incentive payment of $1,000 being provided to businesses taking on interns.16

3.17 Interns Australia's submission argued that without detailed information about these issues included in the bill, including how such issues would interact with the Fair Work Act, the PaTH program would result in confusion for job seekers.17

3.18 A joint submission by a group of youth advocacy organisations also raised concerns about the lack of detail about the PaTH program. The organisations maintained that the consultation process conducted by the Department of Employment

on the first phase of the PaTH program was inadequate:

This is an important piece of policy and legislation. However, the consultation process is flawed. The first piece of consultation conducted by the Department of Education allowed only two weeks for response. The consultation was conducted on the first phase of the program and despite 'welcoming feedback' on other elements of PaTH there was no process.

14 Explanatory Memorandum, p. 4.

15 Jobs Australia, Submission 11, p. 4.

16 Interns Australia, Submission 1, p. 3.

17 Interns Australia, Submission 1, p. 4.

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While the Department received over 70 submissions, the response to feedback on the first phase was a mere 2 pages.18

3.19 These youth organisations considered that the bill ought to be delayed until the details of the PaTH program are finalised:

As the bill enacts the PaTH initiative, we urge the Committee to recommend that the passage of the bill be delayed until the policy details are clear, until community-government stakeholder relationships are in place to support the program, and until the government is satisfied that its investment will achieve the stated program objectives.19

3.20 The Department of Employment's submission, whilst not committing to include further particulars in the bill, does set out a range of program parameters and lists various safeguards related to the PaTH program.20

Incentive payments to interns 3.21 Interns Australia raised concern about the amount of the incentive payments offered to interns as part of their placement. The Explanatory Memorandum indicates that the fortnightly incentive payments would be $200, in addition to the job seeker's income support payments. Internships would require between 15 and 25 hours of work per week, or 30 to 50 hours per fortnight. Interns Australia raised the following concerns about the incentive payments:

Interns Australia questions the nature of these payments and how they interact with the interns' legal status under Australian employment law. For clarity, it would be preferable for the payments to reflect minimum wage, or equal between $600-$1000 per fortnight. Alternatively, the interns could be required to work fewer hours.21

3.22 Per Capita also expressed concerns about the incentive payments to interns and argued that these payments should be in line with the minimum wage:

We believe that the Trial (internship) part of the program should be designed such that interns receive at least the minimum wage. This could be accomplished by either limiting the number of hours, or by increasing the weekly supplement above $100 where required to meet minimum wage levels.22

18 Youth Action, Australian Youth Affairs Coalition, the Youth Affairs Council of Victoria, Youth Coalition of the ACT, Youth Affairs Network Queensland, Youth Network of Tasmania, Youth Affairs Council of Western Australia and the Youth Affairs Council of South Australia, Joint Submission 7, pp. 3-4.

19 Youth Action, Australian Youth Affairs Coalition, the Youth Affairs Council of Victoria, Youth Coalition of the ACT, Youth Affairs Network Queensland, Youth Network of Tasmania, Youth Affairs Council of Western Australia and the Youth Affairs Council of South Australia, Joint Submission 7, p. 3.

20 Department of Employment, Submission 14.

21 Interns Australia, Submission 1, p. 2.

22 Per Capital, Submission 2, p. 1.

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3.23 The Australian Council of Trade Unions (ACTU) argued that the PaTH program's intern placement would 'undermine the minimum wage system':

The current program settings, hours worked and additional payments per fortnight, mean that the interns in this program are paid below minimum wage, potentially creating pressure on existing employees' wages or conditions. The ACTU is concerned that the scheme may encourage employers to replace existing minimum wage workforces with government sponsored interns or to reduce their wages or conditions. Interns are not paid superannuation or subject to worker’s compensation and so represent a significant saving to employers when compared to regular employees. While the Minister has dismissed this concern, it is not clear how employers will be prevented from utilising a series of interns, for whom the employer is paid by government, to replace either current or future paid workers. This would not only result in the program failing to achieve its aims of moving unemployed young people into work, but would also devalue the work and labour of currently employed young people.23

3.24 Conversely, ACCI stated that the payments for interns would provide a significant incentive for job seekers to undertake a placement:

Industry has the places to meet the demand of the program; however employer experience shows that unemployed youth require considerable support when moving from unemployment into entry level positions. The $200 payment is an important incentive for young people participating in the program and should be seen as recognition of the young person's determination to gain better job prospects.

Apart from its role as an incentive, from a practical perspective the extra $200 on top of their NewStart or Youth Allowance will assist the young person in covering costs associated with participating in the work experience. Therefore, it is essential to preserve the maximum value of the additional fortnightly payment through it not impacting on other income sources.24

3.25 The Brotherhood of St Laurence (BSL) also appeared to endorse the amount of the incentive payment:

The BSL supports the Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016. The legislation will enable the successful implementation of the PaTH program by ensuring young jobseekers on income support receive an additional $200 per fortnight to compensate them for costs involved in undertaking a PaTH internship (e.g. transport).25

3.26 The Department of Employment noted that the incentive payment supplements a participants regular income support payment:

23 Australian Council of Trade Unions, Submission 10, p. 2.

24 Australian Chamber of Commerce and Industry, Submission 5, p. 2.

25 Brotherhood of St Laurence, Submission 9, p. 1.

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The $200 fortnightly incentive paid to PaTH interns is on top of their income support. The incentive is paid by the Government and is not a ‘wage’. If a host organisation paid a PaTH intern, the PaTH internship would cease immediately.26

Churn culture 3.27 Many submitters raised concerns about the PaTH program, arguing that it would lead to a 'churn' culture. For example the ACTU argued that intern positions could displace permanent employees:

Additionally, the internship positions created under this program are likely to displace paid jobs for other young people. The fraction of 'internships' that turn into paying jobs will also not be new positions, but will replace employees that the organisation would have hired under normal circumstances. This is a fundamental flaw in both this program and in the government’s approach to unemployment. There are simply not enough jobs and any program that ignores job creation is going to [be] ineffective in addressing unemployment.27

3.28 Alternatively, as Anglicare Australia argued, interns may be not be offered positions once the employer has received the $1000 host organisation incentive:

There has been very little detail available on how government or employment service providers will monitor companies who might exploit the scheme. Appropriate and effective safeguards are essential to prevent businesses 'churning' through interns or displacing current or future employees in their use of the scheme. While we believe that businesses should be held accountable for exploitative practices, we also believe that the government must show leadership and responsibility in its stewardship role, particularly in the context of taking a whole new approach.28

3.29 Per Capita too argued for the need to include monitoring in the PaTH program to protect interns against churn culture:

There must be appropriate monitoring of employers to ensure that they do not 'churn' interns and subsidised workers in order to reduce their staffing costs. Young workers being let go at the end of their subsidised employment period could result in decreased, rather than increased confidence and may not improve their employment prospects.29

3.30 The submission from the Department of Employment set out measures to protect against churn in the PaTH program. These include:

• program guidelines, in combination with the jobactive Deed 2015-2020 and

the Transition to Work Deed 2016-2020, to make clear to employment service providers the parameters of the program;

26 Department of Employment, Submission 14, p. 7.

27 Australian Council of Trade Unions, Submission 10, p. 7.

28 Anglicare Australia, Submission 6, p. 2.

29 Per Capita, Submission 2, p. 1.

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• monitoring activities will help ensure that host organisations appropriately use

the program; and

• department's program assurance strategy will be applied to PaTH

internships.30

3.31 In addition, the Department currently provides program assurance of employment services through:

• prevention - using guidelines, simple policy and IT systems

• deterrence - making clear the penalties of non-compliance

• detection - identifying non-compliance through data analytics, the Tip-off

Line, the National Customer Service Line, provider audits, and the rolling random sample process

• correction - including strategies to act on non-compliance such as recovering payments, imposing additional conditions, or terminating contract arrangements.31

Committee view

Definition of internship

3.32 The committee notes the concerns of several submitters regarding the absence of a definition of 'internship' in the bill. However, the committee is aware that the Department of Employment has included in the Explanatory Memorandum to the bill and in its submission a clear definition of 'internship'.

3.33 These supporting materials make it abundantly clear that a young job seeker who chooses to participate in the PaTH program is engaging in unpaid, supervised work experience placements and is not entering into an employment relationship with the host business.

3.34 The committee is of the view that the inclusion of these clarifications within the Explanatory Memorandum and the Department’s submission adequately addresses the ambiguity raised by submitters. The committee urges the Department of Employment to consider adding the definition to all future materials published in relation to the PaTH program.

Detail about the operation of the PaTH program

3.35 The committee recognises the concerns voiced by several submitters in relation to the limited detail about the operation of the PaTH program. However the committee notes that the bill only relates to two specific aspects of the program: internship payments and youth subsidy wage bonus.

3.36 The committee believes that the appropriate place for the program guidance requested by submitters is in supporting materials produced by the Department of

30 Department of Employment, Submission 14, p. 9.

31 Department of Employment, Submission 14, p. 9.

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Employment. As with any government program of this type, guidance about the program implementation and additional information should not be bound by the necessary constraints of the legislative process. The committee considers that the responsiveness and flexibility required by the program would be best achieved through departmental publications, rather than through legislation.

3.37 However the committee is cognisant that the program is to begin in April 2017 and both job seekers and employers need to prepare to take part in the program. The committee therefore urges the department to have regard to the issues raised in submissions relating to questions about the program implementation.

Recommendation 1

3.38 The committee recommends that the Department of Employment consider the issues raised in the submissions received by the committee, and in particular work to publish clear guidance on all aspects of the PaTH program so that job seekers and employers have clarity about their rights and responsibilities.

Incentive payments

3.39 The committee notes the comments made by various submitters in relation to the adequacy of the internship incentive payments under the PaTH program. The committee views the incentive payment of $200 per fortnight as sufficient, given that this payment is clearly designed to be an incentive and not a wage.

3.40 The first schedule to the bill allows for the $200 incentive payment to be made in addition to the intern's income support payments. The committee considers that this measure is important to protect an intern's support payments, as well as to facilitate the incentive payment which will defray costs associated with the internship, such as transport.

Churn culture

3.41 The committee acknowledges the concerns raised by submitters in relation to the potential for the PaTH program to have the unintended consequence of creating a churn culture.

3.42 The committee considers that the safeguards outlined in the Department of Employment's submission will be adequate to prevent a churn culture in the PaTH program. These safeguards are already established as part of the Department's scrutiny of other programs, and the committee has confidence in the Department's continued vigilance.

Conclusion

3.43 A theme that recurred throughout the submissions was an acknowledgement that high levels of youth unemployment impact on the broader social and economic future of Australia. Submitters agreed that urgent action is required to help Australia's unemployed youth find secure jobs. In general, submitters were supportive of the establishment of the PaTH program.

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3.44 The bill is integral to the implementation of the PaTH program. It will progress key parts of the PaTH program, including protecting income assistance payments of PaTH program interns. It is clear to the committee that unless the bill is passed, the PaTH program cannot begin as scheduled in April 2017. Accordingly the committee supports the passage of the bill.

Recommendation 2

3.45 The committee recommends that the bill be passed.

Senator Bridget McKenzie

Chair

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Labor Senators’ Dissenting Report

1.1 Labor supports constructive plans that help young Australian’s find work. However, Labor Senators are concerned that major elements of the Youth Jobs PaTH program - which would be supported by the passage of this legislation - is poorly constructed and we note the community concerns that exist which point to the possibility of this program resulting in jobs displacement, reduced wages and potential exploitation.

1.2 Labor Senators note the high proportion of submissions that raised concerns in relation to:

• Participants completing work activities receiving a below minimum wage income;

• The likelihood of entry level jobs being displaced by temporary, government-subsidised employees;

• The undermining of wages;

• “Churning” of interns by businesses instead of hiring entry level employees;

• Lack of adequate safety and protections for participants, including access to

workers compensation arrangements;

• The failure to properly define what constitutes an “intern”, with the legal

concerns that are triggered by this;

• Inadequate support for people engaged in training or a placement to help with

transport and other barriers to participation;

• Poor integration with the rest of the jobactive network and youth employment strategies; and,

• An overall failure by the government to genuinely consult and consider feedback while developing the program and legislation.

1.3 Labor Senators believe these concerns amount to a piece of legislation giving effect to a flawed program. The concerns around the overall program should be concretely addressed before assent is given to this legislation.

1.4 We acknowledge how important it is to give young jobseekers the best possible help to get into work, and we note that there is benefit in improving the employability skills of young unemployed. However, this legislation and the broader program doesn’t appear to do that well enough.

1.5 It should be noted, that in a weakened labour market characterised by record under-employment and record low wages growth, the Turnbull Government is about to add 30 000 subsidised workers per annum into that same market.

1.6 The concerns around this program should not be dismissed. We also note that this rushed approach to implementing the program without regard for community

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concern was reflected in the committee’s refusal to hold public hearings into this legislation.

1.7 There is little confidence at this stage that the Government has seriously considered concerns - or developed genuine responses to those concerns - that are then reflected in adequate safeguards around job displacement, the undermining of wages or protections for young and vulnerable participants.

1.8 The Department of Employment submission outlined the undefined and troubling situation young Australian jobseekers will be placed in through this program. The submission makes it clear participants will perform work activities, for a company that makes a profit, but that those participants will not be treated as employees by the Government or the department.

1.9 The department defends the legislative framework for this program putting 120 000 young people over the life of the program in an exploitative limbo:

The importance of work experience was recognised as part of the Social Security Legislation Amendment (Employment Services Reform) Act 2009. These amendments were primarily designed to ensure that job seekers can undertake certain work experience activities and placements that are not approved programs of work (but are approved in the sense of being approved activities in an Employment Pathway Plan), without being treated as employees.1

1.10 Then the department severs any connection these young people would have to adequate workplace support, cover and payment. The submission clearly states the Department does not view participants as employees.2 Uniting Care Australia and Interns Australia raise serious concerns about this definition leaving participants in limbo and whether the term “internship” or “intern” is suited to this application.

1.11 The short length of the inquiry has hampered a fuller analysis of the implications of this government/employer/participant relationship, of the Bill and the broader program.

1.12 Multiple submissions have said the truncated consultation was concerning and that the program should be halted until flaws are fixed and adequate protections are provided for young jobseekers.

1.13 The Government has not listened to repeated warnings about the outcomes of this program and legislation. Consultation has been minimal and the answers to Members in Parliament and Senate Estimates have been vague.

1.14 The combined submission by Youth Action and other youth organisations summarised the rushed and inadequate public consultation for Youth Jobs PaTH and concluded:

We express our concerns that the investment in the program will be wasted and will not ensure quality outcomes for youth employment without

1 Department of Employment, Submission 14, p. 6.

2 Department of Employment, Submission 14, p. 6.

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appropriate community-government stakeholder engagement that ensures the program is relevant to young people’s experience.3

Below minimum wage payment 1.15 Labor Senators note the number of submissions that commented on the payments that would be received by participants would be below the national minimum wage. The Government’s decision to pay an additional $200 per fortnight on top of income support to participants in the program leaves thousands of people performing work in companies making a profit earning less than the national minimum wage.

1.16 ACOSS's submission noted:

Payment rates and hours of work for the internships mean that many people will work for less than the equivalent of the minimum wage:

Since participants will be working whether ‘employed’ or not, they should be properly remunerated. Fortnightly hours for internships should be capped at 30 instead of 50 so that participants are remunerated at least to the equivalent of the relevant hourly minimum wage.4

1.17 Interns Australia also noted:

Interns Australia questions the nature of these payments and how they interact with the interns’ legal status under Australian employment law. For clarity, it would be preferable for the payments to reflect minimum wage, or equal between $600-$1000 per fortnight. Alternatively, the interns could be required to work fewer hours.5

1.18 The ACTU raised its concerns:

There must also be significant concern however that PaTH may serve to undermine the minimum wage system. The current program settings, hours worked and additional payments per fortnight mean that the interns in this program are paid below minimum wage, potentially creating pressure on existing employees’ wages or conditions.6

1.19 Jobs Australia raised issues with the minimal rate of pay:

To ensure that hours of “work” or unpaid work experience are limited to ensure that young interns receive income at least equivalent to the prescribed minimum wage (if this does not occur, interns will effectively be working for less than the minimum wage - an established and long-standing legal entitlement for all other Australian workers - and this could increase the risk of their being exploited).7

3 Youth Action, Submission 7, pp. 3-4.

4 Australian Council of Social Service, Submission 15, p. 3.

5 Interns Australia, Submission 1, p. 2.

6 ACTU, Submission 10, p. 2.

7 Jobs Australia, Submission 11, p. 5.

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1.20 Jobs Australia further made recommendations that the payment should be legislated fully, not in the undefined manner of the current Bill:

Specifically, the proposed legislation should be amended to incorporate and address the following issues: to incorporate the “incentive payment” and its quantum and indexation arrangements in the legislation itself (to ensure that the quantum of the payment is not reduced and its value is maintained over time)...8

1.21 Per Capita also advised:

We believe that the Trial (internship) part of the program should be designed such that interns receive at least the minimum wage. This could be accomplished by either limiting the number of hours, or by increasing the weekly supplement above $100 where required to meet minimum wage levels...9

1.22 Interns Australia said creating a class of under-paid interns undermined their status in law:

We wish to see a definition of ‘intern’ under Australian law that: … Allows for appropriate remuneration for an intern, whether that be provided by the businesses engaging the intern or by government funding...10

1.23 An amendment to the Bill to reduce the hours worked each week to 15 or to increase the incentive payment could lift the participant’s income above the minimum wage.

Inadequate safety and protection provisions 1.24 Labor Senators are extremely concerned that participants in the Youth Jobs PaTH program may not be adequately covered by state’s workers compensation and other legislative workplace protections.

1.25 The Government’s decision to classify an intern under the program as a “volunteer” despite them performing work tasks, throws their protections into doubt.

1.26 We do not believe a program designed to put 120 000 young jobseekers over the life of the program into workplaces without adequate protections is fair or reasonable.

1.27 Labor Senators also notes that the Government has failed to release details of its internal review into the tragic fatality of a young Work for The Dole participant in April this year. The Government should demonstrate how the relevant findings and recommendations of such an internal review will be applied to the workplace health and safety arrangements that will be observed under the PaTH program.

8 Jobs Australia, Submission 11, p. 3.

9 Per Capita, Submission 2, p. 1.

10 Interns Australia, Submission 1, p. 4.

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1.28 ACOSS made a scathing assessment of the protections of participants:

There is no legislative assurance that the health and safety of participants in the internships will be adequately protected.11

1.29 ACOSS commented further:

The Department has its own scheme for participants in employment programs but we understand this generally providers lesser benefits than State Workers Compensation schemes, no periodic payments, and no entitlement to rehabilitation. Either participants should be covered by State Workers Compensation scheme or equivalent coverage should be negotiated by the Department.12

1.30 Interns Australia also pointed out the vague rights of interns:

…Confusion over the rights of those participating in the programme: it is unclear what workplace rights attract to the ‘interns’ undertaking the programme (including the applicability of discrimination and workers compensation laws), and how these rights interact with the rights of ‘traditional’ interns in Australian society.13

1.31 Jobs Australia also called for the Government to implement strengthened protections for participants:

In the event that interns are not covered by state and territory Workers’ Compensation arrangements (and this may vary in different jurisdictions), provision of Personal Accident insurance coverage with terms which mirror and match the relevant Workers’ Compensation entitlements - as well as adequate liability cover for participating interns.14

1.32 Uniting Care Australia drew attention to the Government’s definition of a volunteer intern, by referencing the Fair Work Ombudsman definition of what constitutes work activity:

To that end, we draw your attention to the guidance offered by the Fair Work Ombudsman which distinguishes between unpaid internships and employment relationships (Attachment A). The guidance offered by the Ombudsman seems to suggest the Youth Jobs PaTH program internships may constitute employment relationships and as such should enjoy the protections offered to those relationships.15

1.33 This serious issue of adequate protections could be improved by amending legislation so that participants of Youth Jobs PaTH were properly covered by state workers compensation, or by creating effective Commonwealth coverage that includes workplace rights, workers compensation, rehabilitation payment and income support.

11 Australian Council of Social Service, Submission 15, p. 4.

12 Australian Council of Social Service, Submission 15, p. 5.

13 Interns Australia, Submission 1, p. 4.

14 Jobs Australia, Submission 11, p. 6.

15 Uniting Care Australia, Submission 4, p. 5.

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Displacement of jobs and placement churning 1.34 Overwhelming concerns about the prospect of broad displacement of entry level jobs and possibly churning of interns by businesses were put to the committee.

1.35 ACOSS said the Bill as it stands would not protect Youth Jobs PaTH from becoming an exploited program:

A set of rules should be formalised by Legislative Instrument to restrict the scope for displacement and churning and ensure that host organisations that engage in these practices cannot host more interns under the program.16

1.36 ACOSS added:

Additionally, the internship positions created under this program are likely to displace paid jobs for other young people. The fraction of ‘internships’ that turn into paying jobs will also not be new positions, but will replace employees that the organisation would have hired under normal circumstances. This is a fundamental flaw in both this program and in the government’s approach to unemployment. There are simply not enough jobs and any program that ignores job creation is going to ineffective in addressing unemployment.17

1.37 Interns Australia pointed out that the nature Schedule 2 of the Bill (relating to the Hire component of the program) shows the Government must have some concern about the prospect of exploitation:

Interns Australia is surprised the Bill contemplates so directly many of these new employees being fired ‘through no fault of their own’. As employers will receive a subsidy for employing these individuals, we have concerns this provision may encourage employers to hire an employee to receive the subsidy, terminate their employment, then hire another employee to receive the subsidy again.18

1.38 Jobs Australia drew attention to failed attempts at similar programs internationally, that became known for exploitation:

In respect of “internships” as a means of assisting young unemployed people, we note in particular, the Irish Job Bridge program on which Youth Jobs PaTH is at least partially based (and which unfortunately came to be known as “Scam Bridge”) has been discontinued as a consequence of high levels of exploitation of young people and displacement of existing workers and the controversial experience of a similar program in the UK.19

16 Australian Council of Social Service, Submission 15, p. 5.

17 Australian Council of Trade Unions, Submission 10, p. 2.

18 Interns Australia, Submission 1, p. 4.

19 Jobs Australia, Submission 11, p. 5.

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1.39 Interns Australia raised the financial incentive, on top of free labour, for businesses to churn:

The erosion of entry-level employment: if businesses are given a $1,000 incentive to take on an intern, there is a risk that they will continue to use interns to receive the incentive, rather than hiring employees. This encourages a culture of using unpaid interns rather than entry-level workers, as seen in countries across the world.20

1.40 The ACTU gave further examples where there are incentives to exploit in ways that would displace other jobs or supress wages and conditions across industry:

Interns are not paid superannuation or subject to worker’s compensation and so represent a significant saving to employers when compared to regular employees. While the Minister has dismissed this concern, it is not clear how employers will be prevented from utilising a series of interns, for whom the employer is paid by government, to replace either current or future paid workers. This would not only result in the program failing to achieve its aims of moving unemployed young people into work, but would also devalue the work and labour of currently employed young people.21

1.41 Per Capita’s submission made clear the potential cost-saving avenues for business that could lead to fewer job openings:

The potential exists for employers to replace positions that are fully paid with PaTH program participants purely as a cost-saving measure. While this provides the PaTH participant with potentially valuable experience, it comes at the cost of a job for somebody else.22

1.42 National Employment Services Association (NESA) drew attention to the work that an employment service provider will have to do to find participant’s positions are legitimate, on top of regular compliance activity:

Service providers will be critical in finding and assessing the appropriateness of internship placements. They will need to consider whether an employer is genuine about providing a real job if the job seeker works out. At the same time the service provider must ensure the placement is not displacing a real job and that the employer will be offering adequate supervision.23

1.43 Jobs Australia drew the committee’s attention to the way exploitation and displacement could take place by asking vulnerable young Australians to work during unusual hours or during times when penalty rates would apply:

…to ensure that times of “work” or unpaid work experience are restricted so that interns are not required to “work” during times which would attract penalty payments under relevant awards - (the risks of exploitation and

20 Interns Australia, Submission 1, p. 4.

21 Australian Council of Trade Unions, Submission 10, p. 2.

22 Per Capita, Submission 2, p. 1.

23 National Employment Services Association, Submission 13, p. 2.

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displacement of existing workers are extremely high in these circumstances and particularly in industries with highly variable levels of employment and of casual work - where it could be difficult to discern whether displacement is occurring)…24

1.44 Jobs Australia went further and requested that employers found to do the wrong thing under Youth Jobs PaTH should be made public:

…Recording and publication and dissemination of details of employers found to be unsuitable for provision of internship places to referring employment services providers…25

1.45 The ACTU outlined a concerning best possible scenario for 120 000 young jobseekers in the program:

When these concerns have been raised in the past, much has been made of analysis which will be done to detect employers who are abusing the program and prevent them from hosting further intern placements. It seems that the absolute best outcome such a system could achieve would be that thousands of vulnerable young people are only exploited, for profit, once.26

1.46 Uniting Care and Anglicare Australia also raised concerns about churning through interns and using free labour to displace job opportunities for young people to become normally employed.

1.47 Anglicare Australia put it in the context of a jobs market that continues to deteriorate for young Australians under this Government:

In the context of a serious shortage of entry-level vacancies, we do not accept that internships alone will help many people overcome structural exclusion from the workforce. We can see no evidence that this program will do anything to ease the existing pressures created by the decreasing number of entry-level jobs. In this respect we also hold serious concerns that introducing up to 30,000 government-subsidised interns to this market will make an already grim situation worse.27

1.48 ACOSS made a point - seemingly clear to everyone besides the Government - that legislation is needed to protect young jobseekers:

There is no clear legislative protection against exploitation of interns to the extent that they are not classified as employees. Either participants should be classified as employees (with a wage subsidy) or the program should not allow work beyond standard working hours (averaged over a fixed period) or a times that would attract penalty rates of pay if the person was employed (such as weekends).28

24 Jobs Australia, Submission 11, p. 5.

25 Jobs Australia, Submission 11, p. 6.

26 Australian Council of Trade Unions, Submission 10, p. 2.

27 Anglicare Australia, Submission 6, p. 2.

28 Australian Council of Social Service, Submission 15, p. 3.

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1.49 The Australian Chamber of Commerce and Industry submission assures the committee that “industry has the places to meet the demand of the program” but did not adequately justify why those places couldn’t be filled now by hiring the many hard working young Australian job seekers.

1.50 One of the Department of Employment's references that could be used to satisfy the vague definition of a “reasonable prospect” of a job was that there could be a current vacancy in the host organisation.

1.51 Given the ACCI has already indicated industry has enough places for 120 000 young people Labor Senator’s would prefer those young people be employed in those positions rather than ask the Government to provide free and subsidised labour.

1.52 The issues of churn, jobs displacement and exploitation should be addressed by amended legislation before the Government proceeds with this program or attempts to pass the Bill.

Lack of rights and support for participants 1.53 Labor Senators draw the Senate's attention to the many concerns about vulnerable young Australian’s being pushed towards a work-like environment in a large Government program without clearly understanding their rights or having adequate support in place. The submissions make it clear the program puts the position of participants into a significant employment grey area.

1.54 The Children With Young People And Disability submission said vague definitions left it unclear what protections participants would receive:

CYDA has some concerns regarding the internships component of the Youth Jobs PaTH initiative. ‘Internships’ have not been clearly defined within the Bill, aside from being referred to as “unpaid work experience” within the Explanatory Memorandum. It is therefore unclear how appropriate protections will be afforded for young people with regard to working conditions.29

1.55 Jobs Australia noted that legislation is needed to ensure participants receive all the relevant protections that employees get, whether they are officially recognised as employees or not:

Other aspects of Youth Jobs PaTH internships, in addition to those set out in the Bill, should therefore be the subject of legislation which can be considered and scrutinised by the parliament, rather than being implemented by administrative means which might seek to exempt interns and the employers providing placements from the provisions of the Fair Work Act and other relevant legislated workplace protections and requirements.30

29 Children and Young People with Disability, Submission 8, p. 5.

30 Jobs Australia, Submission 11, p. 4.

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1.56 ACOSS said clear requirements are needed for explaining the rights and expectations of a participant before they begin a placement:

Employment services providers (or better still an independent mentor) should be required to explain to participants their rights in the workplace before an internship commences (both verbally and in writing), and offer advice and assistance in the event that those rights are at risk.31

1.57 Jobs Australia also asked the Government:

To incorporate a requirement that prospective interns are given adequate information about their rights and obligations in the workplace (including occupational health and safety) in writing and verbally prior to placement (to make certain that all interns are fully and adequately informed about their rights and obligations)…32

1.58 Jobs Australia further advised there should be:

A requirement that young interns have timely access to independent advice and assistance about those rights (including occupational health and safety) and to address and provide timely assistance about any concerns that arise during the course of placements.33

1.59 Jobs Australia noted that the voluntary nature of the placement phase of the program must be made extremely clear and that no harsh penalties should be applied to participants given it is voluntary:

Incorporate a clear stipulation that participation in internships is voluntary and that there will be no income support penalties as a consequence of failure to attend or participate or for ceasing a placement (to ensure there are no subsequent adjustments to administrative arrangements which would result in participation being mandatory and relevant job seekers being subject to penalties)…34

1.60 The Multicultural Youth Advocacy Network said rights must be made clear in languages other than English to make sure young people of different backgrounds are aware of their rights and expectations:

We would recommend that, as a minimum, information about the internship and its potential benefits should be provided to the job seeker clearly in their preferred language. The information should also clearly communicate the voluntary nature of their participation.35

1.61 Labor Senators bring to the Senate's attention the range of concerns about lack of support for people in poor financial circumstances trying to comply with the training and trial part of the program.

31 Australian Council of Social Service, Submission 15, p. 3.

32 Jobs Australia, Submission 11, p. 6.

33 Jobs Australia, Submission 11, p. 6.

34 Jobs Australia, Submission 11, p. 5.

35 Multicultural Youth Advocacy Network, Submission 12, p. 3.

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1.62 Jobs Australia said travel costs should be covered by the Government:

Ensure that young people engaged in the compulsory training element of Youth Jobs PaTH should receive adequate reimbursement of travel costs associated with attendance at that training through an income support supplement like the current Work for the Dole arrangements (at least doubled to reflect actual transport costs) - (Transport costs - for up to 90 minutes each way each day for 2 blocks of three weeks are likely be significant and otherwise unaffordable…36

1.63 ACOSS reiterated:

There is no assured financial assistance with travel costs for the compulsory training:

Participants will have to undertake 25 hours a week of training for two rounds of 3 weeks and this will involve significant travel costs, especially in rural areas.

The Work for the Dole supplement of $20.80 per fortnight should extend to participants in the Youth jobs PaTH training and the internships and should be doubled to $41.60, at least for this purpose.37

1.64 Uniting Care Australia also noted:

It is important to note, however, that the additional allowance may not sufficiently compensate for the many costs, hidden and apparent, associated with employment.38

1.65 Uniting Care Australia also believed the program needs to specifically address health and safety training to support participants:

Ensure that young people receive adequate health and safety training and protections and that proper assessments are made prior to young people commencing internships or employment…39

1.66 The Multicultural Youth Advocacy Network noted that some more vulnerable participants will need closer monitoring during the process in order to succeed:

Some form of case management during the internship will provide support for participants and protection from exploitation. In particular, those less familiar with Australian culture and workplace systems and structures are likely to need greater support.40

1.67 The Government could resolve issues of workplace protections by amending legislation so that participants in the program are protected in the same way as any

36 Jobs Australia, Submission 11, p. 5.

37 Australian Council of Social Service, Submission 15, pp. 3-4.

38 Uniting Care Australia. Submission 4, p. 7.

39 Uniting Care Australia, Submission 4, p. 6.

40 Multicultural Youth Advocacy Network, Submission 12, p. 3.

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others that perform work tasks, and strengthening the process for helping participants identify their rights and responsibilities.

Lack of definition for an intern of internship 1.68 The Bill introduces the notion of a government subsidised internship to legislation. Submissions raised this issue with the committee.

1.69 Interns Australia noted:

The term is not defined in Australian employment law, and recent case law has highlighted that many internships are employment relationships. Not only does the use of this term create confusion about the rights of the participants in the Youth Jobs PaTH program, it creates confusion about the rights of individuals undertaking internships in other areas, intensifying the creation of a corrosive unpaid internships ‘culture’”... 41

1.70 Uniting Care Australia were concerned there isn’t a clear definition available:

Firstly, Uniting Care Australia is concerned that the legislation lacks clarity on the definition of ‘intern’ and, in particular, how the nature of the internship is viewed in employment terms.42

1.71 Interns Australia raised concerns that proceeding with an unclear definition would lead to flawed assumptions in the program and in the broader employment market.

1.72 They suggested changes were required before proceeding with the new term:

If interns are to be considered as legally different to employees, their rights must be clearly stated. If this Bill does not define ‘internship’, the term should be deleted.43

1.73 And:

The use of an alternative term such as ‘unpaid work experience placement’ or ‘work trial’ have been previously used in the context of a government work experience program to assist unemployed workers. It has been strongly suggested by leading employment law academics that these relationships ‘are likely to be lawful’, meaning they are more clearly defined relationships. Use of these alternative terms would prevent the creation of an ‘internships culture’ and would be supported by Interns Australia.44

41 Interns Australia, Submission 1, pp. 1-2.

42 Uniting Care Australia, Submission 4, p. 5.

43 Interns Australia, Submission 1, p. 5.

44 Interns Australia, Submission 1, p. 2.

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1.74 Interns Australia said the definition of internship needed broader thought and more legal links than what is offered in the Bill:

We wish to see a definition of ‘intern’ under Australian law that: … Is linked to appropriate regulation of internships in Australia, by ensuring interns fall under the authority of the Fair Work Ombudsman.45

1.75 The Government could fix the definition of an intern by amending legislation and either providing a definition relevant to employment law or using another term.

Sunset or review clause 1.76 Labor Senators note that the Government hasn’t yet completed a review of its current National Work Experience Program. Yet they are proposing to begin another one, but increasing it in volume to 120 000 participants over the life of the program, or at least five times as many every year than under the old one.

1.77 NESA noted:

However, the details of this are being developed without a broad consultation process and we urge caution. NESA recommends that there be a built-in opportunity to review the effectiveness of processes and amend as required.46

1.78 ACOSS reiterated:

Given that this program is experimental and has significant potential implications for people who are unemployed, along with their fellow workers, it should be trialled over a fixed period (such as two years) and lapse unless renewed by legislation.47

1.79 The Government could amend the Bill to include provision that the program must be independently reviewed in two years or that it lapse if the review isn’t undertaken.

Bill gives effect to a flawed program 1.80 Labor Senators draw the Senate's attention to submissions that note the wider program is flawed and must be fixed before proceeding.

1.81 While the Government will argue this Bill is non-controversial Labor Senators note submissions that show how it gives effect to a program that is not well designed.

1.82 The ACTU noted:

The PaTH program represents a significant disappointment - it is poorly designed, will not deliver positive outcomes and is unlikely to make a significant difference in the unacceptably high youth unemployment rate. Experience of programs similar to PaTH, including Northern Ireland’s Youth Employment (YES) Scheme and the UK’s Youth Jobs Scheme

45 Interns Australia, Submission 1, p. 4.

46 National Employment Services Association, Submission 13, p. 3.

47 Australian Council of Social Service, Submission 15, p. 6.

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demonstrate the failure of these programs to deliver meaningful employment opportunities.48

1.83 Youth Action’s combined submission noted how lack of consultation means key issues are still not addressed:

However, we are concerned that there is a push to instate legislation despite poor consultation, vague policy detail, a failure to address key issues that are vital to its success, as well some concerning elements of the bill itself.49

1.84 The Australian Unemployed Workers Union pointed out flawed assumptions behind the program design:

Through its persistent focus on the need to make younger Australians more ‘employable’, the paper appears to be suggesting that if only young Australians had basic levels of employability then we would not have a youth unemployment crisis. This assumption, however, is completely at odds with the reality of the Australian labour market. Currently according to the most recent data collected by the Australian Bureau of Statistics and the Department of Employment, there are 19 job seekers competing for every job vacancy. When you consider low-skill jobs - the sort of jobs young unemployed Australians will most realistically be considered for - this rate is even higher. Clearly, it is this dearth of low-skill jobs in the Australian labour market that has been the leading cause for Australia’s youth unemployment crisis.50

1.85 Interns Australia believed three problems will arise if the program as it is currently designed is implemented:

We believe that the creation of the internship programme will lead to:

The creation of an ‘internships culture’ in Australian workplaces: by creating 120,000 new interns in industries where internships have previously not been seen, this internship program will entrench interns in Australian workplaces without adequately clarifying what their rights are;

Confusion over the rights of those participating in the programme: it is unclear what workplace rights attract to the ‘interns’ undertaking the programme (including the applicability of discrimination and workers compensation laws), and how these rights interact with the rights of ‘traditional’ interns in Australian society;

The erosion of entry-level employment: if businesses are given a $1,000 incentive to take on an intern, there is a risk that they will continue to use interns to receive the incentive, rather than hiring employees. This encourages a culture of using unpaid interns rather than entry-level workers, as seen in countries across the world.51

48 Australian Council of Trade Unions, Submission 10, p. 1.

49 Youth Action, Submission 7, p. 3.

50 Australian Unemployed Workers Union, Submission 3, pp. 3-4.

51 Interns Australia, Submission 1, pp. 3-4.

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1.86 The ACTU pointed out other similar programs tried internationally that did not work:

The United Kingdom government tried a similar scheme in 2013, the Youth Employment Scheme (YES), which launched in January 2013 and was wind up in July 2014 with fewer than half the estimated placements having been made and no clear increase in real job placements. The YES scheme, like the PaTH program, had a top up element for the participant, a subsidy for the employer, took place over two tranches, a shorter work experience component and a longer skills development component. It is our view that adopting a failed program from the United Kingdom is not an effective or efficient way of reducing youth unemployment.52

1.87 NESA noted that the program needs a clearer design and context:

Otherwise, confusion, duplication and lack of clarity will create administrative burdens and inequity and waste precious resources and opportunities. The initiative needs to be understood by the key stakeholders who will implement it. For example there needs to be a clear articulation of the logic for eligibility and procurement policy for the various forms of employability skills training, the internships and the wage subsidies across youth cohorts.53

1.88 NESA explained the vast and interconnected network of youth employment initiatives currently in place and tried to find where Youth Jobs PaTH might fit:

In addition to the Youth Job PaTH there is Transition to Work, ParentsNEXT and Empowering YOUth. There are also the major programmes which all deliver services to young jobseekers such as jobactive, Disability Employment Services and the Community Development Programme. There is the priority Investment Approach fund which will target three youth cohorts in its first round anticipated to be announced in December. In addition there is a great number of State and Territory Government funded initiatives, either related to education or directly intended to address youth unemployment... Service providers and employers also report confusion about how the proposed elements of Youth Job PaTH ‘bolt-on’ to an already complex service system… There is also frustration reported that some previously effective models do not appear to have been recognised or drawn from. For example, the Job Search Training and Job Club initiatives were effective at developing employability skills via employment service providers’ in-house training. Resourcing for this kind of programme has been removed.54

1.89 The Government could address these concerns by not proceeding until safeguards are legislated and proper consultation with a view to fixing flaws in the program has taken place.

52 Australian Council of Trade Unions, Submission 10, p. 2.

53 National Employment Services Association, Submission 13, p. 5.

54 National Employment Services Association, Submission 13, p. 6.

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1.90 Labor Senators bring to the Senate's attention a wide range of concerns voiced in the submissions - despite the short amount of time they were given - and notes that the Government has not provided adequate legislative support to assure Members or the community this program will operate well.

Recommendations

Recommendation 1

1.91 That the Bill not be supported in its current form, until genuine concerns about the overall program design have been concretely addressed.

Recommendation 2

1.92 That the Government provides genuine safeguards protecting participants from exploitation and inadequate workers compensation coverage, along with guarantees that employers won’t churn through participants and that the jobs of existing Australian employees won’t be displaced and their wages and take home pay won’t be undercut.

Recommendation 3

1.93 That the Government amends legislation to enact a system to help participants understand their rights and responsibilities in the program and work environments.

Recommendation 4

1.94 That the Government amends the Bill to ensure the program conforms with Australia’s minimum wage laws. This could most easily be achieved by writing into legislation a lower maximum number of fortnightly hours which ensures program participants receive weekly payments equivalent to the National Minimum Wage.

Recommendation 5

1.95 Given the significant concern about elements of the program which are currently intended to be delivered through by departmental guidelines, it is recommended that the major components of the program be written into legislation or regulation and tabled before the Parliament.

Senator Gavin Marshall

Deputy Chair

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Australian Greens' Dissenting Report

Introduction 1.1 The Australian Greens dissent from the majority committee report recommendation that the Social Security Legislation Amendment (Youth Jobs Path: Prepare, Trial, Hire) Bill 2016 (the Bill) be passed.

1.2 A number of submitters raised concerns about the tight timeframe for the inquiry on the legislation. The Australian Greens share their concerns and note that due to the limited time allowed for this inquiry, there was no possibility for a public hearing.

1.3 The lack of detail in the legislation is concerning. All measures relating to the internship element of the Youth Jobs PaTH Program (PaTH Program), such as the payment of the incentive payment, should have been included in the Bill to enable the measures to be scrutinised by the Parliament.

1.4 The PaTH Program was announced in the 2016-17 Budget. The PaTH Program focuses on the employability of young people, rather than the lack of jobs currently available in the job market. This illustrates that the PaTH Program is another example of the Government ignoring the real problem, the lack of available jobs for young people. A number of submitters to the inquiry pointed out the PaTH Program will not lead to the creation of new jobs that are so desperately needed in order to provide ongoing employment opportunities for young people. As Anglicare Australia says in its submission, ‘[t]here needs to be a broader approach to economic restructuring if all young people facing barriers to employment are to have reasonable hope of future work.’1

1.5 A number of submitters noted that the PaTH Program is similar to the failed Youth Employment Scheme (YES) in the UK and the wound-up Irish Job Bridge program.

1.6 In this regard, Jobs Australia says in its submission:

In respect of “internships” as a means of assisting young unemployed people, we note in particular, the Irish Job Bridge program on which Youth Jobs PaTH is at least partially based (and which unfortunately came to be known as “Scam Bridge”) has been discontinued as a consequence of high levels of exploitation of young people and displacement of existing workers and the controversial experience of a similar program in the UK. This overseas experience points to some of the risks involved in Youth Jobs PaTH and reinforces the need to implement robust safeguards to ensure that the Australian program does not experience the same problems and that

1 Anglicare Australia, Submission 6, p. 3.

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young people get the best possible experience to help them on the way to a job.2

1.7 The Australian Council of Trade Unions (ACTU) says in its submission:

The United Kingdom government tried a similar scheme in 2013, the Youth Employment Scheme (YES), which launched in January 2013 and was wind up in July 2014 with fewer than half the estimated placements having been made and no clear increase in real job placements. The YES scheme, like the PaTH program, had a top up element for the participant, a subsidy for the employer, took place over two tranches, a shorter work experience component and a longer skills development component. It is our view that adopting a failed program from the United Kingdom is not an effective or efficient way of reducing youth unemployment.3

1.8 The Australia Greens agree that replicating these unsuccessful overseas schemes is unlikely to assist in decreasing the high levels of youth employment. The Government should instead be investing in individualised supports and quality training programs.

