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Senate Legislative and General Purpose Standing Committees Consolidated reports on the consideration of bills July - December 2012 Volume 2 - Education, Employment and Workplace Relations; Environment and Communications, Finance and Public Administration and Foreign Affairs, Defence and Trade


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Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2012

Volume 2

Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2012

Volume 2

Education, Employment and Workplace Relations Committee

Environment and Communications Committee

Finance and Public Administration Committee

Foreign Affairs, Defence and Trade Committee

© Parliament of the Commonwealth of Australia 2012

ISSN 1834-4062

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

TABLE OF CONTENTS

Education, Employment and Workplace Relations Committee " Fair Work Amendment Bill 2012*, dated November 2012........................................1

" Higher Education Support Amendment (Streamlining and Other Measures) Bill 2012*, dated November 2012.......................................................... 49

" Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012*, dated August 2012 .................................................................................. 71

Environment and Communications Committee " Greenhouse and Energy Minimum Standards Bill 2012* and Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012*, dated August 2012...................................................................................... 109

" Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012, dated November 2012............................................ 137

" Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012* and Water Amendment (Water for the Environment Special Account) Bill 2012*, dated November 2012.............................................................................................233

Finance and Public Administration Committee " Government Investment Funds Amendment (Ethical Investments) Bill 2011, dated August 2012...........................................................295

Corrigendum, tabled 23 August 2012.....................................................................346

Foreign Affairs, Defence and Trade Committeet " Defence Trade Controls Bill 2011*, dated August 2012....................................... 347

t Volume 3 contains further reports of the Foreign Affairs, Defence and Trade Committee

*Provisions of bill referred to committee.

The Senate

Education, Employment

and Workplace Relations

Legislation Committee

Fair Work Amendment Bill 2012 [Provisions]

November 2012

© Commonwealth of Australia

ISBN: 978-1-74229-724-8

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

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MEMBERSHIP OF THE COMMITTEE

Members

Senator Gavin Marshall, Chair, ALP, Vic.

Senator Chris Back, Deputy Chair, LP, WA

Senator Catryna Bilyk, ALP, Tas.

Senator Bridget McKenzie, Nat., Vic.

Senator Lee Rhiannon, AG, NSW

Senator Matt Thistlethwaite, ALP, NSW

Participating Members

Senator the Hon. Eric Abetz

Secretariat

Mr Tim Watling, Secretary

Ms Bonnie Allan, Principal Research Officer

Ms Natasha Rusjakovski, Senior Research Officer

Mr Tim Hillman, Research Officer

Mr Isaac Overton, Research Officer

Ms Sarah Bainbridge, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600

Ph: 02 6277 3521 Fax: 02 6277 5706

E-mail: eewr.senfiLaph.gov.au

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TABLE OF CONTENTS

MEMBERSHIP OF THE COMM ITTEE............................................................iii

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

CHAPTER 1.................................................................................................................. 1

Introduction and overview......................................................................................... 1

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

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

Background................................................................................................................1

Overview of the bill...................................................................................................1

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

Matters identified by the Senate Scrutiny of Bills Committee................................3

Acknowledgment...................................................................................................... 3

Notes on references.................................................................................................. 3

CHAPTER 2 ..................................................................................................................5

Issues.............................................................................................................................5

Amendments arising from the Fair Work Act Review Panel..................................5

Amendments arising from the Productivity Commission's report into default superannuation funds .............................................................................................. 15

Conclusion...............................................................................................................21

COALITION SENATORS' DISSENTING REPORT ..................................... 23

Introduction............................................................................................................ 23

Superannuation.......................................................................................................23

Fair Work Review............................................. 26

Vice Presidents of Fair Work Australia ................................................................ 27

'Fair Work Commission' ................................... 30

Other recommendations..........................................................................................31

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Key Performance Indicators .................................................................................... 33

Conclusion.................................................................................................................34

APPENDIX 1.................................................................................................................35

SUBMISSIONS RECEIVED .................................................................................... 35

ADDITIONAL INFORMATION............................................................................37

ANSWERS TO QUESTIONS ON NOTICE ......................................................... 37

APPENDIX 2 .................................................................................................................39

Witnesses who appeared before the Committee....................................................39

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RECOMMENDATIONS

Recommendation 1

2.79 The committee recommends that the Senate pass the bill.

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CHAPTER 1

Introduction and overview

Reference

1.1 On 1 November 2012, the Senate referred the provisions of the Fair Work Amendment Bill 2012 (the bill) to the Senate Education, Employment and Workplace Relations Legislation Committee (the committee) for inquiry and report by 26 November 2012.

Conduct of inquiry

1.2 The committee advertised in The Australian on 7 November 2012, calling for submissions by 13 November 2012. Details of the inquiry were also made available on the committee's website.1

1.3 The committee also contacted a number of organisations inviting submissions to the inquiry. Submissions were received from 34 individuals and organisations, as detailed in Appendix 1.

1.4 A public hearing was held in Canberra on 21 November 2012. The witness list for the hearing is at Appendix 2.

Background

1.5 The bill seeks to implement the first tranche of amendments to the Fair Work Act (the Act) recommended by a review of the Act conducted between December 2011 and June 2012, by an independent panel of three experts. The panel made 53 recommendations aimed at improving the operation of the legislation without compromising productivity and fairness in the workplace.