1.9 The Australian Greens’ key concerns about the PaTH Program relate to the limited remuneration the internship participants would receive, the limited protections provided to the internship participants, whether the internships are genuinely voluntary, the definition of internships, the possibility of existing employees being displaced and “interns” being churned. We are also concerned that much of the PaTH Program is not covered by the legislation.

1.10 The Australian Greens are aware that the Bill only contains provisions relating to:

• The exemption of the fortnightly incentive payment of $200 from being counted as income so as not to affect the income support payments of the internship participants; and

• The suspension, rather than cancellation, of income support for up to 26

weeks for young people hired under a Youth Bonus Wage Subsidy so they are not required to reapply if they find themselves unemployed ‘through no fault of their own’4 within the 26 week time period.

Limited remuneration for participants 1.11 A number of submissions raised concerns that participants in the PaTH Program internships would essentially be working for less than minimum wage if they worked 25 hours a week. The exception to this is 17-18 year old participants who live away from home.5

2 Jobs Australia, Submission 11, p. 5.

3 Australian Council of Trade Unions, Submission 10, p. 2.

4 Explanatory Memorandum, p. 1.

5 Australian Council of Social Service, Submission 15, p. 5.

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1.12 In its submission, the ACTU says:

There must also be significant concern however that PaTH may serve to undermine the minimum wage system. The current program settings, hours worked and additional payments per fortnight, mean that the interns in this program are paid below minimum wage, potentially creating pressure on existing employees’ wages or conditions.6

1.13 The Australian Council of Social Service (ACOSS) suggests that the possible fortnightly hours should be limited to 30, rather than 50 for the internship placements.7 This would ensure participants receive ‘the equivalent of the relevant hourly minimum wage’.8

1.14 Anglicare Australia says in its submission:

More needs to be done to guarantee that the wages, conditions and employment opportunities of existing workers will not be undermined by the introduction of interns. We agree with others who have argued that if this scheme is to go ahead, interns should be paid minimum or training wages to minimise this risk.9

1.15 The Australian Greens are concerned about the limited remuneration participants in the PaTH Program internships will receive. At a minimum, participants should be receiving the equivalent to the set minimum wage. If the participants do not receive the minimum wage, there is more chance of businesses exploiting them and other workers suffering as well.

Limited protections for participants 1.16 The legislation does not provide protections in relation to working conditions for those young job seekers who choose to undertake an internship placement.

Exploitation

1.17 A number of submissions raised concerns that internship participants are not protected from working non-standard hours. This is troubling because participants required to work on the weekends for example would not receive penalty rates.

1.18 ACOSS says in its submission:

Either participants should be classified as employees (with a wage subsidy) or the program should not allow work beyond standard working hours (averaged over a fixed period) or at times that would attract penalty rates of pay if the person was employed (such as weekends)[.]10

1.19 Jobs Australia suggested the legislation be amended:

6 Australian Council of Trade Unions, Submission 10, p. 2.

7 Australian Council of Social Service, Submission 15, p. 3.

8 Australian Council of Social Service, Submission 15, p. 3.

9 Anglicare Australia, Submission 6, p. 3

10 Australian Council of Social Service, Submission 15, p. 3.

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[T]o ensure that times of “work” or unpaid work experience are restricted so that interns are not required to “work” during times which would attract penalty payments under relevant awards - (the risks of exploitation and displacement of existing workers are extremely high in these circumstances and particularly in industries with highly variable levels of employment and of casual work - where it could be difficult to discern whether displacement is occurring)[.]11

1.20 The Australian Greens do not want to see young people exploited by businesses that take them on as ‘interns’ under the PaTH Program. It is imperative that participants are appropriately remunerated for the work they do and that they are only required to work standard hours, if they are not going to be paid the prescribed rate for non-standard hours.

Health and safety

1.21 Health and safety protections also appear to be inadequate for internship participants.

1.22 ACOSS notes that given the participants are not employees it is possible they will not be covered by laws governing health and safety in the states and territories.12 ACOSS recommended that:

Either State Occupational Health and Safety Laws should apply to participants, or employment service providers (or better still an independent mentor) should be required to:

• explain to participants the protections available to them regarding health and safety in the workplace before an internship commences (both verbally and in writing);

• offer advice and assistance in the event that health or safety are at risk;

and

• monitor workplace health and safety in respect of interns. 13

1.23 The Australian Greens want to see adequate health and safety protections in place for internship participants.

Workers compensation

1.24 There are concerns regarding the insurance cover that will apply to the internship participants and that it will not be the same level of cover as is provided to employees under the schemes of the states and territories.

1.25 UnitingCare Australia says in its submission:

UnitingCare Australia also notes concerns regarding young people’s access to workers’ compensation schemes in the event of them experiencing a

11 Jobs Australia, Submission 11, p. 5.

12 Australian Council of Social Service, Submission 15, p. 4.

13 Australian Council of Social Service, Submission 15, pp. 4-5.

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workplace incident or accident whilst participating in the PaTH program. It is unclear the extent to which different schemes operating in states and territories will extend to provide the appropriate protections for young people undertaking PaTH. As previously noted, this issues largely relates to ambiguity around the nature of work that will be undertaken whilst participating in the program, and if this subsequently defines participants as ‘volunteers’ or ‘employees’ - the former may prevent their ability to access workers’ compensation. Further consideration is required regarding how protections can be provided for young people voluntarily undertaking work placement through the program.14

1.26 As ACOSS says in its submission:

The Department has its own scheme for participants in employment programs but we understand this generally provides lesser benefits than State Workers Compensation Schemes, no periodic payments, and no entitlement to rehabilitation.15

1.27 ACOSS then says:

Either participants should be covered by State Workers Compensation schemes or equivalent coverage should be negotiated by the Department.16

1.28 It is necessary that internship participants have access to adequate workers compensation cover in the event of an accident. The Department’s current cover for employment program participants is inadequate in the view of the Australian Greens.

1.29 The Australian Greens are deeply concerned about the lack of protections provided through legislation and otherwise to the internship participants because they are not classified as employees.

Genuinely voluntary? 1.30 The Australian Greens have been, and continue to be, concerned about whether the internships are genuinely voluntary or whether young job seekers may be forced to include an internship placement in their Job Plan by their jobactive service provider, meaning they could face penalties if they do not comply with the requirements of their plan.

1.31 Jobs Australia suggested the legislation be amended:

[T]o incorporate a clear stipulation that participation in internships is voluntary and that there will be no income support penalties as a consequence of failure to attend or participate or for ceasing a placement (to ensure there are no subsequent adjustments to administrative arrangements which could result in participation being mandatory and relevant job seekers being subject to penalties)[.]17

14 UnitingCare Australia, Submission 4, p. 6.

15 Australian Council of Social Service, Submission 15, p. 5.

16 Australian Council of Social Service, Submission 15, p. 5.

17 Jobs Australia, Submission 11, p. 5.

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1.32 In their joint submission, the Multicultural Youth Advocacy Network Australia and the Federation of Ethnic Communities’ Councils of Australia raised concern regarding the authority some migrants and refugees confer upon service providers acting for the Government and the potential for those migrants and refugees to ‘regard the presentation of what is actually a voluntary option, as a requirement that must be followed.’18

1.33 These internship placements should be genuinely voluntary and provision should be made to ensure that they are. Provision should also be made to ensure that information regarding the internship placements is provided in the job seekers preferred language to ensure there are no misunderstandings about what is and is not required.

Displacement of existing employees and churning of interns 1.34 There is concern that availability of PaTH Program “interns” may lead to existing employees being displaced and replaced with internship participants. There is also concern that businesses may “churn” through interns, rather than fill a vacancy.

1.35 The ACTU in its submission says:

The ACTU is concerned that the scheme may encourage employers to replace existing minimum wage workforces with government sponsored interns or to reduce their wages or conditions. Interns are not paid superannuation or subject to worker’s compensation and so represent a significant saving to employers when compared to regular employees.19

1.36 In its submission, Interns Australia says:

Interns Australia is surprised the Bill contemplates so directly many of these new employees being fired ‘through no fault of their own’. As employers will receive a subsidy for employing these individuals, we have concerns this provision may encourage employers to hire an employee to receive the subsidy, terminate their employment, then hire another employee to receive the subsidy again. This will worsen a similar phenomenon created by the incentive payment to internship providers under the internship programme... Interns Australia would like to see a counterbalance included in the Bill to prevent this ‘churn culture’ from developing.20

1.37 In its submission, ACOSS says:

A set of rules should be formalised by Legislative Instrument to restrict the scope for ‘displacement’ and ‘churning’, and ensure that host organisations that engage in these practices cannot host more interns under the program.21

18 Multicultural Youth Advocacy Network Australia and the Federation of Ethnic Communities’ Councils of Australia, Submission 12, pp. 2-3.

19 Australian Council of Trade Unions, Submission 10, p. 2.

20 Interns Australia, Submission 1, p. 3

21 Australian Council of Social Service, Submission 15, p. 5.

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1.38 The Australian Greens are deeply concerned that the PaTH Program internship placements may have an effect on the existing workforce of participating businesses and that some businesses will exploit the intention of the PaTH Program to gain cheap labour. There is no legislative safeguard to stop either the displacement of current employees or the continued use of interns for a vacant position.

Recommendation

1.39 The Australian Greens recommend that the bill not be passed, in its current form.

Senator Rachel Siewert

Australian Greens

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Appendix 1

Submissions

Submissions

Number Submitter 1 Interns Australia

2 Per Capita

3 Australian Unemployed Workers' Union

4 UnitingCare Australia

5 Australian Chamber of Commerce and Industry 6 Anglicare Australia

7 Youth Action

8 Children and Young People with Disability Australia 9 Brotherhood of St Laurence

10 Australian Council of Trade Unions

11 Jobs Australia

12 Multicultural Youth Advocacy Network and the Federation of Ethnic Communities' Councils of Australia 13 National Employment Services Association 14 Australian Government Department of Employment 15 Australian Council of Social Service

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The Senate

Education and Employment

Legislation Committee

VET Student Loans Bill 2016 [Provisions]

VET Student Loans (Charges) Bill 2016 [Provisions]

VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016 [Provisions]

November 2016

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© Commonwealth of Australia 2016

ISBN: 978-1-76010-478-8

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE

Members

Senator Bridget McKenzie, Chair, NAT, VIC

Senator Gavin Marshall, Deputy Chair, ALP, VIC

Senator Sarah Hanson-Young, AG, SA

Senator Deborah O'Neill, ALP, NSW

Senator James Paterson, LP, VIC

Senator John Williams, NAT, NSW

Substitute Members

Senator Linda Reynolds, LP, WA (substituting Senator Paterson on 25 October 2016)

Secretariat

Mr Stephen Palethorpe, Secretary

Dr Patrick Hodder, Principal Research Officer

Ms Cathryn Cummins, Principal Research Officer

Ms Kate Campbell, Senior Research Officer

Ms Charlotte Fletcher, Senior Research Officer

Ms Amy Walters, Research Officer

Mr Abe Williamson, Administration Officer

Committee web page: www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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v

TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE ...................................................... iii

RECOMMENDATIONS ..................................................................................vii

Chapter 1.............................................................................................................. 1

Introduction .............................................................................................................. 1

Reference ................................................................................................................ 1

Conduct of the inquiry ............................................................................................ 1

Background to the bills ........................................................................................... 1

Purpose and overview of the bills .......................................................................... 3

Structure of the report ............................................................................................. 4

Compatibility with human rights ............................................................................ 4

Scrutiny of Bills Committee ................................................................................... 5

Financial Impact Statement .................................................................................... 5

Acknowledgement .................................................................................................. 6

Notes on references ................................................................................................ 6

Chapter 2.............................................................................................................. 7

Background ............................................................................................................... 7

Introduction ............................................................................................................ 7

The VET FEE-HELP scheme ................................................................................. 7

VET Student Loans bills package ........................................................................ 14

Chapter 3............................................................................................................ 19

Eligible courses and loan caps ............................................................................... 19

Introduction .......................................................................................................... 19

Eligible course list ................................................................................................ 19

Loan cap limits ..................................................................................................... 28

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Chapter 4............................................................................................................ 39

Further issues .......................................................................................................... 39

Introduction .......................................................................................................... 39

Approved course providers ................................................................................... 39

Agents, brokers and marketing ............................................................................. 46

Transition to the new scheme ............................................................................... 49

Reporting and transparency .................................................................................. 54

VET Ombudsman ................................................................................................. 57

Concluding committee view ................................................................................. 61

Australian Greens' Additional Comments ..................................................... 63

Appendix 1 ......................................................................................................... 65

Submissions and additional information received by the committee ................ 65

Appendix 2 ......................................................................................................... 69

Public hearings ........................................................................................................ 69

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RECOMMENDATIONS

Recommendation 1

4.100 The committee recommends that the Government establish a VET Ombudsman and work with key stakeholders to ensure that the Ombudsman operates in a way that is fit for purpose.

Recommendation 2

4.105 The committee recommends that the Minister for Education and Training incorporate the views outlined in this report and that the Senate pass the bills.

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Chapter 1

Introduction

Reference

1.1 On 13 October 2016 the Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills introduced in the House of Representatives a package of bills designed to reform Australia's Vocational Educational and Training sector. The bills are the Vocational Educational and Training (VET) Student Loans Bill 2016, the VET Student Loans (Consequential Amendment and Transitional Provisions) Bill 2016 and the VET Student Loans (Charges) Bill 2016 (the VET bills).1

1.2 On the same day, Senate referred the provisions of the VET bills to the Senate Education and Employment Legislation Committee for inquiry and report by 7 November 2016.2

Conduct of the inquiry

1.3 Details of the inquiry were made available on the committee's website. The committee also wrote to key stakeholders, groups, organisations and individuals to invite submissions.

1.4 The committee received 54 submissions as detailed in Appendix 1.

1.5 One public hearing was held in Melbourne on 25 October 2016. A list of witnesses who appeared at the hearing is available in Appendix 2.

Background to the bills

1.6 The current VET FEE-HELP loan scheme provides eligible VET students with loans to cover the cost of their higher level VET qualifications including Diploma and Advanced Diploma courses.3

1.7 As noted in the explanatory memorandum to the VET bills, the 2012 expansion of the scheme resulted in unsustainable growth, unscrupulous provider behaviour and poor student outcomes. Many students were left with large debts and in some cases, little to no training outcomes.4

1 Votes and Proceedings No. 11, 13 October 2016, p. 210. 2 Journals of the Senate No. 11, 13 October 2016, pp. 325-326.

3 Department of Education and Training, VET FEE HELP Reform, 1 July 2016, https://docs.education.gov.au/system/files/doc/other/160901_vet_fee-help_reform_factsheet.pdf.

4 VET Student Loans Bill 2016, Explanatory Memorandum, p. 1.

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1.8 Since 2015, the Government has instituted a number of amendments to the VET FEE-HELP loan scheme to address these concerns. These reforms have largely been aimed at strengthening the system to provide greater protections for students and high quality VET providers.5

1.9 However, widespread concerns with the existing VET FEE-HELP scheme remain. In order to fully address these concerns, the Government has proposed to replace the existing scheme with a 'new program that supports high quality training, for genuine students, aligned with workplace needs'.6 The bills give effect to these proposed changes.

1.10 In addition to strengthening the VET sector, the proposed reforms are also aimed at reducing the budgetary impact of the VET FEE-HELP scheme. The second reading speech on the bills noted that between 2009 and 2015:

• the numbers of students accessing VET-FEE HELP increased from 5262 to

272 000;

• average course costs tripled from around $4000 to $14 000; and

• the value of loans landing as debts to students, and as Commonwealth

borrowings, increased from $26 million to $2.9 billion.7

1.11 In preparing the bills currently before the Senate, the Government has undertaken extensive consultation. In April 2016, the then Minister for Vocational Education and Skills, Senator the Hon Scott Ryan, held consultations with 176 VET providers and a number of peak organisations to inform the content of a VET FEE-HELP discussion paper. The 'Redesigning VET FEE-HELP discussion paper' was publicly released on 29 April 2016.8

1.12 The Department of the Prime Minister and Cabinet, Attorney-General's Department, Department of Finance, Department of the Treasury, Department of Social Services, Department of Employment, VET providers, industry representatives, state and territory government officials, student and consumer protection advocates and the public have been consulted in relation to the development of the proposed VET student loans program.9

5 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10, http://parlinfo.aph.gov.au/parlInfo/download/chamber/hansardr/f2541705-5a09-4607-bf3f-1d6fd9b611ff/toc_pdf/House%20of%20Representatives_2016_10_13_4470.pdf (accessed 19 October 2016).

6 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10.

7 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10,

8 VET Student Loans Bill 2016, Explanatory Memorandum, p. 6.

9 VET Student Loans Bill 2016, Explanatory Memorandum, p. 6.

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Purpose and overview of the bills

1.13 As noted earlier, three bills form this package of legislation: the VET Student Loans Bill 2016, the VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016 and the VET Student Loans (Charges) Bill 2016.

1.14 The purpose of the VET Student Loans Bill 2016 is to introduce a new student loans program that contains a range of measures to protect students and taxpayers and the reputation of VET in Australia. It aims to improve affordability, maximise employment outcomes for students, prioritise loans to skills needs and ensure fiscal sustainability for the Commonwealth.10

1.15 These outcomes will be achieved by:

• linking loans to courses that meet industry needs and skills shortages and improving the quality of the course delivery by only enabling providers to subcontract training to other approved course providers or higher education providers;

• introducing loan caps for eligible courses approved by the Minister with the

initial loan caps to be $5000, $10 000 and $15 000 with the Minister able to exempt courses with high delivery costs;

• strengthening compliance, governance and payment arrangements including by triggering relevant regulatory powers from the Regulatory Powers (Standard Provisions) Act 2014. The Bill will enable the Commonwealth to immediately suspend a provider in urgent circumstances and also withhold loan amount payments to providers if it is suspected on reasonable grounds the provider is not complying with the Bill;

• expanding on the existing student protections by banning brokers or agents

from engaging or recruiting students in relation to loans, prohibiting contact with students regarding the availability of loans unless the student has expressly consented to contact by the particular provider and broadening the circumstances for which student loans may be re-credited;

• raising the bar for entry by providers to the program to ensure providers have

robust governance and management arrangements and maintain acceptable student outcomes and industry links (by way of example);

• introducing an application fee for bodies to apply to become approved course providers and, through the accompanying VET Student Loans (Charges) Bill 2016, imposing an annual levy on providers;

• requiring all existing VET FEE-HELP providers to apply to be approved

under the new program. The VET Student Loans (Consequential and Transitional Bill) 2016 will provide for some existing approved VET FEE-HELP providers (such as TAFEs) to be exempt from this re-application

10 VET Student Loans Bill 2016, Explanatory Memorandum, p. 1.

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process, however all providers, including public providers, will need to meet the higher quality benchmarks to remain in the scheme.11

1.16 The purpose of the VET Student Loans (Consequential and Transitional Bill) 2016 is to provide for:

• continued access to existing VET FEE-HELP students through 2017 provided they were enrolled with existing VET FEE-HELP providers in a course before 1 January 2017, in receipt of VET FEE-HELP for that course and are actively training;

• continued access to existing VET FEE-HELP providers approved for VET

FEE-HELP before 4 October 2016 for those continuing students; and

• the closing of VET FEE-HELP to new providers from 4 October 2016 and to

new students from 1 January 2017.12

1.17 The VET Student Loans (Charges) Bill 2016 provides for an approved course provider charge to be imposed on approved course providers as a tax. The amount of the course provider charge will be prescribed by regulation or determined in accordance with a method prescribed by regulation. It is anticipated that the amount of the charge will be determined with regard to the size of the provider.13

Structure of the report

1.18 Chapter two briefly outlines the extensive problems identified with the existing VET FEE-HELP scheme and the broad support for the new VET loans arrangements.

1.19 Chapter three examines two of the central issues raised by inquiry participants in relation to the bills, known collectively as the courses and loan caps determination.

1.20 Chapter four considers the other key issues identified in relation to the bills, including the new requirements to be an approved course provider, the regulation of agents, brokers and markets and the transition arrangements to the new scheme. The chapter also discusses the importance of ongoing reporting and transparency.

Compatibility with human rights

1.21 The VET Student Loans Bill 2016 engages the following human rights: the right to work, the right to education, the right to privacy, the right to a fair and public hearing, the right to be presumed innocent, the rights of the child, and the rights of people with disabilities.

11 VET Student Loans Bill 2016, Explanatory Memorandum, pp. 1-2.

12 VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016 Explanatory Memorandum, p. 6.

13 VET Student Loans (Charges) Bill 2016 Explanatory Memorandum, p. 3 and p. 5.

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1.22 The bills' statement of compatibility with human rights states that the VET Student Loans Bill 2016; VET Student Loans (Consequential Amendments and Transitional Provisions Bill 2016; and VET Student Loans (Charges) Bill 2016 are all compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.14

Scrutiny of Bills Committee

1.23 At the time of drafting the Senate Standing Committee for the Scrutiny of Bills had not reported on the bill.

Financial Impact Statement

1.24 The explanatory memorandum outlines the financial impact of the bill.

1.25 The measures will reduce the value of new student loans being issued by more than $2.4 billion per annum by the end of the forward estimates in 2019-20. This will in turn lead to an estimated reduction in otherwise total outstanding HELP debt of more than $7 billion by June 2020 and by more than $25 billion by June 2026.15

1.26 In underlying cash terms, the measures for the VET student loans program will cost $13 million over the forward estimates (administered funding). This is due to less interest and loan fee receipts received as a result of the reduced value of loans

issued. In fiscal balance terms, the measures will save $13 million over the forward estimates due to reduced concessional loan costs.16

1.27 The table below outlines the impact on underlying cash over the forward estimates:

Table 1.1—Financial impact on underlying cash over the forward estimates17

2016-17 2017-18 2018-19 2019-20 Total

Education & Training ($m) -11.1 -15.4 -14.8 -17.2 -58.6

14 VET Student Loans Bill 2016, Explanatory Memorandum, p. 9; VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016 , Explanatory Memorandum, p. 6; and VET Student Loans (Charges) Bill 2016 Explanatory Memorandum, p. 3.

15 VET Student Loans Bill 2016, Explanatory Memorandum, p. 6.

16 VET Student Loans Bill 2016, Explanatory Memorandum, pp. 6-7.

17 VET Student Loans Bill 2016, Explanatory Memorandum, pp. 6-7.

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Acknowledgement

1.28 The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at the public hearing.

Notes on references

1.29 References in this report to the Hansard for the public hearings are to the Proof Hansard. Please note that page numbers may vary between the proof and official transcripts.

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Chapter 2 Background

Introduction 2.1 This chapter outlines the problems identified by inquiry participants with the current VET FEE-HELP scheme before discussing the proposed VET Student Loans bills package1 (the bills) currently before the Senate.

The VET FEE-HELP scheme 2.2 The second reading speech by the Assistant Minister for Vocational Education and Skills, the Hon. Karen Andrews MP, noted that approximately 45 per cent of the financial assistance the Commonwealth invested in VET in 2015 supported income contingent loans for students through the VET FEE-HELP scheme. This has occurred at significant cost to the Federal Budget with the value of loans increasing from $26 million in 2009 to $2.9 billion in 2015.2

2.3 Dr Subho Banerjee, Deputy Secretary for Skills and Training at the Department of Education and Training outlined the key VET sector statistics, as shown in the table below:

Table 2.1—Key VET sector statistics 2012-20153

2012 2013 2014 2015

Number of students 55 115 100 035 202 776 272 026

Average loan amount per student $5890 $6990 $8666 $10 717

Total loans4 $325 m $699 m $1.757 b $2.915 b

2.4 The table above demonstrates a significant and rapid growth in the sector between 2012 and 2015. This expansion of the VET scheme resulted in unsustainable

1 The VET Student Loans Bills package comprises three bills: VET Student Loans Bill 2016; the VET Student Loans (Consequential Amendment and Transitional Provisions) Bill 2016; and the VET Student Loans (Charges) Bill 2016.

2 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10.

3 Dr Subho Banerjee, Deputy Secretary, Skills and Training, Department of Education and Training, Committee Hansard, 25 October 2016, pp. 62-63.

4 This figure is the total VET FEE-HELP debt for both the VET and Higher Education sectors. The Department of Education and Training was unable to provide the exact value of the VET FEE-HELP loans incurred by the VET sector alone because overall HELP debt is recorded as an aggregate HELP debt and is not disaggregated into the individual parts. See Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 111.

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growth, unscrupulous behaviour by a small number of providers and poor student outcomes. The second reading speech noted that the VET FEE-HELP scheme has been utilised by 'unscrupulous providers and brokers to take advantage of vulnerable students, to rip off taxpayers, and to tarnish the reputation of Australia's high-quality training providers and VET system'.5

2.5 In particular Indigenous Australians, older Australians and Australians with disability were targeted by unprincipled providers or brokers and signed up for significant loans for courses they did not need or could never complete, or which had no link to employer or skills needs in the economy.6

2.6 The conditions of access to the VET FEE-HELP scheme were relaxed prior to the Council of Australian Governments (COAG) signing off the 2012 National Agreement on Skills and Workforce Development.7 The Australian Education Union outlined why this occurred:

Up until this time [2012], take-up of VET FEE-HELP had been relatively small, due, it was argued by providers and stakeholders, to the stringent conditions attached to it. In particular, some stakeholders argued that the requirement for credit transfer arrangements with higher education institutions for vocational education qualifications to be VET FEE-HELP eligible made it far too difficult for providers to access the scheme, and this requirement was abolished in the lead up to the 2012 National Agreement.8

2.7 However, in the introduction to the 2016 Redesigning VET FEE-HELP: Discussion Paper, the former for Vocational Education and Skills, the Hon. Minister Scott Ryan, acknowledged the severe and ongoing problems that had occurred since the 2012 expansion of VET FEE-HELP:

Since these 2012 changes, the scheme has experienced significant growth, reflecting student demand, but also growing course costs and student debts. This period has also been characterised by serious concerns over the quality, probity and conduct of some providers, low completion rates and unethical practices.

There are many reasons for each of these individual issues, but the key common factor is that the changes in 2012 did not contain sufficient safeguards for students or regulatory powers for the department, instead providing incentives and rewards for unethical behaviour.9

5 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10.

6 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 10.

7 Australian Education Union, Submission 14, Attachment A, p. 2

8 Australian Education Union, Submission 14, Attachment A, p. 3.

9 Australian Government, Redesigning VET FEE-HELP: Discussion Paper, April 2016, p. 5 https://docs.education.gov.au/system/files/doc/other/redesigning_vet_fee-help_-_discussion_paper_0_0.pdf (accessed 28 October 2016).

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2.8 The persistent and wide-spread failures of the VET FEE-HELP scheme were explored at some length during the inquiry. According to a number of inquiry participants, problems with the VET FEE-HELP scheme became apparent soon after the access to the scheme was significantly expanded in 2012, with a major increase of problems becoming apparent in 2014. Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre (CALC), outlined when CALC began noticing issues:

We first started seeing complaints to our centre about vocational and training issues back in about 2009-10. That was around the time that the state government here in Victoria, being a Victorian centre, deregulated training. It was not until around 2013-14, particularly during 2014, that we started to receive a spike in complaints related to the marketing of VET products, and that was around the time of the expansion of the VET FEE-HELP scheme.10

2.9 Mr Brody said of the impact of the broadening of the VET scheme in 2012:

[I]t is fair to say it was inevitable that poor practices would get in if you open up an industry to deregulation without ensuring appropriate consumer protections from the outset. I think that was the failure in this instance.11

2.10 Ms Jeannie Rea, National President, National Tertiary Education Union (NTEU) similarly commented on the timeframe of the NTEU's identification of widespread problems with the scheme:

From not long after the scheme was enacted and starting to operate, the story started to emerge and that started sending some of the investigative journalists in to try and find out what was going on about it. And we were, not surprisingly, hearing of outfits that had set up, things that were going wrong. So a lot of that anecdotal material was coming to us fairly quickly. Somebody saying, 'My kid has gone to do this course'; 'Yes, somebody knocked on the door and signed up my mother to do a course that she can't do because she has a disability that would not enable her to do it.' These things started to come out fairly early on, and we started to, I hope, be part of a growing group of people making comments about, 'There is something going wrong here.'12

2.11 Ms Rea continued to explain that it was not until data on the scheme become public that the true extent of the problems emerged:

[I]t was not until the actual data started to come out—which started to show the explosion in enrolments, and the rapidity of that started to show, the enrolments and of course the amount being taken out in loans—that it

10 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, p. 7.

11 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, p. 10.

12 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 40.

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became clear there was something more than a few bad eggs, a few rorters, a little bit of gaming going on here and there.13

2.12 Reporting and transparency issues are further discussed in Chapter 4.

2.13 Two key regulatory agencies—the Australian and Consumer Competition Commission (ACCC) and Australian Skills Quality Authority (ASQA)—were also aware of growing problems within the sector. Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, ACCC outlined when the ACCC first began to detect an emerging problem:

We started to see complaints in mid-2014. That is not to say we did not have complaints before. We receive about 160,000 to 200,000 complaints across all matters. They started to come out as a bit of a trend in that mid to late 2014 period…That exponential increase was not simply by the flow of complaints, but by the fact that we were actively investigating and seeking different leads and streams.14

2.14 When asked as to the number of complaints received about VET providers and the VET FEE-HELP loan scheme overall, Mr Gregson responded:

When we started to present matters for potential investigation and litigation—I am talking about early 2015—we had in excess of 200 complaints that had come to us. That was either directly to the ACCC or through our key partners at the time, which involved legal aid and New South Wales fair trading. Once we commenced our investigations, we continued to receive complaints directly but also gathered information from different sources. I do not have the precise number, but that grew exponentially as we conducted our investigations. It must be approaching many more hundreds, getting close to a thousand.15

2.15 Mr Gregson said that 'when we [the ACCC] see 200 complaints we know that there is a deeper problem'.16 Mr Gregson considered that the problems in the VET sector were 'systemic' and by early 2015 the ACCC 'had formed the view that there was a need for ACCC intervention'.17

2.16 The ACCC had particular concerns relating to approximately 20 colleges, with court action still being pursued against some providers:

13 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 40.

14 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 23.

15 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 23.

16 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 26.

17 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 24.

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[T]here are still undealt with issues from the period that we were looking at; we were certainly looking from that 2014 through to 2015 period as the focus of our investigations. We started with having about 10 colleges on our radar. As I said, we have got four colleges and an undertaking, so five, that we have dealt with. And it has peaked. We probably had about 20 colleges that we had particular concerns about. We have probably now got 10 or so that we are still particularly interested in dealing with. The extent to which we can deal with all of those in the same way as we have the matters in court is yet to be seen.18

2.17 Mr Gregson commented unfavourably on the unscrupulous tactics used by some in the industry to maximise the number of students enrolled in courses, with vulnerable consumers, especially in indigenous and rural communities, being targeted.19 Mr Gregson emphasised: 'It was that targeting in particular that raised our concerns and our further investigations…They were just, quite frankly, appalling'.20

2.18 ASQA became aware of problems with the VET FEE-HELP scheme in mid to late 2014.21 The Hon. Michael Lavarch, Commissioner responsible for Risk, Intelligence and Regulatory Support at ASQA explained that at that time there was an increase in complaints followed by an 'environmental scanning process' triggered by these emergent issues in the sector:

The way in which ASQA first became aware of the problems was twofold. We received a small, and I have to say a relatively small, uptick in complaints being received by ASQA which were raising direct matters regarding the VET FEE-HELP scheme. In 2014, we received 43 complaints—out of 1,398 received in that year—which raised matters concerning the VET FEE-HELP scheme. In contrast, in 2013 there were only 10 complaints in total—out of 1,247 that ASQA received—which made any reference to VET FEE-HELP matters. So there was that small uptick in complaints in 2014… A key element in determining our treatment of systemic risk was to undertake what we call an environmental scanning process. The first one of those we did, as a pilot, was in the middle to later half of 2014. Through that environmental scanning process we started to detect problems, particularly in the business services training package area… So it was an uptick in some complaints to us—still at that stage, as I say, a small number—together with the fact that our environmental

18 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 24.

19 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 26.

20 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 26.

21 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 50.

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scanning began to indicate there may have been some problem with this program.22

2.19 Following the environmental scanning process, ASQA concluded that 'there was a systemic issue beginning to emerge, and hence that is why we did our first series of targeted audits of VET FEE-HELP approved providers in 2015, flowing out of the work we did in the second half of 2014'.23

2.20 Mr Lavarch bluntly stated: 'I have been in and around public life for a long time. I think I can fairly say that this was the worst piece of public policy I have ever seen'.24 He continued to explain his perspective of what went so wrong with the scheme was a lack of regulation and the focus on profitability:

In my view, what went wrong was the assumption that a system that had worked perfectly well for decades in higher education could be translated and placed into VET and the same behaviours that applied in higher education would replicate in VET. The program, the way it was designed, did not have, essentially, a proper set of rules and requirements around it… The whole thing [higher education contingent loans arrangements] was geared around making sure that people progressed and got through. This system [VET FEE-HELP], simply, was about getting people enrolled. In fact, it just became a cost if you continued to get them—that would impact on the profits.25

2.21 When questioned as to the Department of Education and Training's understanding of when problems were first identified, Dr Banerjee concurred with the mid to late 2014 timeframe:

[C]ertainly the testimony from ASQA and the ACCC is consistent with my understanding—that both of those agencies started to get concerned through the volume and nature of specific complaints towards the end of 2014, and they talked to us at that time. Then they reiterated or continued expressing those concerns into 2015…we were also receiving some public representations directly to the department.26

2.22 In regard to the number of complaints the Department was receiving, Dr Banerjee advised that:

In 2014 in quarter 3 we had 100 complaints and in quarter 4 we had 200 complaints…We are at the level of 100 to 200 complaints off a base of

22 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, pp. 50-51.

23 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 51.

24 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 55.

25 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, pp. 55-56.

26 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 58.

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200,000 students, which was the eventual student loan in 2014, so it was a fraction of a per cent at that point. The judgement for the department is really to try and determine what that indicates.27

2.23 Dr Banerjee said that 'it was clear that there were some dramatic increases in student numbers and in loan amounts'.28 Reflecting on the figures outlined at Table 1, Dr Banerjee noted that the Department worked to determine the cause of these dramatic increases: 'Each of the years year on year showed a dramatic increase, and then the matter for the department and indeed the regulators was to try and distil how much of that growth was genuine and how much of it was not'.29

2.24 Dr Banerjee indicated that the Department had used the lessons learnt from the VET FEE-HELP scheme to inform the planning of the proposed VET student loans scheme as outlined in the bills:

[T]here are clearly stringent lessons to be learnt from the way that the program has run. The department has looked at those lessons and looked to incorporate those in the design of the new student loans scheme. The new student loans scheme has clearly strengthened compliance powers, data provision, information provision and a range of other measures that were clearly difficulties in the previous scheme. Also, we absolutely need to be monitoring it very carefully as it goes forward. I think that is clearly a lesson as well. I think, under those circumstances, we need to see how the scheme works in practice but we have looked to learn from the lessons of the past and make sure that it is a considerably strengthened system.30

2.25 These new accountability and transparency measures are discussed in Chapter 4.

The need for new scheme

2.26 Given the unanimous recognition of a multitude of problems with the VET FEE-HELP scheme, there was much support for the establishment of a new loans scheme. The Victorian TAFE Association noted the negative impact that VET FEE-HELP abuses have had on the sector as a whole, and indicated a strong desire to restore the sectors reputation:

The scandal of VET FEE-HELP abuse has adversely impacted the entire VET sector, undermining public confidence in our world-class VET system. TAFEs, governments and industry have been battling for years to enhance the status of VET, and make it a genuine tertiary education option. VET FEE-HELP has set back our case, sure, but it has also hardened our

27 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 59.

28 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 59.

29 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 59.

30 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 114.

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resolution to provide a quality education experience with excellent learning outcomes and pathways to employment and/or further education.31

2.27 Ms Rea considered that any new scheme should re-focus the higher education sector on how to achieve the best educational outcomes for students:

[W[hat we have now is a very complex system which has just been built upon and built upon. I would make these comments about the constructions of some of the higher education qualifications too. I think we have an opportunity now in VET to get back to what is required—and at what sorts of levels and what sorts of qualifications are required. If this starts to open the door to a greater investigation of exactly how we can best provide our post-school education, it will certainly have done a great thing.32

2.28 Ms Jenny Lambert, Director of Employment Education and Training at the Australian Chamber of Commerce and Industry (ACCI), expressed support for a 'much more thoughtful approach' to VET in Australia:

With all the controversy around the impact on students and the public purse of the failings of the VET FEE-HELP program, the simple but most important point is lost: providing loans to students studying higher level VET qualifications remains sound public policy. In the same way as for higher education, loans improve access and equity for those who could not otherwise afford the fees associated with diplomas and advanced diplomas. But clearly the larger number of providers and the lower barriers to entry for providers, as well as other structural issues that differ between VET and higher education, require a much more thoughtful approach to program design, enforcement and monitoring than we have seen since the access was widened in 2012.33

2.29 Ms Lambert continued to emphasise the imperative for reform:

VET FEE-HELP has so damaged VET that we all need to move on. We need to move on from the language, the poor program design, the dodgy providers, the hurt students and the fiscal nightmare. The VET Student Loans Bill offers a way forward and we support it.34

VET Student Loans bills package 2.30 The purpose of the VET Student Loans bills package is to replace the VET FEE-HELP loan scheme from 1 January 2017 and 'introduce a vastly improved student loan program for vocational education and training.'35

31 Victorian TAFE Association, Submission 46, pp. 3-4.

32 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 39.

33 Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry, Committee Hansard, 25 October 2016, p. 44.

34 Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry, Committee Hansard, 25 October 2016, p. 44.

35 VET Student Loans Bill 2016, Explanatory Memorandum, p. 1.

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2.31 Inquiry participants strongly supported the bills and the need to reform the existing VET FEE-HELP system to ensure the sustainability and excellence of the VET sector.36 For example, the Australian Council of Trade Unions (ACTU) viewed the bills as a 'broadly positive' proposal:

[T]he ACTU views the bills being considered as a broadly positive first step towards repairing the broken VET system and restoring public and industry confidence in the ability of the sector to deliver high quality skills training. Steps to limit the amounts students can borrow in order to effectively control prices, to prevent brokers from taking advantage of students and to implement a more effective compliance system for private training providers are long overdue.37

2.32 Mr Lavarch considered that the reforms represented a sound package to address many of the concerns with the previous scheme:

ASQA thinks this is a good reform based on the work that the agency has done, particularly since the second half of 2014, when it first became apparent that there were emerging concerning behaviours in relation to the VET FEE-HELP scheme. The legislation adopts a range of measures which one finds across a number of the state training authorities and skill support schemes of the states and territories. We think it provides a reasonably sound foundation for the scheme going forward. Certainly, the experience of the states, being long-term program managers in providing support for students in accessing VET programs, is a good starting point, in our , in terms of the basic design of the program administration aspects at least, of a vet student loan scheme.38

2.33 Mr Lavarch concluded: 'certainly the skeleton of how the new scheme will operate as outlined in the legislation we think should take us a long way towards overcoming the poor behaviours that we have seen in the VET FEE-HELP space over the last several years'.39

2.34 Master Builders Australia (MBA) considered that the bills would 'help to ensure Australia has a highly skilled and capable workforce to meet the needs of a competitive construction industry'.40 The MBA continued:

Master Builders supports the Federal Government's efforts to overhaul the flawed VET FEE-HELP scheme and believes the introduction of VET student loans will go further to protect taxpayers' dollars and students by

36 See for example Sydney Film School, p. 2; Jillian Pryor, pp. 1-2; ACTU, Submission 6, p. 1; Australian Education Union, p. 1; Academy of Interactive Entertainment, p. 1; National Tertiary Education Union, Submission 2, p. 2 and Navitas, Submission 35, p. 1.

37 ACTU, Submission 6, p. 1.

38 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 50.

39 The Hon. Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 50.

40 Master Builders of Australia, Submission 42, p. 2.

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improving the assurance that only those providers who have a proven track-record of high employment outcomes will gain access to the system…The impact of VET FEE-HELP on the reputation of VET, its poor implementation and the budgetary impact of the scheme are strong reasons for the Parliament to act immediately to pass the VET Student Loans Bill 2016…41

2.35 TAFE Directors was of the view that the reforms would benefit the VET sector as a whole:

The much-abused VET FEE-HELP scheme has damaged Vocational Education as a sector, with good providers being tainted by those that have seen students merely as a pathway to taxpayer money.

Therefore TDA supports the Government's intentions to close the VET FEE-HELP scheme and replace it, on the 1st January 2017, with a VET student income contingent loan scheme that will shut the door on bad training providers.42

2.36 The Sydney Film School reinforced these sentiments:

Sydney Film School is broadly supportive of the Government's intent to rid the VET sector of providers who have rorted the VET Fee Help Scheme and largely agrees with the objectives of the legislation. We support the Government's intent to favour courses that meet industry needs and skills shortages and that result in high completion rates, high levels of employment and an ability to repay VET loans.43

2.37 Mr Mel Koumides, Chair of the Australian Council of Private Education and Training (ACPET), expressed the qualified support of private VET providers for reform of the system:

We only want the very best providers in the country delivering high-quality education for students. We therefore support measures to raise the bar and ensure that only the very best access the system. However, we do have concerns that some elements of the VET Student Loans will diminish Australia's capacity to develop skills for the future.44

2.38 Despite this broad support for reform, a number of issues were identified with the bills. Navitas, an international private sector VET service provider, explained that, notwithstanding its general support for the bills, a number of concerns remained:

Navitas believes that several of the central elements of the proposed reforms will have a strong negative impact on Australia's VET system. Further, the timelines that have been attached to the reforms are largely unworkable, and risk major disruption and confusion for ongoing and

41 Master Builders of Australia, Submission 42, p. 2.

42 TAFE Directors, Submission 26, p. 2.

43 Sydney Film School, Submission 15, p. 2.

44 Mr Mel Koumides, Chair, Australian Council of Private Education and Training, Committee Hansard, 25 October 2016, p. 28.

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prospective learners, and the employers and industries that depend on the skills that are delivered through Australia's vocational education and training sector.45

2.39 Ms Jillian Pryor, the Chief Executive Officer of Unity College, a not-for-profit Registered Training Organisation and VET FEE-HELP provider, also articulated concerns:

I applaud the government for its attempt to bring in measures to address the problems. However, I strongly believe that some of the measures in both the 2015 reforms and now the new VET Student Loans Bill are not well thought through, are highly discriminatory and will severely disadvantage either directly or indirectly, the students for whom the scheme was created and who it is meant to support in their quest for an education that benefits both them and society.46

2.40 The CALC considered that while the bills were a positive step for the VET sector, the bills would not assist those students who had accrued unfair debt under the current VET FEE-HELP system:

Broadly, we are very encouraged by the reforms announced by the Government that identify many of these gaps and present practical solutions. However, these changes will not help those Australians already impacted through the accrual of an unfair FEE-HELP debt. We are most concerned about legacy issues created by poor consumer protection during previous iterations of the VET FEE-HELP scheme.47

2.41 The CALC also identified a number of areas where in its view there is a risk that the new VET loans arrangements could be circumvented by a small group of unscrupulous providers.48

Committee view

2.42 It is evident that while there is significant and wide-spread support for reform, certain aspects of the bills raised concerns, including the eligible course list, proposed loan caps and the transition arrangements to the new scheme. These and other issues raised by inquiry participants are explored in detail in the next chapters of this report.

45 Navitas, Submission 35, p. 1.

46 Ms Jillian Pryor, Chief Executive Officer, Unity College, Submission 41, pp. 1-2.

47 Consumer Law Action Centre, Submission 22, p. 2.

48 Consumer Law Action Centre, Submission 22, pp. 2-7. For example: a prohibition of commissions, bonuses or incentives that can be paid for the enrolment of students into a courses with a VET Student Loan; banning an approved course provider from marketing or promoting a course to a person whose details they have obtained for another purpose; a prohibition on representations that a VET Student Loan amounts to 'government funding' or 'tuition assistance' or analogous terms; and that the VET Ombudsman be established to comply with Treasury's Benchmarks for industry-based Customer Dispute Resolution.

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Chapter 3

Eligible courses and loan caps Introduction 3.1 This chapter examines two of the key issues raised by inquiry participants in relation to the bills, known collectively as the courses and loan caps determination. The courses determination is an eligible course list which restricts the number of courses that attract student loans. The loan caps determination places a ceiling on the maximum amount that an approved course provider can charge for a course. The loans caps proposed for the start of the program are $5000, $10 000 and $15 000 per course.

3.2 The chapter commences by exploring issues pertaining to the eligible course list.

Eligible course list 3.3 The eligible course list seeks to address some of the excesses of the VET FEE-HELP scheme by limiting the number of courses that will attract financial assistance from the government. Under the new scheme, course eligibility will be limited to courses that have a high national priority, meet industry needs, contribute to addressing skills shortages and align with strong employment outcomes.1 Students will not be able to access VET Student Loans for courses not on the eligible course list.2

3.4 Courses are eligible if they are current (in other words, not superseded), and on at least two state and territory skills lists, or are Science, Technology, Engineering and Mathematics (STEM) related. STEM courses are defined as any course in the following fields:

• information technology;

• natural and physical sciences;

• engineering and related technologies; and

• agriculture, environment and related studies. 3

3.5 The Minister for Education and Training will have the power to approve the course list by a legislative instrument known as the courses and loan caps

1 Department of Education and Training, VET Student Loans - Eligible Courses, p. 1, https://docs.education.gov.au/system/files/doc/other/161010_eligible_course_list_fact_ sheet.pdf (accessed 23 October 2016).

2 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

3 Department of Education and Training, VET Student Loans - Eligible Courses, p. 1.

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determination. The determination permits the minister to change the list and ensure that it remains flexible to meet changing workplace skills needs.4

3.6 Dr James Hart, Group Manager of the Skills Programs at the Department of Education and Training, acknowledged that the methodology used to devise the eligible course list may not have captured all appropriate courses:

We relied on the requirement to be on two state subsidy lists, because one could be artefactual in terms of a particular jurisdiction's needs. We were looking to develop a national needs list. We saw the fact that they were on two lists as good starting point. We acknowledge that that may not capture all courses, and that is why we went through the consultation process.5

3.7 Dr Hart explained that courses not appearing on the proposed eligible course list were excluded because they did not appear on at least two state and territory skills lists, or were not STEM courses:

In terms of the 478 that are not on the proposed VET student loans course list that are currently eligible for VET FEE-HELP, they are not there because they are not on two states' lists. So there is no direct intervention to remove a course other than the fact that they were not on those two states' lists… the minister's office wanted the STEM courses added as well, because it was deemed to be of government need.6

3.8 Dr Subho Banerjee, Deputy Secretary of Skills and Training at the Department of Education and Training, indicated that the states, in preparing their lists, undertake 'extensive consultation and analysis':

Different states do it in different ways, but all of them go through very extensive processes to determine exactly what is on and what is off. They do a lot of modelling, they do a lot of industry analysis and they do a lot of industry consultation.7

3.9 The Department of Education and Training has recently undertaken consultations on the proposed eligible course list to be implemented from 1 January 2017, which consists of 347 courses.8 The list will be updated periodically to ensure workforce requirements are being met.9

4 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 11.

5 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 60.

6 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 61.

7 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 60.

8 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 11; and Department of Education and Training, VET Student Loans - Eligible Courses, p. 1.

9 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

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3.10 Dr Hart explained that the Department has recently completed the two-week consultation period on the courses contained on the list, receiving approximately 1500 submissions, 200-250 of which recommended changes. The Department is currently analysing the feedback with a view to providing advice to the Minister by early November 2016.10

3.11 Dr Hart stated that it was the intent for the eligible course list to be a fluid document, amended twice a year to ensure relevancy and utility:

[T[he legislation allows for a course list, but the view was that the actual list would be provided for through a disallowable instrument, and the reason for that is so that it could evolve. It would be a living list and there would be opportunities for that list to be amended from time to time…I think we were of the view that, if we had a process to amend that twice a year so that new courses were available for the start of the calendar and the financial year, that would be our preferred approach to address those changes as they came through.11

3.12 A core issue for inquiry participants was what courses were included and excluded from the eligible course list. The Australian Chamber of Commerce and Industry (ACCI) supported moves to reduce the number of courses available to be studied:

The Chamber encourages the Government to reduce the number of accredited courses on the approved funding list, with the aim to eliminate them from the list. Where accredited courses are currently in use, they should only be supported under a sunset clause arrangement in order to provide incentive for that training to migrate to a training package qualification. The Chamber believes 12 months should be sufficient time to achieve this.12

3.13 The Hon Michael Lavarch, Commissioner for Risk, Intelligence and Regulatory Support at the Australian Skills Quality Authority (ASQA), also supported the premise of limiting the number of courses attracting loans:

In terms of the quality issue, the idea that the program should be limited to particular courses which are considered by government to be appropriate courses for public support is completely consistent with the way in which schemes of this broad nature—obviously not a loan scheme per se but programs to support access to education programs like VET provider programs—operate throughout Australia at the state and territory level. There is nothing exceptional about that. In fact, to the extent that it has been

10 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 107; p. 61.

11 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 61.

12 Australian Chamber of Commerce and Industry, Submission 25, Attachment A, p. 2.

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able to be a target of public funds going to programs which are considered to be in the public interest, it would appear to be consistent and sensible.13

3.14 However, the majority of inquiry participants expressed some concerns about the composition of the eligible course list. The joint submission from the Ai Group and Business Council of Australia (BCA) gave qualified support for the reduction in courses eligible to receive VET funding given the proliferation of enrolments 'in fields of education that do not have significant new job creation'.14 The submission argued that the proposed list was 'narrow in it conception of VET':

Vocational training is not limited to the trades and areas of skills shortage. It services every industry in the country, and every industry in the country needs a pipeline of skilled workers.

There is a public policy argument to exclude courses that do not have a potential employment outcome. However, given that VET is deeply vocational and industry-led, the list of Training Package qualifications and accredited courses without a potential employment outcome should be quite limited.

The loan scheme should support students to undertake VET studies in growth industries such as health, as well as industries that have fewer employees than 20 years ago such as agriculture and manufacturing, and small industries such as creative arts.15

3.15 To address their concerns, the Ai Group and BCA recommended that the VET Student Loans Bill be amended such that:

• the eligible course list operate on an exclusionary basis, rather than an inclusionary one, noting loans are only available for Diploma level and above qualifications;

• industry has an opportunity to appeal any course excluded from the loan scheme;

• where a state is offering a subsidy, the student will be eligible for a loan, subject to other eligibility requirements; and

• if enrolments become excessive in low-employing industries, the government can cap enrolments in those courses.16

3.16 However, if the government did not move to an exclusionary rather than inclusionary list, the Ai Group and BCA considered that the government should at a minimum have courses on the eligible list that are offered in a single state.17

13 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 53.

14 Ai Group and Business Council of Australia, Submission 43, p. 9.

15 Ai Group and Business Council of Australia, Submission 43, p. 9.

16 Ai Group and Business Council of Australia, Submission 43, p. 11.

17 Ai Group and Business Council of Australia, Submission 43, p. 11.

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3.17 The Australian College for Private Education and Training (ACPET) noted that under the proposed list nearly 480 of the 800 courses previously supported through VET FEE-HELP would be no longer available to students. ACPET considered that:

This wholesale removal of courses leaves few, if any, options for many students to gain support to obtain qualifications and pursue careers in fields of education that are likely to provide the 'future of work' as Australia's services sector economy develops. This hardly seems a forward looking approach for a country that aspires to build its innovative and creative capabilities to support a new economy. The response that individuals will need to pay is a considerable blow to the principle of an equitable access to education for all Australians.18

3.18 Many submitters, mainly those within the private VET providers sector were concerned about a number of current courses that are anticipated to be excluded from the eligible course list, including:

• a number of counselling and psychotherapy courses; 19

• a number of ministry and theology courses; 20

• a number of performing and creative arts courses; 21

• Graduate Certificate in Intense Pulsed Light and Laser Hair Reduction; 22

• Diploma of Audiometry; 23

• Diploma of Anaesthetic Technology; 24 and

• Diploma of Professional Writing and Editing, Diploma of Justice/Advanced Diploma of Justice, Diploma of Product Design.25

3.19 Navitas was critical of the criteria for assessing course to be included on the course list, identifying several potential issues:

Firstly, the state and territory skills lists used as the benchmark for course eligibility are designed for a different purpose - that is to identify areas of

18 Australian College for Private Education and Training, Submission 23, p. 4.

19 Australian Institute of Family Counselling, Submission 34, p. 4.

20 Harvest Bible College, Submission 10, p. 3, Wesleyan Methodist Church of Australia, Submission 19, p. 1; Kairos Christian College, Submission 13, p. 1.

21 NIDA, Submission 24, p. 4; Sydney Theatre School, Submission 12, p. 3; National Association for the Visual Arts, Submission 21, p. 1; and Photography Studies College (Melbourne), Submission 38, p. 1.

22 Australian Academy of Beauty and Spa Therapy, Submission 49, supplementary information, p. 1.

23 Hearing Care Industry Association, Submission 47, p. 3.

24 Mater Education, Submission 29, p. 1.

25 Swinburne University of Technology, Submission 31, p. 2.

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current skills shortage in a particular jurisdiction. By definition then they do not seek to identify the jobs and skills that will drive the Australian economy into the future. Thus, the approach adopted by the states and territories is not well suited to identifying the emerging higher level skill needs and opportunities in the burgeoning human services sector or those of the creative industries, for example, where traditional industry links and employment pathways are less well defined.

Next, these lists often reflect narrower State and Territory government priorities and consultation protocols with industry, as well as their funding responsibilities for trade training and related sectors.

Further, these lists often deliberately exclude courses currently eligible for Commonwealth funding via VET FEE-HELP and reflect state and territory obligations and priorities under the National Partnership agreement to deliver a Certificate III entitlement.

Finally, as has been pointed out by Andrew Norton, an expert on income-contingent loans, the changes adversely affect female learners who to-date have been great beneficiaries of the VET FEE-HELP scheme.26

3.20 The Australian Major Performing Arts Group (AMPAG) reflected the view of many performing and creative course providers in arguing that the removal of a number of arts courses from the list, combined with unrealistic loan caps, was of serious concern: 'The chosen criteria for determining which courses are deemed valuable are based on a narrow approach that fails to recognise the needs and, we believe, the value of the performing arts sector'.27

3.21 ArtsPeak, a confederation of Australia's peak arts organisations collaborating with other sector organisations and artists, identified the extent of the substantial reduction in the number of creative arts course eligible for loans:

We support the government's attempts to rein in rogue operators in the vocational education sector and would welcome changes that will lead to a more robust sector. However, students should not be punished for this by depriving them of the opportunity to pursue vocational training in the arts and cultural sectors. Out of 70 previously supported courses in the creative arts sector, only 13 will continue to be eligible for loans. The proposed cuts represent a significant reduction in student choice, and will adversely disadvantage many students.28

3.22 AMPAG outlined the sources of its concerns with the list:

26 Navitas, Submission 35, p. 2.

27 Australian Major Performing Arts Group, Submission 40, p. 2. See also the submissions from NIDA, Sydney Theatre School, Sydney Film School, Canberra Academy of Dramatic Art, National Association for the Visual Arts, Academy of Interactive Entertainment; and Photography Studies College (Melbourne).

28 ArtsPeak, Submission 45, p. 1.

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• it fails to consider the quality and reputation of the training provider and the

contribution this training proves to support industry outcomes in the performing arts;

• it negatively impacts leading performance-based arts training in some of the

leading arts training institutions;

• it excludes all performance-based performing arts training courses;

• it has been derived without research and consultation with the professional performing arts sector or the government agencies that support the sector; and

• it is based on criteria that prioritise and support for courses building on skills

in STEM but fails to recognise the significant contribution of arts training to workforce skills in the 21st century economy (STEAM).29

3.23 The Sydney Theatre School observed that as a consequence of exclusion from the eligible course list some providers may have to downsize or close, potentially resulting in 'the loss of a significant number of jobs; and the exclusion from VET training and employment of many students who are unsuited to any of the courses currently on the eligible course list'.30

3.24 There were other concerns regarding the method for determining the eligible course list articulated by the National Tertiary Education Union (NTEU):

The proposed Bill does not specify what, if any, factors the Minister must consider in either determining the rues or determining their decision. While the Minister has said that in determining the current list of approved VET courses he has taken into consideration courses covered by the skills needs lists of at least two of the States and Territories, this is not a requirement specified in the legislation. While this is highly objective criteria, this is not so for all the factors the Minister says he wants to take into consideration when considering what courses should or should not be included. For example, the Minister says he does not think it is appropriate to support so-called 'lifestyle' courses. What this Minister considers to be a 'lifestyle' might differ significantly overtime and depending on the Minister of the day.31

3.25 Ms Jeannie Rea, the NTEU's National President, further expanded on the union's concerns that the subjectivity inherent within the framework could cause instability within the sector as courses are ruled in and out of the eligible list:

So we are concerned—and we state this in our submission—at the degree of subjectivity inherent within the framework and the application of the rules proposed. A lack of clarity means that courses that are or are not included

may well change over time, leading to uncertainty for both providers and potential students. There is also no doubt that ministers will come under

29 Australian Major Performing Arts Group, Submission 40, p. 2.

30 Sydney Theatre School, Submission 12, p. 3.

31 National Tertiary Education Union, Submission 2, p. 6. See for similar concerns Australian College for Private Education and Training, Submission 23, p. 3.

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considerable pressure from various providers or provider groups to have their courses included on the list. We are recommending that, rather than ruling individual courses in or out, the government enforce its much stricter rules in relation to eligible providers and levels of enrolment.32

3.26 Inquiry participants identified alternative approaches to determining the eligible course list. For example, ACPET suggested that 'a strategic and evidence based approach to identifying skills priorities would be a considerably better model than relying on State and Territory level lists constructed for a different purpose'.33

3.27 Similarly, the Sydney Theatre School proposed that a broader range of factors should be taken into consideration:

The VET Student Loans Bill 2016 should be amended to ensure that the selection criteria for inclusion on the Eligible Course List (ECL) allows for a much wider range of courses that will cater for the diverse training needs and career goals of every Australian citizen.

Courses to be included on the ECL should not be determined by their appearance on narrow 'skills shortage' lists; by the Education Minister; Department of Education employees; or any other government body or official.

The methodology used for the selection of approved courses needs to be evidence-based; properly informed by extensive consultations with all stakeholders (including industry; students and course providers); flexible; and fair.

It also needs to recognise and acknowledge the valuable contribution to society—and the economy—that is made by the creative and performing arts sector.34

3.28 Ms Jenny Lambert, the Director of Employment Education and Training at ACCI, argued that a formal consultation process with industry should form part of the process for determining the eligibility list:

We only have a concern if there is no mechanism by which industries can raise legitimate concerns and have them dealt with… in our view, we need to encourage a vocational training system that is based on national training packages that the industries have endorsed through the system. A lot of those lists are done by states, and they put forward these accredited courses outside of the system. So, no, we do not believe the sole criterion should be that it is on two states' lists. We believe the criteria should be a formal and structured process of consultation with industry so that it brings forward the opportunity for people to say what courses they believe are job facing.35

32 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 37.

33 ACPET, Submission 23, p. 5.

34 Sydney Theatre School, Submission 12, p. 9.

35 Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry, Committee Hansard, 25 October 2016, pp. 46-47.

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3.29 Master Builders Australia also considered that industry must 'play an ongoing role in determining the high level qualifications on the list and that the list take into account the needs of an ever changing labour market'.36

Committee view

3.30 The purpose of the eligible course list is to ensure that courses offered by the VET sector are courses that have a high national priority, meet industry needs, contribute to addressing skills shortages and align with strong employment outcomes.37 There will also be an emphasis on STEM related courses. The eligible course list will also reduce the ability of a small number of unscrupulous providers to take advantage of students.

3.31 The committee acknowledges this change will mean that some courses— which do not meet industry, student or skill needs—will not be supported and that this will impact on some providers. Given the poor practices of some unscrupulous providers that occurred under VET FEE-HELP, the committee views the eligible course list as an important mechanism for protecting students and taxpayers. The committee also views continued Government support for a broad range of VET courses as crucial for Australia’s competitiveness and prosperity.

3.32 The committee acknowledges the concerns of many stakeholders that the eligible course list will be too narrow in its composition, and exclude a number of courses that contribute positively to the economic and cultural prosperity of Australia.

3.33 The committee supports the introduction of an eligible course list. The committee also notes that the Department of Education and Training is currently consulting on the composition of the eligible course list for the introduction of the new VET scheme. The committee notes the department's evidence that the course list released for consultation is a 'good starting point'.

3.34 The committee is of the view that if there are courses required to address industry or skill needs which are not on the eligible list, and a strong case is made, then the list should be amended accordingly. To ensure strong employment outcomes, the government should seek advice from key stakeholders.

3.35 In finalising the eligible course list, the committee urges the department to give consideration to expanding the number of approved courses where sufficient justification is provided that courses are a high national priority, meet industry needs, contribute to addressing skills shortages, align with strong employment outcomes or provide specialist training. The committee further encourage the department to actively consult with stakeholder, including students, providers, industry groups and employee representative, when finalising and revising the eligible course list in the future.

36 Master Builders of Australia, Submission 42, p. 2.

37 Department of Education and Training, VET Student Loans - Eligible Courses, p. 1, https://docs.education.gov.au/system/files/doc/other/161010_eligible_course_list_fact_ sheet.pdf (accessed 23 October 2016).

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Loan cap limits 3.36 The second central area of concern with the bills was the establishment of loan cap limits for all courses on the eligible course list. The aim of the caps is to protect students from rapidly rising course costs and set a ceiling on the maximum loan amount the government is willing to loan to a student for a specific course.38

3.37 The rapid rise in course costs was addressed by some inquiry participants. For example, Mr Lavarch of ASQA noted the escalation of course costs under VET FEE-HELP was widely acknowledged:

In terms of the funding caps…I think it is a matter of public record that one of the issues arising through the VET FEE-HELP program was a very substantial escalation in the charges for particular courses. That was quite stark between some of the public providers and the private providers.39

3.38 Similarly, Ms Lambert questioned the ability of the government to accurately set loan caps, but acknowledged that the caps were necessary to prevent course providers from setting unaffordable fees:

[C]an the government, with industry information, nail the cap level that fits a quality program that delivers a great outcome? It would be hard to answer that generically. In other words, there will be situations where the caps will work and others where they will not. Caps are not ideal. We say that in our submission: it is not ideal. Obviously you would prefer the market to adjust, but at the moment we have seen too many examples where courses that were previously charged at X have become three times X, without any shift in quality, and that certainly is something that we are trying to address.40

3.39 Three maximum loan caps are proposed for the start of the program: $5000, $10 000 and $15 000 per course.

3.40 These levels are derived from actual VET FEE-HELP tuition fee data and the New South Wales Smart and Skilled program.41 Dr Hart explained that the Department of Education and Training used information on average course costs from the NSW Independent Pricing and Regulatory Tribunal (IPART) to calculate the loan caps to be used devising eligible course list:

In terms of the methodology that we went through with the course list, we looked at the IPART in New South Wales in terms of course costs. We did a mapping exercise against those course costs against what the VET FEE-HELP cost was in the period 2010 to 2013. We went back to that time

38 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 12.

39 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 53.

40 Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry, Committee Hansard, 25 October 2016, p. 46.

41 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 11.

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period because that preceded this rapid expansive growth that we just talked about. By field of education we averaged the course costs.42

3.41 The bill provides for the caps to be indexed annually in line with the government's other student loan programs.43

3.42 The three bands of loan caps will apply irrespective of whether the course is being delivered face-to-face, online, or via mixed delivery modes.44

3.43 As noted previously, students will not be able to access VET Student Loans for courses not on the eligible course list. For these courses, students will need to pay for the course themselves.45

3.44 The loan caps do not prevent approved providers from setting tuition fees above the cap. The caps simply set a ceiling on the maximum loan amount the government is willing to provide a student for a specific course.46

3.45 If a student wishes to undertake an eligible course at an approved VET loan provider that charges above the allocated loan cap, the student will need to pay for the difference.47

3.46 Pending the passage of the bills, the Minister for Education and Training will have the power to specify which courses fall under which band, to exclude courses from any band and to specify exemptions from loan caps for courses that result in a high social good but have high delivery costs. Minister Birmingham has indicated that some courses, such as those in aviation, will be exempt from the loan cap.48

3.47 Some inquiry participants were concerned that there was often no correlation between the loan cap allocated to particular courses and the actual delivery costs for that course. For example, ACPET said:

The overwhelming evidence, for example, from high quality, reputable nursing training providers across the country indicates the loan cap for the Diploma of Nursing (at $10,000) is at least $10,000 below that required to meet the needs of this highly resource intensive program. Similar evidence across a broad range of courses including in the interactive media, aviation, hospitality, creative arts, and business and building fields indicates fundamental concerns with the price bands.49

42 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 60.

43 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 11.

44 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

45 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

46 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

47 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

48 Department of Education and Training, VET Student Loans - Eligible Courses, p. 2.

49 Australian College for Private Education and Training, Submission 23, p. 7.

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3.48 The same concern was raised by the ACCI, which submitted that:

As a general proposition, caps are not an ideal tool… In introducing caps, care is needed to ensure continued access by students undertaking courses that are of high quality and meet industry needs. In that regard, feedback from members and a scan of some key qualifications delivered by long standing providers indicates that the cap amounts of $5,000, $10,000, and $15,000 will not cover the delivery amounts for some courses.50

3.49 The disparity between capped course loans and the actual delivery costs for courses was highlighted by a number of submissions. For example:

• Sage Institute of Education identified gaps for its Diploma of Early Childhood

Education and Care (gap of approximately $9740) and a Diploma of Remedial Massage (gap of approximately $10 240);51

• Sydney Film School identified a gap of approximately $16 000 for Screen and Media Studies;52

• Sydney Theatre School identified a gap of approximately $6950 for its

Advanced Diploma;53 and

• Ella Bache identified a gap of approximately $7327 for its Diploma of Beauty

Therapy.54

3.50 Restaurants and Catering Australia (R&CA) considered that unrealistic loan caps would have a negative impact on the skills of graduates, resulting in the needs of employers and industry not being met:

The current VET FEE-HELP proposed list relegates these [Chefs or Restaurant Managers] qualifications, in very high demand from an employment perspective, to the lowest funding band of $5,000. This is

insufficient to provide training that would facilitate the acquisition of appropriate skills to do these jobs… the cap is likely to distort the market and delivery of qualifications. R&CA would expect that cheaper qualifications costing under the cap would increase their fees to match the cap, while those over the cap will reduce resources allocated to the provision of this qualification. This will certainly reduce the quality of hospitality qualifications to a point where they do not meet the needs of industry.55

3.51 In its submission to the inquiry, Navitas articulated four concerns about the loan cap:

50 Australian Chamber of Commerce and Industry, Submission 25, Attachment A, p. 3.

51 Sage Institute of Education, Submission 50, pp. 6-7.

52 Sydney Film School, Submission 15, p. 2.

53 Sydney Theatre School, Submission 12, p. 7.

54 Ella Bache, Submission 7, pp. 2-3.

55 Restaurants and Catering Australia, Submission 37, pp. 2-3.

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• imposing loan caps will reduce access to tertiary education for learners and

therefore their ability to secure the skills they need to succeed in the workforce;

• price bands for many courses bear little correlation to the cost of delivery;

• setting arbitrary caps at $5000 intervals does not support the provision of high quality, industry-relevant training that the Australian economy needs; and

• having only three separate caps does not adequately reflect market diversity in the VET sector and may lead to further uncertainty for the sector.56

3.52 The Victorian TAFE Association (VTA) was concerned that the disparity between the loans caps and actual course delivery could push students towards cheaper and poorer quality course providers:

VTA members are frustrated at the logic behind some of the band settings, which do not reflect the cost of quality program delivery. In Victoria's highly contestable VET marketplace, TAFEs have sought to remain the benchmark of quality despite hundreds of competitors undercutting on both price and quality. Where the gap between the loan and the fee threatens access to a high quality education experience, a student may choose a poor quality option instead. VTA considers this a likely—and dangerous— outcome for students and industry, under the proposed VSL settings.57

3.53 The Academy of Interactive Entertainment argued that the loan caps would disadvantage students from low socioeconomic backgrounds who would be unlikely to be able to afford to pay for any fee gaps:

Funding caps need to be removed because they don't reflect the cost of providing quality education and discriminate against VET students who want to choose to undertake a quality education. Particularly those students who come from low socioeconomic backgrounds and are therefore unable to afford quality programs that exceed the capped amount… The need for a strong regulatory body is necessary to prevent shonky operators from simply registering courses with high caps on the published list, on their scope and delivering them in a substandard manner so they can continue to make a profit. Caps on courses are not a substitute for strong regulatory oversight. Removing caps will ensure students are able to access quality training, and not increase the necessary regulatory processes.58

3.54 The National Institute of Dramatic Art (NIDA) similarly observed that restricting access to VET student loans would reduce opportunities for students from some socioeconomic backgrounds:

56 Navitas, Submission 35, pp. 2-3.

57 Victorian TAFE Association, Submission 46, p. 4.

58 Academy of Interactive Entertainment, Submission 16, pp. 2-3. Similar concerns were raised by Australian College for Private Education and Training, Submission 23, p. 7; Sydney Theatre School, Submission 12, p. 5; and Australian Major Performing Arts Group, Submission 40, pp. 4-5.

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NIDA students in these courses [Diploma of Musical Theatre and the Diploma of Stage] need to have access to VET Student Loans to ensure that students from all social backgrounds have the opportunity to participate. If students in these two courses are not able to access VET Student Loans, selection will be limited to fewer, financially privileged candidates.

The entertainment industry will perpetuate a culture of privilege, missing out on the contributions of those that cannot afford to pay for their education and training up front.59

3.55 AMPAG considered that the loans caps could 'mean that the student cohort be increasingly comprised of people who can afford to study the creative industries, as opposed to those who have the talent and aptitude to do so'.60 AMPAG commented further on the likely implications of this deterrent to study:

The Education Minister's proposal to cap student loans at $10,000 for those performing arts courses that continue to be eligible for student loan support bears no relationship to the cost of delivery. This gap between cost and level of support will deter students from diverse cultural and economic backgrounds from accessing training. This raises the issue of the long term impact on the cultural diversity within the performing arts through creating new barriers of entry.61

3.56 The VTA was concerned that the imposition of the lowest band cap of $5000 might reinforce perceptions that VET was a lesser tertiary education option, and suggested that giving ASQA stronger powers was a better way to minimise rorting of the loans scheme:

The imposition of loan caps as low as $5,000 for some courses sends a derogatory message about VET to prospective students and other stakeholders. This perverse outcome of VET Student Loans indicates that we're pulling the wrong lever to tackle the right problem: to win back consumer confidence the rorting of the loans scheme must cease and to make this happen ASQA needs stronger regulatory resourcing and powers, especially at the point of provider entry to the VET system.62

3.57 The ACTU was of the view that loans caps may provide opportunities for 'unscrupulous' providers to reduce staff pay and conditions in order to maintain profits:

While caps on loans may prevent students being exposed to high prices and increased debts, there is always the possibility that this will provide an incentive for unscrupulous providers to dramatically reduce costs to allow for greater profits. This price pressure may also have negative implications for the VET workforce, as private providers attempting to increase profit

59 NIDA, Submission 24, p. 6.

60 Australian Major Performing Arts Group, Submission 40, p. 4.

61 Australian Major Performing Arts Group, Submission 40, pp. 4-5.

62 Victorian TAFE Association, Submission 46, pp. 3-4.

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margins in a capped-loan environment may identify staff pay and conditions as areas where savings can be carved out.63

3.58 A number of suggested changes to the proposed loan caps were made. For example, the Australian Catholic University strongly recommended raising the loan cap for the Diploma of Nursing to $15,000 'to reflect the true cost of delivery and ensure no negative effect on student enrolments'.64

3.59 R&CA felt that there needed to be '…greater clarity around the Minister's or department's methods of industry consultation on the lists and caps and the ability to provide exemptions to the cap limits, and the parameters by which exemptions are granted under'.65

3.60 R&CA further suggested that the best way to limit the loan exposure of the government would be to institute a cap on the number of places in a course rather than the amount of the funding, and that the loan cap be subject to a higher cap than that proposed.66

3.61 The William Angliss Institute proposed that a much broader range of loans caps be implemented, as follows:

• Tier 1 - Low end: $0 to $5000 or $8000;

• Tier 2 - Public Provider/High quality: $0 to $50 000; and

• Tier 3 - Bespoke programs: on application. 67

3.62 The ACCI, reflecting on the method of determination for both the eligible course list and the loans caps, suggested that there should be greater clarity around the methods of industry consultation used by both the minister and department to make determinations:

The impact of the determination on skill needs will be significant, which means that the process of arriving at course and cap amounts needs to be the subject of wide industry consultation as well as evidence-based…There needs to be greater clarity around the Minister's or department's methods of industry consultation on the lists and caps and the ability to provide exemptions to the cap limits, and the parameters by which exemptions are granted under.68

63 ACTU, Submission 6, p. 2.

64 Australian Catholic University, Submission 9, p. 5. Mater Education raised similar concerns about the loan cap applied to its nursing diploma. See Mater Education, Submission 29, p. 1 and p. 5.

65 Restaurant and Catering Australia, Submission 37, p. 2.

66 Restaurant and Catering Australia, Submission 37, p. 3.

67 William Angliss Institute, Submission 44, p. 4.

68 Australian Chamber of Commerce and Industry, Submission 25, p. 3.

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3.63 Specifically, the Chamber felt that the government should announce a clear process by which providers can apply for exemptions on course caps and invite stakeholder feedback on the process.69

3.64 Given the number of gaps already identified between the proposed loan caps and actual course delivery costs, the Photography Studies College (Melbourne) argued that more analysis was needed to identify realistic loan caps:

The type and quantum of loan cap and the three levels or 'bands' for loans has not formed part of any consultation process. Nor has any methodology been developed and tested to appropriately assess the true cost of delivery of vocational education and training programs - especially not in the non-public sector… For this to really be about achieving quality outcomes, a true analysis of the costs of delivery, involving and respecting the industry professionals who have the experience of providing the delivery needs to be urgently undertaken.70

3.65 ACPET considered that the Minister should declare additional exemptions for courses that have high delivery costs, such as nursing:

The legislation provides for the Minister to declare exemptions for courses that have high delivery costs but also high social good. While there are indications aviation training will be exempt from the loan cap this must be confirmed. There is also a strong case for nursing and a number of other courses including those in the creative arts sector to also be exempt.71

3.66 Sage Institute of Education suggested that loan caps should not be applied equally irrespective of whether the course is being delivered face-to-face, online, or via mixed delivery modes: 'Loan caps applied equally irrespective of delivery mode could negatively impact quality, not improve quality, as providers may look to move high-cost courses online in order to compete'.72

Consistency across the tertiary education sector

3.67 Some participants were concerned that the creation of different approaches to student loans in the VET and higher education sectors through the imposition of loan caps for VET courses could result in unequal opportunities for students, or distortions between the two sectors.

3.68 The Academy of Interactive Entertainment argued that the proposed system would not provide equal opportunities for all students and would create a two-tiered education funding structure whereby higher education was fully funded through VET FEE‐HELP and Commonwealth subsidies while VET student loans were subject to loan caps.73

69 Australian Chamber of Commerce and Industry, Submission 25, Attachment A, p. 4.

70 Photography Studies College (Melbourne), Submission 38, p. 2.

71 Australian College for Private Education and Training, Submission 23, p. 8.

72 Sage Institute of Education, Submission 50, p. 6.

73 Academy of Interactive Entertainment, Submission 16, p. 1.

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3.69 The Canberra Academy of Dramatic Arts (CADA) considered that the introduction of different approaches to course fees between the VET and higher education, describing it as 'discriminatory':

When caps are placed on course loans, the government is effectively asking students to make a co-contribution. The proposed co-contributions are not required for student loans in higher education, and it is discriminatory to ask for a co-contribution in vocational education. Meanwhile it is entirely possible that a small RTO like CADA can provide a higher quality of actor training to students than fully funded higher education institutions offering similar courses.74

3.70 The NTEU was concerned that 'opportunities to manipulate or game student loans and public funding will continue to exist as long as there remain fundamental differences in the way higher education and VET are funded and regulated'.75 The NTEU suggested that the government should be cautious of any unintended impacts of creating two different VET and higher education regulatory frameworks, such as:

• the creation of gaps in the coverage, especially with regard to enabling or pathway courses for students who might qualify to enter upper level VET or higher education programs;

• providers seeking to register existing VET qualifications as higher education qualifications because of a lack of restrictions on what can be covered and/or the capacity to charge higher fees because of the higher loan limits applying to FEE-HELP loans (approximately $100,000) compared to the $5,000, $10,000 or $15,000 limits those being proposed for VET Student Loans; and

• students enrolling in higher education rather than VET simply because higher education offers a broader range of options than those that will be eligible for VET Student Loans.76

3.71 TAFE Directors considered that the bills, if passed without amendment, would push students towards the simpler to navigate higher education rather than the more complex VET sector:

[A] key concern for our TAFEs is that prospective VET diploma students will instead be drawn to simpler, more navigable and likely Commonwealth subsidised study paths through bachelor and sub-degree courses especially

if further extended to reforms in higher education to the benefit of Universities. This will inevitably further decrease participation in VET Diploma courses, that are highly valued by industry, particularly key technical paraprofessional qualifications.77

74 Canberra Academy of Dramatic Arts, Submission 4, pp. 4-5.

75 National Tertiary Education Union, Submission 2, p. 2.

76 National Tertiary Education Union, Submission 2, p. 3.

77 TAFE Directors, Submission 26, pp. 3 and 5.

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3.72 Unity College similarly felt that the stringent requirements in the VET sector of restrictions on eligible courses and the loan cap limits would potentially push prospective VET students towards higher education instead:

The new scheme is discriminatory in that the HELP loans program is available to all eligible students for ALL higher education courses at University level without restriction. Why should students who wish or need to study in the VET sector be restricted in the area of study they can do with the help of a student loan? This bill may only serve to force many students to leave the VET sector and choose courses at universities for which they can access a loan (usually for a much higher amount) meaning the government will have not actually saved any money at all and in fact forcing the student to be in greater debt.78

3.73 The joint submission from the Ai Group and BCA expressed concerns that there would be a migration of both students and course providers from the VET sector to the higher education sector:

The combination of the loan cap, the course list, and the additional requirements on providers will drive private providers out of the VET market and into Higher Education … The incentive is for providers to move to the easier and higher funded market - that is, the market where there is no loan cap. This is particularly true for Graduate Certificates and Graduate Diplomas, as the proposed list is very limited in the VET qualifications eligible for the loan scheme.

If these course levels are not available under the new loan scheme, it is an incentive for both providers and students to move to the Higher Education sector where equivalent qualifications are not subject to the same constraints as the VET market.

The demand-driven system in Higher Education has already driven both students and providers from VET to Higher Education. This is a poor outcome for the students who are more suited to VET, as well as government, as Higher Education costs more than VET.79

3.74 Ms Rea explained why the NTEU felt that the migration of students towards higher education would be a negative outcome:

[B]ecause those [higher education courses] might not be the courses that students are already prepared to do—noting my point about the enabling and preparatory issues as well. But, if people are making the choice of what course they do on the basis of what loan they can get and the costs of it, that will be the basis for making the choice of course rather than whether it actually leads to what they want to do. Our view is that, when you make your choice of course, it should go with what your ambitions are, what sort

78 Ms Jillian Pryor, Chief Executive Officer, Unity College, Submission 41, p. 2.

79 Ai Group and Business Council of Australia, Submission 43, pp. 10-11.

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of career you see yourself doing and so on and so forth, not which one you can afford.80

3.75 The Ai Group and BCA encouraged the government to 'break away from the silos of the two sectors':

The sectors are deeply entwined, and changes to one program can create unintended consequences in one or both of the sectors. It is time for Australia to move to a tertiary policy approach, where the policies are designed with a consistent philosophy and principles across tertiary education.81

3.76 However, Innovative Research Universities argued in favour of clearer delineation between the VET and higher education sectors as a way to reduce confusion:

The decision to separate the VET loans away from higher education loans reduces the habitual confusion of VET specific issues into higher education debates. For instance, a significant aspect to the Parliamentary Budget Office's exaggerated assessment of the long term cost of the Higher Education Loans Program was the impact of the rapid escalation in VET FEE-HELP. 82

Committee view

3.77 The proposed loan cap limits will be applied to all courses on the eligible course list. The Minister for Education and Training will determine which courses fall under which band on the loan cap scale or specify exemptions from loan caps for certain courses.

3.78 The committee notes students would be required to pay the difference between the allocated loan cap and the actual course fee charged by approved VET providers.

3.79 The most significant concern amongst inquiry participants in relation to the loan caps was the disparity between the capped course loan limits and the actual delivery costs for courses. It was suggested that the proposed loan caps would have a negative impact on the skills of graduates, potentially resulting in the needs of employers and industry not being met. It was also feared that students from low socioeconomic backgrounds would be excluded from the VET system as they would be unlikely to be able to afford to pay for any fee gaps.

3.80 The committee also acknowledges the concerns raised about the imposition of loan caps which creates inconsistency across the tertiary education sector, with loan caps imposed on the VET sector but not the higher education sectors. This was argued

80 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 38.

81 Ai Group and Business Council of Australia, Submission 43, p. 16.

82 Innovative Research Universities, Submission 36, p. 1.

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to potentially result in unequal opportunities for students, or distortions between the two sectors.

3.81 A number of participants argued that the three proposed loan cap bands be increased to minimise these concerns, and that additional exemptions should be granted to courses that have a high delivery cost, such as nursing. There was also a view that the Minister and the department should consult widely to determine more realistic caps.

3.82 Given the opportunistic, unfair and excessive price rises by some providers under the VET FEE-HELP scheme the committee supports the introduction of loan caps for the VET system. The loan cap bands will be a useful tool in providing certainty for students as to the cost of their courses, so long as the loan cap bands realistically reflect the delivery cost of courses.

3.83 The committee acknowledges the methodology used by the department to determine the loan cap limits by calculating average course costs based on information from the NSW IPART. The committee notes that the period of time used—2010 to 2013—encompasses a time period largely before the rapid fee escalations seen under the VET FEE-HELP scheme. The committee views this method as a reasonable basis for establishing initial loan cap limits, and encourages the Minister to take other matters into account when finalising bands for individual courses and exemptions to ensure unintended consequences are minimised.

3.84 While it will be impossible to entirely minimise fee-loan gaps while also fulfilling the budgetary restraint desired by the government, the committee notes that it is within the power of the Minister to adjust the loans caps to ensure a greater correlation to the actual course delivery costs. The committee encourages the Minister to give adequate consideration to stakeholders where there are justifiable claims to increase the loan caps to ensure they realistically reflect the course delivery costs. Further, where a compelling case is made, the committee urges the Minister to ensure that courses with a high social value, high costs of delivery, or provide specialist skills are given consideration for an exemption from the loan caps, for example nursing.

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Chapter 4 Further issues

Introduction 4.1 This chapter explores a number of further issues raised in regard to the bills. These issues relate to the new requirements to be an approved course provider, the regulation of agents, brokers and markets and the transition arrangements to the new scheme. The chapter also discusses the importance of reporting and transparency in ensuring that the new scheme is not subject to the same exploitation as the VET FEE-HELP scheme. The chapter concludes by considering the proposed establishment of a VET student loans ombudsman.

Approved course providers 4.2 The explanatory memorandum for the VET Student Loans Bill explains that the bill contains stronger eligibility requirements to qualify as an approved course provider under the VET student loan program.

4.3 All existing VET FEE-HELP providers will have to apply to be approved under the new program. The Consequential and Transitional Bill provides for certain bodies, such as TAFEs, to be exempt from the re-application process.1

4.4 Schedule 2 of the Consequential and Transitional Bill lists the providers that are deemed to be approved course providers from 1 January 2017 and thus exempt from the re-application process.2

4.5 The Queensland Department of Education and Training noted that one of Queensland's public providers of VET, the Queensland Agricultural and Training Colleges (QATC), may not come within the terms of Schedule 2. This is despite it being a statutory body under the Queensland Agricultural Training Colleges Act 2005 (Qld) and a currently approved provider of VET FEE-HELP courses.3

4.6 The Department suggested that the Transitional Bill may need to be amended to ensure that the QATC is deemed to be an approved course provider to '…ensure that the Bill achieves its policy objective of deeming public providers of VET to be approved course providers of VET student loans'.4

4.7 Three other issues arose regarding approved course providers: the inability of trustees to be an approved provider, restrictions on third party training arrangements, and the levying of a tax on approved providers under the VET Student Loans (Charges) Bill. These issues are discussed below.

1 VET Student Loans Bill 2016, Explanatory Memorandum, pp. 3-4.

2 VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016, Schedule 2.

3 Queensland Department of Education and Training, Submission 33, pp. 1-2.

4 Queensland Department of Education and Training, Submission 33, p. 2.

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Trustees

4.8 The VET Student Loans Bill states that the Secretary of the Department of Education and Training may approve a body as an approved course provider if the Secretary is satisfied that the body meets the course provider requirements. The clause continues to state that, among other things, a course provider must 'be a body corporate that is not a trustee'.5

4.9 This aspect of the bill was of significant concern for the existing VET FEE-HELP providers that are trustees, for example the Photography Studies College (Melbourne), Churchill Education, Harvest Education Technical College and Estrada College.6 As Churchill Education explained: 'Effectively, under the proposed new changes, we would be precluded from applying for approval as a VET Student Loan course provider'.7

4.10 Photography Studies College (Melbourne) observed that the prohibition on trustees being approved course providers was new, and had 'not been part of any consultation process and is not referred to in the Regulatory Impact Statement'.8 The college noted the potential impact of the prohibition on trustees:

It [the ban] therefore introduces a new regulatory burden - the impact of which has not been tested or assessed for regulatory impact and burden. This places an unfair burden on companies to disrupt their company structures. The flow on effect of such material change will drastically increase the regulatory, legal and tax burden on such body corporate companies. It will require such companies to advise their national regulators - two of them if they are dual sector providers - and in some cases State regulators as well - of the company change.

This will trigger an unknown and untested level of additional regulation and requirements, which could lead to such providers being rendered 'un registered'. Such material change will trigger a requirement for providers to re-apply for their status as either an RTO or a Higher Education Provider. This will be the final nail in the coffin for many education companies already devastated by the sweeping, unadvised and unforeseen changes.9

4.11 Estrada College observed that it was not possible for trusts to swiftly transition to another approved business structure, and further, that if trusts were no longer able to lawfully operate, there would likely be significant job losses:

5 VET Student Loans Bill 2016, Explanatory Memorandum, p. 31. See Clause 25.

6 Photography Studies College (Melbourne), Submission 38; Churchill Education, Submission 18; Estrada College Submission 36; and Harvest Education Technical College, Submission 48, p. 1.

7 Churchill Education, Submission 18, p. 1.

8 Photography Studies College (Melbourne), Submission 38, p. 3.

9 Photography Studies College (Melbourne), Submission 38, p. 3.

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It is not possible to change structure swiftly without an immediate and significant impact on our business that educates many students and supports many Australian families. Presently, we have 72 staff employed in our Registered Training Organisation. And we are teaching over 8,500 VET FEE HELP students… If these changes are to pass, we anticipate that it would be necessary to make a large number of redundancies before the end of the year. We support positive reform that focusses on quality training and employment outcomes. However, permitting body corporates as trustees is a measure that will have no negative impact on the scheme or the services offered to students, and standards maintained by our Registered Training Organisation.10

4.12 Australian College for Private Education and Training (ACPET) noted that while it was working with the Department on transitional arrangements for impacted members, it did not seem appropriate to exclude a specific corporate arrangement regulated by ASIC. ACPET therefore recommended the provision excluding trustees be removed from the bill.11

4.13 Harvest Education Technical College considered that taking into account its history of compliance, quality course provision and sound financial status, the College should be not prohibited from operating.12 Accordingly, the College suggested that the Minister be granted discretion to allow a trust to be an approved course provider, so long as the trust had demonstrated that it did not pose a financial risk:

Proper consideration should be given to enabling existing businesses, such as Harvest Education Technical College, to continue operating through their existing structures provided they are financially sound and satisfy the other criteria contemplated by the legislation. There are a variety of ways that that outcome might be achieved. For example, rather than trustees being prohibited from being approved course providers, the Minister instead could be given discretion in respect of the structure of an approved course provider, provided that he is satisfied that it does not pose an unsatisfactory financial risk to the Commonwealth and to students.13

4.14 Churchill Education recommended that the clause should be removed from the bill, or alternatively, a two year grace period be allowed until 31 December 2018 to allow trustees sufficient time to manage the transition to a new corporate structure.14

4.15 In her summing up speech, the Assistant Minister for Vocational Education and Skills outlined the actions already taken by the Government to prevent new

10 Estrada College, Submission 36, p. 1. The same observation was made by Harvest Education Technical College, Submission 48, p. 3.

11 Australian College for Private Education and Training, Submission 23, p. 8.

12 Harvest Education Technical College, Submission 48, p. 1.

13 Harvest Education Technical College, Submission 48, p. 3.

14 Churchill Education, Submission 18, p. 2.

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providers from being trustees and the consultations undertaken by the department with respect to existing providers which are trustees:

On the issue of Trusts, the government changed the VET FEE-HELP legislation last year to require all new approved providers to not be a trust. This was to reduce financial risk to the Commonwealth and increase financial transparency. Although this requirement was not applied to existing VET FEE-HELP providers that had already been approved, some have already sought information on how to address this requirement, no doubt expecting the change in the redesigned program. Where it is clear that the same entity continues, but no longer acts in the trustee capacity, it will not change the department's ability to assess the entity's track record as a training provider. The department has briefed the stakeholder bodies TAFE Directors Australia (TDA) and the Australian Council for Private Education and Training (ACPET) on this issue, and will provide this advice to any organisations requesting information. Any concerned provider can contact ACPET, TDA or the department to discuss their individual situation.15

Approved course provider charge

4.16 The VET Student Loans (Charges) Bill permits an approved course provider charge to be imposed on approved course providers. The amount of the charge will be prescribed by regulation or determined in accordance with a method prescribed by regulation. It is anticipated that the amount of the charge will be determined with regard to the size of the provider.16 The regulations may provide for exemptions from the approved course provider charge.17

4.17 The Explanatory Memorandum to the VET Student Loans Bill (Charges) Bill states that the charge's purpose is 'to fund the VET student loan program including the costs incurred by the Commonwealth in administering the program, data collection and analysis as well as compliance and enforcement activities'.18

4.18 The lack of detail concerning this charge was of concern for some participants. For example, Mr Mark Warburton, a former public servant and former Principal Analyst for Universities Australia, said:

The full details of the proposed tax are not available, but will be in regulation. The bill documentation does not specifically state if these regulations will be disallowable, though I understand that is usual practice for most legislative instruments. The introduction of the tax is not covered in the Regulation Impact Statement for the new VET Student Loan scheme.

15 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 19 October 2016, p. 91.

16 VET Student Loans (Charges) Bill 2016, Explanatory Memorandum, p. 3 and p. 5.

17 VET Student Loans (Charges) Bill 2016, Explanatory Memorandum, p. 5.

18 VET Student Loans (Charges) Bill 2016, Explanatory Memorandum, p. 1.

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The level of the proposed tax and the full range of factors that might contribute to determining its level is not clear.19

4.19 ACPET was concerned about the lack of consultation before the introduction of the charge, stating the charge was not:

…canvassed with industry during the VFH redesign consultations and the details have not been announced. This measure comes in addition to significantly reduced loan caps and will further erode the capacity of providers to deliver to quality benchmarks. The application of the tax to only private providers is anti-competitive.20

4.20 Navitas held the same concerns, and recommended that the charge not be supported. However, if it were to be imposed, Navitas suggested that it be equally applied to public and private VET providers.21

4.21 Mr Warburton suggested that given the purpose of the tax to fund the loan program, 'it is unclear why a similar tax would not also be contemplated for the loans schemes in the higher education sector'.22 However, Mr Warburton cautioned about the appropriateness of such a tax on either the VET or high education sectors:

…I have some concerns about its [the tax] appropriateness for the regulation of Australia's tertiary sector. The tax is a charge which is likely to be passed onto students in the form of increased course fees. To the extent that this occurs, it will be paid upfront by VET students in any circumstance where their fees exceed the VET Student Loan limits or their course is not an eligible course.23

Third party training providers

4.22 The VET Student Loans Bill introduces a requirement that to be eligible for a VET student loan, the course must be provided by an approved course provider and delivered by that provider. Alternatively, the course may be delivered for the approved course provider by one or more of the following:

• a different approved course provider;

• a person or body that has been accredited by Tertiary Education Quality and Standards Agency, the Commonwealth's higher education regulator; and/or

19 Mr Mark Warburton, former public servant and former Principal Analyst for Universities Australia, Submission 32, p. 3.

20 Australian College for Private Education and Training, Submission 23, p. 9.

21 Navitas, Submission 35, p. 4.

22 Mr Mark Warburton, former public servant and former Principal Analyst for Universities Australia, Submission 32, p. 3.

23 Mr Mark Warburton, former public servant and former Principal Analyst for Universities Australia, Submission 32, p. 3.

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• a person or body that the Secretary has approved in writing to deliver the

course.24

4.23 This provision will mean that approved course providers may no longer outsource the delivery of their courses (or part of their courses) except to those bodies referred to above.25

4.24 This prohibition on the use of third party training providers was of concern for some inquiry participants. For example, the Study Group argued that there was an 'absolute need' for approved course providers to be able to use third party training providers.26The Study Group explained that:

The main reason for engaging third party providers is the specialist skill set they bring, the ability to support students in different geographic locations otherwise underserviced the ability to support different delivery models and with specialist support or electives and sometimes a simple case of resource management.27

4.25 The Group noted that the second reading speech had indicated that individual subcontractors engaged to provide specialist expertise for part of a course will be allowed on a case by case basis. However, no information has been forthcoming as to how this will be determined.28

4.26 Swinburne University of Technology was also concerned about the prohibition on this party training providers:

[T]he restrictions on third party training arrangements in the legislation will erode successful industry partnerships that involve high quality public providers of vocational education work with employers, for example Swinburne's partnership with Siemens Ltd to deliver an Industry 4.0 apprenticeship, an initiative championed and facilitated by the Federal Government.29

4.27 Notably, Swinburne expressed particular concern that its online delivery unit would be unable to continue operating:

On its face, section 15 of the Bill would simply no longer permit Swinburne Online to deliver courses on behalf of Swinburne University of Technology. It would force Swinburne Online to seek an alternative legal basis for delivering Swinburne courses, possibly through seeking registration as a Registered Training Organisation in its own right… As a public university with the authority to self-accredit courses granted by the Tertiary Education Quality and Standards Authority Act, we submit that the

24 VET Student Loans Bill 2016, Explanatory Memorandum, p. 25.

25 VET Student Loans Bill 2016, Explanatory Memorandum, p. 25.

26 Study Group, Submission 51, pp. 11-12.

27 Study Group, Submission 51, p. 11.

28 Study Group, Submission 51, pp. 11-12.

29 Swinburne University of Technology, Submission 31, p. 3.

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Bill should make provision for a course to be provided by a person or body that is delivering the course for a provider authorised by TEQSA to self-accredit its courses of study.30

4.28 Churchill Education explained that the use of third party training providers was a common occurrence within the VET industry:

The practice of using third party contractors is widely exercised in the Vocational Education sector by both TAFEs and the private sector. In part, the use of contract trainers allows for trainers to also have other jobs in the industry, which ensures they maintain industry currency, in both skills and knowledge, and promotes higher educational outcomes. Churchill Education uses four contract trainers, whose work was audited by ASQA this year, with no compliance issues identified.31

4.29 Churchill Education recommended that the bill be amended to allow the course delivery to be completed by third party training providers, with the approved course provider accountable for the work of the third party trainers.32

Committee view

4.30 Given the chequered history of some third party providers under the VET FEE-HELP scheme, the committee supports these aspects of the bills that greatly strengthen the regulatory framework for course providers. This is achieved through tougher eligibility requirements to qualify as an approved course provider, a prohibition on trustees acting as approved course providers and the introduction of a requirement that to be eligible for a VET student loan, the course must be provided and delivered by an approved course provider. In implementing these changes the committee encourages the Minister to ensure industry partnerships which benefit students and enhance the quality of training are supported.

4.31 Each of these elements combine to make a stronger VET system that reduces the ability of students to be the victims of a small number of unscrupulous providers, protects the quality of courses offered and ensures that the reputations of high quality VET providers are not sullied as they have been in the past.

4.32 The committee notes that some inquiry participants were concerned by the prohibition on trustees being approved course providers. The committee believes that the Minister for Education and Training, together with the department, should closely consider these concerns during the finalisation of the proposed reforms.

4.33 On the issue of trusts the committee also notes that the department has had held discussions with several VET peak bodies and is able to provide advice to any organisation regarding their individual situation.

30 Swinburne University of Technology, Submission 31, pp. 3-4.

31 Churchill Education, Submission 18, p. 4.

32 Churchill Education, Submission 18, p. 4.

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4.34 Further, the committee acknowledges that the proposal to levy an approved course provider charge on approved course providers provoked a mixed response, most notably in regard to the lack of detail currently available on the charge.

4.35 The committee notes that the amount of the charge will be prescribed by regulation and is likely to be commensurate with the size of the provider. The regulations may also provide for exemptions from the approved course provider charge.

4.36 The committee considers that the levying of a charge on approved course providers is an appropriate option for the government to recoup some of the costs incurred in administering and monitoring the VET student loans program. In determining the amount and application of the levy, the committee encourages the Department of Education and Training to consult with key stakeholders to ensure that the charge is implemented on a fair and equitable basis, taking into account any impact on students.

Agents, brokers and marketing 4.37 The VET Students Loans Bill prevents providers from engaging third parties, such as agents or brokers, to undertake activities on the provider's behalf such as enrolling students for whom the tuition fees will be covered by a VET student loan. This provision will ensure providers themselves are fully responsible for any engagements with the students regarding their student loans.33

4.38 The Consumer Law Action Centre (CALC) supported this provision but contended that the provisions could be strengthened:

Section 49 of the Student Loans Bill is a broad provision which should provide regulators with the ability to enforce the ban. However, without an associated ban on incentivised selling practices, Consumer Action remains concerned that VET Student Loans providers could move sales agents 'in-house' with no real change to the way prospective students are identified, targeted and recruited. The sector has been very adept at circumventing reforms in the past to maintain their market position… Staff on commission-based payment structures are often highly trained and motivated to sell. The very nature of the way they are paid means they are not concerned that the good or service is appropriate or affordable for the consumer, but simply that the sale be closed. Vocational education should be about education, not sales.34

4.39 Mr Mel Koumides, the Chair of the Australian Council of Private Education and Training (ACPET) also argued that the ban did not extend far enough, highlighting that some providers may seek to circumvent the proposed restrictions:

We also welcome the banning of brokers, but I would suggest that that does not go far enough. ACPET has received calls from brokers, delighted that they are not banned. They have simply read the current directions as being

33 VET Student Loans Bill 2016, Explanatory Memorandum, p. 41. See Clause 49.

34 Consumer Law Action Centre, Submission 22, p. 2.

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banned from the enrolment and course delivery process but not before or after that. So if brokers are to continue then we recommend strong controls and transparency on commissions and other matters to ensure that that does not compromise the new VET general loan system going into the future.35

4.40 Ms Jeannie Rea, the National President of the National Tertiary Education Union (NTEU), was in favour of minimising the influence of brokers in the sector. Ms Rea further suggested that the establishment of an ombudsman would be an effective complaints mechanism to oversee 'in-house' activities:

I think getting rid of brokers is a very good start, though. I think then it does become a matter of what is seen to be appropriate behaviour in-house as well, which I would agree is quite difficult to control. But there certainly are measures that one could put around it…the ombudsman would be a help there because then you would have a complaints mechanism, but it is always better not to have something to complain about. Then, as to the providers themselves, there should also be standards of behaviour and so on…But I certainly think that getting rid of the third-party brokers would be a good start.36

4.41 Mr Scott Gregson, Executive General Manager of the Consumer Enforcement Division at the Australian Consumer and Competition Commission (ACCC), contended that moves to limit the use of agents and brokers was likely to reduce the number of complaints received about unprincipled behaviour:

We saw a system that had a focus on entitlement as opposed to looking at quality and ensuring that service was delivered. We saw a system that lent itself to third-party marketers underwritten by commissions and incentives… Having that [marketing] direct through companies rather than through third-party marketers, in our experience, will dramatically reduce the instances. Just to give an example: when we looked at energy door-to-door sales through third-party marketers, following our extensive actions in that industry many stepped away from third-party marketers, and we saw a dramatic reduction in complaints. Whether it has gone far enough, I have to say we have not terribly looked at the policy as it has come through. I have had a quick look at the announcements, and they seem to tick many of the boxes.37

4.42 The CALC recommended the inclusion of a prohibition of commissions, bonuses or incentives that can be paid for the enrolment of students into courses with a VET Student Loan.38

35 Mr Mel Koumides, Chair, Australian Council of Private Education and Training, Committee Hansard, 25 October 2016, p. 28.

36 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, pp. 41-42.

37 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, pp. 25-26.

38 Consumer Law Action Centre, Submission 22, p. 2.

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4.43 Similarly, the VET Student Loans Bill strengthens provisions relating to the marketing of VET courses. This includes clauses relating to:

• misrepresenting VET student loans;

• offering certain inducements;

• engaging in cold calling;

• use of third party contact lists, and

• other marketing requirements. 39

4.44 Once again the CALC supported the new provisions, and recommended that the government further strengthen the provisions:

It is critical that this prohibition also covers situations where the company or person that receives the personal details is linked to or is the same as the person who contacts, markets or enrols people into courses… [We recommend that the government] strengthen the prohibitions in sections 62 and 63 of the VET Student Loans Bill by also banning an approved course provider from marketing or promoting a course to a person whose details they have obtained for another purpose, for example, as part of an application for a job.40

4.45 Churchill Education believed that the bill should 'prohibit any third party from enrolling students with a VET Student Loan provider, regardless of whether marketer or trainer'.41

4.46 However, other submitters were less convinced of the need to ban agents and brokers. For example, in her personal submission to the inquiry Ms Mary Ancich considered that approved course providers should be permitted to use agents and brokers so long as the course provider is 'totally responsible for recruitment practices and enrolments. No student should be able to be enrolled unless they have been personally vetted for suitability by the RTO'.42

4.47 The Study Group was also unsupportive of the proposals to ban brokers and marketing agents, suggesting that their use should be allowed subject to strict guidelines and penalties for non-compliance:

Study Group recognises the unscrupulous practices of some which are well documented and agrees that they should be banned from the industry. It does not mean though that the use of brokers or agents should be banned in their entirety.

Students come to Study Group via a number of different channels and brokers and agents form a vital role in this facilitation. To ban them entirely

39 VET Student Loans Bill 2016, Explanatory Memorandum, pp. 48-49. See Division 5, clauses 60-64.

40 Consumer Law Action Centre, Submission 22, p. 3.

41 Churchill Education, Submission 18, p. 4.

42 Ms Mary Ancich, private citizen, Submission 3, p. 2.

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is an overreaction. Study Group is willing to work with the Government to ensure the continuation of the use of brokers and marketing agents but with strict guidelines with appropriate penalties for non-compliance.43

Committee view

4.48 The committee supports these aspects of the bills that provide greater regulation on the use of agents, brokers and marketers. Under the current scheme, vulnerable students have been taken advantage of, frequently to their significant financial detriment. The bills represent a clear opportunity to provide students with greater protection. The committee encourages the Minister for Education and Training to consider the measures proposed by organisations such as the CALC to the further strengthen students' protections and to discourage the circumvention of the new VET loan arrangements by a small number of unscrupulous providers.

Transition to the new scheme 4.49 Another issue related to the transition arrangements to the new scheme. As noted in chapter one, the Consequential and Transitional Bill provides for the following timeframes for the transition to the new scheme:

• continued access to existing VET FEE-HELP students through to the end of

2017 provided they were enrolled with existing VET FEE-HELP providers in a course before 1 January 2017, in receipt of VET FEE-HELP for that course and are actively training;

• continued access to existing VET FEE-HELP providers approved for VET FEE-HELP before 4 October 2016 for those continuing students; and

• the closing of VET FEE-HELP to new providers from 4 October 2016 and to new students from 1 January 2017.44

4.50 The Australian Chamber of Commerce and Industry (ACCI) emphasised the critical importance of the three bills being passed as soon as possible to allow for implementation of the new scheme for 2017:

The impact VET FEE-HELP had on the reputation of VET, the distress caused to students that have been poorly served by a few 'dodgy' providers, and the budgetary impact of the VET FEE-HELP scheme are strong reasons why the Government needs to act immediately in securing the passage of the VET Student Loans legislation… [The bills] need to pass with minimal delay to ensure certainty for 2017. Parliament should commit to swift action to amend legislation as necessary and pass the Bills to ensure certainty for providers, industry, and students for 2017.45

43 Study Group, Submission 51, pp. 10-11.

44 VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016, Explanatory Memorandum, pp. 6-7.

45 Australian Chamber of Commerce and Industry, Submission 25, p. 3.

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4.51 Master Builders Australia, Ai Group and BCA were also adamant that the Parliament should pass the bills as soon as possible.46

4.52 Although the government has clearly articulated the timeframes for the transition to the new scheme, some participants were concerned that insufficient time had been allocated to VET providers to ensure a smooth transition. Others were concerned about the potential impact on current or recently enrolled VET students who would be affected by the changes.

4.53 In regard to the impact of the transition for providers, ACPET expressed concern over the short time for existing private VET providers to seek provisional approval to participate in the new scheme, or to plan future operations:

While Clause 27 will enable Table A and B providers [higher education providers as listed in the Higher Education Support Act 2003], TAFEs and other government owned providers automatic entry to VET Student Loan, existing VET FEE-HELP private providers will need to seek provisional approval to participate in VET Student Loan during the period 1 January to 30 June 2017. These providers will then, during the provisional approval period, be required to apply again for formal approval under new streamlined eligibility requirements… At the time of writing no provisional application process had been released - less than 3 months from the start of the new academic year for some providers. They are unable to market programs, plan resources or staffing. There is almost no time for private providers to plan and fund the necessary infrastructure required to support course delivery. This will cause considerable turmoil and ongoing uncertainty.47

46 Master Builders of Australia, Submission 42, p. 2; Ai Group and Business Council of Australia, Submission 43, p. 2.

47 Australian College for Private Education and Training, Submission 23, pp. 8-9. Similar concerns were also raised by Navitas, Submission 35, pp. 4-5 and the Academy of Interactive Entertainment, Submission 16, p. 3.

Under the Higher Education Support Act 2003, subdivision 16-B, Table A providers include: Central Queensland University; Charles Darwin University; Charles Sturt University; Curtin University of Technology; Deakin University; Edith Cowan University; Federation University Australia; Griffith University; James Cook University; La Trobe University; Macquarie University; Monash University; Murdoch University; Queensland University of Technology; Royal Melbourne Institute of Technology; Southern Cross University; Swinburne University of Technology; The Australian National University; The Flinders University of South Australia; The University of Adelaide; The University of Melbourne; The University of Queensland; The University of Sydney; The University of Western Australia; University of Canberra; University of Newcastle; University of New England; University of New South Wales; University of South Australia; University of Southern Queensland; University of Tasmania; University of Technology, Sydney; University of the Sunshine Coast; University of Western Sydney; University of Wollongong; Victoria University; Australian Catholic University; and Batchelor Institute of Indigenous Tertiary Education.

Table B providers include: Bond University; The University of Notre Dame Australia; MCD University of Divinity and Torrens University Australia.

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4.54 In order to address these concerns, ACPET recommended that the provisional and formal application process for existing providers be merged with the Department granting automatic approval for providers without significant adverse compliance actions that are meeting provisional contractual requirements.48

4.55 The Sydney Film School argued that given the significant extent of the changes, the government should provide additional time for implementation once legislation has been passed so that providers have time to adjust to the new scheme. The School suggested that the government defer the start date of the legislation, once enacted, to 1 July 2017 or 1 January 2018.49

4.56 Concerns were also raised about the impact of the transition on students, as outlined by the Academy of Interactive Entertainment:

There is little time for alternative funding arrangements to be made for students enrolling in courses starting in 2017. There are no details available for the banking industry to provide VET loan packages, to help fund the gap between what the government new VET Student Loan scheme will pay for, and what the cost of a particular course is. In addition, families and students who have applied for their chosen courses are now in a position where they have not been able to budget for funding the course fees on their own, as they were anticipating being able to access VET‐FEE HELP.50

4.57 As a direct example of the impact of the transition, Kairos Christian College explained the potential effect for two of its students:

We have students studying two year programs in the Diploma of Music and they will lose support as these courses are only till Dec 2017 and currently their courses end only July 2018. If the proposed bill is passed in parliament we have no backup to support these students…51

4.58 TAFE Directors emphasised the importance of managing the transition well to ensure that 'no bona fide student is disadvantaged'52:

Students particularly at risk in the transition are those recently enrolled, including through State tertiary admission centres for the 2017 academic year, and those with study patterns that may reasonably take longer than one year to complete. TDA notes that the Australian Qualifications Framework specifies a duration of 18 months to two years for Diploma courses. There will also be students who, through no fault of their own, encounter an unexpected delay in their ability to complete their course. It is important that transition arrangements are sufficiently flexible to meet

48 ACPET, Submission 23, p. 9.

49 Sydney Film School, Submission 15, pp. 4-5.

50 Academy of Interactive Entertainment, Submission 16, p. 3. Similar concerns were raised by Navitas, Submission 35, p. 5; Churchill Education, Submission 18, p. 3; and Jillian Pryor, Submission 41, p. 5.

51 Kairos Christian College, Submission 13, p. 1.

52 TAFE Directors, Submission 26, p. 7.

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student needs by extending VET FEE-HELP loan access beyond 31st December 2017 and not causing unnecessary distress.53

4.59 ArtsPeak advocated for a delay in the implementation of the bills pending further consultation given the extent of the proposed changes:

These changes amount to a huge shift in vocational training and the future priorities of the Australian economy and therefore it is imperative that the community and the arts and creative sectors are consulted and given adequate time to respond.54

4.60 The Ai Group and BCA suggested that current students should be allowed to complete their study even if their course is not on the new eligible course list:

Ai Group and the Business Council therefore propose that a minor amendment is made to the legislation that explicitly allows for students to continue in their course of study until they have completed, or the end of 2018, even if the course is not on the new approved course list. This clause would only apply to students currently enrolled under the VET FEE-HELP scheme.55

4.61 Other inquiry participants also suggested that the government honour the loan contracts already entered into with students in the current VET FEE-HELP program for the full duration of the course, or that transition arrangements for students in the current loans program be extended to at least December 2018.56

Remediation of debt

4.62 The Consumer Action Law Centre (CALC) argued that the transition to the new scheme represented an opportunity to assist Australians carrying debts that were accrued due to the 'unacceptable conduct' of a provider or broker. CALC suggested that a scheme to remediate debt 'would recover much needed funds for the Commonwealth and erase wrongly incurred VET FEE-HELP debts'.57

4.63 The amount of debt unfairly incurred by students in the VET FEE-HELP scheme is vast. Dr James Hart, the Group Manager of the Skills Programs at the Department of Education and Training, advised that a newly formed unit within the department had been able to remediate student debts of $13.2 million:

Since May of this year we have had a complaints handling unit. We have been able to get the remission of $13.2 million in debt, so that is the student

53 TAFE Directors, Submission 26, p. 7.

54 ArtsPeak, Submission 45, p. 1.

55 Ai Group and Business Council of Australia, Submission 43, p. 6.

56 See for example Jillian Pryor, Submission 41, p. 5. Navitas, Submission 35, p. 5; and Churchill Education, Submission 18, p. 3.

57 Consumer Action Law Centre, Submission 22, pp. 3-4.

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will not have the debt and the Commonwealth will get that paid back, and that equates to around 1,500 debts.58

4.64 In addition, Dr Subho Banerjee, the Deputy Secretary for Skills and Training at the Department of Education and Training, advised that the Department is currently co-party to four actions with the ACCC to recover the Commonwealth's expenditure from providers. In addition, there are 28 other matters being audited.59

4.65 The Hon Michael Lavarch, Commissioner for Risk, Intelligence and Regulatory Support at the Australian Skills Quality Authority said that as a result of their 2015 audit program, four providers had their registrations cancelled. These four providers had VET FEE-HELP loan entitlements from students amounting to about $288 million.60

4.66 Mr Lavarch also stated that there were a further ten matters that had an insufficient evidence base to support the cancellation of registration but that nonetheless warranted action:

In another 10 instances we decided that we did not have an evidence base which justified the imposition of sanctions in terms of a cancellation, suspension or some other sanction, but we were sufficiently concerned about what we found when we looked at these 10 providers to place some conditions on the providers and impose an enhanced monitoring regime. The conditions that we imposed went to the supply of data and information to us, which would be over and above the normal supply of data and information that an RTO supplies. In the case of those 10 providers, one of them has subsequently gone into liquidation, so there are still nine in play. We are doing follow-up work with those providers as part of our 2016 [audit] program.61

4.67 Mr Gerard Brody, the Chief Executive Officer of CALC said that the transition to the new scheme represented an important opportunity to tackle these 'legacy issues' of the VET FEE-HELP scheme by remediating unfairly accrued debt:

Given what we know about enrolment practices that were engaged in by significant players in the sector, including door-to-door sales in lower socioeconomic regions and cold-calling jobseekers, coupled with the

disgracefully low completion rates, we surmise that tens of thousands of Australians, and maybe more, were enrolled in courses as a result of what the bill calls 'unacceptable conduct'. As widely accepted, these Australians

58 Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 64.

59 Dr Subho Banerjee, Deputy Secretary, Department of Education and Training, Committee Hansard, 25 October 2016, p. 114; Dr James Hart, Group Manager, Skills Programs Department of Education and Training, Committee Hansard, 25 October 2016, p. 64.

60 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 51.

61 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 52.

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are now carrying large debts, with nothing to show for it. Tackling the legacy issues must be of the highest priority for government. As policymakers, you cannot simply accept there is a problem and legislate to reform for the future and not be prepared to remedy those exploited by the problem you are seeking to fix.62

4.68 To achieve debt remediation, CALC made a number of recommendations, as follows:

• the Department of Education and Training contact all students with incomplete courses to determine whether the enrolment was as a result of 'unacceptable conduct', with re-crediting of the student's FEE-HELP balance to immediately follow;

• amend section 25(2) of the VET Student Loans Bill 2016 to include a requirement for an approved course provider to appoint an independent third party to assess all previous VET FEE-HELP enrolments by that provider, and refund/re-credit any loan deemed to be a result of 'unacceptable conduct';

• That the meaning of 'unacceptable conduct' in section 71(2) in the bill, which

is to be defined by the rules, include conduct that contravenes the Australian Consumer Law; and

• amend section 68 to remove the proposed time limitation of 12 months for the re-crediting of a FEE-HELP balance.63

Committee view

4.69 Given the gross abuse of the current VET FEE-HELP system by a small number of unscrupulous providers, the committee is strongly of the view that the bills should be implemented as soon as possible.

4.70 However, in order to not disadvantage currently enrolled students, the government should consider honouring the loan contracts already entered into with students in the current VET FEE-HELP program for the full duration of the course, or that transition arrangements for students in the current loans program be extended until December 2018.

Reporting and transparency 4.71 In order to avoid the failures of the VET FEE-HELP scheme, it was argued that the new scheme should have an emphasis on reporting and transparency to ensure that any issues with the scheme are identified as earlier as possible to enable corrective action to be taken. As observed in Chapter 2, Ms Rea highlighted that slow access to data was one of the factors that contributed to the ongoing abuse of the VET FEE-HELP scheme:

62 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, p. 6.

63 Consumer Action Law Centre, Submission 22, pp. 3-5.

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So it was not until the actual data started to come out—which started to show the explosion in enrolments, and the rapidity of that started to show, the enrolments and of course the amount being taken out in loans—that it became clear there was something more than a few bad eggs, a few rorters, a little bit of gaming going on here and there.64

4.72 Mr Lavarch similarly observed that under the VET FEE-HELP scheme, ASQA had limited access to data on the scheme which inhibited its ability to undertake investigations in the VET sector:

We had relatively little information about performance under the VET FEE-HELP program. We are not the administrator of the program. Our providers do not engage with us as approved VET FEE-HELP providers. Information such as enrolment numbers, growth in enrolment, percentage of loan increase and the like is not supplied to ASQA. I think the department will say in its evidence that the regime around that was not particularly adequate, as events have turned out. It seemed to have been adequate in the higher education space from which the scheme has been borrowed to be brought into the VET space but was not adequate in the VET space. For our 2016 [audit] program we have worked closely with the department to look at the data sets that they have had available to compare with the data sets that ASQA has available to select the providers to be examined.65

4.73 Accordingly, the ACCI argued that it was of the 'utmost importance' that the new loans scheme promoted transparency:

There are many reasons for the failure of the VET FEE HELP scheme, but the faults in program design and oversight could have been identified earlier if the Minister and department were required to report on a regular basis concerning the utilisation of the scheme. It is of utmost importance that the replacement program has built in requirements for greater transparency including the regular reporting of real-time data to better monitor the progress of the new program.66

4.74 Ms Jenny Lambert, ACCI's Director of Employment Education and Training, emphasised this during her appearance before the committee:

A really important message is that the legislation must require transparency… We would add to that list that was proposed a list of qualifications as well. As we have seen from the VET FEE-HELP situation and, indeed, the evidence the previous witnesses pointed to about the reforms that happened in Victoria, you cannot predict 100 per cent of what providers are going to do. So you try and get the system design as good as possible, and then you have got to monitor it. Part of the monitoring has to reveal it to others to make it more transparent so that others can see what is

64 Ms Jeannie Rea, National President, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 40.

65 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 52.

66 Australian Chamber of Commerce and Industry, Submission 25, p. 3.

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going on. One of the downfalls with the VET system at the moment is that the data takes so long to get in the public domain through the system.67

4.75 Mr Lavarch concurred that regular reporting and transparency must be embedded in the new system:

It will be very important that there is appropriate monitoring and visibility. One of the weaknesses is that it seems like people were scrambling six months or 12 months later to realise that a provider was sitting there with $3,000 worth of loan and you blinked and they had $30 million worth of loan: 'Oh, I've discovered that six months later.' That is, again, a recipe for unfortunate outcomes, which is what we received.68

4.76 The VET Student Loans Bill specifies that there may be ongoing information requirements for the purposes of ensuring that approved course providers are complying with the Act, and that the Secretary of the Department of Education and Training has access to information and documents related to the operation of the Act.69

4.77 These ongoing information requirements may require an approved course provider to provide the Secretary with a broad range of information relating to:

• the provider's financial position;

• courses of study provided by the provider and the delivery of those courses;

• the provider's students, including information and documents relating to enrolment, attendance, completion rates, education outcomes and existing and projected enrolment numbers;

• tuition fees charged by the provider;

• changes in the provider's management or governance arrangements; and

• information the provider has collected for the purposes of, or in relation to,

applications by students for VET student loans.70

4.78 Notably, in addition to these requirements for providers to submit information, the VET Student Loan Bill stipulates that the Secretary of the Education and Training Department can cause an audit of an approved course provider to be conducted to determine whether the provider is complying with the Act, and/or one or more students enrolled by the provider are genuine.71 Mr Lavarch explained that as a consequence of this provision it will be far easier for ASQA to monitor the activities of approved course providers:

67 Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry, Committee Hansard, 25 October 2016, p. 44.

68 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 56.

69 VET Student Loans Bill 2016, cl. 52.

70 VET Student Loans Bill 2016, cl. 52(2).

71 VET Student Loans Bill 2016, cl. 45.

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In essence, we will stand in the shoes of the department as their agent to undertake the audit, but the other important change, which is in the consequential amendments bill, is that it makes a condition of registration for an RTO to be compliant with both the run-out of the VET FEE-HELP program and the VET student loan program going forward. That will enable ASQA when we do our audits, whether we are in there wearing the hat of the department and doing a departmental audit pursuant to the VET student loan legislation or visiting the provider wearing our own hat under our own legislation—this change to our legislation will enable us to look at compliance against the new VET student loan and the run-out of the VET FEE-HELP program.72

4.79 Mr Lavarch stated: 'We think that is a good outcome, and it is something which ASQA advocated for in its consultations with the department when the legislation was being developed'.73

Committee view

4.80 The committee believes that better reporting arrangements and greater transparency, especially in relation to data, will be central to restoring faith in the VET sector. Better and timely access to data will greatly minimise the risk of a reoccurrence of the widespread rorting and abuse that occurred under the previous scheme.

4.81 The committee encourages the Minister for Education and Training to provide annual updates to the Parliament on the VET student loans arrangements including information on individual providers and the courses they provide.

4.82 The enhanced ability of ASQA to investigate matters in the VET sector provides further protection for students and course providers that any misbehaviour in the sector will be quickly identified and rectified.

4.83 An additional protection for the sector will be the establishment of a VET student loans ombudsman. This measure is discussed in the final section of this chapter.

VET Ombudsman 4.84 In her second reading speech, the Assistant Minister for Vocational Education and Skills advised that in order to further strengthen student protections the government intends to establish a VET student loans ombudsman.74 No further detail on this proposal has yet been forthcoming.

72 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, pp. 52-53.

73 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 50.

74 The Hon. Karen Andrews MP, Assistant Minister for Vocational Education and Skills, Second reading speech, House of Representatives Hansard, 13 October 2016, p. 12.

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4.85 Mr Lavarch observed that Australia currently has a patchy framework to resolving student issues:

Australia seems to have a relatively fragmented structure in terms of the position of access to ombudsman support to resolve student matters. There is the international student ombudsman, which covers students who are here on a student visa. That is a Commonwealth body. If I happen to be studying with a public institution, I will have a pathway that takes me to one of the state or territory ombudsmen. If I happen to be in some states—for instance, Queensland or South Australia—positions called training advocates exist in those states, which play some role. If I am in another jurisdiction, there may not be that particular structure.75

4.86 The establishment of a VET student loans ombudsman was a widely supported action. For example, Mr Gregson of the ACCC was of the view that the establishment of a single point of complaint, be it an ombudsman or a similar office, would be a positive development to mitigate risk:

There is no doubt that, where issues arise across industries, to have one common area for complaints to be compiled, trends to be identified and either regulatory action taken or referred assists with dealing with issues sooner than later. Whether that is achieved through current infrastructure, whether it is achieved through an ombudsman or other lobbyists in the area, they are all mechanisms in which you could actually have the compilation of, and the greater oversight of, particular industries at risk.76

4.87 The CALC described the establishment of an ombudsman scheme as 'a significant step to resolve disputes involving the VET sector and students as they arise'.77

4.88 The CALC further outlined support for the establishment of an ombudsman:

An ombudsman will assist the sector to rebuild its reputation and the trust and confidence of students, parents and employers. The fact that the Government is acting quickly to establish this service is welcomed, as accessible and free dispute resolution is complimentary to a rigorous consumer protection environment.78

4.89 Mr Brody of CALC, advocated for the establishment of an industry ombudsman scheme for the VET sector.79 He explained why the Centre supported an industry based scheme, which rather than any alternative approach:

75 Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support, Australian Skills Quality Authority, Committee Hansard, 25 October 2016, p. 53.

76 Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Consumer and Competition Commission, Committee Hansard, 25 October 2016, p. 25.

77 Consumer Action Law Centre, Submission 22, p. 6.

78 Consumer Action Law Centre, Submission 22, p. 6.

79 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, p. 9.

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Firstly, industry ombudsman schemes are independent in the sense that the person appointed is not subject to the direction of industry. They are funded by industry, so therefore it provides, I think, a general incentive for industry to prevent complaints from occurring because they do not want to be subject to the costs of those complaints. We also think that industry ombudsman schemes tend to be more flexible. They can adapt their rules more easily without having to come back to the legislature every time and therefore respond to changes in the marketplace. Industry ombudsman schemes also have a role in systemic mispractice: where they identify one complaint that may have happened to many other people, they can take steps to ensure that redress is provided to all and can also provide that information to regulators who can then take enforcement action if they deem that is necessary.80

4.90 Mr Brody continued to outline the six key principles contained in the Australian Treasury's 'Benchmarks for Industry-based Customer Dispute Resolution' necessary for a successful industry ombudsman scheme:

The federal Treasury released, in 2015, principles for industry ombudsman schemes, and that means they are subject to six benchmarks. Independence is core amongst those, but they also include accessibility, to ensure that it costs nothing to take a complaint there; that they are proactive around more vulnerable members of the community; they include accountability, to ensure that they report back to the public on issues and complaints that they have seen; and they include effectiveness, to ensure that the scheme covers the field in terms of the complaints that are generally going to apply in that sector. And our view is that, in the main, those schemes have worked well. In fact, we would say that industry ombudsman schemes have probably been the single biggest step forward in consumer protection in Australia in the last 20 years.81

4.91 TAFE Directors considered that the ombudsman should play a consumer awareness role in addition to a complaints handling role:

It is important that the role of this officer [the VET Ombudsman] be more than managing complaints. Rather the role should provide consumer awareness of the decisions of regulators, including from non-referring States, and consumer protection which to date has required the intervention of Commonwealth, State and community based consumer protection bodies.82

4.92 ACPET welcomed the announcement of a VET student loans ombudsman, describing it as a positive development:

80 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, pp. 9-10.

81 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, p. 10; Consumer Action Law Centre, Submission 22, p. 6.

82 TAFE Directors, Submission 26, p. 6.

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We have long advocated for an independent umpire for the sector to give students a better avenue to have their complaints resolved. An ombudsman also offers the vast majority of providers the protection of knowing that those who do the wrong thing will be weeded out.83

4.93 The Academy of Interactive Entertainment was similarly supportive of the establishment of a VET ombudsman: 'One essential process is the appointment of a VET Ombudsman to protect and advocate for students who access these loans and the associated public awareness campaigns that are associated with this'.84

4.94 However, the Academy expressed concern about the time necessary to establish the office and the lack of detail currently available on its powers and responsibilities:

The amount of administrative work required to effectively establish this important office is simply not possible prior to 1 January 2017, and without this in place, the entire system should be delayed.

Additionally, there is no legislative detail on the exact responsibilities of, and relationship between, ASQA, the Secretary and the Ombudsman or where the additional resources to manage and monitor the introduction of a new system will come from.85

4.95 Dr Terri MacDonald, the NTEU's National Policy and Research Officer argued that the office should also be tasked with examining the higher education sector as well:

We are certainly supportive of an ombudsman… It is very important, though, that it has independence and that it has the ability to investigate not only VET but also higher education. That would make it quite big, so, of course, how you would manage that would have to be nutted out…86

4.96 Mr Brody concurred that the remit of the ombudsman include all VET-related complaints, not just those relating to the VET Student Loans scheme.87

Committee view

4.97 The committee strongly supports the establishment of a VET Ombudsman as an essential mechanism for the resolution of disputes in the VET sector.

4.98 The committee believes that the Government should be guided by the principles of ensuring that the Ombudsman is accessible to all VET students, and accountable through regular public reporting on the outcomes of complaints. The

83 Australian College for Private Education and Training, ' ACPET welcomes Ombudsman', Media release, 13 October 2016.

84 Academy of Interactive Entertainment, Submission 16, p. 4.

85 Academy of Interactive Entertainment, Submission 16, p. 4.

86 Dr Terri MacDonald, National Policy and Research Officer, National Tertiary Education Union, Committee Hansard, 25 October 2016, p. 42.

87 Mr Gerard Brody, Chief Executive Officer, Consumer Action Law Centre, Committee Hansard, 25 October 2016, pp. 12-13; Consumer Action Law Centre, Submission 22, p. 6.

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committee further believes that the Treasury's benchmarks should be used as a central tenet to establishing the Ombudsman's operations and functions.

4.99 Once established, the committee encourages the government and private providers to actively promote the Ombudsman to ensure that VET students are fully informed about their rights.

Recommendation 1

4.100 The committee recommends that the Government establish a VET Ombudsman and work with key stakeholders to ensure that the Ombudsman operates in a way that is fit for purpose.

Concluding committee view 4.101 It is widely agreed that the current VET FEE-HELP system has been exploited by a small number of unscrupulous providers and, as a consequence, a large number of students have been taken advantage of. In particular Indigenous Australians, older Australians and Australians with disability were signed up for significant loans for courses they did not need or could not complete.

4.102 These unfortunate actions from the minority have damaged the reputations of the many high quality VET providers that operate in Australia. These providers equip their students with the necessary skills and knowledge to make a positive contribution to the Australian economy.

4.103 It is critically important that this damage to the reputation of the VET sector be repaired to ensure the sector's integrity and longevity, and importantly, to provide a highly skilled and capable workforce to drive Australia's economic growth.

4.104 These bills represent a significant improvement. In order to affect this positive change as soon as possible, and to provide certainty for students and the VET sector, the committee recommends that the Senate pass the bills.

Recommendation 2

4.105 The committee recommends that the Minister for Education and Training incorporate the views outlined in this report and that the Senate pass the bills.

Senator Bridget McKenzie

Chair

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Australian Greens' Additional Comments

1.1 The years of exploitation within the VET sector are a textbook example of privatisation gone wrong. Public money should never have been given to for-profit providers and the Australian Greens will continue to support TAFEs across Australia.

1.2 The Australian Greens support reforming the Vocational Education and Training sector in light of systemic corruption and rorting within the industry. The Australian Greens make the following additional comments.

1.3 Students who were let down by the privatisation of the VET sector, and the resultant widespread rorting, should not be left financially worse off. Students who were enrolled into courses that were worthless, effectively did not exist or that they could never have been expected to complete should have their debts to the Commonwealth forgiven.

1.4 The Australian Greens are pleased to see that the committee report has come to support the establishment of an Ombudsman for the VET sector.

1.5 TAFEs are, and should always be, the backbone of the VET sector. Recognising that, and the important role that they will play in the wake of these reforms being made to the for-profit sector, TAFEs should be given greater flexibility to provide ongoing education to students whose courses are no longer available due to colleges closing and providers going out of business. A 12 month exemption from the VET Student Loans Eligible Course List and new fee caps would allow TAFEs to provide education to students who would otherwise be left in the lurch while supporting the transition to the new VET Student Loans scheme.

1.6 Arts courses, which produce graduates ready to work in Australia’s creative industries, should be supported into the future. The Australian Greens note with concern that very few creative and artistic courses are in the Minister’s draft VET Student Loans Eligible Course List. The Australian Greens ask that the list be amended, before the VET Student Loans Bill 2016 is enacted, to include more arts courses.

Recommendations

1.7 That the VET Student Loans Eligible Course List be amended, before the VET Student Loans Bill 2016 is enacted, to include a greater number of artistic and creative industry courses.

1.8 That TAFEs be exempted from the need to comply with the VET Student Loans Eligible Course List and fee limits for a period of 12 months.

1.9 That students who were enrolled into sham courses on false pretences have their debts forgiven by the Commonwealth.

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1.10 That public money be used to support public education and TAFEs and not for-profit providers and colleges.

Senator Sarah Hanson-Young

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Appendix 1

Submissions and additional information received by the committee

Submissions

Number Submitter

1 Australian Academy of Business

2 National Tertiary Education Union

3 Ms Mary Ancich

4 Canberra Academy of Dramatic Art

5 Dr Tony Keys

6 Australian Council of Trade Unions

7 Ella Bache College

8 Pastor Roma Hosking

9 Australian Catholic University

10 Harvest Bible College

11 Estrada College

12 Sydney Theatre School

13 Kairos Christian College

14 Australian Education Union

15 Sydney Film School

16 Academy of Interactive Entertainment

17 Arts Party

18 Churchill Education

19 Wesleyan Methodist Church of Australia

20 National Centre for Vocational Education Research

21 National Association for the Visual Arts

22 Consumer Action Law Centre

23 Australian Council for Private Education and Training

24 National Institute of Dramatic Art

25 Australian Chamber of Commerce and Industry

26 TAFE Directors Australia

27 Australian Careers Business College

28 Ausdance

29 Mater Education Limited

30 Ms Sharon Cho

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31 Swinburne University of Technology

32 Mr Mark Warburton

33 Queensland Government

34 Australian Institute of Family Counselling

35 Navitas

36 Innovative Research Universities

37 Restaurant and Catering Industry Association

38 Photography Studies College

39 Ms Louise Litchfield

40 Australian Major Performing Arts Group

41 Ms Jillian Pryor

42 Master Builders Australia

43 Australian Industry Group and the Business Council of Australia

44 William Angliss Institute

45 Arts Peak

46 Victorian TAFE Association

47 Hearing Care Industry Association

48 Harvest Education Technical College

49 Australian Academy of Beauty and Spa Therapy

50 Sage Institute of Education

51 Study Group

52 Karl Von Busse Institute of Design

53 Ms Christine Johnston

54 Revd Dr Andrew Cameron

Additional information

1 Additional information provided by the National Institute of Dramatic Art, 27 October 2016.

Answers to questions taken on notice

Public hearing Melbourne, 25 October 2016

1 Answers to questions taken on notice by the Australian Ballet School.

2 Answers to questions taken on notice by TAFE Directors Australia.

3 Answers to questions taken on notice by the Australian Council for Private Education and Training.

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4 Answers to questions taken on notice by the Australian Skills Quality Authority.

5 Answers to questions taken on notice by the Australian Competition and Consumer Commission.

6 Answers to questions taken on notice by the Department of Education and Training.

Tabled documents

Public hearing Melbourne, 25 October 2016

1 Document tabled by Consumer Action Law Centre.

2 Document tabled by TAFE Directors Australia.

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Appendix 2

Public hearings

Melbourne, Victoria, 25 October 2016

Committee Members in attendance: Senators McKenzie, Marshall, Hanson-Young.

Witnesses

The Australian Ballet School Mrs Sandra Ball, General Manager, The Australian Ballet School

National Institute of Dramatic Art Mr Mark Gaal, Director, National Institute of Dramatic Art

Consumer Action Law Centre Mr Gerard Brody, CEO, Consumer Action Law Centre Ms Denise Boyd, Director, Policy and Campaigns, Consumer Action Law Centre

TAFE Directors Australia Ms Mary Faraone, Chair, TAFE Directors Australia Mr Martin Riordan, CEO, Tafe Directors Australia

Australian Competition and Consumer Commission Mr Scott Gregson, Executive General Manager, Consumer Enforcement Division, Australian Competition and Consumer Commission

Australian Council of Private Education and Training Mr Mel Koumides, Chair, Australian Council of Private Education and Training Mr Rodney Camm, CEO, Australian Council of Private Education and Training

National Tertiary Education Union Ms Jeannie Rea, National President, National Tertiary Education Union Dr Terri MacDonald, National Policy and Research Officer, National Tertiary Education Union

Australian Chamber of Commerce and Industry Ms Jenny Lambert, Director, Employment Education and Training, Australian Chamber of Commerce and Industry

Australian Skills Quality Authority Mr Michael Lavarch, Commissioner, Risk, Intelligence and Regulatory Support,

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Australian Skills Quality Authority Mrs Elizabeth Stafford, General Manager, Regulatory Strategy Governance and Corporate, Australian Skills Quality Authority

Department of Education and Training Dr Subho Banerjee, Deputy Secretary, Department of Education and Training Dr James Hart, Group Manager, Skills Programs, Department of Education and Training Ms Maryann Quagliata, Branch Manager, Skills Programs, Department of Education and Training Mr David Pattie, Branch Manager, VET Quality and Regulation, Department of Education and Training Mrs Shelley Owen, Director, Department of Education and Training

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The Senate

Environment and Communications

Legislation Committee

Broadcasting Legislation Amendment (Media Reform) Bill 2016 [Provisions]

November 2016

131

© Commonwealth of Australia 2016

ISBN 978-1-76010-459-7

Committee contact details

PO Box 6100 Parliament House Canberra ACT 2600

Tel: 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet: www.aph.gov.au/senate_ec

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was printed by the Senate Printing Unit, Parliament House, Canberra

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Committee membership

Committee members

Senator David Bushby, Chair (from 12 September 2016) LP, Tasmania

Senator James Paterson, Chair (to 12 September 2016) LP, Victoria

Senator Larissa Waters, Deputy Chair AG, Queensland

Senator Anthony Chisholm ALP, Queensland

Senator Jonathon Duniam LP, Tasmania

Senator Jane Hume LP, Victoria

Senator Anne Urquhart ALP, Tasmania

Participating members for this inquiry

Senator Stirling Griff NXT, South Australia

Senator Bridget McKenzie NATS, Victoria

Committee secretariat

Ms Christine McDonald, Committee Secretary

Mr Colby Hannan, Principal Research Officer

Ms Fattimah Imtoual, Senior Research Officer

Ms Kirsty Cattanach, Research Officer

Ms Michelle Macarthur-King, Administrative Officer

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v

Table of contents

Committee membership ................................................................................... iii

Chapter 1: Introduction ..................................................................................... 1

Overview of the bill ................................................................................................ 1

Inquiry conducted during the 44th Parliament ....................................................... 1

Conduct of this inquiry ........................................................................................... 2

Scope and structure of this report ........................................................................... 2

Background information on media ownership and control regulation ................... 3

Chapter 2: Key issues ......................................................................................... 7

Developments in the media sector and calls for reform of the ownership and control framework .................................................................................................. 7

Schedules 1 and 2: Proposed repeal of two media ownership and control rules .......................................................................................................... 12

Schedule 3: Local programming requirements .................................................... 21

Committee view .................................................................................................... 25

Labor Senators' Dissenting Report ................................................................. 27

Australian Greens' Dissenting Report ............................................................ 43

Appendix : Submissions and additional information received by the committee ........................................................................................................... 45

Appendix 2: Public hearing .............................................................................. 47

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Chapter 1

Introduction

1.1 On 1 September 2016, the government introduced the Broadcasting Legislation Amendment (Media Reform) Bill 2016 in the House of Representatives. Later that day, the Senate referred the provisions of the bill to the Environment and Communications Legislation Committee (the committee) for inquiry and report by 7 November 2016.1

Overview of the bill

1.2 The changes proposed by the bill are contained in three schedules:

• Schedules 1 and 2 would repeal two media ownership and control rules: the '75 per cent audience reach rule' and the '2 out of 3 rule cross-media control rule'.

• Schedule 3 would amend and introduce additional local programming

obligations for regional commercial television broadcasting licensees. Additional local programming requirements would apply if, as a result of a change in control, licences become part of a group of commercial television licences whose combined licence area populations exceed 75 per cent of the Australian population. These proposed changes are intended to address concerns that any television sector consolidation made possible by the proposed changes in schedules 1 and 2 could lead to reductions in local programming.2

Inquiry conducted during the 44th Parliament

1.3 This inquiry follows an inquiry into an earlier version of the bill conducted during the previous parliament. The earlier version of the bill was introduced in the House of Representatives in March 2016. The provisions of that bill were examined by the Senate Environment and Communications Legislation Committee appointed in the previous parliament. That committee received 21 submissions and conducted two public hearings.3

1 Journals of the Senate, 1 September 2016, pp. 92-94.

2 The Hon Paul Fletcher MP (Minister representing the Minister for Communications and the Arts), House of Representatives Hansard, 1 September 2016, p. 259.

3 Witnesses at the hearings included major metropolitan television broadcasters, regional television broadcasters, News Corp Australia, Fairfax, ASTRA/Foxtel, the Media Entertainment and Arts Alliance (MEAA), the NSW Farmers' Association, relevant academics and other interested stakeholders, and the following government agencies: the Department of Communications and the Arts, the Australian Competition and Consumer Commission (ACCC) and the Australian Communications and Media Authority (ACMA).

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1.4 After considering this evidence, on 5 May 2016 that committee presented a report recommending:

• that the government consider amending the 'trigger event' provision in schedule 3 to bill so that the additional local programming obligations proposed by the bill would be triggered in a situation where a regional broadcaster came to be in a position to control a metropolitan broadcaster (the bill only covered situations where a metropolitan broadcaster came to be in a position to control a regional broadcaster); and

• after due consideration of the above recommendation, that the bill be passed. 4

1.5 The government accepted the first recommendation of the 5 May 2016 report; accordingly, the bill introduced on 1 September 2016 differs from the earlier version of the bill to ensure that that the additional local programming obligations would be triggered if a regional broadcaster came to be in a position to control a metropolitan broadcaster. A minor drafting style change in clause 1 has also been made. The bill is otherwise identical to the bill that was examined by the committee appointed in the previous parliament.

Conduct of this inquiry

1.6 The committee agreed to refer to the evidence received during the previous inquiry. In addition, the committee wrote to individuals and organisations involved in the previous inquiry inviting them to provide updated information. The committee

received 12 submissions. These submissions are listed in Appendix 1 and are available from the committee's website: www.aph.gov.au/senate_ec.

1.7 The committee also conducted a public hearing in Sydney on 24 October 2016. A list of the witnesses who gave evidence at that hearing is at Appendix 2.

1.8 The committee thanks all of the individuals and organisations that contributed to the inquiry.

Scope and structure of this report

1.9 As the bill before the committee is largely unchanged compared to the earlier version, it is unnecessary to repeat much of the background information and analysis contained in the May 2016 report. This report will draw on the previous report, at times verbatim, to provide a brief overview of the bill and to highlight the principal issues. The report uses additional evidence received during this inquiry that provides further insight into the arguments made regarding the bill, however, readers interested in a more detailed overview of the proposed measures in the bill and the issues that the bill is intended to address should refer to the May 2016 report.

4 Senate Environment and Communications Legislation Committee, Broadcasting Legislation Amendment (Media Reform Bill) 2016 [Provisions], May 2016, pp. 37, 40.

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1.10 This report comprises two chapters:

• The remainder of Chapter 1 provides an overview of the legislative

framework governing media control and ownership in Australia.

• Chapter 2 examines the proposed measures contained in the bill in detail.

The evidence received by the committee on developments in the media sector that led to the introduction of the bill is discussed first, followed by evidence received regarding the specific measures and the overall approach taken to reform. The committee's findings are set out at the end of that chapter.

Note on references

1.11 The report cites submissions received during the inquiry conducted by the committee appointed in the 44th Parliament and submissions received by the committee during this inquiry. Submissions to both inquiries are assigned a number from 1 onwards based on the order of publication. To distinguish between the two sets of submissions, the text '(previous inquiry)' is added to submissions cited from the inquiry conducted into the earlier version of the bill.

1.12 Similarly, the report refers to the hearing conducted during this inquiry (on 24 October 2016) and the hearings conducted by the predecessor committee (on 31 March 2016 and 29 April 2016). References to the committee Hansard transcript for the 24 October 2016 public hearing are to the proof transcript. Page numbers may vary between proof and official Hansard transcripts.

Background information on media ownership and control regulation

1.13 The Broadcasting Services Act 1992 (BSA) includes five rules that limit the 'control'5 of commercial broadcasting services (television and radio) and newspapers associated with the licence areas. The bill would repeal the following two rules:

• The '75 per cent audience reach' rule (applies to television)—this rule provides that a person, either in their own right or as a director of one or more companies, must not be in a position to exercise control of commercial television broadcasting licences whose total licence area population exceeds 75 per cent of the Australian population. The rule was first introduced as a 60 per cent reach rule in 1987, and was increased to the 75 per cent threshold in 1993.

5 The regulation impact statement published in the replacement Explanatory Memorandum (EM) explains that the framework is based 'on the concept of "control", not ownership per se'. If 'a person has company interests exceeding 15 per cent, they are regarded as being in a position to exercise control of the company. However, holding company interests is not the only way to be in a position to exercise control'. Another example of control is the ability 'to control the selection or provision of a significant proportion of the licensee's programming'. For further examples, see EM, p. 6.

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The latest figures for combined audiences are as follows: Seven (74.51 per cent), Nine (73.96 per cent) and Ten (67.31 per cent). For regional networks, which are generally affiliated with a metropolitan counterpart, the audience figures in 2014 were as follows: Prime (24.33 per cent), WIN Network (25.15 per cent) and Southern Cross (34.11 per cent).6

Organic population growth does not result in the threshold of 75 per cent of the Australian population being contravened.7 However, the current audience reach of the metropolitan networks and the application of the 75 per cent audience reach rule means that 'no metropolitan network can take over a regional network (acquiring all licences) without divesting one or more commercial television licences'.8

• The '2 out of 3' cross-media control rule (television, radio and newspapers)— this rule provides that mergers cannot involve more than two of three regulated media platforms (commercial television, commercial radio and associated newspapers9) in any commercial radio licence area. The 2 out of 3 rule was introduced in 2006.

1.14 The other three rules (which would remain if the bill is enacted) are:

• The '5/4' rule (applies to television, radio and newspapers)—this rule, which is

also known as the 'minimum voices rule', is a requirement that at least five independent media operations or media groups must be present in the mainland state capital cities and at least four must be present in regional commercial radio licence areas.

• The 'one-to-a-market' rule (television)—a person, either in their own right or

as a director of one or more companies, must not be able to exercise control of more than one commercial television broadcasting licence in a licence area.

6 ACMA, 'Statutory control rules', www.acma.gov.au/Industry/Broadcast/Media-ownership-and-control/Ownership-and-control-rules/statutory-control-rules-media-ownership-control-acma (accessed 7 October 2016); Department of Communications, 'Media control and ownership', Policy background paper, No. 3, June 2014, www.acma.gov.au/Industry/Broadcast/Media-ownership-and-control/Ownership-and-control-rules/statutory-control-rules-media-ownership-control-acma (accessed 21 March 2016), p. 19.

7 See Broadcasting Services Act 1992, s. 52.

8 Department of Communications, 'Media control and ownership', p. 19. See also EM, p. 1.

9 Under the BSA framework, a newspaper is associated with: • a television broadcasting licence if 'more than 50 per cent of its circulation is within the relevant licence area'; and • a commercial radio licence if 'more than 50 per cent of its circulation is within the relevant

licence area and the newspaper circulation covers at least two per cent of the licence area's population'. National newspapers, such as The Australian and The Australian Financial Review, are not included in the definition of associated newspapers. Dr Simon Pelling, First Assistant Secretary, Content Division, Department of Communications and the Arts, Committee Hansard, 24 October 2016, p. 43.

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• The 'two-to-a-market' rule (radio)—a person, either in their own right or as a

director of one or more companies, must not be able to exercise control of more than two commercial radio broadcasting licences in the same licence area.10

Application of the general competition law

1.15 In addition to the BSA regime, mergers and acquisitions in the media sector are subject to the general prohibition of anti-competitive acquisitions outlined in the Competition and Consumer Act 2010 (CCA). Section 50 of the CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in any market. The Australian Competition and Consumer Commission (ACCC) administers the CCA.

1.16 Should the bill be passed, the ACCC's chairman, Mr Rod Sims, advised that 'diversity of content available would probably be an even more important consideration' for the ACCC when it reviews an acquisition in the media sector.11 Since this evidence was given, the ACCC released a draft version of updated Media merger guidelines for public consultation. The draft update, which was released on 26 August 2016, responds to changes in the delivery and consumption of media since the 2006 guidelines and the changes to the BSA proposed by the bill. The guidelines outline how the ACCC will consider particular issues arising in media merger assessments.12

Foreign acquisitions

1.17 The Foreign Acquisitions and Takeovers Act 1975 provides a regime for ensuring that foreign investment proposals are not contrary to Australia's national interest. The Act enables the Treasurer to prohibit or impose conditions on foreign investment proposals. In addition, as the media sector is considered to be a 'sensitive sector' under the Australian Government's Foreign Investment Policy, 'all foreign investment in local media over 5 per cent must be notified to and approved by the Treasurer, who may grant approvals subject to the parties meeting certain conditions'.13

10 EM, pp. 6-7.

11 Mr Rod Sims, Chairman, ACCC, Committee Hansard, 31 March 2016, p. 50.

12 See ACCC, Draft media merger guidelines, August 2016, https://consultation.accc.gov.au/ mergers-and-adjudication/draft-media-merger-guidelines/supporting_documents/Draft Media Mergers Guidelines.pdf (accessed 15 September 2016), p. 12.

13 Department of Communications, 'Media control and ownership', p. 11.

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Chapter 2

Key issues

2.1 This chapter examines the proposed amendments continued in the bill in detail. It utilises the evidence presented during the inquiry into the earlier version of the bill and introduces the new evidence taken during this inquiry. Readers interested in further detail about the arguments for and against the bill should also refer to the May 2016 report of the committee appointed in the previous parliament.

2.2 The arguments presented in support of the proposed measures stem from technological changes and related developments in the media sector. The first section of this chapter examines these developments. The sections that follow examine the evidence received by the committee about the provisions of the bill and the approach taken to reform. The final section of the chapter contains the committee's findings.

Developments in the media sector and calls for reform of the ownership and control framework

2.3 This section provides context for the bill by discussing some of the developments in Australia's media sector that have led stakeholders and observers to challenge elements of the media ownership and control framework. It repeats the analysis presented in the May 2016 report in part and outlines new evidence taken during this inquiry where relevant.

2.4 The rationale for the bill is expressed in the replacement explanatory memorandum (EM). According to the EM, the 75 per cent rule 'does little to support media diversity as regional viewers essentially receive the same commercial television programming as metropolitan viewers, due to affiliation or content supply agreements'. In relation to the proposed abolition of the 2 out of 3 cross-media control rule, the EM notes that, as the rule focuses on traditional media platforms, it 'does not take into consideration the changed media landscape, where consumers access news content from alternative sources, such as online'.1

2.5 The technological change that has altered how media content can be consumed is evidenced by the growing popularity of online content. Online video-on-demand services provided by international and domestic businesses distribute products throughout Australia without being subject to the ownership and control regulation rules in the Broadcasting Services Act 1992 (BSA). For example, the 75 per cent audience reach rule prevents metropolitan television networks from broadcasting directly to 25 per cent of the population, however, this does not apply to online content. Southern Cross Austereo noted that all three metropolitan television networks stream television programming 'with no regard for the exclusive broadcast licence

1 Replacement Explanatory Memorandum (EM), pp. 1-2.

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areas and regardless of any cannibalisation this may cause to viewing or revenue in regional licence areas'.2

2.6 The arrival of Netflix crystallised the growing realisation that the existing media regulatory framework does not account for the internet. Emeritus Professor Graeme Turner observed that Netflix's arrival represented the first time 'a major media intervention in Australia [occurred] that has not gone through a series of important regulatory gates'.3

2.7 In addition to online entertainment, the widespread popularity of online news services is another key development. Australian newspaper businesses, and other traditional Australian media companies, operate websites used by many Australians to access news. However, international businesses also provide online news services, with recent entrants in the Australian market including local editions of the Daily Mail, The Guardian, Huffington Post and BuzzFeed. Online newspapers are not covered by the BSA ownership and control framework.

2.8 It is evident that the rise of online services has had a significant effect on Australia's media sector. In particular, it was highlighted how the increase in online advertising services is affecting the advertising revenue on which media companies traditionally relied. Mr Greg Hywood, Chief Executive Officer, Fairfax Media, stated:

The traditional media companies, including publications like us, originally had two main sources of revenue. One was classified advertising and one was display advertising. As we know, over-the-top players have come into the market—such as REA, SEEK and Carsales—and taken that classified component which, for Fairfax, was probably 60 per cent to 70 per cent of our revenue. About another 25 per cent to 30 per cent was display advertising. Most that is now going to Google and Facebook.4

2.9 Mr Hywood added that although the 'overall marketing spend in Australia is increasing', this increase does not outweigh the falling market share of advertising that traditional media companies are experiencing. The consequence of this for Fairfax is that:

…we are attempting to invest in Australian media and we are attempting to provide jobs for journalists, which provides the transparency that is so valuable to this community, on a smaller and smaller amount of money.5

2 Southern Cross Austereo, Submission 4, p. 4.

3 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 32.

4 Mr Hywood informed the committee that US research shows 'that 85 per cent of new display advertising coming in to the US market is now going to Google and Facebook. Mr Greg Hywood, Chief Executive Officer, Fairfax Media, Committee Hansard, 24 October 2016, p. 12.

5 Mr Greg Hywood, Fairfax Media, Committee Hansard, 24 October 2016, p. 12.

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2.10 It was argued that although online media services provide useful products for consumers, they are not an adequate substitute for a strong, domestic media sector. Mr Ian Audsley, Chief Executive Officer, Prime Media Group, explained:

The issue at stake here is the future viability of local regional content on free-to-air television and the sustainability of independent regional free-to-air television. Regardless of the increasing availability of content accessed via the internet, regional Australians continue to rely heavily on free-to-air television for information and entertainment. It is fabulous that we can choose to see House of Cards on Netflix, if we are happy to pay the subscription fee and the download costs, but it is not telling an Australian story. And The Guardian, Crikey and SMH.com.au may keep me up to date with what is happening in Sydney and the world, but it will not tell the residents of Launceston, Mackay or Ballarat anything about what is happening in their own home town.6

2.11 If the proposed changes are enacted, consolidation within the commercial television sector would be possible, subject to the Competition and Consumer Act 2010 and other relevant laws. The EM notes that this would allow 'greater scale in operations, thus allowing commercial broadcasters to compete in an environment where audiences can readily access premium content online'.7 Mr Audsley argued that 'without some form of consolidation you are going to see less and less local information and less and less diversity in the voice from regional Australia'. This is because the current economic circumstances regional media companies face will mean that, over time, their finances will not allow continued investment in local content.8

2.12 The Australian Competition and Consumer Commission (ACCC) has also observed that the 75 per cent audience reach rule and the 2 out of 3 rule appear to be outdated as a result of technological change. As the May 2016 report on the earlier version of the bill discussed, the ACCC's views on this were informed by the review it completed in 2015 of a transaction involving the Ten Network and Foxtel.9 The ACCC's chairman, Mr Rod Sims, noted that streaming activities by the free-to-air (FTA) networks made it difficult for their activities to be contained by the 75 per cent reach rule. Mr Sims also noted that 'had there not been a 75 per cent reach rule, it is

6 Mr Ian Audsley, Chief Executive Officer, Prime Media Group, Committee Hansard, 24 October 2016, p. 35.

7 EM, p. 1.

8 Mr Ian Audsley, Prime Media Group, Committee Hansard, 24 October 2016, p. 39.

9 Foxtel proposed to acquire up to 15 per cent of Ten while Ten proposed to acquire a 24.9 per cent stake in the Multi Channel Network (a supplier of advertising opportunities on subscription television channels). Ten also had an option to acquire 10 per cent of Presto TV, a joint venture between Foxtel and Seven West Media. Australian Competition and Consumer Commission (ACCC), 'Mergers register', http://registers.accc.gov.au/content/index.phtml/ itemId/750991 (accessed 21 March 2016).

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possible that other buyers could have met a more competitive outcome than the one we ended up with'.10

2.13 Notwithstanding the evidence regarding the financial challenges some media companies are facing and the view that certain aspects of the media ownership framework are obsolete due to technological change, the continued influence of Australia's traditional media companies is evident. Mr Tim Worner, Chief Executive Officer, Seven West Media, noted that '[o]ver 70 per cent of Australians exclusively rely on free-to-air television for their news, their sport and their entertainment content'.11 Professor Michael Fraser, former director of the now-closed Communications Law Centre, University of Technology Sydney (UTS), cited this figure when he stated that the 'influence of the mainstream media should not be underestimated'. He added:

While it is the case that many people, especially younger people, now obtain their content—including news and current affairs—online, much of that is parasitic on the mainstream media and is recycling content which others have invested in the production and distribution of.12

2.14 Professor Fraser added that although there are online sources, 'we are still in this transitional phase where people rely on the mainstream media'.13 Similarly, Professor Rodney Tiffen made the following observation:

Technological enthusiasts and others will talk about what is likely to be in two decades time and then assume that that is what is now and there is no transition period needed. For the next decade free-to-air TV will continue to be the main way that people get their news and most of their entertainment. Also even things that seem to be from elsewhere, like the internet…are often dominated by the existing mainstream media.14

2.15 Although there is an expectation that the availability and popularity of online content will continue to grow, Professor Fraser argued that 'we will still need to ensure that there are mainstream providers of news and information which are regulated, so that the public has confidence in the professionalism and journalistic standards of fairness and accuracy in mainstream media'. To illustrate his point, Professor Fraser commented:

If you go online to any site, you do not know whether it is a dissident in Beirut or somebody in Glasgow pretending to be a dissident in Beirut—you take your chances. But we need to have confidence in a regulated mainstream. That is why I connect these two issues intimately.

10 Mr Rod Sims, Chairman, ACCC, Committee Hansard, 31 March 2016, p. 43.

11 Mr Tim Worner, Chief Executive Officer, Seven West Media, Committee Hansard, 24 October 2016, p. 2.

12 Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 7.

13 Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 9.

14 Professor Rodney Tiffen, Committee Hansard, 24 October 2016, p. 17.

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The question of diversity of sources must be linked with the standards that apply to the professional level of their production—especially fairness and accuracy.15

2.16 Emeritus Professor Graeme Turner also emphasised that online news platforms differ from the news reported by traditional media organisations. He provided the following comments on a key difference between the two services:

In accord with its fundamental role in the democratic state, broadcast journalism provides news and information to the whole of the nation and aims to do so via reasonably inclusive representation of the range of opinion within the community. The typical news blog, though, has a very different social and political function. These are smaller, more targeted sites and they speak to a niche market, to a network of users rather than to a broad public, so they are under no obligation to be fair or inclusive in their perspectives, to acknowledge in what they say the existence of a variety of points of view or to maintain the rigorous commitment to accuracy and integrity required of the broadcast media. And so, while in aggregate it might seem as though we have a much more expansive and diverse media sphere now, it is not in the aggregate that they are consumed; rather, consumers access a very small selection of these media outlets where what they receive can actually be the opposite of diversity.16

2.17 Professor Tiffen warned against abolishing regulation based solely on arguments that technological change has made regulation unnecessary. Professor Tiffen stated:

It seems to me that there is a sort of intellectual nihilism that says, 'Given the scale of changes, no government can hope to regulate properly.' I note that the first time I heard this argument was by representatives of News Corp, as it then was, in the early 1990s who said, 'Now that we have got satellite, all national regulation is passe.' So they are a bit of a broken record on this. With every technological change they say that regulation is no longer pertinent.17

2.18 Finally, Emeritus Professor Turner argued that the fundamental premise of broadcasting regulation has not changed, despite the technological and market developments that have occurred. He stated:

Since the airwaves are a limited public resource, those exclusive few who have been licensed to use them as commercial enterprises have public as well as commercial obligations. The regulatory regime is there to balance the interests of the public against the commercial interests of the industry.18

15 Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 9.

16 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 29.

17 Professor Rodney Tiffen, Committee Hansard, 24 October 2016, p. 17.

18 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 28.

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Schedules 1 and 2: Proposed repeal of two media ownership and control rules

2.19 The above section presented the rationale given by the government for repealing the 75 per cent audience reach rule and the 2 out of 3 cross-media control rule, as well as the evidence received by the committee about developments in the media sector that have implications for the effectiveness and relevance of these rules. The following paragraphs discuss the evidence received about the two specific rules and the overall approach taken by the government to reform.

75 per cent audience reach rule

2.20 The issues presented by the application of the 75 per cent audience reach rule were clearly articulated by the regional broadcasters. Mr Ian Audsley of the Prime Media Group explained that, through the affiliation model, Prime Media, Southern Cross Austereo and the WIN Network broadcast the three major metropolitan networks into regional Australia. Although local news is produced, overall '[n]o more than three per cent of the content is local'. Mr Audsley concluded:

So the same voices that are running the media in Melbourne, Sydney, Brisbane, Adelaide and Perth are the same voices that you hear out in regional Australia.19

2.21 In addition, it is not possible for the regional networks to acquire popular content for themselves. Mr Grant Blackley, Chief Executive Officer, Southern Cross Austereo, explained that 'no local nor US entity of scale and note would sell a regional-only window'. Accordingly, Australian-wide rights are purchased by Seven, Nine or Ten.20

2.22 This commercial reality and the terms of the affiliation arrangements restrict how regional broadcasters can broadcast the content acquired from the metropolitan networks. Mr Audsley explained:

Under the affiliation model, we purchased, for a substantial amount of money, the right and the ability to broadcast their programs and sell advertising in the breaks. We cannot seek out the additional revenue streams that they are able to exploit, we cannot stream the content to our regional audiences, we cannot provide a catch-up TV service, we cannot do deals with Facebook and Twitter, we cannot sell programs or the format rights to those program to other markets and we cannot do deals for product placement in programs to generate additional revenue for our businesses. All of these things are the domain of the networks.21

19 Mr Ian Audsley, Prime Media Group, Committee Hansard, 24 October 2016, p. 39.

20 Mr Grant Blackley, Chief Executive Officer, Southern Cross Austereo, Committee Hansard, 24 October 2016, p. 36.

21 Mr Ian Audsley, Prime Media Group, Committee Hansard, 24 October 2016, p. 35.

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2.23 Mr Audsley concluded that the regulatory framework for FTA television 'was put in place before paid TV came to Australia and before the internet existed…[and] is self-evidently well past its use-by date'.22

2.24 Professor Tiffen stated that the 75 per cent reach rule 'is not just outdated; it never made sense'. He explained:

The logic of TV programming, in all its fundamentals, has always been about national networking. Preserving 25 per cent for others to own did nothing for media diversity and little for localism, so I would think that it is well and truly time for that provision to be knocked back or dispensed with.23

2 out of 3 cross-media control rule

2.25 The WIN Network argued that the 2 out of 3 cross-media control rule 'is as outdated as the 75 per cent audience reach rule'. Although the aim of the 2 out of 3 rule is to protect diversity of voice, WIN claimed that in effect 'all it is doing is constraining the three traditional mediums of TV, radio and press'.24

2.26 Ms Annabelle Herd from Ten Network Holdings argued that because the rule is 'so technologically obsolete' in that it focuses on three traditional platforms, if the rule remains in place 'inevitably people are just going to get around it'. Ms Herd observed that if the weekly newspapers stop printing physical copies of their newspapers and moved their publications entirely online, they would no longer be subject to the rule.25

2.27 Mr Greg Hywood, Chief Executive Officer, Fairfax Media, commented that, since the previous inquiry, the 'pervasive and increasing influence of the giant global search engines and social media platforms on the Australian media industry' has been an issue receiving increasing attention. Mr Hywood stated:

From Fairfax Media's point of view, the extent to which these organisations, based offshore, are diverting advertising revenue away from and undermining Australian media companies that invest in local content and journalists and which pay taxes is one of the prime justifications for abolishing the current two-out-of-three restriction. This artificial and outdated restriction is a disincentive to investment in the Australian media and a severe brake on our ability to compete against global competition.26

22 Mr Ian Audsley, Prime Media Group, Committee Hansard, 24 October 2016, p. 35.

23 Professor Rodney Tiffen, Committee Hansard, 24 October 2016, p. 17.

24 WIN Network, Submission 10 (previous inquiry), p. 6.

25 Ms Annabelle Herd, Director, Corporate and Regulatory Affairs, Ten Network Holdings, Committee Hansard, 29 April 2016, p. 23.

26 Mr Greg Hywood, Fairfax Media, Committee Hansard, 24 October 2016, p. 12.

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2.28 According to Mr Hywood, removal of the 2 out of 3 rule would be beneficial as, in the face of declining revenues and the implications of this for supporting journalism and local content, companies could consider restructuring to achieve a better financial result. He explained:

…if you are restricted at amortising your content to just a small range of available platforms, it restricts your ability to monetise that content effectively or to its maximum. So what we are asking for is the optionality. That does not mean, necessarily, that free to air and Fairfax get together, but it does provide us that option if that improves the economics of our business. We are really just asking to be able to make that choice, if it is economically viable and to the advantage of our businesses, so that we can invest in journalism.27

2.29 When questioned whether the abolition of the 2 out of 3 rule could potentially lead to a loss of media diversity, Mr Hywood commented:

That horse bolted years ago. I mean there is not anybody that has access to the internet that cannot access instantaneously a range of diverse opinions. I do not just mean social media which have not been filtered. I mean that, if you want to get a perspective on an economic development, you can go to a range of offshore publications of the highest quality to get those perspectives. Everybody does that in terms of their modern media mix, and that is to be encouraged. No-one is saying that that should change whatsoever. We are not asking for protection at all. We are just asking for some liberation.28

2.30 During the inquiry conducted in the previous parliament, Dr Derek Wilding, who works on media and communications industry issues at UTS, argued that regulation of the media sector should be designed 'to not address "diversity" per se, but the things diversity seeks to protect'. According to Dr Wilding, this includes 'accuracy, fairness and privacy, as well as localism—while helping to shore up Australian newsgathering'.29 Dr Wilding stated that he believes the current media landscape 'is worth supporting' with respect to news and analysis. He concluded:

I am in favour of repealing the two-out-of-three rule if it helps support the transition of print media companies into converged news gathering organisations in a landscape where we have at least three strong local commercial players.30

27 Mr Greg Hywood, Fairfax Media, Committee Hansard, 24 October 2016, p. 12.

28 Mr Greg Hywood, Fairfax Media, Committee Hansard, 24 October 2016, p. 13.

29 Dr Derek Wilding, Submission 17, p. 12.

30 Dr Derek Wilding, Committee Hansard, 31 March 2016, p. 8.

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2.31 Professor Tiffin supported the abolition of the 2 out of 3 rule 'as long as the four/five rule remains in metropolitan areas'.31 Professor Tiffin observed that 'in some very small areas, three different media may not be viable, especially with the collapse of regional daily newspapers'. Overall, he is of the view that the abolition of the rule 'will have a negative effect on media concentration, but it is a very negligible media effect'.32 Professor Tiffen added:

It is likely that, as local newspapers in particular decline, the two-out-of-three rule is going to become hard to work. I think media diversity is terribly important. If anything, this will go against media diversity, but only in a very minor way.33

2.32 Some stakeholders, however, expressed stronger reservations about the proposed abolition of the 2 out of 3 rule. Emeritus Professor Graeme Turner argued that the rule 'remains a rational and justifiable means of limiting concentration and protecting diversity notwithstanding the media's technological convergence'. He added:

I think it is marginally pro-competition and I am not convinced that the structures it addresses—that is, the existing corporate structures—are necessarily impacted by the digital revolution. If one applies the public interest test, I think there is an argument that the existing industrial configurations are preferable to the likely outcomes of the abolition of the rule in terms of both the maintenance of diversity and limiting media concentration.34

2.33 Professor Turner added:

The arguments made in support of the bill are largely directed towards removing from broadcasters restrictions that other media provers do not have to observe. I understand and accept that argument, but I think it is also true that broadcasters have a different role in relation to the state than most of their competitors. Not everybody gets to operate a television licence, and that opportunity involves a more onerous set of obligations because of the national importance of the service being provided and the fact that each licensee enjoys protection from the full force of free market competition. So it is vital that regulation establishes a viable operating environment for these businesses, but regulation should also ensure that the interests of the public are not sacrificed.35

31 Emeritus Professor Rodney Tiffen, Submission 10, pp. 1, 7.

32 Professor Rodney Tiffen, Committee Hansard, 24 October 2016, p. 17.

33 Professor Rodney Tiffen, Committee Hansard, 24 October 2016, p. 19.

34 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 29.

35 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 29.

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2.34 Professor Turner concluded that, with respect to diversity and concentration, he is of the view that 'the industrial configurations that we have now' are preferable to the structure that could result following acquisitions enabled by the bill. He added:

The result of those acquisitions would be to concentrate media power more than it is at present. I am trying to be fairly objective about it by saying that I can see the argument for it and I understand why that would be argued for, but, on balance, my view is that the public interest test would say, 'Probably not. It probably isn't advisable at this point to do that.'36

Implementation of reform

2.35 As noted above, the idea of abolishing the 75 per cent reach rule largely received unqualified support. The proposed abolition of the 2 out of 3 rule received some strong support, but also mixed feedback from other observers. Where stakeholders differed in their views significantly, however, is with respect to the overall approach that should be taken to reform.

Stakeholders that strongly support the changes and their timely implementation

2.36 The regional television broadcasters (Prime Media Group, Southern Cross Austereo and the WIN Network), Fairfax and Ten Network Holdings strongly support repealing the two control and ownership rules. For example, Mr Ian Audsley, the Chief Executive Officer of the Prime Media Group, told the committee that these three networks are 'in unanimous agreement that the existing media ownership laws are outdated and act as a brake on regional media being able to organise itself in an economically efficient manner'.37 Mr Audsley described the bill as being 'a very positive first step in media reform, which is needed in a rapidly-changing media environment'.38

2.37 Ten Network Holdings argued that ultimately all five media ownership and control rules should be repealed, with mergers and acquisitions in the sector subject to competition law requirements only.39 Nevertheless, Ten supports proceeding with the bill in its current form—Mr Paul Anderson, Chief Executive Officer, Ten Network Holdings, explained:

…there is a risk that, if these bills do not go through, then nothing happens. As we said before, this is incremental reform, so we think it is a good thing, but we also support further holistic reform, if that is the right word.40

36 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 31.

37 Mr Ian Audsley, Prime Media Group, Committee Hansard, 31 March 2016, p. 33.

38 Mr Ian Audsley, Prime Media Group, Committee Hansard, 24 October 2016, p. 36.

39 Ten Network Holdings, Submission 15 (previous inquiry), p. 3.

40 Mr Paul Anderson, Chief Executive Officer, Ten Network Holdings, Committee Hansard, 24 October 2016, p. 26.

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2.38 Prime Media Group, Southern Cross Austereo, the WIN Network, Ten Network and Fairfax argued that the repeal of the 2 out of 3 rule should occur at the same time as the repeal of the 75 per cent reach rule. Accordingly, those stakeholders argued against the possibility of splitting the bill to pursue the repeal of the less controversial 75 per cent reach rule and delaying or not proceeding with the repeal of the 2 out of 3 rule. Ms Annabelle Herd from Ten Network Holdings stated:

The point about not splitting these two issues is: why would you split them? I certainly have not heard an argument from anybody about what the two-out-of-three rule is actually doing right now to protect diversity. It applies to some printed newspapers, it applies to television channels that broadcast over terrestrial spectrum and to radio stations that broadcast over terrestrial spectrum. How is that protecting diversity when most of the media industry is now cross-platform and is comprised of different channels to market that go well beyond the ones I mentioned in the BSA? Where is the argument in favour of keeping two out of three?41

2.39 Similarly, Mr Anderson stated:

In this environment with its wealth of evidence of the growing force of the foreign big-ticket players, it is blindingly obvious that these pre-internet era laws are now achieving the opposite of what they were intended to do. They are now working against a strong, viable and diverse media sector, and they must go. We do not support splitting the bill so only the reach [rule] will pass. Splitting the bill and allowing some media companies to benefit from regulatory reform while leaving others constrained will potentially leave those still regulated worse off than under the status quo.42

Other views on the changes and the approach taken to reform

2.40 News Corp Australia expressed support for the bill being passed without amendment, although it noted its preference for reform that is more comprehensive.43

2.41 Seven West Media expressed concerns that, although the reforms contained in the bill have merit, enacting them now may reduce the likelihood that other reforms will be pursued in the near future. Seven West also argued that the legislation effectively would allow one transaction to occur as other rules, such as the 5/4 rule, would remain. Its submission to the previous inquiry stated:

Removing the 2 out of 3 rule with no corresponding consideration of the minimum voices impacts in effect allows for only one major national deal to occur. Once the number of voices in Adelaide reaches the permitted minimum of 5, there are no further deals of this scale permitted.44

41 Ms Annabelle Herd, Director of Corporate and Regulatory Affairs, Ten Network Holdings, Committee Hansard, 24 October 2016, p. 26.

42 Mr Paul Anderson, Ten Network Holdings, Committee Hansard, 24 October 2016, p. 23.

43 News Corp Australia, Submission 6 (previous inquiry), p. 1.

44 Seven West Media, Submission 14 (previous inquiry), p. 10.

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2.42 Mr Worner, Chief Executive Officer, Seven West Media, stated that:

…holistic reform is what is required to help our industry compete with global competitors, who are simply not playing on the same playing field that we are. They are playing with a different set of rules. This bill on its own does not address that. It may be of use to one or two players for one or two deals, but it does not do anything for our entire industry.45

2.43 He added:

…if we are going to make changes, they should assist the entire industry, not one or two players. We have a situation here where an entire industry is in peril. If we want a situation where Australia basically becomes an outer suburb of Los Angeles, that is what we are heading towards. Whenever we get the chance to shine a light on the inequality of what is occurring, we have a responsibility to do that—and that is what we are doing.46

2.44 ASTRA (the subscription television industry association) advised that it is 'not opposed in principle to the reforms contained in the bill', but noted that the subscription television industry faces similar pressures to those faced by the companies directly affected by the bill. The anti-siphoning list was identified by ASTRA and Foxtel as requiring reform, although commercial television broadcasters opposed this.

2.45 During the inquiry conducted in the previous parliament, Nine Entertainment Co, Prime Media Group, Seven West Media and Ten Network Holdings called for the removal of television licence fees.47 In particular, it was noted that the fee of 4.5 per cent of gross revenue is 'by far highest free-to-air television licence fee in the world'.48

2.46 Since that evidence was received, the government announced as part of the 2016-17 Budget that licence fees for commercial television and radio broadcasters would be reduced by approximately 25 per cent, applicable from the 2015-16 licence period. A bill to give effect to this commitment was introduced in September 2016.49

2.47 Nevertheless, in submissions to this inquiry, calls for licence fee relief continued. In its additional submission, Nine argued that changing ownership rules prior to addressing licence fees that, in its view, are 'onerous and unfair', potentially would 'distort the market and have unintended consequences'. According to Nine,

45 Mr Tim Worner, Seven West Media, Committee Hansard, 24 October 2016, p. 2.

46 Mr Tim Worner, Seven West Media, Committee Hansard, 24 October 2016, p. 3.

47 Seven West Media, Submission 14 (previous inquiry), pp. 12-13; Ten Network Holdings, Submission 15 (previous inquiry), p. 1; Nine Entertainment Co, Submission 16 (previous inquiry), p. 4; and Prime Media Group, Submission 3, p. 1.

48 Ten Network Holdings, Submission 15 (previous inquiry), p. 1.

49 Broadcasting Legislation Amendment (Television and Radio Licence Fees) Bill 2016.

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all media reform proposals should be 'deferred until the issue of licence fees is addressed'.50

2.48 Despite the planned reduction in licence fees from 4.5 per cent of gross revenue to 3.375 per cent, Ten argued that Australian commercial FTA television networks will still 'pay more than any other free-to-air broadcasters in the world'. Ten's view on this outcome is as follows:

That is about 3½ times more expensive than the closest market, Singapore, and 115 times greater than the US, where broadcasters pay 0.06 per cent of revenue. In the UK, broadcasters pay 0.18 per cent of revenue, which covers spectrum access and a licence fee. Given the similarities that exist between here and the UK, particularly in relation to the content obligations imposed on broadcasters, we strongly believe that the UK is the single best and most fitting model for us to apply here. On that basis, we should be paying no more than 0.2 per cent of gross revenue.51

2.49 In support of its call for licence fee relief, Seven West Media argued that past cuts have been used for local content. Ms Bridget Fair from Seven West Media explained:

Up until 2009 we were actually paying around nine per cent of gross revenue in licence fees, and that was cut to 4½ per cent by the

Rudd government. We have tracked the expenditure across the industry of where those licence fees have gone and can demonstrate that it has been ploughed back into content and reinvestment in new delivery platforms to make sure that we remain competitive. It is a little early to say—just a few months on—where the one per cent or the 25 per cent cut of the 4½ per cent that went through in the May budget has gone, but…we can absolutely demonstrate…that there is far and away a reason for us to reinvest in our business and that we have done so.52

2.50 In its updated submission, ASTRA responded to the arguments for licence fee relief. ASTRA argued that further licence fee changes should 'only be considered as part of a comprehensive package of deregulatory reforms'. In particular, ASTRA argued that licence fees should not be reduced 'without a corresponding reduction in the privileges and protections from competition that FTA television networks have

amassed over decades'.53 ASTRA explained:

50 Nine Entertainment Co, Submission 2, p. 1.

51 Mr Paul Anderson, Ten Network Holdings, Committee Hansard, 24 October 2016, p. 23.

52 Ms Bridget Fair, Group Chief, Corporate and Regulatory Affairs, Seven West Media, Committee Hansard, 24 October 2016, p. 5. Seven West Media also provided the committee with information indicating that the sector has reinvested previous licence fee cuts in content and new delivery platforms: see Additional Information 2 (Venture Consulting, 'The case for the abolition of the broadcast licence fee (summary)', September 2016).

53 ASTRA, Submission 7, pp. 4-5.

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Whilst Australian licence fees are high by international standards, this is no accident. Australian FTA television licence fees reflect the value of unusually significant protections and privileges enjoyed by the major broadcasters, rendering invalid any comparison with fees paid by their international peers.

In exchange for paying licence fees, Australian FTA broadcasters enjoy a legislated ban on competition, guaranteed access to broadcasting spectrum and the world's most protected position for the acquisition of sports broadcast rights.

These strange protections and privileges simply do not exist to anywhere near the same degree in any of the jurisdictions referenced by FTA broadcasters in their international comparisons, a fact which renders those comparisons meaningless.54

2.51 Other stakeholders also questioned the view that the reforms proposed in the bill should be viewed as a lower priority than, or contingent on, licence fee reductions. My Greg Hywood from Fairfax Media stated:

…the two main issues here are around really to accept the existence of the internet. The current legislation does not even acknowledge the existence of the internet, because it was essentially drawn up prior to that. Our view is really that the two-out-of-three rule and the reach rule are the two fundamental issues. Issues around licence fees and others are really up for free-to-air televisions to talk about, and governments have to make a

judgement about the level of protection that the free-to-airs have through antisiphoning and what that is worth financially. So I would not see that as a principal issue; that is just a commercial arrangement. The two key principles are the two-out-of-three and reach…55

2.52 Others commented that stakeholders who criticise the bill because it represents what they consider is 'piecemeal' reform were, by promoting licence fee reductions as the most pressing issue, also seeking piecemeal reform.56

2.53 Professor Fraser, who has other views on the regulatory approach that should be applied to the mainstream media to ensure diversity of voices,57 but who nevertheless supports the bill, noted that media reform in general in Australia could be described as piecemeal. He explained:

54 ASTRA, Submission 7, p. 4.

55 Mr Greg Hywood, Fairfax Media, Committee Hansard, 24 October 2016, p. 14.

56 Mr Ian Audsley, Prime Media Group; Mr Andrew Lancaster, Chief Executive Officer, WIN Network, Committee Hansard, 24 October 2016, p. 40.

57 Professor Fraser called for the introduction of a 'broad, minimum number of voices rule that takes into account a public interest test'. Further, he argued for a 'strong systems of enforceable industry standards…[to] be developed and implemented to ensure fairness, accuracy and high standards of journalism in news and current affairs across all major platforms'. Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 8.

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I feel, and I think the community feels, cynical about political horsetrading with powerful media interests, and that has meant we have always had these small, piecemeal approaches taken.58

Schedule 3: Local programming requirements

2.54 Schedule 3 to the bill would insert a new Division 5D in Part 5 of the BSA establishing new local programming requirements for regional commercial television broadcasting licensees. The proposed new local programming requirements will apply additional local content requirements to regional commercial television broadcasting licences that are affected by a 'trigger event'. The trigger event is where, 'as a result of a change in control, a regional commercial television broadcasting licence becomes part of a group of commercial television broadcasting licences whose combined licence area populations exceed 75 per cent of the Australian population'.59

2.55 The predecessor committee's report discussed the proposed measures in schedule 3 in detail. Witnesses who participated in this subsequent inquiry also expressed support for the measures. For example, Professor Michael Fraser advised that he welcomed the proposed amendments in schedule 3 as 'a step in the right direction', although he argued that more attention needs to be given to 'providing incentives for local news and current affairs and also more incentives for Australian cultural productions to make them commercially viable in a global marketplace'.60 The phrase 'a step in the right direction' was also used by Emeritus Professor Graeme Turner to describe schedule 3.61

2.56 As the measures received wide support during both inquiries and the government adopted the committee's recommendation about a drafting issue, discussion of schedule 3 in this report is limited to two specific issues raised during this inquiry. The previous report provides further information about the amendments and particular stakeholders' views on them.

Deemed control

2.57 In its latest submission, Prime reiterated its concerns about the definition of a trigger event and the concept of control that it raised during the previous inquiry. Prime is of the view that a test based on actual control as opposed to deemed control should be used. Prime stated:

…there should be no reference to a 15% 'deemed control' threshold because a 15% interest in (or 'deemed control' of) a regional commercial television broadcasting licence is unlikely to yield any 'consolidation', 'additional scale' or 'efficiency' that will benefit the business operations of regional

58 Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 8.

59 EM, p. 36.

60 Professor Michael Fraser AM, Committee Hansard, 24 October 2016, p. 11.

61 Emeritus Professor Graeme Turner, Committee Hansard, 24 October 2016, p. 32.

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broadcasters, and clearly is at odds with the intention of the Bill as outlined in the EM and Second Reading of the Bill on 1 September 2016.62

2.58 Prime also outlined concerns about a potential scenario where a trigger event occurs due to the acquisition of shares, however, the acquisition is not sustained. Prime provided the following explanation:

…in the case of all publicly-listed media companies, including Prime, the Bill does not contemplate what happens if the threshold is reached by a person or a company taking a 15% interest in a listed company on a "particular day" (the words used in the Bill)—which would technically give rise to a Trigger Event—but then the very next day, week or month afterwards, a person or a company reduces their shareholding to 14.9%. The proposed mechanism will introduce a level of uncertainty into the business operations of regional broadcasters. It is likely to cause confusion, has the potential to adversely affect vulnerable regional media companies, leaving them susceptible to manipulation and facing a further regulatory burden without any additional scale, efficiency or consolidation having been achieved.63

2.59 After expressing concerns about the 'ambiguities and loopholes' that the current rules may provide, Emeritus Professor Tiffien argued that 'it would be better to specify allowable share holdings rather than slipperier concepts like control'.64

Committee comment

2.60 The committee notes that the concept of 'control' and Prime's concerns regarding the use of the deemed control threshold were discussed in detail in the May 2016 report on the earlier version of the bill. That report observed:

The concept of control should cover all relevant scenarios where a person may be in a position to control a broadcasting licence. The committee also notes that the local content requirements provide minimum local content obligations intended to ensure the availability of local content in most regional areas. In light of the evidence that the regional broadcasters provide content in excess of the obligations, it is not apparent that a trigger event caused by a change in company interests of 15 per cent would present a compliance challenge.65

62 Prime Media Group, Submission 3, p. 4.

63 Prime Media Group, Submission 3, p. 4.

64 Emeritus Professor Rodney Tiffen, Submission 10, p. 7.

65 Senate Environment and Communications Legislation Committee, Broadcasting Legislation Amendment (Media Reform Bill) 2016 [Provisions], May 2016, pp. 36-37.

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2.61 The committee appointed in the previous parliament did not recommended any changes to the test for control relied on by the bill, although it drew the evidence received about deemed control to the government's attention for further consideration.66 This committee maintains the view of its predecessor on this matter.

2.62 Regarding Prime's concern that the bill does not differentiate between trigger events caused by a short-term transaction and sustained acquisitions, the committee again notes that the bill seeks to provide minimum local content obligations and the evidence before it is that regional broadcasters exceed these obligation. Stakeholders often prefer for every foreseeable scenario to be addressed specifically in legislative proposals. However, to avoid overly complex legislation, a balance between precision and simplicity needs to be struck. Given the limited consequences that appear to arise should the scenario outlined in Prime's evidence eventuate, the committee does not consider the bill needs to be amended in response.

Regional media consumers

2.63 The NSW Farmers' Association highlighted how the media needs of many residents in regional Australia differ to residents in metropolitan areas. The Association explained:

We noted that a lot of submissions took as assumed that the media landscape had changed substantially for all Australians, and therefore that the old style of media ownership did not have the same reach or importance for consumers.

We would like nothing better than for regional NSW to be part of the digital age—but sadly communications in the bush are more 19th Century than 21st. As a consequence, and as we have made clear in our submission, the media landscape has not changed substantially for regional Australians, yet. Therefore, the old style media platforms (newspaper, radio and television), still have strong penetration in the regions—regional internet remains very poor in comparison with urban populations. Regional NSW (most of which is an 'aggregated market' under the terms of the Bill) continues to suffer from substandard data coverage making traditional media platforms in many areas just as powerful as they have ever been.67

2.64 Emeritus Professor Tiffen submitted that he supports 'the need for strengthening of local programming requirements in regional areas especially if media ownership becomes more concentrated'.68 However, Professor Tiffen called for regulation that provides further support for local production and services in regional areas for both television and radio.69 He explained:

66 Senate Environment and Communications Legislation Committee, Broadcasting Legislation Amendment (Media Reform Bill) 2016 [Provisions], May 2016, pp. 34-37.

67 NSW Farmers' Association, Submission 9, p. 1.

68 Emeritus Professor Rodney Tiffen, Submission 10, p. 1.

69 Emeritus Professor Rodney Tiffen, Submission 10, p. 1.

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As we move towards national and global generation of services, there is still a need to ensure local windows of programming.

In theory, what have been called hyper-local services are now possible, but in practice these are often precarious, unfunded projects of inconsistent standards and reliability.

The regulation should ensure in television and radio that national players have to support local windows of programming.70

2.65 On the text of the bill itself, specific concerns about the definition of 'local' were expressed. The NSW Farmers' Association submitted:

…we fear that the definition of 'local' may shift as the 'footprint' of a broadcaster increases as the result of the repeal the '75 per cent audience reach rule'. The additional requirements for local content upon exceeding the 75 per cent are meaningless if 'local' is not effectively defined.71

2.66 The NSW Farmers' Association recommended that the bill be amended to:

• ensure the Australian Communications and Media Authority (ACMA) has

'clear responsibilities in terms of effective compliance activities in regard to policing "local" content'; and

• ensure 'that the character and quality of "local" content within a regional licensee's area is maintained following any future merger'.72

2.67 The NSW Farmers' Association also recommended that consumer protections in 'voice and data in telecommunication are upgraded to ensure that regional people have equal access to both voice and data'. After it noted that the Productivity Commission is currently conducting an inquiry into the future direction of a universal service obligation in the telecommunications market, the Association recommended that consideration of the bill should be delayed until the Productivity Commission's inquiry is compete and the government has responded to its findings.73

Committee comment

2.68 The committee shares concerns about the ability of regional consumers to access adequate telecommunications services and notes that improved data capabilities will help regional media consumers engage in the online media environment. As the NSW Farmers' Association recognised in its submission, the Productivity Commission is currently undertaking an inquiry into the telecommunication's universal service obligation. The committee awaits the

70 Emeritus Professor Rodney Tiffen, Submission 10, p. 6.

71 NSW Farmers' Association, Submission 9, p. 2.

72 NSW Farmers' Association, Submission 9, p. 2.

73 NSW Farmers' Association, Submission 9, p. 1.

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Commission's report with interest, however, it does not accept that the bill should be delayed until that inquiry is finalised.

2.69 The committee also notes the concerns about the character and quality of post-merger local content and the ACMA's ability to 'police' compliance with the local programming requirements. The bill provides for a review of the local programming requirements to commence within two years following the commencement of the additional obligations. Rather than responding to concerns relating to the obligations that may not eventuate, the committee considers that any demonstrated issues with the operation of the local content requirements can be examined as part of that dedicated review.

Committee view

2.70 This inquiry has provided a further opportunity for senators to consider this important bill. The committee reiterates the finding of the committee that examined the earlier version of the bill in the previous parliament; namely, that the bill be passed.

2.71 The media environment has changed significantly since the 75 per cent audience reach rule and the 2 out of 3 cross-media control rule were introduced. It is clear that both rules are now outdated and do not meaningfully contribute to media diversity. Certain printed newspapers and FTA television and radio broadcasters are covered by the rules, yet national newspapers, news websites, subscription television and radio services, and various online entertainment platforms are not. Despite the 75 per cent audience reach rule, affiliation agreements and online streaming provide essentially the same content throughout Australia.

2.72 Technological developments and related changes to consumer preferences have made the 75 per cent reach rule and the 2 out of 3 rule redundant. The rules now act to restrict certain media companies from restructuring their operations to allow them to better compete with other entities, including international internet and media behemoths. No compelling argument to the contrary was presented to the committee.

2.73 The issues that were raised by industry stakeholders, such as licence fees and the anti-siphoning list, are in the committee's opinion separate to the matter of media ownership and control. Although the government should carefully consider the merits of these arguments, the reform measures contained in the bill should not be delayed further in preference for a comprehensive reform package. Despite calls for other matters to be examined and different views on how reform should proceed, there is broad agreement among stakeholders and other interested parties that the two media control and ownership rules targeted by the bill are outdated. With this knowledge, it would be irresponsible to leave these technologically obsolete rules in force while other potential changes are developed and debated—their continued existence can only inhibit the industry participants from adapting efficiently to the significant changes in the media environment that have occurred.

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Recommendation 1

2.74 The committee recommends that the bill be passed.

Senator David Bushby Chair

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Labor Senators' Dissenting Report 1.1 Labor Senators reject the trumped-up notion that the Broadcasting Legislation Amendment (Media Reform) Bill 2016 represents 'the most significant reforms to our media laws in a generation'.1 This narrow and shortsighted Bill is not about genuine or meaningful reform to address the disruptive challenges of digitisation and convergence in the long term, nor does it offer sound policy in the public interest.

1.2 Prime Minister Turnbull and Minister Fifield waited two and a half years in office before proposing this piecemeal package of amendments to the regulatory structure governing media in Australia. The fact that the Abbott-Turnbull Government did nothing in media ownership policy for almost three years shows this is all about politics rather than coherent public policy.

1.3 Labor Senators understand that high media ownership concentration is an enduring concern of the Australian public, and that we need diversity in the control of our media to support the effective functioning of our democracy. We note that media concentration in Australia is amongst the highest in the world and reject this Government's move to make the situation worse. We note that the majority of voters disapprove of changing media ownership laws to allow a single company to control a newspaper, TV network and radio network in the same area.2

1.4 Labor Senators understand that Australia needs a thriving media industry to promote a diversity of voices, to create jobs and to produce quality news, information and entertainment. We acknowledge the competitive pressures faced by Australian media in the face of digitisation and convergence.

1.5 Labor has repeatedly indicated its support for the removal of the 75 per cent reach rule and Labor Senators wish to express our disappointment that the government has dithered and delayed this important reform.

1.6 Labor Senators support the proposal to bolster local content following a trigger event, but take no comfort in the fact that these provisions do little to promote diversity. We are cognisant of the compromised position of Australians in regional areas in terms of access to a diversity of news and current affairs content, both in the traditional and new media environments.

1 M Fifield (Minister for Communications), 'Modernising Australian media laws', Media release, 1 March 2016.

2 Essential Research, The Essential Report, 27 September 2016, p. 13. In response to the question 'Would you approve or disapprove of changing the media laws to allow a single company to own all three of a newspaper, TV network and radio station in a single market?', 61 per cent of respondents answered either 'strongly disapprove' or 'disapprove'.

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1.7 Labor supports proposed reductions to commercial broadcast licence fees as a measure to level the competitive playing field between Australian and overseas media companies. Labor Senators regard this measure as important in improving the international competitiveness of Australia's media sector and promoting the production of local content, as has been the case in international markets.

1.8 Labor Senators reject the proposition that scrapping the two out of three rule will promote media diversity and/or a competitive media industry. The widely acknowledged fact borne out by evidence presented to this inquiry is that removing the two out of three rule will lead to further media consolidation and, consequently, reduce media diversity in Australia. The Australian public deserves better than a government that is condemning important media diversity safeguards to the scrap heap in the name of 'reform'.

1.9 Labor Senators oppose the removal of the two out of three rule given this change would achieve so little for industry at potentially great cost to our democracy. There is no compelling evidence to justify its removal.

1.10 The two Senate Inquiries set up to examine the Government's package demonstrate that Parliament does not have available to it, at this time, the evidence or the depth of analysis required to justify embarking on a decision with such significant implications for decades to come. There has not been a comprehensive inquiry into ownership, concentration and competition in the Australian media market conducted by an independent body such as the Productivity Commission since the late 1990s.

1.11 Labor Senators conclude that it is ill-advised to remove the two out of three rule at a time when Australia's media is amongst the most concentrated in the world and when traditional media—newspapers, commercial television and commercial radio—continue to be the main source of news and current affairs for Australians, particularly in regional areas.

1.12 Labor Senators acknowledge the increasing influence of new media in Australia, however we do not mistake the abundance of online content for diversity in terms of diversity of ownership of Australian media. We note that the majority of the top 10 news websites accessed by Australians are either directly or jointly owned by traditional media platforms.3

1.13 Furthermore, and even if the proliferation of new media did solve the issue of media diversity in the true sense (and we are not convinced it does), Labor Senators note that the digital divide means that access to new media still remains out of reach for many Australians given substandard levels of broadband connectivity, particularly in rural and regional areas.

3 Department of Communications, Media control and ownership, Policy background paper No. 3, June 2014, p. 21.

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1.14 Labor Senators recognise that, in the absence of a coherent, evidence-based, vision for the future from the Turnbull Government, the pragmatic course of action at this time is to repeal the 75 per cent reach rule and provide licence fee relief to the commercial broadcasting industry. Once the impact of these changes can be assessed, then the question of media diversity safeguards should be considered properly, in a broader and genuine reform context.

1.15 Labor Senators wish to express our disappointment at the Government's latest thought bubble on media regulation, which undermines diversity without reference to the realities of news media consumption today, without evidence of the knock-on implications and without recalibrating public interest safeguards for the 21st century.

1.16 Labor Senators acknowledge the need to reconfigure Australia's media laws and understand the need for integrated, evidence-based policy to move to an adaptive regulatory framework suited to the contemporary media ecosystem, and the transition to the knowledge economy.

1.17 Labor Senators look forward to engaging in a genuine conversation about the future of our media industry.

Diversity of ownership and control still matters

1.18 Media ownership and control rules are designed to encourage diversity in control of the more influential media by avoiding concentration of ownership, both within a particular medium and between different media. Like much of broadcast regulation, these rules are directed toward social policy ends. As Butler and Rodrick state:

The principal objection to a high concentration of media ownership is not economic. Diversity of ownership is primarily valued, not for its propensity to encourage competition and, as a consequence, lower prices for the consumer, but because it is assumed to be a necessary means of securing a diversity of views, ideas and opinions on a broad range of issues, which is regarded as essential for the effective functioning of a modern democracy.4

1.19 The Bill does not propose to amend the objects of the Broadcasting Services Act 1992, which include facilitating a broadcasting industry that is 'efficient, competitive and responsive to audience needs'5 and encouraging 'diversity in control of the more influential broadcasting services'.6 The tension between these objects, and the degree to which concentration of media ownership may support or undermine diversity is the subject of much debate, however the fact is that diversity of

4 Des Butler and Sharon Rodrick, Australian Media Law (2015), p. 952.

5 Broadcasting Services Act 1992, s. 3(b).

6 Broadcasting Services Act 1992, s. 3(c).

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information and opinion is 'more likely to be achieved where there is a diversity in the ownership and control of the more influential media'.7

1.20 The concept of diversity is enduring and goes to the heart of our democracy. As noted by the Australian Communications and Media Authority:

At the core of liberal democracy is the idea of 'pluralism'—that is, more than one perspective has validity, and there is social and political value in people expressing, and engaging with, these perspectives. The rationale for intervention is that in the absence of intervention, media and

communications markets (or other interests) may consolidate perspectives or favour certain opinions at the expense of others, and that a diversity of voices has social value.8

1.21 Issues of diversity, ownership and control matter to the Australian public. A recent Essential Poll shows that the majority (61 per cent) of voters across every demographic disapprove of changing media ownership laws to allow a single company to control a newspaper, TV network and radio network in the same area'.9

Australia needs a competitive media sector

1.22 Australia needs a thriving media industry to promote a diversity of voices, to create jobs and to produce quality news, information and entertainment. It is imperative that the Australian media industry remains viable and competitive in the modern media environment.

1.23 Australian media proprietors face competitive pressures arising out of digitisation and convergence. Over the top content providers such as Netflix, Google and Facebook don't pay tax in the same way as Australian media companies and aren't subject to detailed Australian media regulation. As noted in Inquiry submissions:

Australian media companies are now competing directly against the foreign internet companies that are exempt from local media regulation, don't pay television licence fees, pay minimal corporate tax despite taking billions in advertising revenue in this market.10

And:

7 Productivity Commission, Broadcasting, Inquiry Report, No. 11, 3 March 2000, p. 328.

8 Australian Communications and Media Authority, Enduring Concepts - Communications and media in Australia, November 2011, p. 42.

9 Essential Research, 'The Essential Report', 27 September 2016, p. 13.

10 Ten Network, Submission to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, 27 September 2016, p. 1.

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[S]tructural and cyclical change in the Australian media industry drives local players towards consolidation and scale as a means of responding to increased competition.11

1.24 Labor in Government recognised the challenges faced by commercial TV broadcasters in the convergent media environment and the pressures on local content production. In announcing licence fee relief in February 2010, then Communications Minister Conroy also stated that Labor was committed to reviewing the future role of licence fees in Australia in the face of significant change, specifically noting that licence fee rebates would ensure that commercial broadcasters can continue to invest in new Australian content.12

1.25 Labor supports the proposed further reduction in licence fees and the removal of the 75 per cent reach rule as a pragmatic response to the pressures of convergence. Labor rejects the notion that removal of the two out of three rule addresses competitive pressures effectively and notes the risk of unintended consequences if removed before the impact of the reduction in licence fees and the removal of the 75 per cent reach rule is known. As stated by Nine in its submission to the Inquiry:

Changing any ownership rules before addressing onerous and unfair licence fees has the potential to distort the market and have unintended consequences.13

Australia's media ownership is heavily concentrated

1.26 The present state of concentration in the Australian media is a matter for concern. Evidence to the Inquiry from three eminent professors includes the following:14

Professor Michael Fraser:

It is notorious, in terms of news and current affairs, that we, among the democracies, have the least diversity in our newspapers and have very little in television.

Professor Rodney Tiffin:

11 ASTRA, Submission to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, 27 September 2016, p. 1.

12 Stephen Conroy, 'Government moves to protect TV content', Media release, 8 February 2010.

13 Nine, Submission to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, 22 September 2016, p. 1.

14 Evidence to Senate Environment and Communications, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, Proof Committee Hansard, 24 October 2016, pp. 9, 21 and 28.

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Media concentration in Australia is amongst the highest in the world. Our daily press is the most concentrated in the world…Our pay TV industry is the most concentrated in the world.

Professor Graeme Turner:

[It] is important that we are alert to the likelihood of any relaxation of media ownership restrictions making what is already an undesirable situation any worse.

1.27 A study of Australian media ownership and control by the Department of Communications states that 'the print sector has historically exhibited relatively high levels of concentration, dominated by News Corp Australia, Fairfax and APN' and that commercial television and commercial radio are 'more moderately concentrated' but that 'affiliation agreements, programming syndication and joint venture operations tend to result in fairly homogenous content (i.e. channels and stations) being available to consumers in any given market'.15

1.28 Australia already has a highly concentrated news market, by international comparison. As noted in the Finkelstein Inquiry into the Media:

Australia's newspaper industry is among the most concentrated in the developed world…Australia is the only country in which the leading press company accounts for more than half of daily circulation, while in 20 of the 26 countries it is under 40 per cent. With a share of 86 per cent, Australia also ranks highest by a considerable margin when considering the share of the top two companies. The share of the top two companies exceeds 60 per cent in only six of the 26 countries.16

1.29 In terms of the industry structure within Australia, the Finkelstein Inquiry notes:

Overall the industry comprises four major publishers and is highly concentrated. Measured by circulation, News Limited is by far the largest with 65 per cent of total circulation of metropolitan and national daily newspapers, or 58 per cent of circulation when counting all daily newspapers. Fairfax Media, the second largest group, controls 25 per cent of metropolitan and national daily circulation, or 28 per cent of all daily newspaper circulation.17

15 Department of Communications, Media control and ownership, Policy background paper No. 3, June 2014, p. 21.

16 The Hon R Finkelstein QC, Report of the Independent Inquiry Into the Media and Media Regulation, Report to the Minister for Broadband and the Digital Economy, 28 February 2012, pp. 59-60.

17 Ibid., p. 58.

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1.30 The Department's assessment of media diversity across the country found the level of diversity at a market level to be at or below the minimum number of 'voices' required by the 5/4 rule18 in 70 per cent of all licence areas (in 73 of the 105 licence areas).19 In the mainland State capitals, where over two thirds of the Australian population resides, the Department reports the number of 'voices' to be above the minimum level required by the 5/4 rule, with Sydney at 10 voices, Melbourne at 9 voices, Brisbane at 8 voices.20 Adelaide currently sits at 6 voices (only one above the minimum safety net) and Perth at 7 voices.21 In regional and remote areas the level of diversity falls away and is either at the minimum level, or below it, with 42 per cent of licence areas at, and 28 per cent of licence areas below, the minimum 'floor'.22

Traditional media still dominates

1.31 Traditional media still dominates the media landscape in Australia, in terms of reach, penetration and influence. While new media is growing in importance, the traditional media still dominates when it comes to news and current affairs production and consumption. As Chris Mitchell, former editor-in-chief of The Australian states:

The truth is that newspaper editors still drive the national media agenda. Their ideas are followed by news directors in the electronic media and on social media.23

1.32 Industry research and marketing company Think TV states that 'Television is the number 1 medium', that 'TV is ubiquitous; every home has one (99+ per cent)— the majority of homes have two or more TV sets' and that '[d]espite the diverse range of entertainment and information options and devices on which to view content, [Australians] spend around 3 hours a day watching TV on a TV set'.24

1.33 Industry peak body Commercial Radio Australia reports that the first major comprehensive study of Australia's audio consumption has found that 'the entry of global players such as Pandora, Spotify and Apple Music have failed to dent Australian radio's dominance of the audio landscape' and that 'the findings showed

18 The 5/4 'minimum voices' rule requires a minimum of four voices in regional areas and a minimum of five voices in the mainland state capitals.

19 Department of Communications, Media control and ownership, Policy background paper No. 3, June 2014, p. 17-18.

20 Ibid., p. 18.

21 Ibid., pp. 55-56 (Appendix B).

22 Ibid., pp. 17-18.

23 Chris Mitchell, Making Headlines (2016), Prologue.

24 ThinkTV, More Reasons Why TV, webpage, accessed 6 November 2016 available at http://www.thinktv.com.au/content_common/pg-more-reasons-why-tv.seo. See also ThinkTV, Australian Television, Fast Facts available at http://www.thinktv.com.au/content_common/pg-tv-fast-facts-television-viewing-in-australia.seo. ThinkTV is a research and marketing company, backed by Australia's free-to-air and subscription television broadcasters.

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radio was dominant across the day for all demographics, including younger listeners'.25

1.34 In terms of the main sources of news, in particular:

Broadcast television remains the main source of news, including for Australians who access news online'.26

And:

Older Australians tend to consider the more traditional platforms of television (free-to-air or subscription), print newspapers and traditional radio to be their main sources for news, while younger generations have a greater affinity with the internet and social media' and that 'more regional viewers tend to identify television as their main source compared with city dwellers'.27

Diversity potential of new media is yet to be realised

1.35 In the online space, traditional media still dominate the provision of news to Australians and diversity safeguards remain necessary in the Australian media environment. On the question of whether online news enhances media diversity, the Department of Communications concludes that 'the news genre is in a state of dynamic change and…the diversity-enhancing potential of the online space is yet to be fully realised'.28 The Department notes:

[T]he proliferation of online sources of news content does not necessarily equate to a proliferation of independent sources of news, current affairs and analysis. Indeed, the internet has, to date at least, tended to give existing players a vehicle to maintain or actually increase their influence…[T]he established media outlets have tended to dominate the online news space.29

And:

[I]t is notable that eight of the top ten news websites in Australia in 2013, in terms of average unique daily users, are owned by these major mastheads or their publishers…There is also a notable clustering of users with the top 2 or 3 news websites.30

25 Commercial Radio Australia, 'Aussie radio reigns supreme in battle for ears', Media release, 7 October 2016.

26 Australian Communications and Media Authority, Communications Report 2014-15, 2015, p. 77.

27 Department of Communications, Media control and ownership, Policy background paper No. 3, June 2014, p. 29.

28 Ibid., p. 37.

29 Ibid., p. 36.

30 Ibid., p. 28.

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1.36 While the internet has facilitated the entry of new voices (for example New Daily and The Guardian Australia) it is worth noting that overseas competitors in the media space are not necessarily concerned with quality coverage of matters of public interest in Australia. Further, it is a mistake to confuse the proliferation of content for diversity of ownership or opinion. As Lesley Hitchens cautions:

It is the case that the media ecosystem seems to be characterized by abundance - there are multiple ways in which news, information and opinion, and entertainment content can be accessed. Of course, very often one is simply receiving much the same content via these new platforms, as would be received via the traditional platforms. And so there is a need for caution to ensure that one is not misled by an illusion of diversity. Scarcity may be present despite the appearance of abundance.31

Digital divide undermines diversity in regional areas

1.37 The digital divide in Australia means that, in regional Australia, the diversity-enhancing potential of the online space is even further away from being realised. This was expressed in direct terms by the National Farmers' Federation at the Inquiry:

We would like nothing better than for regional NSW to be part of the digital age - but sadly communications in the bush are more 19th Century than 21st. As a consequence, and as we have made clear in our submission, the media landscape has not changed substantially for regional Australians, yet. 32

1.38 The interplay of these factors highlight an important point: any further concentration of traditional media through the removal of two out of three rule will have a disproportionate impact on diversity for regional segments of the population, who by virtue of various factors consume less content over the internet and are more dependent on traditional sources of media for news.

1.39 When considering the potential impact of removing the two out of three rule it is important to consider how broadband availability and use in regional Australia shapes preferences for the sources of news consumed.

1.40 The Australian Bureau of Statistics Household Use of Information Technology 2014-15 survey highlights there remains a gap (albeit narrowing) in internet penetration between the cities and the regions. In major cities the proportion of households with internet access is 88 per cent, compared to 82.3 and 79 per cent respectively for inner and outer regional areas. This drops to 66 per cent when controlled for the lowest quintile of household income, compared to 97.8 per cent for

31 Lesley Hitchens, 'Media Regulatory Frameworks in the Age of Broadband: Securing Diversity', Journal of Information Policy 1 (2011), 217-240.

32 National Farmers' Federation, Submission to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, 6 October 2016, p. 1.

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the highest quintile.33 Further, when taken as a proportion of the segmented population there are almost twice as many regional and remote households who do not have internet access compared with individuals living in urban areas and the cities.

1.41 The availability of broadband has not been helped by Malcolm Turnbull's bungling of the NBN Sky Muster Satellite Service which has caused delays for tens of thousands of regional and remote households. Further, a recent report by the Australian National Audit Office on the Mobile Black Spot Programme found the Government wasted $28 million on 89 mobile towers that delivered minimal to no coverage of additional premises.34

1.42 The higher cost of data in regional areas may also affect the capacity of individuals to access digital content with the frequency of city counterparts. An ACMA survey of price data indicates those living outside major capital cities are more likely to have the lowest data-cap allowances, with 14 per cent having less than 6 GB and 10 per cent having 6-30 GB (compared with six per cent and seven per cent respectively for those in major capital cities).35

1.43 There is strong evidence demographic and age factors influence platform preferences. For example, the Reuters Digital News Report illustrates the strong effect age has on the main source of news. For example, consumers over the age of 50 are almost two and a half times more likely nominate traditional TV as their main source of news, in contrast to younger age cohorts who prefer online channels.36 Further, data from the 2014-15 Roy Morgan Single Source survey indicates that non-urban areas have a higher representation of older Australians (56 per cent aged over 50, compared with 39 per cent in major capital cities).

1.44 The sum of these factors is captured in the recent Digital Inclusion Index, which highlights important differences between regional and urban areas in levels of digital inclusion. For example, the Capital-Country gap has widened to 6.6 points.37 The evidence is clear that geography and socio-economic factors are critical for access, affordability and digital activity in Australia.

33 ABS, Household Use of Information Technology, Australia, 2014-15, 18 February 2016.

34 Australian National Audit Office, Award of Funding under the Mobile Black Spot Programme, 1 September 2016, p. 8.

35 ACMA, Research Snapshot: Regional Australians Online, 28 April 2016.

36 Reuters Institute, Digital News Report 2015, p. 10.

37 Roy Morgan, Measuring Australia’s Digital Divide: Australian Digital Inclusion Index 2016, p. 5.

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1.45 The news consumption habits of consumers in regional areas differs to those in the cities. The ACMA's Regional Australians online research snapshot illustrates that accessing news and reading news online are higher in major capital cities than in non-urban areas (respectively 10 and 13 percentage points).38

1.46 The evidence demonstrates the impact of the digital divide on online media consumption is not simply a function of how many people have access to quality internet, but also driven by how different population segments make use of the connection they have to consume content. This highlights the importance of considering how the reconfiguration of market structures impacts consumers with different geographic and demographic characteristics.

Removal of the 2 out of 3 rule not justified

1.47 Removal of the two out of three rule will achieve very little at potentially great cost. There is no compelling evidence that this will improve the competitiveness of the sector but there is a significant risk that it will reduce media diversity. The knock-on effects are unclear and it is ill-advised to condemn this rule to the scrapheap at a time when Australia's media market is amongst the most concentrated in the world. This uncertainty about knock-on effects is also shared within industry:

[W]hat we would like to see is a comprehensive package of changes so that we can understand the full implications of regulatory change for our business, for our industry and for consumers more generally.39

1.48 As numerous commentators have noted, removal of the two out of three rule will permit further media consolidation in Australia's already highly concentrated media environment, leading to a reduction in media diversity in Australia. Such consolidation may undermine the things diversity seeks to protect, such as quality news and current affairs, jobs in the production sector and the number of journalists on the ground. For example, as stated by the ABC's Media Watch:

The two-out-of-three rule currently stops anyone owning TV, newspapers and radio in the same market. And if it goes, as almost all media proprietors want, we're likely to see some mergers: Like Fairfax Media teaming up with Channel Nine or Channel Seven and perhaps News Corp and Channel Ten doing the same. And that will mean even greater concentration of media ownership than we have now.40

38 ACMA, Research Snapshot: Regional Australians Online, 28 April 2016.

39 Mr Tim Worner, Evidence to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, Proof Committee Hansard, 24 October 2016, p. 1.

40 Media Watch, They're back: Media Reforms 2016, transcript, 1 February 2016. Note that 'Fairfax teaming up with Channel Nine' refers to merger activity going beyond joint ventures like StreamCo/Stan.

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1.49 Consolidation of media assets through merger and acquisition activity may lead to job losses, including a reduction in the number of services and journalists on the ground, as well as the concomitant undermining of the things diversity seeks to protect, such as quality news and current affairs. For example, the merger of Macquarie Radio and Fairfax was reported to have resulted in an approximate reduction of 10 per cent of roles across the combined business.41

1.50 Removal of this rule will achieve little in terms of alleviating the commercial pressures felt across the broadcasting sector. According to the Regulation Impact Statement to the Bill:

In most licence areas, the 2 out of 3 rule is not in play as no single entity controls media assets from two of the three regulated platforms in these areas. If the rule is removed, the great majority of regional and remote licence areas of Australia would see little change as the retention of the 5/4 minimum voices rule would ensure preservation of existing levels of media diversity.42

1.51 It is difficult to justify the removal of the two out of three rule on the basis that it will assist regional broadcasters in remaining commercially competitive when the vast majority of licence areas would not be affected by its removal. According to evidence from representatives of the Department of Communications and the Arts, the removal of the two out of three rule would have 'no impact' in 72 of the 99 regional or remote licence areas on the following basis:

There are 99 regional or remote radio licence areas for the purposes of the media control rules; 62 of them have no newspaper, so the two-out-of-three rule is not relevant, and 10 of the remainder are constrained by the five-out-of-four rule, so no further consolidation can take place in those areas…So, there are 27 areas that could have further consolidation done to them.43

1.52 Further, it is difficult to justify the removal of the two out of three rule on the basis that it will assist metropolitan operators in remaining commercially competitive or facilitate a level playing-field given the likelihood that only a limited subset of the industry may take advantage of the change, which risks creating uneven outcomes across the industry:

[B]ecause only some ownership laws are being looked at and not others, there are a very limited number of transactions available post these changes - in fact, possibly only one national transaction out of the changed two-out-of-three rule.

41 Mumbrella, Macquarie Radio to Cut 10% of Staff, 1 May 2015.

42 Broadcasting Legislation Amendment (Media Reform) Bill 2016, Replacement Explanatory Memorandum, p. 18.

43 Dr Simon Pelling, Evidence to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, Proof Committee Hansard, 24 October 2016, p. 43.

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We are having this massive national debate so that there can be one transaction. It is first in, best dressed because after that the gate closes in terms of the number of voices in metropolitan markets, and I am specifically speaking about Adelaide, where there are six voices and there needs to be a minimum of five…The gate is closed; that is it.

So we are really having this discussion about who is going to get their deal away first. We just do not think that this is an outcome that is even-handed across the industry and that is going to drive positive outcomes across the industry.44

1.53 Removal of the two out of three rule would mean only basic diversity safety-nets remain, with transactions otherwise subject to general competition law. Transactions in the media sector will remain subject to section 50 of the Competition and Consumer Act 2010 under which the Australian Competition and Consumer Commission (ACCC) considers whether mergers will cause a substantial loss of competition in a media market.

1.54 Competition law is of questionable efficacy as a tool for achieving social policy objectives as contained in the Broadcasting Services Act 1992. It is important to recognise there are subtle but important differences between the objectives of a public interest test and the test performed by the ACCC to establish whether there has been a substantial lessening of competition. The former is about diversity and what that means for our democracy, the latter is a market-based test that is not designed to capture the intangible considerations at stake. These were encapsulated by Profession Julian Thomas, a board member of the Public Interest Journalism Foundation:

The ACCC's remit does not extend to the public and civic function of journalism, and they have never pretended that it does. But that is what we are concerned with here, because we think that independent journalism— and journalism more broadly—has a vital part to play in the proper functioning of our democratic process as well as its importance in the economy to enable markets to form and to make sure that businesses can communicate with consumers.45

1.55 Another pertinent issue about the role and remit of the ACCC is its power in relation to blocking mergers or acquisitions. While, at the request of the Communications Minister, the ACCC has released draft Media Merger Guidelines46 to

44 Ms Bridget Fair, Evidence to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, Proof Committee Hansard, 24 October 2016, p. 3.

45 Professor Julian Thomas, Board Member, Public Interest Journalism Foundation, Evidence to Senate Environment and Communications Legislation Committee, Inquiry into Broadcasting Legislation Amendment (Media Reform) Bill 2016, Committee Hansard, 29 April 2016, p. 5.

46 The draft Media Merger Guidelines were released on 26 August 2016 further to a request from the Communications Minister on 29 March 2016 noting the Government had introduced the Broadcasting Legislation Amendment (Media Reform) Bill 2016 into Parliament on 2 March 2016.

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'give parties contemplating a media merger, and those potentially affected by a media merger, a greater awareness of some of the key issues the ACCC may focus on',47 these do little to assist Parliament in understanding what mergers would be blocked under competition law and whether competition law provides adequate safeguards for diversity in the event of the removal of the two out of three rule. Further, the Guidelines cannot provide an indication as to whether a particular merger might or might not be cleared by the ACCC48 and will have no legal force when finalised.

1.56 Competition law outcomes are subject to the discretion of decision-makers in the ACCC, the Competition Tribunal and the courts, acting in accordance with law. It is instructive to note the submission of DigEcon to the Inquiry which states as follows:

The ACCC's functions in relation to mergers and acquisitions are outlined in Division 3 of Part VII of the Act. On application the ACCC may grant a "clearance" for a proposed merger or acquisition; the clearance may be

accompanied by other conditions. The basis on which the ACCC is to decide on whether to grant the clearance is whether in the ACCC's assessment the merger or acquisition results in a breach of section 50, that is, results in a substantial lessening of competition.

The ACCC provides both an informal and a formal clearance process, only the latter offers legal protection. Specifically, if the ACCC grants the clearance then "section 50 does not prevent" the acquisition so long as it occurs in accordance with the clearance.

However, the ACCC does not have the power to block a merger or acquisition. If the application for clearance is refused the parties have recourse to the Australian Competition Tribunal. Parties can apply directly to the Tribunal for authorisation.

In removing the "2 out of 3" rule the Parliament's concern is primarily over what mergers will be blocked. The ACCC's guidelines on when it would not provide a clearance is of no particular relevance at all. The only thing that will matter is the interpretation of the Australian Competition Tribunal.

Absent a specific legislative provision requiring the consideration of media diversity in proposed mergers competition law cannot be relied upon to

47 ACCC, 'ACCC seeks comments on its draft guidelines for assessing media mergers', Media release, 26 August 2016.

48 Ibid.

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preserve diversity. The removal of the "2 out of 3" rule without some other legislative provision places media diversity at significant risk.49

Conclusion

1.57 Labor Senators reject the government's piecemeal, short-sighted approach to the future of our media industry. The proposed reforms offer no safeguards in terms of diversity of ownership and no coherent vision for the contemporary media ecosystem in terms of the public interest role of the media in the effective functioning of our democracy.

1.58 Labor Senators reject the notion that the only way to support the health of our media industry is by removing diversity safeguards. Australians deserve meaningful public interest safeguards to ensure the health of our democracy now and in the future.

1.59 Labor will look to promote a diverse and competitive media sector, along with sustained production of local content and jobs, by responding effectively to the changes in the media landscape.

1.60 Labor supports Schedule 1 and 3 (abolition of the 75 percent audience reach rule and introduction of new local programming requirements following a trigger event) and opposes Schedule 2 (abolition of the two out of three cross-media control

rule).

Senator Anne Urquhart Senator Anthony Chisholm

Senator for Tasmania Senator for Queensland

49 DigEcon Research, Submission to Senate Environment and Communications Legislation Committee, Inquiry Into Broadcasting Legislation Amendment (Media Reform) Bill 2016, 26 September 2016, pp. 1-4.

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178

Australian Greens' Dissenting Report 1.1 The Australian Greens believe the Government has missed an important opportunity to progress meaningful reform of the Australian media landscape, and has instead settled on a simplistic deregulatory approach that will do nothing to improve media diversity.

1.2 All witnesses to both iterations of this inquiry, in May and October 2016, agreed that the media landscape is changing rapidly, and that online delivery of content is one of the key drivers of change. Media regulations drafted in the pre-internet age have not kept up with the pace of technological innovation or changing habits of content consumption and creation by the public. Australia also has one of the most highly concentrated media ownership structures in the world, which makes support for public, community and independent broadcasters and publishers all the more important.

1.3 Instead of grappling with these complex issues in a meaningful way, after nearly three years of consideration the Government has done nothing more than taken the path of least political resistance, the bare minimum that the handful of commercial broadcasters and publishers could agree on, to propose the abolition of two regulations originally intended to protect media diversity.

1.4 Despite the emergence of online content and news delivery forming the basis of the Government's rationale for this bill, nowhere does the bill provide any form of support for these emerging sources of diversity. The Government's attacks on the funding and independence of respected public broadcasters ABC and SBS have been subjected to sustained criticism. Ongoing neglect and crippling funding shortfalls for community radio and television broadcasters have severely limited the potential of these important sources of media diversity. In addition, responses to the large-scale structural changes to the global media environment canvassed in the 2011 Convergence Review remain entirely unaddressed in this legislation.

1.5 Lastly, a number of submitters made the self-evident assertion that access to fast broadband services to deliver new sources of on-demand content remains dramatically uneven across the country. If anything, the 'digital divide' between those with access to rapid telecommunications services has worsened under the Abbott-Turnbull Government's hopelessly incompetent handling of the National Broadband Network. This has put fast broadband out of reach for millions of Australian households; even if a flourishing mix of local and international content were being produced for consumption, access for millions of Australian households will be out of the question for the foreseeable future.

1.6 It is therefore the view of the Australian Greens that the bill should not pass in its current form, and that the 2/3 rule should remain at the bare minimum. Until such time as the above preconditions for healthy media diversity have been met, the

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2/3 rule provides a flawed but necessary bulwark against further consolidation of media ownership in Australia.

1.7 The Greens do agree that the abolition of the reach rule and marginal improvements to local content rules could be supported under the condition that the 2/3 rule remains in place, but contend that until such time as the Government is prepared to directly engage with the larger issues at play, the bill as a whole represents a step backwards. It exemplifies the approach of this Government more broadly: upholding the interests of commercial actors at the expense of the broader public interest, dressing up a counterproductive deregulatory agenda as though it represents genuine reform. It is our view that the bill should not pass the Parliament unless the schedule abolishing the 2/3 rule is removed from the legislation.

Senator Larissa Waters Deputy Leader of the Australian Greens Senator for Queensland

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Appendix 1

Submissions and additional information received by the committee

Submissions

1 Southern Cross Austereo

2 Nine Entertainment Co

3 Prime Media Group

4 WIN Network

5 News Corp Australia

6 Ten Network

7 Australian Subscription Television and Radio Association 8 Mr Roger Colman

9 NSW Farmers' Association

10 Professor Rodney Tiffen

11 DigEcon Research

12 Confidential

Additional information

Associate Professor Tim Dwyer - 'Media owners steer government away from reform in the public interest', article dated 15 September 2016

Seven West Media - Venture Consulting, 'The Case for the Abolition of the Broadcast Licence Fee (Summary)', September 2016

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Appendix 2

Public hearing

Monday, 24 October 2016 - Sydney

Seven West Media

Mr Tim Worner, Chief Executive Officer

Ms Bridget Fair, Group Chief, Corporate and Regulatory Affairs

Professor Michael Fraser AM

Fairfax Media

Mr Greg Hywood, Chief Executive Officer

Emeritus Professor Rodney Tiffen

Ten Network Holdings

Mr Paul Anderson, Chief Executive Officer

Mrs Annabelle Herd, Director of Corporate and Regulatory Affairs

Emeritus Professor Graeme Turner

Prime Media Group

Mr Ian Audsley, Chief Executive Officer

Southern Cross Austereo

Mr Grant Blackley, Chief Executive Officer

WIN Network

Mr Andrew Lancaster, Chief Executive Officer

Department of Communications and the Arts

Dr Simon Pelling, First Assistant Secretary, Content Branch

Ms Cathy Rainsford, Assistant Secretary, Media Branch

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184

The Senate

Environment and Communications

Legislation Committee

Interactive Gambling Amendment Bill 2016 [Provisions]

November 2016

185

© Commonwealth of Australia 2016

ISBN 978-1-76010-501-3

Committee contact details

PO Box 6100 Parliament House Canberra ACT 2600

Tel: 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet: www.aph.gov.au/senate_ec

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was printed by the Senate Printing Unit, Parliament House, Canberra

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iii

Committee membership

Committee members

Senator David Bushby, Chair LP, Tasmania

Senator Larissa Waters, Deputy Chair AG, Queensland

Senator Anthony Chisholm ALP, Queensland

Senator Jonathon Duniam LP, Tasmania

Senator Jane Hume LP, Victoria

Senator Anne Urquhart ALP, Tasmania

Participating members for this inquiry

Senator Skye Kakoschke-Moore NXT, South Australia

Senator Kimberley Kitching ALP, Victoria

Senator Nick Xenophon NXT, South Australia

Committee secretariat

Ms Christine McDonald, Committee Secretary

Mr Colby Hannan, Principal Research Officer

Ms Fattimah Imtoual, Senior Research Officer

Ms Kirsty Cattanach, Research Officer

Ms Michelle Macarthur-King, Administration Officer

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v

Table of contents

Committee membership ................................................................................... iii

Chapter 1: Introduction ..................................................................................... 1

Overview and purpose of the bill ........................................................................... 1

Conduct of the inquiry ............................................................................................ 4

Reports of other committees ................................................................................... 4

Scope and structure of the report ............................................................................ 4

Chapter 2: Key issues ......................................................................................... 5

Overall views on the bill ......................................................................................... 5

Comments on specific measures ............................................................................ 7

Committee view .................................................................................................... 19

Additional comments from the Nick Xenophon Team .................................. 21

Appendix 1: Submissions and additional information received by the committee ........................................................................................................... 25

Appendix 2: Public hearing .............................................................................. 27

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190

Chapter 1

Introduction

1.1 On 10 November 2016, the Senate referred the provisions of the Interactive Gambling Amendment Bill 2016 to the Senate Environment and Communications Legislation Committee for inquiry and report by 30 November 2016.1

Overview and purpose of the bill

1.2 The bill contains proposed amendments to the Interactive Gambling Act 2001 (IGA), the Australian Communications and Media Authority Act 2005 (ACMA Act) and the regulations made under the IGA. The proposed amendments are designed to clarify the law regarding illegal offshore gambling and strengthen the enforcement mechanisms under the IGA and represent the first stage of the Australian government's process to implement recommendations of the 2015 Review of the impact of illegal offshore wagering (the Review).2

1.3 The minister's second reading speech on the bill explained that the Review found 'that the amount of money being spent on illegal wagering services could be as high as $400 million annually with a further $100 million in lost taxation revenue and product fees'. The minister made the following observations:

Offshore gambling has detrimental effects on the Australian wagering, racing and sporting industries, problem and at-risk gamblers, consumers and government. Offshore gambling operators do not pay Australian taxes, racing or sporting fees; they do not share information regarding suspicious betting activity with law enforcement or sporting bodies, which risks the integrity of Australian sport; they offer gambling services prohibited under Australian law; they can be used for money laundering and other criminal activities; and they provide minimal to no harm minimisation and consumer protection controls, which poses a threat to problem and at-risk gamblers.3

1.4 The IGA currently provides that providing an interactive gambling service to customers in Australia is an offence, although a range of services are excluded, such as telephone betting services.4 However, there is uncertainty around the legality of services under the IGA and enforcement has been minimal, with no prosecutions since the legislation was enacted in 2001 'despite a considerable number of complaints

1 Journals of the Senate, 10 November 2016, p. 448.

2 The Hon Alan Tudge MP, Minister for Human Services, Proof House of Representatives Hansard, 10 November 2016, p. 1. The review is also known as the 'O'Farrell Review', named after its lead reviewer, the Hon Barry O'Farrell.

3 The Hon Alan Tudge MP, Proof House of Representatives Hansard, 10 November 2016, p. 1.

4 Interactive Gambling Act 2001, ss. 5(3) and 15.

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made by Australians in relation to illegal online gambling services'.5 Consequently, the minister explained that stakeholders consider 'that offshore operators ignore the provisions of the IGA'. The minister continued:

Criminal prosecution is considered likely to be unsuccessful or ineffective due to the competing priorities of the Australian Federal Police, uncertainty around the legality of services under the…[IGA], evidence requirements and the offshore location of gambling operators'.6

1.5 The minister further explained that the Review cited research that found interactive gamblers are more likely to be problem gamblers than other gamblers, with 2.7 per cent of interactive gamblers being problem gamblers, compared to 0.9 per cent of all gamblers.7

1.6 The amendments in the bill relate to the government's response to recommendations 3 and 17 of the Review. In response to those recommendations, the government agreed to 'clarify the legality of services and strengthen the enforcement of the IGA including providing greater powers to the Australian Communications and Media Authority (the ACMA)'.8 The bill also contains disruption and deterrent measures.

1.7 Specifically, the bill would:

(a) clarify that it is illegal for overseas gambling companies to offer gambling products to Australians unless the person or company holds a licence issued by a state or territory;

(b) introduce a new civil penalty and infringement notice regime to be administered by the ACMA;

(c) prohibit 'click-to-call' in-play betting services, which are 'services where a customer can place a bet during a sporting event without speaking to a human operator' (that is, a service that enables a voice call to be made online using a recorded or synthetic voice)—the bill would require that dealings with customers to be wholly by way of spoken conversations between individuals (or an equivalent for a customer with a disability);9

5 The Hon Alan Tudge MP, Proof House of Representatives Hansard, 10 November 2016, p. 2.

6 The Hon Alan Tudge MP, Proof House of Representatives Hansard, 10 November 2016, p. 2.

7 The Hon Alan Tudge MP, Proof House of Representatives Hansard, 10 November 2016, pp. 1-2. See B O'Farrell, Review of illegal offshore wagering: Report to the Ministers for Social Services and the Minister for Communication and the Arts, December 2015, p. 38.

8 Explanatory Memorandum (EM), p. 1.

9 EM, pp. 4, 6. In his second reading speech, the minister stated that Australian licensed wagering operators began offering 'click to call' in-play betting services in 2015. Although the ACMA assessed that these services are 'potentially a prohibited interactive gambling service', the Australian Federal Police 'declined to investigate due to competing priorities and ambiguity around the legality of these services under the…[IGA]'. The Hon Alan Tudge MP, Proof House of Representatives Hansard, 10 November 2016, p. 2.

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(d) amend the complaint handling process by providing that the ACMA is responsible for all stages of the complaint handling process, with the current mandatory requirements for the ACMA to refer matters to an Australian police force to be removed;

(e) enable the minister to determine by legislative instrument that, for the purposes of the IGA, a specific thing is, or is not, a 'sporting event';

(f) require the ACMA to maintain a register of eligible regulated interactive gambling services to 'to raise awareness among Australian customers of interactive gambling services that should be avoided, as evidenced by their non-inclusion on the register';10

(g) introduce measures relating to illegal offshore gambling activity that would allow the ACMA to disclose information obtained through the exercise of its powers under Parts 3, 4 and 5 of the IGA to the Department of Immigration and Border Protection11 and foreign regulators; and

(h) remove the requirement for a report to be prepared and tabled in Parliament each calendar year on contraventions of Part 7A of the IGA—the EM advised that 'this information will be included in the ACMA's annual report, which is also tabled in Parliament'.12

1.8 To clarify that the provision of regulated interactive gambling services by unlicensed operators is prohibited (see paragraph 1.7(a) above), the bill proposes that two types of interactive gambling services would be recognised in the IGA:

• 'prohibited interactive gambling services', which would replace the term

'interactive gambling service' that is currently used in the IGA; and

• 'regulated interactive gambling services'. 13

1.9 Following these amendments, the IGA would stipulate that a person is prohibited from providing regulated interactive gambling services to Australians unless the person holds a licence under the law of an Australian state or territory. An offence and civil penalty would exist for contraventions of this provision.

1.10 It is proposed that the amendments in the bill would commence 28 days after Royal Assent.

10 EM, p. 5.

11 The EM noted that these proposed amendments will allow the ACMA to disclose 'the names of directors or principals of offending gambling services so they may be able to be placed on the Movement Alert List, and also so any travel to Australia may be able to be disrupted'. EM, p. 2; schedule 1, items 1, 3 and 5.

12 EM, p. 73.

13 Together, these terms are referred to as 'designated interactive gambling services'.

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Conduct of the inquiry

1.11 In accordance with its usual practice, the committee advertised the inquiry on its website and wrote to relevant individuals and organisations inviting submissions. The date for receipt of submissions was 21 November 2016.

1.12 The committee received 27 submissions, which are listed at Appendix 1. Form letters from 13 individuals were also received. The public submissions are available on the committee's website at www.aph.gov.au/senate_ec.

1.13 The committee also conducted a public hearing in Canberra on 28 November 2016. A list of the witnesses who gave evidence at that hearing is at Appendix 2.

1.14 The committee thanks all of the individuals and organisations that contributed to the inquiry.

Reports of other committees

1.15 When examining a bill or draft bill, the committee takes into account any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills. The Scrutiny of Bills Committee assesses legislative proposals against a set of accountability standards that focus on the effect of proposed legislation on individual rights, liberties and obligations, and on parliamentary propriety.

1.16 In its Alert Digest No. 9 of 2016, the Scrutiny of Bills Committee stated that it had no comment on the bill.14

Scope and structure of the report

1.17 This report comprises two chapters. The next chapter outlines the principal issues raised in submissions and provides the committee's findings.

1.18 As noted above, the committee conducted a public hearing on 28 November 2016. The public hearing enabled committee members to seek clarification of aspects of the arguments made by stakeholders and otherwise informed the committee's deliberations. However, the reporting deadline limited the extent to which the evidence taken during the public hearing can be directly cited in this report. Accordingly, the report focuses on the evidence received in submissions.

14 Senate Standing Committee for the Scrutiny of Bills, Alert digest, no. 9 of 2016, November 2016, p. 4.

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Chapter 2

Key issues

2.1 This chapter examines the evidence received by the committee in submissions to this inquiry. In some places throughout this chapter, the committee has decided to provide comments that respond to specific matters that have been raised. The committee's overall conclusions on the bill are at the end of the chapter.

Overall views on the bill

2.2 Many stakeholders advised that they support amendments to the Interactive Gambling Act 2001 (IGA) and other legislation contained in the bill, as well as the Australian government's efforts to improve interactive gambling legislation more generally. The Synod of Victoria and Tasmania, Uniting Church in Australia, and Uniting Communities advised that they support the bill1, as did the WA Parliamentary Secretary to the Minister for Racing and Gaming.2 The Royal Australian and New Zealand College of Psychiatrists (RANZCP) commended the government 'for its work in ensuring gambling legislation keeps pace with the rapidly changing gambling industry'. The RANZCP advised that, overall, it 'fully supports proposals to amend the…[IGA] to strengthen enforcement mechanisms related to offshore gambling'.3

2.3 CrownBet and Betfair Australia described the bill as being:

…an integral step in implementing the key recommendations from the Review of Illegal Offshore Wagering (O'Farrell Review) and in doing so, reduce the exposure of Australian consumers to illegal, offshore providers who do not offer the exacting standards of consumer protection and harm minimisation offered by the licensed and regulated Australian wagering industry.4

2.4 In outlining why it supports the bill, the Australian Hotels Association (AHA) explained that issues with the design and enforcement of the IGA mean there is a 'vacuum' in regulation at the Commonwealth level. It explained:

The federal government has limited involvement relating to the regulation of gambling with the…IGA…being its main regulation. However, the ingenuity of illegal foreign operators in the new digital economy, coupled with the lack of an appropriate federal government framework, have seen these operators effective in bypassing the protections, structures and returns

1 Synod of Victoria and Tasmania, Uniting Church in Australia and Uniting Communities, Submission 4, p. 1.

2 The Hon Colin Holt MLC, Parliamentary Secretary to the WA Minister for Racing and Gaming, Submission 3, p. 3.

3 Royal Australian and New Zealand College of Psychiatrists, Submission 10, p. 1.

4 CrownBet and Betfair Australia, Submission 8, p. [2].

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set by the Commonwealth, states and territories. Illegal operators have also been well aware that the current federal laws are rarely if ever enforced. This Bill is welcomed as it aims to provide a legislative and regulatory framework to replace the current vacuum that exists at a federal level.5

2.5 The AHA is of the view that the bill 'will deliver improved harm minimisation for consumers, integrity of sport, and protection of Australian sports and industry'.6

2.6 The Communications Alliance and the Australian Mobile

Telecommunications Association noted that comments they provided during departmental consultation on the exposure draft of the bill regarding the proposed register of eligible regulated interactive gambling services have been taken into account.7 The remainder of the joint submission from these communications industry bodies commented on the government's intent to consult with internet service providers about options to disrupt access to overseas-based online wagering providers who are not licensed in Australia. This is an issue under consideration by the government that is not addressed in the bill.

2.7 Harness Racing Australia (HRA) explained that it supports the bill, which it considered is 'a first step and reasonable start toward effective legislative reform to curb illegal wagering and minimise harm'. However, the HRA also commented on potential further disruption strategies considered by the Review that are not addressed in the bill.8

General comments on enforcement

2.8 Although stakeholders generally supported the proposed enforcement measures, some provided observations on the likely effects of the changes and suggested that additional measures are needed to support the new enforcement regime.

2.9 eCOGRA, which is a London-based organisation that provides self-regulation for members of the online gambling industry, argued that the key measures proposed by the bill need to be supported by:

• the replacement of the current state and territory licensing system with a national licensing scheme and national supervision of licence holders; and

• the implementation of 'national harm minimisation measures and consumer protection arrangements'.9

5 Australian Hotels Association (AHA), Submission 24, pp. 2-3.

6 AHA, Submission 24, p. 3.

7 Communications Alliance and the Australian Mobile Telecommunications Association, Submission 5, p. 1.

8 Harness Racing Australia, Submission 7, p. 2.

9 eCommerce on-line Gaming Regulation and Assurance (eCOGRA), p. 2.

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2.10 In particular, eCOGRA considered that successful investigation and enforcement of the proposed civil penalties will face significant challenges. eCOGRA recognised that the proposed new enforcement regime 'will provide a greater deterrent to some';10 however, eCGORA suggested that enforcement would be difficult in situations where the service providers 'are based in countries where the services are legal and are a substantial source of tax revenue for that country'. Furthermore, eCOGRA submitted:

Although civil penalties have a lower burden of proof in Australia, they will generally be no more enforceable in an overseas court than a criminal penalty (as they for the most part are characterised as fines).11

2.11 The Synod of Victoria and Tasmania, Uniting Church in Australia, and Uniting Communities noted that the Australian Communications and Media Authority (ACMA) will need 'to be provided with sufficient resources to carry out enforcement activities'.12

Comments on specific measures

2.12 Some submissions expressed opposition to, raised drafting concerns about, or sought clarification on particular proposed amendments. This evidence is examined in the following sections.

Prohibition on providing unlicensed regulated interactive gambling services

2.13 Proposed new subsection 15AA(1) would make it an offence for a person to intentionally provide a regulated interactive gambling service that has an Australian-customer link without holding a relevant licence issued by a state or territory.

2.14 Crownbet and Betfair Australia expressed concern about the inclusion of the term 'intentionally'. Their submission argued:

Given the ubiquitous nature of the internet, the ACMA will likely have significant difficulty in establishing the person had an intention to supply services to Australians. In the online space, a positive action is required to restrict people accessing a website from a certain jurisdiction; and in our view, many offshore operators are wilfully ignorant of Australia's gambling laws.13

10 eCOGRA, p. 6.

11 eCOGRA, p. 3.

12 Synod of Victoria and Tasmania, Uniting Church in Australia and Uniting Communities, Submission 4, p. 2.

13 CrownBet and Betfair Australia, Submission 8, p. [3].

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Committee comment

2.15 As a matter of principle, the committee considers that the need to establish criminal intention is appropriate for the offence provision in proposed subsection 15AA(1). The committee notes that the term 'intentionally' is used in existing offences in the IGA, such as in subsection 15(1).

Online in-play sports betting and click to call betting

2.16 The Synod of Victoria and Tasmania, Uniting Church in Australia, and Uniting Communities, welcomed the proposed amendment that would address the issue of 'click to call' in-play betting. Their joint submission stated:

The Synod and Uniting Communities believe the Government is right to be concerned about in-play betting as it moves sports betting and other wagering to be more of a continuous form of gambling. It is the understanding of the Synod and Uniting Communities the continuous forms of gambling are more likely to be associated with harmful gambling behaviours, as noted in the Regulatory Impact Statement. The submitting bodies welcome the amendment to the Interactive Gambling Act to ensure no online wagering business licensed in future through any State or Territory in Australia will be able to offer 'click-to-call' in play betting.14

2.17 The Australian Psychological Society described the proposed prohibition on 'click to call' in-play betting services as being 'a good example of disruption of ready accessibility as a harm minimisation measure'.15

2.18 Sportsbet, however, expressed opposition to these proposed amendments. It considered that a ban 'will ultimately drive more Australians to wager with illegal offshore operators'.16

2.19 Various other stakeholders took the opportunity presented by the inquiry to argue that the prohibition on online in-play betting services should be removed. Bet365 attributed the high usage of illegal offshore wagering services by Australians to the prohibition of online in-play sports betting imposed by the IGA. In developing its argument, Bet365 highlighted the popularity of this service elsewhere:

Online in-play sports-betting, which we obviously do not offer to Australian residents, is by far the largest of bet365's wagering segments and accounts for 75% of our worldwide wagering turnover (even after turnover on racing is taken into account).17

14 Synod of Victoria and Tasmania, Uniting Church in Australia and Uniting Communities, Submission 4, p. 1.

15 Australian Psychological Society, Submission 2, p. 2.

16 Sportsbet, Submission 19, p. 2.

17 Bet365, Submission 6, p. 4.

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2.20 Bet365 argued that removing the ban on online in-play sports betting would be the only effective means to reduce substantially the amount of illegal offshore wagering undertaken in Australia. Bet365 submitted:

No other strategy to reduce illegal offshore wagering will suffice—payment blocking and site blocking simply do not work and the offshore leakage in Australia is simply too big, and the resources too small, for other measures to do anything more than tinker around the edges of the problem.18

Definition of telephone betting service

2.21 The bill would provide that telephone betting services are not a prohibited interactive gambling service. To give effect to the prohibition on 'click to call' in-play betting services, the bill proposes amending the definitions of telephone betting service and voice call.

2.22 Proposed subsection 8AA(1) would provide that a telephone betting service is a gambling service where the service is provided on the basis that dealings with customers are wholly by way of voice calls made using a carriage service, and any conditions determined by the minister have been satisfied.

2.23 Under proposed subsection 8AA(3), a voice call would be defined as follows:

(a) a voice call (within the ordinary meaning of that expression) the content of which consists wholly of a spoken conversation between individuals; or

(b) if a call covered by paragraph (a) is not practical for a particular customer with a disability (for example, because the customer has a hearing impairment)—a call that is equivalent to a call covered by that paragraph.

2.24 Calls that include a recorded or synthetic voice or one or more tone signals are not covered by the above definition.19

2.25 Proposed subsection 8AA(8) would also provide that, despite the definition of a telephone betting service in proposed subsection 8AA(1), a gambling service is not a telephone betting service if the service is provided on the basis that any or all of the following information can be provided by a customer otherwise than by way of a voice call:

• a selection of a bet;

• a selection of a bet type;

• a nomination of a bet amount;

• a confirmation of a bet; and/or

18 Bet365, Submission 6, p. 5.

19 Item 25, proposed new subsection 8AA(4).

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• information of a kind determined by the minister.

2.26 Tabcorp questioned whether the provision of betting account login information by a customer must be communicated by voice. It advised that this issue 'may not be a problem if it is clear that the list in [sub]section 8AA(8) is non-exhaustive but this aspect of the customer interaction was notable to us by omission'. Tabcorp suggested that, 'if the intention is that account or other identification information must be communicated by voice', then to subsection 8AA(8) should be 'amended accordingly to avoid doubt and ambiguity'.20

Place-based betting service

2.27 The bill would introduce the concept of a place-based betting service and provide that it is an excluded service (that is, it would not be a prohibited interactive gambling service).21 The explanatory memorandum (EM) advised that this new definition is intended to clarify 'that electronic betting terminals can continue to be provided in places where the provider is licensed under a law of a State or Territory to provide such services (e.g. TABs, casinos, hotels and clubs)'.22

2.28 Tabcorp supported the introduction of this measure. It stated:

Tabcorp welcomes the introduction of section 8BA and the recognition that pubs, clubs, TABs and race tracks in particular are accepted by the community as appropriate places to bet. These locations are already heavily regulated by State and Territory laws and operate within well-developed harm minimisation frameworks.23

2.29 Tabcorp suggested, however, that the definition of a place-based betting service could be tightened by adding the following elements:

• that 'the relevant customer is actually at the particular place at the time the service is conducted'; and

• that 'the licensee is licensed (however described) under the law of the relevant State or Territory in which that place is located that authorises the provision of the service at that place'.24

2.30 Tabcorp provided the following justification for its suggested amendments:

These suggested additions may seem nuanced but are important in the context of preserving the exclusive retail frameworks that apply to Australian totalisator operators. Totalisator operators have the important

20 Tabcorp, Submission 18, p. 2.

21 Items 23 and 27; proposed new paragraph 5(3)(aba) and section 8BA.

22 Explanatory Memorandum (EM), p. 2.

23 Tabcorp, Submission 18, p. 2.

24 Tabcorp, Submission 18, p. 2.

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role of funding the Australian racing industry and contributing to various stakeholders including State and Territory governments, hotel and club owners and others.

Experience with the…[IGA] to date has shown that many domestic and international operators will look to exploit any perceived vulnerabilities in this regard.25

2.31 Bet365 advised that it is opposed to the proposal for a place-based betting service to be an excluded service. Bet365 explained:

Whilst bet365 believes that the existing prohibition on online in-play sports-betting should be removed from the…[IGA], it does not believe that, whilst this prohibition remains in place, in-play betting that takes place via self-service terminals and/or tablets and other devices should be allowed. There is no justification for this carve-out.26

2.32 Bet365 added:

This measure, if adopted, will mean that Commonwealth legislation for the first time will make certain types of online in-play betting on sport legal in Australia. There is no justification for why these 'placed based' types of in-play betting will be legal but the prohibition on in-play bets placed online will remain.27

2.33 Bet365 continued that the proposed change 'will retrospectively legitimise the in-play sports-betting functionality on around 5000 self-service betting terminals in TABs, clubs and pubs' and 'will specifically allow for a very rapid expansion— especially by TAB outlets—of tablet/iPad-style devices with in-play sports-betting functionality into many more locations'.28

2.34 CrownBet and Betfair Australia presented similar arguments regarding the proposed exclusion of place-based betting services. It submitted that 'there can be no logical distinction drawn between a customer wagering in a retail premises on their own device and on an identical device provided to them by a wagering service provider'.29 Furthermore, CrownBet and Betfair Australia argued that:

…the breadth of section 8BA allows retail operators to offer in-play betting services that are identical, in terms of the high speed of bet placement, as an online wagering service. There is further no interaction required whatsoever with an operator, and no human supervision, unlike electronic betting terminals, which are permitted only in designated wagering areas and required to be staffed at all times.

25 Tabcorp, Submission 18, p. 2.

26 Bet365, Submission 6, p. 1.

27 Bet365, Submission 6, p. 6.

28 Bet365, Submission 6, pp. 5, 7.

29 CrownBet and Betfair Australia, Submission 8, p. [4].

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This proposed provision therefore undermines the primary reasons that the Government has not sought to prohibit retail or telephone in-play wagering. This is an anomaly that undermines the principles of platform-neutrality and the perceived protections that the Government considers consumers receive when engaging in retail or telephone based wagering.30

2.35 Crownbet and Betfair Australia recommended that proposed new section 8BA 'be made subject to the same restrictions as apply to an excluded wagering service and should be prohibited to the extent which it constitutes and in-play betting service'.

If, however, the exemption is allowed to remain, CrownBet argued it should be 'limited to electronic betting terminals (rather than "electronic equipment")' and subject to various restrictions.31

2.36 The AHA responded to the arguments made against place-based betting. The AHA countered that these arguments are not 'based on principles of harm minimisation or consumer protection'; rather, they are 'simply aimed at neutralising what the corporate bookmakers see as a lost commercial opportunity'. The AHA noted that 'many of the corporate bookmakers originate from the UK where they have always operated place-based wagering services'. The AHA observed:

…it is…open for the corporate bookmakers to gain place-based wagering licences, however they choose not to do so. This is because of the higher entry costs, their strong desire to not pay state based taxes, and the higher capital and servicing costs required to service place-based customers.32

2.37 The AHA also responded to the arguments put forward about the 'electronic equipment' used in place-based betting. It submitted:

The Bill proposes to the effect to continue allowing place-based customers to use electronic equipment provided by a venue to place bets. It seems that this provision has raised objections amongst corporate bookmakers. The clear distinction between a Pub Tab and a corporate bookmaker is that the Pub Tab still offers better harm minimisation and consumer protection measures than an online corporate bookmaker.

For example, a key distinction between Pub Tabs and corporate bookmakers is that any bet placed with a Pub Tab by way of electronic equipment is that they must be by way of cash or a cash based card; credit card betting is expressly prohibited. In comparison, corporate bookmakers take deposits via credit card, thus enabling punters to bet with money they don't have.33

30 CrownBet and Betfair Australia, Submission 8, p. [4].

31 CrownBet and Betfair Australia, Submission 8, pp. [4]-[5].

32 AHA, Submission 24, p. 4.

33 AHA, Submission 24, p. 5.

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Definition of sporting events

2.38 The bill would enable the minister to determine by legislative instrument that a specific thing is, or is not, a 'sporting event'. Proposed subsection 10A(4) provides a list of 'examples of things' that the minister may specific are to be taken as a sporting event or not to be taken as a sporting event.34

2.39 Free TV Australia advised that it does not support the approach taken in the bill to defining a sporting event. Free TV considers that the drafting:

…leaves a core regulatory obligation to be determined by the Minister, creates significant uncertainty regarding the impact of the Bill and exposes regulated parties to potentially significant regulatory change on short notice.35

2.40 Free TV argued that the bill 'should be amended to include a definition of sporting event or alternatively, the proposed legislative instrument should accompany the bill'.36

2.41 Tabcorp supported the proposed ministerial discretion for determining what is a sporting event. Tabcorp submitted that this approach 'is well-considered and provides appropriate flexibility to accommodate changes and new events over time'.37 Nevertheless, Tabcorp called for an exposure draft of the legislative instrument to be released 'in the near term'. It submitted:

The changes being instituted by the Bill will require changes to current systems and processes for Tabcorp and other operators. Early insight in relation to the proposed outcome will allow for the requisite transition planning to occur.38

2.42 Crownbet and Betfair also expressed support for the ministerial determination proposal, although it expressed concerns about the definition of a sporting event. Crownbet and Betfair submitted:

…the approach adopted in the Bill necessarily means that once a sporting event has commenced, all wagering online must cease. Whilst this is indeed the appropriate course of action for a football match, we do not agree that it should be the case for single events that are played over multiple days, where play actually stops (typically overnight) and the event is clearly not 'in-play'.39

34 The list comprises the following: a match; a series of matches; a race; a series of races; a stage; a time trial; a qualification session; a tournament; and a round.

35 Free TV Australia, Submission 11, pp. 1-2.

36 Free TV Australia, Submission 11, p. 2.

37 Tabcorp, Submission 18, p. 3.

38 Tabcorp, Submission 18, p. 3.

39 CrownBet and Betfair Australia, Submission 8, p. [5].

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2.43 Crownbet and Betfair used a golf tournament to illustrate their concerns:

For example,

(a) the British Open Golf Tournament will be a sporting event, with the consequence that once it has commenced, in-play bets cannot be taken on the outcome of that event (i.e. the ultimate winner of the tournament);

(b) however, each round is also likely to be declared a sporting event, such that bets can be placed on round 2 prior to the commencement of that round but after the commencement of round 1, without the service being an in-play betting service and therefore prohibited;

(c) so, combining these elements, at the conclusion of round 3, bets can be taken on round 4, but not (as currently drafted) on the ultimate winner of British Open.40

2.44 CrownBet and Betfair argued that events such as golf tournaments and test cricket matches 'feature lengthy scheduled breaks, during which there is no sporting activity and no opportunity for repetitive wagering of the type the IGA was initially introduced to address'. Accordingly, CrownBet and Betfair recommended that the bill be amended to introduce a new concept of a 'scheduled extended play break', which would be used to 'provide that a gambling service is not an in-play betting service to the extent to which it is offered during a scheduled extended play break'. It was suggested that a scheduled extended play break could be defined 'to include any hiatus in play which extends overnight, or for more than a prescribed period (e.g. 2 hours)'.41

2.45 Sportsbet raised similar concerns and also suggested that the bill be amended to introduce the concept of a scheduled extended play break, which it considered should be 'defined to include any hiatus in play which extends for a prescribed period of more than 1 hour'.42

2.46 The EM envisaged that arguments about the nature of sporting events would be put forward. The following statement in the EM addressed this issue and emphasised that the ministerial determination would enable flexibility where needed:

From time to time, gambling operators claim that parts of sporting events, such as the innings of a test cricket match, are sporting events in their own right. It is therefore necessary to provide clear direction about what is to be treated as a sporting event in particular for the purposes of the prohibition against in-play betting on sporting events. Sporting events and betting markets continually evolve both in Australia and overseas so it is also necessary that specific rules can be developed in a timely fashion for new forms of a current sport or new sports. Allowing for the making of

40 CrownBet and Betfair Australia, Submission 8, pp. [5]-[6].

41 CrownBet and Betfair Australia, Submission 8, p. [6].

42 Sportsbet, Submission 19, p. 2.

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legislative instruments on this matter enables direction to be provided while allowing sufficient flexibility to deal with change.43

2.47 Finally, Free TV Australia queried the status of horse, harness and greyhound racing events. The ban on in-play betting does not apply to horse, harness and greyhound racing events; however, Free TV suggested that the minister could include these racing events in a ministerial determination of what is, and what is not, a sporting event. The effect of this, according to Free TV, would be the introduction of 'a new ban on bets taken after a horse race, harness race or greyhound race have commenced'. Free TV argued that the bill should be amended to 'make it clear that horse, harness and greyhound races are not and cannot be sporting events and, therefore, continue to be excluded from the ban on in-play betting'.44

Committee comment

2.48 The committee draws the evidence regarding the status of events such as golf tournaments and cricket matches to the government's attention for consideration as to whether amendments are required.

2.49 In relation to the concerns about the status of in-play betting on horse, harness and greyhound races, the committee makes the following observations. Proposed new subsections 8A(1) and (2) expressly provide that a service is an excluded wagering service to the extent to which the service relates to betting on, or on a series of, a horse race, a harness race or a greyhound race so long as the other conditions (if any) determined by the minister have been satisfied.45 The bill then separately deals with sporting events in proposed new subsections 8A(3) and (4). The bill provides that a service is an excluded wagering service in relation to a sporting event, among other things, to the extent that the service is not an in-play betting service. The bill does not apply this requirement to the races specified in proposed subsection 8A(1).

2.50 Accordingly, the committee does not agree that the bill can be interpreted to enable the minister, through a legislative instrument that determines sporting events, to affect the treatment of horse, harness and greyhound races.

Advertising

2.51 Section 61FD of the IGA provides that licensees under the Broadcasting Services Act 1992 are subject to the condition that they will not broadcast an interactive gambling service advertisement. The bill would change this requirement to provide that a licensee cannot broadcast a designated interactive gambling service advertisement. This includes both prohibited interactive gambling services and unlicensed regulated interactive gambling services.

43 EM, p. 4.

44 Free TV Australia, Submission 11, p. 3.

45 Item 26, proposed new subsections 8A(1) and (2).

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2.52 Free TV Australia noted that unlicensed regulated interactive gambling services 'include foreign state operated or licensed totalisators, lotto and lotteries as well as foreign bookmakers', some of which are 'likely to appear as sponsors of racing and sporting events broadcast in Australia'.46 Free TV argued that the proposed amendment 'means that broadcasting of foreign content and live coverage of overseas sport will carry substantial increased risk'.47 It added:

While we note the exceptions in relation to accidental or incidental publication and publication by persons not receiving any benefit (at ss 61ED and 61EE), the expanded advertising prohibition and licence condition significantly increases the number of brands and sponsors made subject to the ban that must be recognised by broadcasters, and will potentially prohibit content for which no consideration has been received by the broadcasters, if the content does not fall within the narrow confines of 'accidental or incidental'. For example, bona fide news and sports coverage could potentially be captured if it includes a direct intentional reference to a lottery or bookmaker that was licensed in the relevant country of origin.48

2.53 Free TV also referred the committee to section 92 of the Regulatory Powers (Standard Provisions) Act 2014, which, among other things, states that a person must not 'aid, abet, counsel or procure a contravention of a civil penalty provision'. A person who contravenes this requirement relation to a civil penalty provision is taken to have contravened the provision. Free TV expressed concerns that the proposed civil penalty provisions would mean that:

…any person involved with the publication of footage which contains a reference to an unlicensed gambling service, may find themselves in breach of the relevant civil penalty provision under the IGA.49

Committee comment

2.54 The committee notes that the intention of the advertising restrictions is to prevent designated interactive gambling services being advertised to Australians. The committee also notes that when the advertising restrictions were originally introduced, it was acknowledged that unintended consequences of the advertising prohibition could arise.50 Accordingly, section 61BGA provides a regulation-making power that can exempt particular types of advertisements. If the government considers the concerns about the implications of the bill for broadcasters have merit, the regulation-making power could be used to provide certainty to broadcasters.

46 Free TV Australia, Submission 11, p. 2.

47 Free TV Australia, Submission 11, p. 3.

48 Free TV Australia, Submission 11, p. 2.

49 Free TV Australia, Submission 11, p. 3.

50 Explanatory Memorandum, Interactive Gambling Amendment Bill 2001.

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'Other events or contingencies'

2.55 Under proposed section 8A, excluded wagering services are determined with reference to three categories: betting on racing, on sporting events and on other events or contingencies. Regarding the third category, proposed paragraph 8A(5)(a) refers to 'an event', 'a series of events' or 'a contingency'. Free TV submitted:

…the Bill seems to permit betting on the outcome of a series of events that are 'actual or contemplated' but does not permit betting on whether or not particular events will happen (i.e. contingencies). Accordingly, it appears unclear how the provision applies to services which relate to betting on a series of contingencies, for example, such as commonly occur in fantasy sports and novelty bets. Fantasy sport and novelty betting are recognised forms of wagering.

The selection of a successful fantasy sports team requires a close familiarity with players and relative player performance. It involves betting on a combination of events and contingencies but does not involve impulsive or in-play betting. This form of wagering is very popular in the United States and the UK and of increasing popularity in Australia. The amended law and EM should make clearer that Australian licensed fantasy wagering services and novelty bets are excluded wagering services for the purposes of the Act.51

2.56 Free TV recommended that the bill be amended:

• so that the definition of excluded wagering service in proposed

paragraph 8A(5)(a) also includes 'a series of contingencies'; and

• to provide that betting on events and contingencies, or a series of events and contingencies 'individually or in combination, including as may occur in a sporting event or series of sporting events' is permitted.52

Committee comment

2.57 The EM noted that the amendments to the definition of excluded wagering services in proposed section 8A are, with some exceptions, 'largely intended to simplify the drafting of the definition, without substantially changing the effect of the provisions'.53

2.58 The IGA currently uses the terms 'an event', 'a series of events' and 'a contingency' to refer to betting on things other than a horse race, a harness race, a greyhound race or a sporting event. The committee notes that the overall intent of this amendment is to simplify the existing drafting; however, the committee draws the

51 Free TV Australia, Submission 11, p. 4.

52 Free TV Australia, Submission 11, p. 4.

53 EM, p. 52.

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evidence received from Free TV Australia to the government's attention in case further amendments would be desirable to update the legislation.

Online poker services

2.59 The committee received a small number of submissions and form letters from individuals expressing concern about the consequences of the bill for online poker services. Online casino-style gaming services of chance or mixed skill and chance, such as poker, which are played for money or anything else of value, are currently prohibited services under the IGA.54 The submissions called for the bill to be amended to enable reputable operators of online poker services to be licensed to offer online poker in Australia. In support of this argument, submitters noted the following:

…thousands of Australians enjoy playing online poker recreationally as an entertaining gambling game of skill, as opposed to other forms of gambling like online slots/pokies that are games of chance with no skill aspect, no social aspect and increased risks of problem gambling for consumers.55

2.60 The following extract from the submissions is the crux of the issue:

We believe it is our right as consenting adults to participate in a game of skill with our money for entertainment if we choose to do so.56

Committee comment

2.61 The submissions relating to online poker services demonstrate the balance between individual freedoms and harm minimisation that gambling regulation strikes. People who gamble responsibly and are willing to take responsibility for their own actions understandably object to their activities being restricted. However, the regulatory framework recognises that problem and at-risk gamblers can be exposed to significant danger. Problem gambling affects not just the individuals concerned; there are considerable flow-on effects for others in society.

2.62 The bill does not change the existing policy decisions about what services should be available and how they should be regulated. Rather, the bill seeks to enforce the original intent of the IGA, which is to minimise the scope of problem gambling amongst Australians. Whether particular services should no longer be restricted under the IGA is a separate question that this committee was not asked to consider as part of this inquiry.

54 Explanatory Memorandum, p. 13.

55 Form Letter 1, p. 1.

56 Form Letter 1, p. 1.

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Committee view

2.63 The IGA was enacted in 2001 following concerns that online gambling services had 'the potential to greatly increase the accessibility to gambling and exacerbate problem gambling among Australians'.57 It is apparent that this prediction has been realised. The overall online wagering market in Australia has had an annual growth rate of 15 per cent since 2004. Although the amount of gambling expenditure by Australians on offshore websites is difficult to estimate, upper estimates place it at $400 million per year. In addition, evidence suggests that the rate of problem gambling among interactive gamblers is higher than the rate among all gamblers.58

2.64 In light of these findings, the committee considers that any identified weaknesses in the existing regulatory framework need to be addressed promptly. The bill contains important amendments to the IGA in this regard. Following the in principle agreement between the Australian, state and territory governments reached on 25 November 2016, the bill will also be supplemented by a national consumer protection framework for online wagering. Among other things, the framework will include:

• a national self-exclusion register for online wagering;

• a voluntary pre-commitment scheme for online wagering; and

• prohibition of lines of credit being offered by wagering providers. 59

2.65 The amendments proposed in the bill will enable consumers to be better informed, allow enforcement that is more effective and will enhance the deterrent effect of the IGA. In particular, the bill would address the ambiguity around the legality of gambling services under the IGA and would introduce a civil penalty regime that will support the existing criminal provisions. Consumers also benefit from other proposed measures that will improve complaints handling processes and ensure information indicating which operators are providing legal services is readily available.

2.66 Nevertheless, the committee recognises that if the proposed changes are enacted, it is likely that successful enforcement of the IGA will continue to be challenging. As the requirement for an annual report to Parliament on contraventions of Part 7A of the IGA will be repealed by the bill, it is particularly important that the ACMA includes useful information about the enforcement of the IGA in its annual report to enable senators and policymakers to monitor the effectiveness of the legislation.

57 Explanatory Memorandum, Interactive Gambling Bill 2001, p. 1.

58 B O'Farrell, Review of illegal offshore wagering: Report to the Ministers for Social Services and the Minister for Communication and the Arts, December 2015, pp. 38, 46 and 52.

59 The Hon Alan Tudge MP, 'Gambling Ministers agree to consumer protection framework for online wagering', Media release, 25 November 2016.

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2.67 Although the committee agrees with the overall approach and drafting of the bill, the committee acknowledges that some stakeholders have raised technical issues or are seeking clarification on specific matters. These technical drafting matters do not change the committee's overall view on the bill: the committee recommends that the bill be passed as it contains sensible measures that should be in force as soon as possible. Nevertheless, in this report the committee has highlighted the drafting matters and specifically drawn some issues to the government's attention for consideration before the bill is debated in the Senate. In addition, the committee notes that parts of the explanatory memorandum could be revised to provide the clarification sought by stakeholders.

Recommendation 1

2.68 The committee recommends that the bill be passed.

Senator David Bushby Chair

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Additional comments from the Nick Xenophon Team Use of electronic devices in licensed venues

1.1 The Nick Xenophon Team (NXT) are concerned that provisions in the Interactive Gambling Amendment Bill 2016 provide further opportunities for licensed betting venues to offer electronic betting devices. Section 8BA of the proposed amendment provides for venues to loan customers electronic equipment for gambling use.1 The NXT has concerns that this bill allows for place-based electronic betting through the introduction or expansion of electronic devices such as tablets and smartphones, which provide for in-play betting, and allow fast betting opportunities.

1.2 In the bill's Explanatory Memorandum, the definition of 'electronic device' is not explained or expanded upon.2 This definition currently includes venue kiosks, but is not restricted to such devices.

1.3 As raised by Bet365 in their submission, this amendment allows for the expansion of the use of electronic devices including tablets and smartphones with an in-play betting function within licensed betting venues.3 In response to our question on notice regarding concerns about the continued availability of in-play betting, the Department stated that:

The 'place-based betting service' exemption in proposed section 8BA is intended to permit betting services, including potentially in-play betting services, to be provided on electronic equipment (which may include easy betting terminals and/or tablets) made available to customers in places such as TABs, casinos and clubs.4

1.4 In response to concerns raised by Senator Kakoschke-Moore during a public hearing, the Department stated they have in fact done no modelling to determine whether this amendment will lead to an uptake of betting in venues, due to the increased availability of these electronic devices:

Senator KAKOSCHKE-MOORE: Have you done any modelling to anticipate the increase in uptake of betting in venues via the increased availability of smartphones or tablets?

Dr Pelling: No, but I think the point is, as we have said, this is about making sure that we clarify in the act that services which are already

1 Interactive Gambling Amendment Bill 2016, s. 8BA.

2 Explanatory Memorandum (EM), p. 5.

3 Bet365, Submission 6, p. 2.

4 Department of Communications and the Arts, Answers to questions on notice, 28 November 2016 (received 29 November 2016).

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available continue to be available where they are licensed by states and territories in those sorts of venues.5

1.5 The NXT is concerned that it appears as if the amendment will expand the opportunities for in-play betting, without addressing any of the concerns that this may increase opportunities for gambling, and create faster betting options.

Harm minimisation

1.6 In their submission, CrownBet and Betfair Australia described the bill as being a step forward to ensuring that all Australian consumers are protected by the same harm minimisation strategies as 'offered by the licensed and regulated Australian wagering industry'.6 The NXT has concerns that as the current harm minimisation tactics used within licensed venues are inadequate, these new strategies will be largely ineffective.

1.7 During the public hearing, Senator Kakoschke-Moore asked the Department whether they were satisfied that the harm minimisation strategies, which are in place at hotels and pubs, are actually working. Dr Simon Pelling, a First Assistant Secretary of the Department of Communications and the Arts, stated that ensuring harm minimisation strategies are effective is a matter for the states and territories.7 The NXT believes more can be done at a federal level to improve harm minimisation.

1.8 In their submission, the Australian Hotels Association (AHA) also regarded the bill as a vehicle to improve harm minimisation for consumers.8 It appears this amendment provides for the expansion of the gambling market as more betting devices will be available for use within venues. We note it could hardly be argued that the expansion of the gambling market would result in better outcomes for problem gamblers, and people prone to gambling addiction.

1.9 NXT notes that when Senator Xenophon asked what responsible gambling codes of practices the AHA rely upon to ensure that there are strategies to deal with problem gambling, the representative from AHA was unable to name one. It is concerning that the representative from AHA supports in-play betting within licensed venues as he believes that current harm minimisation strategies are effective, without being able to recall a guideline or code of practice:9

Senator XENOPHON:…Finally, there is always an issue about how to deal with problem gambling and safeguards in terms of determining whether

5 Committee Hansard, 28 November 2016, p. 10.

6 CrownBet and Betfair Australia, Submission 8, p. [2].

7 Dr Simon Pelling, First Assistant Secretary, Department of Communications and the Arts, Committee Hansard, 28 November 2016, p. 11.

8 Australian Hotels Associations (AHA), Submission 24, p. 2.

9 Mr Stephen Ferguson, Chief Executive Officer, Australian Hotels Association, Committee Hansard, 28 November 2016, p. 3.

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someone is a problem gambler. Can you please provide on notice, given that this is going to be a new service, the code of practice, the responsible gambling code that you rely on or your training manuals for how you determine whether someone within a venue has gambling problems and how you intervene? Presumably, you have manuals.

Mr Ferguson: To clarify: betting in play in hotels is not a new service. This has been occurring since 2001 and did not form part of this review. The answer to the question would be that every venue has practices in place that are often—

Senator XENOPHON: There is no uniform practice?

Mr Ferguson: It is state by state, territory by territory.

Senator XENOPHON: What about one or two jurisdictions, if you can? Just point us to them and how they deal with it. That is all I ask.

Mr Ferguson: I do not have that with me.10

1.10 The lack of a definition for 'electronic devices' within the amendment appears to provide an opportunity for gambling services to expand their bet-placing opportunities within licensed venues, allow in-play betting within an electronic device, and decrease waiting times to place bets.

1.11 The NXT are concerned about the impact these amendments might have on problem gamblers, and the lack of protection the amendment provides. In our experience working with problem gamblers, staff rarely intervene in betting venues when they believe a customer is struggling to control their gambling. These promoted 'harm minimisation' strategies rarely achieve their desired results, and with the proposed expansion of betting devices within venues due to this amendment, the NXT considers that this amendment is problematic.

Senator Nick Xenophon Senator for South Australia Senator Skye Kakoschke-Moore Senator for South Australia

10 Committee Hansard, 28 November 2016, p. 6.

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Appendix 1

Submissions and additional information received by the committee

Submissions

1 eCOGRA

2 Australian Psychological Society

3 Government of Western Australia

4 Synod of Victoria and Tasmania, Uniting Church in Australia, and Uniting Communities 5 Communications Alliance and Australian Mobile Telecommunications Association 6 Hillside (Australia New Media) Pty Ltd t/a bet365 7 Harness Racing Australia

8 CrownBet and Betfair Australia

9 Name Withheld

10 The Royal Australian and New Zealand College of Psychiatrists 11 FreeTV Australia

13 Name Withheld

14 Mr Martin Kozlov

15 Name Withheld

16 Mr Shane Murray

17 Mr Ricky Vikas

18 Tabcorp Holdings Limited

19 Sportsbet Pty Ltd

20 Forsius Consulting (Australia) on behalf of Netsweeper 21 Name Withheld

22 Mr Chris Morosini

23 Mr Michael Bannar-Martin

24 Australian Hotels Association

• Correction to submission 25 Name Withheld

26 Name Withheld

27 Mr Cohen Borgault Van De Coudray 28 Mr Dylan Parker

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Form letters

Form letter type 1: 13 received

Answers to questions on notice

Australian Hotels Association - answers to written questions on notice, received 29 November 2016

Australian Hotels Association - 'Tabcorp Wagering Responsible Gambling Code of Conduct', provided as an answer to a question taken on notice, received 29 November 2016

Department of Communications and the Arts - answers to written questions on notice, received 29 November 2016

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Appendix 2

Public hearing

Monday, 28 November 2016 - Canberra

Australian Hotels Association

Mr Stephen Ferguson, Chief Executive Officer

Department of Communications and the Arts

Dr Simon Pelling, First Assistant Secretary, Content Division

Mr Andrew Verdon, Manager, Online Gambling

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The Senate

Foreign Affairs, Defence and Trade

Legislation Committee

Civil Nuclear Transfers to India Bill 2016 [Provisions]

November 2016

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ii

 Commonwealth of Australia 2016

ISBN 978-1-76010-489-4

Foreign Affairs, Defence and Trade Committee Department of the Senate PO Box 6100 Parliament House Canberra ACT 2600 Australia

Phone: + 61 2 6277 3535 Fax: + 61 2 6277 5818 Email: fadt.sen@aph.gov.au Internet: http://www.aph.gov.au/senate_fadt

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/

Printed by the Senate Printing Unit, Parliament House, Canberra.

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Committee Membership

Senator Chris Back, Chair LP, WA

Senator Alex Gallacher, Deputy Chair ALP, SA

Senator the Hon Eric Abetz LP, TAS

Senator David Fawcett LP, SA

Senator Scott Ludlam AG, WA

Senator Claire Moore ALP, QLD

Secretariat

Mr David Sullivan, Committee Secretary

Mr Owen Griffiths, Principal Research Officer

Ms Casey Mazzarella, Senior Research Officer

Ms Kimberley Balaga, Research Officer

Ms Shannon Ross, Administrative Officer

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Table of Contents

Committee Membership ................................................................................... iii

Chapter 1.............................................................................................................. 1

Introduction .............................................................................................................. 1

Referral of inquiry .................................................................................................. 1

Conduct of inquiry .................................................................................................. 1

Background ............................................................................................................. 1

Purpose of the bill ................................................................................................... 3

Chapter 2.............................................................................................................. 7

Issues raised in evidence .......................................................................................... 7

Introduction ............................................................................................................ 7

Conflict with international obligations ................................................................... 7

India-specific issues ................................................................................................ 8

Subjective wording of the bill .............................................................................. 11

Expected benefits of the bill ................................................................................. 12

Committee view .................................................................................................... 14

Appendix 1 ......................................................................................................... 17

Submissions and additional information .............................................................. 17

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Chapter 1 Introduction

Referral of inquiry 1.1 On 9 November 2016, the Civil Nuclear Transfers to India Bill 2016 (the bill) was introduced in the House of Representatives by the Minister for Foreign Affairs, the Hon Julie Bishop MP. On 10 November 2016, the Senate referred the provisions of the bill to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report by 24 November 2016. The Selection of Bills Committee listed the following reasons for referral:

To ensure the bill achieves the object of codifying, for the special case of India, and for the purposes of the relevant laws, the content of Australia's relevant international obligations in relation to nuclear safeguards to be applied by the IAEA [International Atomic Energy Agency] in India.1

Conduct of inquiry 1.2 The committee advertised the inquiry on its website, calling for submissions to be lodged by 17 November 2016. The committee also wrote directly to a range of individuals and organisations likely to have an interest in the bill, drew their attention to the inquiry and invited them to make written submissions.

1.3 The committee received nine submissions to the inquiry. These submissions are listed at Appendix A and are published on the committee's website.

Background 1.4 On 5 September 2014, the Agreement between the Government of Australia and the Government of India on Cooperation in the Peaceful Uses of Nuclear Energy (the Agreement) was signed in New Delhi. On 28 October 2014, the Agreement was tabled in the Parliament and referred to the Joint Standing Committee on Treaties (JSCOT). JSCOT made six recommendations in the report tabled on 8 September 2015, including:

• urging the Australian Government to commit significant diplomatic resources to encouraging India to become a party to the Comprehensive Test Ban Treaty, and to negotiate a Fissile Material Cut-Off Treaty;

• that the Australian Government consider facilitating the negotiation of a

nuclear arms limitation treaty for the Indian subcontinent region;

• that, should the Australia-India Agreement be ratified, uranium sales to India only commence once:

- India has achieved the full separation of civil and military nuclear facilities, as verified by the IAEA;

1 Selection of Bills Committee, Report No. 8 of 2016, 10 November 2016, Appendix 1.

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- India has established an independent nuclear regulatory authority under

law;

- the Indian nuclear regulator's existing policies and arrangements have been reviewed to ensure its independence;

- the frequency, quality and comprehensiveness of onsite inspections at nuclear facilities have been verified by the IAEA as being best practice standard;

- the lack of sufficient planning for the decommissioning of nuclear

facilities has been rectified;

• that the Australian Government outline the legal advice it has received regarding the consent to enrichment provisions in Article VI of the proposed Australia-India Agreement; and

• that the Australian Government outline the legal advice it has received

concerning whether the proposed Australia-India Agreement breaches Australia's obligations under the South Pacific Nuclear Free Zone Treaty (Rarotonga Treaty).2

Government response to JSCOT report

1.5 The Australian Government tabled a response to the committee's six recommendations on 11 November 2015.

1.6 The response to recommendation one and two provided assurance that India has been a key focus of its efforts to promote entry into force of the Comprehensive Nuclear-Test Ban Treaty as well as negotiations towards a fissile material cut-off treaty.3 It noted that although only the states involved can decide to negotiate an arms limitation agreement, Australia and India have established an annual dialogue to discuss issues on nuclear disarmament and ways to reduce the risk of nuclear conflict in the region.4

1.7 Of particular interest to this inquiry is the government's response to recommendation three, which suggested that uranium sales to India only commence once certain conditions are met. Although the response agreed with the committee on the importance of the conditions raised, it stated the government was satisfied that steps had been taken to address each condition, and did not agree that exports to India should be deferred.5

1.8 The response noted that the Agreement already provides adequate provisions for the separation of India's civil and military facilities, and pointed out that India is

2 Joint Standing Committee on Treaties, Report 151: Treaty tabled on 28 October 2014, September 2015, pp xiii-xiv.

3 Australian Government Response to the Joint Standing Committee on Treaties Report 151, p. 1.

4 Australian Government Response to the Joint Standing Committee on Treaties Report 151, pp 1-2.

5 Australian Government Response to the Joint Standing Committee on Treaties Report 151, p. 4.

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working to enhance its regulation in nuclear safety. The response noted that the remaining conditions were similar to those made by the Integrated Regulatory Review Service (IRRS), which provided an in-depth review of India's performance against IAEA safety requirements, and that the IAEA and India have developed an action plan to address the IRRS recommendations.6

1.9 The response to recommendation four noted that no specific legal advice regarding the consent to enrichment provisions had been sought. The response to recommendation five advised that it is not the practice of the Australian Government to disclose its legal advice.7

Purpose of the bill 1.10 The purpose of the bill is to 'codify, for the special case of India, the content of Australia's relevant international obligations for the purposes of relevant laws'.8 This makes it clear that decisions approving civil nuclear transfers to India are taken not to be inconsistent with, or have been made with due regard to, Australia’s obligations relating to nuclear safeguards under the Treaty on the Non- Proliferation of Nuclear Weapons (NPT) and the South Pacific Nuclear Free Zone Treaty, if particular conditions are met.

1.11 The bill will protect uranium mining companies in Australia from domestic legal action challenging the consistency of the safeguards applied by the IAEA in India and Australia's international non-proliferation obligations. It will also protect any future bilateral trade in other nuclear-related material or items for civil use.9

1.12 In 2008, the Nuclear Suppliers Group (NSG) accepted that nuclear trade would be possible with India on the basis of its commitments and actions in support of nuclear non-proliferation, even though it is not a signatory to the NPT.10 The decision was agreed to by the 48 members of the NSG, which includes all of the major nuclear supplier countries and others that are active in non-proliferation efforts. This includes Australia which sits on the Board of Governors of the IAEA.11

1.13 Under this framework and related agreements made with India, the IAEA applies a robust safeguards regime to India’s civil nuclear fuel cycle, where Australian obligated nuclear material will exclusively remain. The Department of Foreign Affairs and Trade (DFAT) emphasized that the measures in place to prevent the diversion of Australian uranium from the civil part of India’s fuel cycle are at least as strong as

6 Australian Government Response to the Joint Standing Committee on Treaties Report 151, pp 2-4.

7 Australian Government Response to the Joint Standing Committee on Treaties Report 151, p. 4.

8 Explanatory Memorandum, p. 2.

9 Explanatory Memorandum, p. 2.

10 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 1.

11 Minerals Council of Australia, Submission 4, p. 2.

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those in place for other export destinations.12 These include explicit commitments by India in a binding bilateral agreement with Australia, and robust inspection and accounting procedures enforced by the IAEA.13 According to DFAT, the United States, Canada, France, Japan, Korea, Russia and Kazakhstan, among others, have established nuclear cooperation with India on the basis of the NSG’s 2008 decision.14

1.14 The department highlighted that since 2008, India has met its commitments to support international non-proliferation efforts, which include: continuing its moratorium on nuclear testing, separating its civil and military nuclear activities and accepting IAEA safeguards on the former. Furthermore, India has brought its Additional Protocol with the IAEA into force and is working with Australia and others to promote negotiations on a Fissile Material Cut-off Treaty.15

The provisions of the bill

1.15 Clauses 1 to 7 establish the short title of the Act; its commencement (the day after the Act receives Royal Assent); its object, simplified outline and definitions; as well as asserting that it extends to Australia's external territories and binds the Crown in all its capacities.

1.16 Subclause 8(1) provides that, as long as the conditions set out in subclause 8(3) are met, the exercise of powers or the performance of functions under the Nuclear Non-Proliferation (Safeguards) Act 1987 (and any prescribed legislative instruments) regarding the export from Australia of nuclear or nuclear-related items, is considered consistent with Australia's obligations under specified international agreements relating to the safeguards to be applied in India. The subclause is drafted with reference to Section 70 of the Nuclear Non-Proliferation (Safeguards) Act 1987.

1.17 Subclause 8(2) provides that, as long as the conditions set out in subclause 8(3) are met, the exercise and performance of functions by a person under the Defence Trade Controls Act 2012 or the Customs (Prohibited Exports) Regulations 1958 (and any prescribed legislative instruments) regarding the export from Australia of nuclear material or nuclear-related items are considered to have had due regard to Australia's obligations, responsibilities and commitments, under the specified international agreements in relation to the safeguards to be applied in India.

1.18 Subclause 8(3) specifies the conditions referred to in subclauses 8(1) and 8(2). The conditions state that both the Australia-India Agreement and the India-IAEA Agreement must be in force, and that person exercising a power or performing a function in connection with the export from Australia of nuclear material or nuclear-

12 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

13 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 1.

14 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

15 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

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related items must be satisfied that IAEA safeguards will apply to the material or item(s) in India. This provision refers to how administrative procedures related to export from Australia or nuclear material or nuclear-related items shall be exercised.

1.19 Subclause 8(4) provides that the section applies to the exercise of a power or performance of a function before, on or after commencement of the Act. However, the Explanatory Memorandum asserts that 'the Act will not negatively affect any person as a result of the retrospectivity of this provision'.16

1.20 Clause 9 provides that, if the India-IAEA agreement is amended, the Minister must give notice of the amendment by notifiable instrument. This is to ensure that the Parliament will be notified of any amendment agreed by India and the IAEA. It is important to note, that any amendment that materially affected the operation of the India-IAEA agreement would need to be approved by the IAEA's Board of Governors, of which Australia is a member.

1.21 Clause 10 provides that the Minister may make rules prescribing certain matters. Subparagraphs 8(1)(ii) and 8(2)(ii) specify matters that may be prescribed by rules.

16 Explanatory Memorandum, p. 6.

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Chapter 2

Issues raised in evidence

Introduction 2.1 This chapter considers a range of issues raised in evidence which address whether Australia can supply nuclear material to India consistent with its obligations under the Nuclear Non-Proliferation Treaty (NPT) and the South Pacific Nuclear Free Zone Treaty (Rarotonga Treaty). It summarises the concerns raised by some submitters as well as the benefits of the bill. It concludes with the committee's view and recommendation.

Conflict with international obligations 2.2 Some submitters argued that Australia may be in breach of its international obligations under both the NPT and the Rarotonga Treaty. Under the NPT, Australia undertook not to in any way to assist, encourage, or induce any non-nuclear-weapon State to manufacture or otherwise acquire nuclear weapons or other nuclear explosive devices.1 Under the Rarotonga Treaty, Australia undertook not to take any action to assist or encourage the manufacture or acquisition of any nuclear explosive device by any state.2 Under both of these treaties, Australia has a responsibility to ensure that nuclear material transferred to India is not used for, and does not contribute to, the production of nuclear weapons.

2.3 Evidence from Mr John Carlson, Former Director General of the Australia Safeguards and Non-Proliferation Office and non-resident Fellow of the Lowy Institute, argued that 'this bill attempts to make lawful actions that, at the least, are questionable in international law, namely, approval of nuclear supply to India under the Australia-India nuclear cooperation agreement.'3

2.4 Likewise, Mr Ernst Willheim, Visiting Fellow, ANU College of Law, argued that the bill would have no direct effect if Australia's nuclear exports to India were in fact consistent with Australia's relevant obligations and procedures.4 He argued:

The only possible operation for the proposed legislation would be in circumstances where there was an actual or alleged breach of Australia’s obligations or an actual or alleged failure to observe procedures. In those circumstances the proposed legislation would seemingly validate what might otherwise be invalid. The obvious inference is that the Government is contemplating action that may be inconsistent with Australia’s obligations

1 Treaty on the Non-Proliferation of Nuclear Weapons, London, Moscow, and Washington, 1 July 1968, entry into force 23 January 1973, ATS 1973 (No. 3), Article I.

2 South Pacific Nuclear Free Zone Treaty, Rarotonga, 6 August 1985, entry into force 11 December 1986, ATS 1986 (No. 32), Article 3.

3 Mr John Carlson, Submission 2, p. 1.

4 Mr Ernst Willheim, Submission 7, pp 3-4.

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or the exercise of powers or functions without regard to those obligations and that the Government wishes prospectively to validate such activities. 5

2.5 The Australia Conservation Foundation argued that the Agreement between the Government of Australia and the Government of India on Cooperation in the Peaceful Uses of Nuclear Energy (the Agreement), aided by this bill, would serve to increase nuclear safety and security concerns. It stated that the Agreement fails to advance non-proliferation outcomes and is in clear conflict with Australia’s international obligations under the Rarotonga Treaty.6 The Foundation noted that the Rarotonga Treaty also obliges signatories not to supply equipment or material to countries, including India, not under full scope safeguards.7

2.6 The Uniting Church in Australia expressed concern that the bill grants significant domestic legal protection to private corporations in order to grant them certainty over profits on potential uranium exports to India.8 It argued that uranium trade with India undermines a fundamental principle of the global non-proliferation and disarmament regime: the principle that only signatories to the NPT can engage in international nuclear trade for their civilian nuclear programs.9

2.7 Similarly, the Medical Association for the Prevention of War argued that exporting to India 'sends a strong signal to NPT signatories that the treaty has no future value. With the proposed legislation Australia is signalling that commercial interests outweigh the international safeguards provided by the NPT.'10

2.8 Mr Ernst Willheim also argued that, although the bill would cure any invalidity arising from breaches of Australia’s obligations under domestic law, the legislation would not have any effect in relation to Australia’s obligations as a matter of international law.'11

India-specific issues 2.9 As India is not a signatory to the NPT, submitters raised a number of concerns, including that:

• Australia cannot be certain that subsequent generations of transferred material

will not be used for weapons development;12

• India’s nuclear industry is the subject of continuing and unresolved safety

problems and regulatory deficiencies;13

5 Mr Ernst Willheim, Submission 7, p. 3.

6 Australian Conservation Foundation, Submission 3, p. 4.

7 Australian Conservation Foundation, Submission 3, p. 4.

8 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, p. 3.

9 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, p. 7.

10 Medical Association for the Prevention of War, Australia, Submission 9, p. 2.

11 Mr Ernst Willheim, Submission 7, p. 4.

12 Mr John Carlson, Submission 2, p. 3.

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• India does not have clear separation between its civil and military nuclear

programs;14 and

• imported uranium frees up India's domestic reserves to be used for its nuclear weapons program.15

Principle of pursuit

2.10 Mr John Carlson expressed his concern that the India-IAEA safeguards agreement may not be fully consistent with NPT safeguards requirements, specifically, the 'principle of pursuit'.16 The principle requires that safeguards must apply not only to the nuclear material supplied, but to all subsequent generations of nuclear material produced by or through the use of that material. As Mr Carlson explained:

…the India-IAEA safeguards agreement does not fully meet this principle. Because the NCA [the Australia-India Agreement] depends on the operation of the India-IAEA agreement, deficiencies in the latter agreement impact directly on the NCA…While the India-IAEA agreement compromises the principle of pursuit with respect to plutonium production (a highly sensitive stage of the fuel cycle), the NPT allows no such compromise. Faced with an agreement such as the India-IAEA agreement that does not fully reflect NPT requirements, an NPT party must ensure that its NPT obligations are met in full.

This principle is written into the Australia-India NCA [Article III.1.(d)], but the effect of the NCA is qualified through its dependence on the terms of the India-IAEA agreement. As I pointed out in my submissions to JSCOT, this is a major weakness in the NCA. The India-IAEA agreement allows

India to use safeguarded material, which could include AONM, to produce unsafeguarded plutonium.17

2.11 Mr Carlson suggested that the bill be amended to require that the person exercising the relevant power must be satisfied that not only is the exported nuclear material subject to safeguards under the India-IAEA agreement, but that all its subsequent generations of nuclear material produced or processed will be as well.18

2.12 This issue was discussed during the Joint Standing Committee on Treaties (JSCOT) inquiry into the Agreement. Dr Robert Floyd, Director General of the Australian Safeguards and Non-Proliferation Authority, assured the committee that the provisions of the India-IAEA agreement would prevent such a situation occurring. Dr

13 Australian Conservation Foundation, Submission 3, p. 1.

14 Mr John Carlson, Submission 2, p. 2.

15 Australian Conservation Foundation, Submission 3, p. 3.

16 Mr John Carlson, Submission 2, p. 2.

17 Mr John Carlson, Submission 2, pp 2-3.

18 Mr John Carlson, Submission 2, p. 4.

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Floyd made it clear that India’s obligations under the agreement prohibit Australian nuclear material from being used for military purposes at all times.19

Unresolved safety and regulatory issues

2.13 A number of submitters presented their concerns that India's nuclear industry has unresolved safety and regulatory issues.20 The Uniting Church in Australia noted that India had scored poorly on the 2016 nuclear security index produced by the Nuclear Threat Initiative, which suggested that India's security conditions could be improved by strengthening on-site protection, controls, and accounting and noted:

India’s nuclear materials security conditions remain adversely affected by its continued increase in quantities of nuclear material, high levels of corruption among public officials, and the presence of groups interested in and capable of illicitly acquiring nuclear materials.21

2.14 The Australian Conservation Foundation noted that the Indian Auditor-General's report in 2012 highlighted continuing safety and regulatory deficiencies, and warned of a disaster similar to Fukushima or Chernobyl if nuclear safety issues were not addressed:

The concerns highlighted in this report, including lax regulation, poor governance and a deficient safety culture, remain largely unaddressed. Given that Australian uranium directly fuelled the Fukushima nuclear crisis it is incumbent on Australia, as a potential uranium supplier to India, to take these concerns seriously and take explicit action to confirm the status of industry compliance with the Auditor-General’s recommendations.22

2.15 Likewise, the Synod referred to media reports that emphasized on-going safety concerns regarding India’s nuclear reactors, and drew attention to India's lack of an independent nuclear regulatory agency.23 The Australian Conservation Foundation's argued that:

[India] does not allow International Atomic Energy Agency inspections of all its nuclear plants, refuses to sign the Comprehensive Test Ban Treaty and continues to expand its nuclear arsenal and missile capabilities. India’s continuing tension with Pakistan makes the sub-continent is one of the world’s most precarious nuclear hot spots.24

19 Joint Standing Committee on Treaties, Report 151: Treaty tabled on 28 October 2014, September 2015, pp 47-48.

20 For example: Mr John Carlson, Submission 2; Australian Conservation Foundation, Submission 3; Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8; Medical Association for the Prevention of War, Australia, Submission 9.

21 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, p. 2.

22 Australian Conservation Foundation, Submission 3, p. 2.

23 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, pp 3 and 10.

24 Australian Conservation Foundation, Submission 3, p. 3.

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Separation of civil and military activities

2.16 Submitters expressed their concern that India does not have clear separation between its civil and military nuclear programs.25 The Synod expressed its alarm that the bill makes no mention of the recommendations of the JSCOT report, in particular recommendation three. It argued that there is no formal verification of whether facilities in the 'civilian unsafeguarded' stream are contributing nuclear material to India’s nuclear weapons program.'26

2.17 Similarly, Mr Carlson argued that although India has excluded several major 'civilian' facilities from permanent safeguards, the India-IAEA agreement still allows India to use Australian material in those reactors.27

2.18 Mr Carlson suggested that as India is not prepared to fully separate its military and civil programs, an alternative approach would be to require that Australian material be used only in a permanently safeguarded facility, and listed in an annex to the India-IAEA agreement.28

Imported uranium would free up India's domestic reserves for weapons

2.19 The Australian Conservation Foundation and the Medical Association for the Prevention of War expressed concern that the provision of Australian uranium to India would indirectly facilitate the expansion of India’s military nuclear sector.

2.20 Both argued that even if Australian uranium does not go directly to India's nuclear weapons program, the use of imported uranium in civilian nuclear reactors would free up domestic reserves to be used for weapons development. They cited the former head of India's global strategic development task force, who stated in 2005:

Given India's uranium ore crunch and the need to build up our minimum credible deterrent as fast as possible, it is to India's advantage to categorise as many power reactors as possible as civilian ones to be refuelled by imported uranium and conserve our native uranium fuel for weapon-grade plutonium production.29

Subjective wording of the bill 2.21 Mr Carlson also expressed his concern that the bill uses a subjective standard rather than an objective standard based on facts. Clause 8 of the bill states that 'the person exercising the power or the performing the function is satisfied that the nuclear

25 For example: Mr John Carlson, Submission 2, p. 2; and the Australian Conservation Foundation, Submission 3, p. 3.

26 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, pp 1 and 3.

27 Mr John Carlson, Submission 2, p. 3.

28 Mr John Carlson, Submission 2, p. 4.

29 Australian Conservation Foundation, Submission 3, p. 3; and the Medical Association for the Prevention of War, Australia, Submission 9, p. 2.

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material or nuclear-related item will be subject to safeguards under the India-IAEA agreements if supplied to a place in India'.30

2.22 Mr Carlson suggested removing the subjective wording of 'satisfied' to create an objective standard. The clause would instead state that: 'the nuclear material or nuclear-related item will be subject to safeguards under the India-IAEA agreements if supplied to a place in India.'31

Expected benefits of the bill 2.23 The committee received evidence which demonstrated that India's plan to significantly increase its nuclear energy supply presents a range of potential economic benefits for Australia exporters over the medium and long term.32 As well as potentially increasing Australia's export revenue and regional employment opportunities, India’s nuclear energy expansion is likely to make a valuable contribution to a reduction in carbon emissions. It will also help to power economic growth and poverty reduction in the world’s fastest growing major economy.33 Nuclear cooperation will also contribute to a strengthening of bilateral ties between Australia and India.34

Clarification of Australia's existing obligations

2.24 As the NPT and the Rarotonga Treaty include provisions in relation to safeguards that apply to Australia's nuclear exports to India, there is potential for alternative interpretations of the relevant safeguards obligations. According to DFAT, the bill will ensure that there is no uncertainty under Australian law that could hinder uranium exports to India.35 The Minerals Council of Australia agreed noting that:

[t]he bill clears away any concern and ambiguity on the legality of uranium sales to India. It was always envisaged that India’s uniqueness following on from the 2008 Nuclear Suppliers Group decision, might require a bill of this kind to clarify Australia’s relevant international obligations for the purposes of the relevant laws.36

2.25 It also noted that the Australia-India Agreement was entered into with bipartisan support; negotiations were commenced by the Labor government in 2013 and completed by the Coalition government in 2014: 'the potential need for a bill such

30 Civil Nuclear Transfers to India Bill 2016, cl. 8.

31 Mr John Carlson, Submission 2, pp 5-6.

32 For example: Minerals Council of Australia, Submission 4; Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5; and the Department of Industry, Innovation and Science, Submission 6.

33 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

34 EM p 2

35 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

36 Minerals Council of Australia, Submission 4, p. 2.

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as this was understood as far back as 2011 when the ALP amended its policy on uranium sales to India.'37

Economic potential

2.26 According to DFAT, India represents a modest market for Australian uranium in the short term, but with huge growth potential over the long term. Timely engagement in the Indian market would maximise the opportunity for Australian uranium export companies,38 with India's potential uranium demand likely to generate substantial construction and operational jobs in regional Australia.39

2.27 India aims to supply 25 per cent of its energy from nuclear power by 2050 and currently has 22 operable reactors, five more under construction, 20 planned within the next eight to ten years, and a further 44 have been proposed.40

2.28 Australia has nearly a third of the world's uranium resources and approximately 10 per cent of global production.41 Australia produces around 7 000 tonnes of uranium ore concentrates each year.42 The Department of Atomic Energy in India stated India's intention to buy up to 1 500 tonnes of uranium from Australia over the next five years.43

2.29 According to the Minerals Council of Australia, India could be generating over 800 TWh of nuclear power by 2040, requiring around 18 000 tonnes of uranium per annum.44 Australia could sustainably target 30 per cent of this demand, which is approximately equivalent to Australia’s entire uranium exports in 2014-15 of 5 515 tonnes.45 It noted:

Australian exporters are currently having preliminary commercial negotiations with Indian customers who are keen to secure Australian uranium. Access to Australian uranium will increase India’s ability to obtain material which could in turn assist Indian reactor capacity uptake and also provide India with supply security and diversity. Australian exporters are well poised to take advantage of this growth opportunity in

37 Minerals Council of Australia, Submission 4, p. 2.

38 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

39 Minerals Council of Australia, Submission 4, p. 3.

40 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

41 Minerals Council of Australia, Submission 4, p. 3.

42 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

43 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

44 Minerals Council of Australia, Submission 4, p. 3.

45 Minerals Council of Australia, Submission 4, p. 3.

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India as logistically it is significantly closer to Australia than other countries Australia currently supplies. 46

2.30 However, the Uniting Church of Australia expressed scepticism at India's plans to increase its nuclear power supply, citing the International Energy Agency's assessment that, 'despite the Indian Government’s stated wishes, a realistic assessment is that even under the current policy setting the nuclear share of total generation will barely double from 3 per cent currently to 7 per cent by 2040.'47

Other countries export uranium to India

2.31 A number of submitters pointed out that India has already entered into a number of agreements with other countries to meet its demand for uranium supplies.48 According to the Department of Industry, Innovation and Science, India currently sources the majority of its uranium supply from Russia, Kazakhstan and Canada.49

2.32 The Minerals Council of Australia agreed, noting that:

Australia already lags Canada who’s first exports to India occurred in late 2015, following the conclusion of a contract for 3220 tonnes, concluded earlier in the year. In September 2016, India and the US moved closer to the planned construction of six reactors by Westinghouse with the two sides deciding to immediately commence the work on engineering and site design, and make an early conclusion of a competitive financing package. Just days ago, Japan and India concluded a nuclear cooperation agreement, opening the door for India to import Japanese nuclear technology. 50

Committee view 2.33 Submitters critical of the bill argued that it should not be passed until all the recommendations made by JSCOT have been implemented. The committee strongly disagrees with this view. The committee acknowledges the concerns raised by contributors, but believes many of the issues raised were addressed by JSCOT during its wide-ranging inquiry into the Australia-India Agreement and fall outside the more limited scope and intent of the bill.

2.34 Specifically, the committee is satisfied that the bill provides the certainty required to give effect to the Australia-India Agreement. It clarifies that decisions approving civil nuclear transfers to India are taken not to be inconsistent with, or have been made with due regard to, Australia's obligations relating to nuclear safeguards. That is its primary purpose.

46 Minerals Council of Australia, Submission 4, p. 3.

47 Uniting Church in Australia, Synod of Victoria and Tasmania, Submission 8, pp 8-9.

48 For example: Minerals Council of Australia, Submission 4; Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5; and the Department of Industry, Innovation and Science, Submission 6.

49 Department of Industry, Innovation and Science, Submission 6, p. 1.

50 Minerals Council of Australia, Submission 4, p. 3.

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2.35 The committee is of the view that the amendments to the bill proposed by Mr John Carlson are not necessary. The committee is not convinced the bill uses a subjective rather than an objective standard. There is no reason why a person who is 'satisfied' that nuclear material will be subject to safeguards under the India-IAEA agreements if supplied to India has not reached that conclusion based on the objective facts.

2.36 The committee is satisfied that since 2008, India has met its commitments to support non-proliferation efforts, continue its moratorium on nuclear testing, separate its civil and military activities and accept IAEA safeguards. The committee notes that India is currently working with Australia to promote negotiations on a Fissile Material Cut-Off Treaty.

2.37 The committee notes that submitters critical of the bill are silent on the important foreign policy backdrop to Australia's nuclear trade with India. As the DFAT submission highlighted, Australia's relationship with India has changed fundamentally over the past five years, with a deepening of defence, security and economic ties: 'It is very much in Australia's interests to encourage greater, collaborative leadership by India in Indian Ocean and broader Indo-Pacific security'.51

2.38 It is in this context that the committee recognises the economic and security benefits to be gained from Australia's relationship with India, and civil nuclear transfers consistent with Australia's international obligations will come to form an important part of that evolving bilateral relationship. At the very least, increased uranium exports to India will boost employment opportunities in regional and remote Australia while helping to reduce India's carbon emissions. The committee commends the bill to the Senate.

Recommendation 1

2.39 The committee recommends that the bill be passed.

Senator Chris Back Chair

51 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office, Submission 5, p. 2.

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Appendix 1

Submissions

1 N.A.J. Taylor

2 Mr John Carlson

3 Australian Conservation Foundation

4 Minerals Council of Australia

5 Department of Foreign Affairs and Trade and the Australian Safeguards and Non-Proliferation Office

6 Department of Industry, Innovation and Science

7 Mr Ernst Willheim

8 Uniting Church in Australia, Synod of Victoria and Tasmania

9 Medical Association for Prevention of War, Australia

Additional information

1 Correspondence from Senator the Hon Matthew Canavan, Minister for Resources and Northern Australia, in relation to the bill, dated 22 November 2016, received 22 November 2016.

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