Overview of the bill

1.6 According to the Explanatory Memorandum (EM), apart from technical and consequential amendments, the bill would make:

" amendments to clarify that opt-out terms cannot be included in enterprise agreements, that enterprise agreements cannot be made with only one employee and that a union official from one union cannot act as a bargaining representative where that union does not have coverage;

" amendments to align the time limits for lodging unfair dismissal claims and general protections claims involving dismissal at 21 days and to provide new *

www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees7urNeet_ctte/ Fair_work_2012/index.htm (accessed 12 November 2012) 1

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measures in relation to dismissing unfair dismissal applications and costs orders in certain circumstances;

" amendments to clarify which union members are able to vote on and

participate in protected industrial action and the conduct of protected action ballots, including allowing for electronic voting and requiring ballots to be conducted expeditiously

" structural amendments to FWA including:

" changing the name to the Fair Work Commission (FWC), including provision for the appointment of the General Manager on the nomination of the FWC President;

" allowing stay orders to be made by Presidential Members;

" allowing for the appointment of acting Commissioners;

" creating two statutory positions of Vice President;

" establishing a process to deal with complaints against FWC members and streamlining provisions dealing with conflicts of interest of members; and

" other minor amendments to improve the conduct of matters before the FWC.

1.7 The bill would also amend the Act to give effect to the Government *s

response to the Productivity Commission *s Report into Default Superannuation Funds in Modern Awards (Report No. 60). The bill would specifically:

" introduce new requirements in relation to modern award terms about default superannuation, and a process under which the FWC would review default fund terms every 4 years (at the same time as the 4 yearly review of modem awards); and

" provide for the establishment of the Expert Panel, which will subsume the functions of the Minimum Wage Panel (MWP) and will include members with relevant expertise to allow them to be appointed to the Expert Panel assessing default superannuation funds or to the Expert Panel responsible for the annual minimum wage review.

Compatibility with human rights

1.8 The provisions in the bill engage a number of rights, including the right to just and favourable conditions of work, the right to freedom of association, the right to privacy and reputation, and the right to a fair hearing. The Explanatory Memorandum states that the bill is compatible with human rights and freedoms.2 The Parliamentary

2 Explanatory Memorandum, p. 3. See also pp 3 - 10.

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Joint Committee on Human Rights has not yet reported on its consideration of the bill.3

Matters identified by the Senate Scrutiny of Bills Committee

1.9 The committee notes that the Senate Standing Committee for the Scrutiny of Bills wrote to the Minister for Employment and Workplace Relations, the Hon. Bill Shorten MP, regarding certain aspects of the bill. These specifically relate to the possible inappropriate delegation of power and possible undue trespass on personal rights and liberties.4 The Minister's response is unlikely to be received before the tabling of this report. The committee considers that the matters raised by the Scrutiny of Bills Committee should be satisfactorily resolved before the bill proceeds.

Acknowledgment

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

Notes on references

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

3 The Parliamentary Joint Committee on Human Rights * Seventh Report of 2012 will be available on the following website, once it is tabled: http://www.aph.gov.au/Parliamentarv Business/Committees/Senate Committees?url=humanri ghts ctte/reports/index.htm (accessed 22 November 2012).

4 Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 14 2012, 21 November 2012, pp 8-12. Concern was raised in relation to Part 4, Schedule 6; Schedule 8, item 62, proposed subsection 581 A(3); Schedule 8, item 62, proposed section 58IB and Schedule 11, item 1.

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CHAPTER 2

Issues

Amendments arising from the Fair Work Act Review Panel

2.1 The bill contains a number of amendments to the Fair Work Act 2009 that reflect, in part, the findings of the Fair Work Act (FWA) Review Panel.1 The Department of Education, Employment and Workplace Relations (DEEWR) explained the findings of the Review Panel:

In [its] report, the Panel found that the [Fair Work] Act was operating as intended, consistent with the objects of the legislation. The Panel also found that important economic outcomes such as wages growth, industrial disputation, the responsiveness of wages to supply and demand, the rate of employment growth and the flexibility of work patterns have been favourable to Australia's continuing prosperity under the...Act. The Panel did not recommend wholesale changes, but instead made 53 mainly technical recommendations to further promote productivity, improve equity or correct anomalies with the.. .Act.1 2

2.2 Many submitters to this inquiry offered general support for the bill. For example, the Australian Council of Trade Unions (ACTU) provided the following statement of support:

The Bill represents a balanced package of largely technical and

administrative amendments which we support. We would urge the prompt enactment of the Bill, noting its widespread support and the thorough consultation process that preceded it. Accordingly, the ACTU suggests that its passage be recommended to the Senate.3

2.3 However, a significant proportion of submitters, while overall in support of the bill, called for amendments.4 While a number of specific amendments are argued for, many objections are couched in terms of what they see as the Government's failure to adopt the recommendations of the FWA Review Panel as a package. The Chamber of Commerce and Industry of Western Australia (CCI) was typical of a number of submitters in arguing that:

1 See, for example, Australian Council of Trade Unions, Submission 8, p. 1; Australian Manufacturing Workers' Union, Submission II, p. 1.

2 Department of Education, Employment and Workplace Relations, Submission 28, p. 4.

3 Australian Council of Trade Unions, Submission 8, p. 1.

4 See, for example, JobWatch, Submission 12, p. 1; Chamber of Commerce and Industry of Western Australia, Submission 15, p. 5; Master Builders Australia, Submission 18, p. 5; Maritime Union of Australia, Submission 21, p. 1; Ai Group, Submission 26, p. 3.

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...it is disappointing that the Bill only seeks to introduce approximately 18 of the 53 recommendations which were made...the Bill fails to implement many reasonable recommendations made by the Expert Panel.3

2.4 The bill is clearly described by its Explanatory Memorandum (EM) as the first tranche of amendments to the Fair Work Act. It is therefore intended that other recommendations may be implemented in the future. To this end, DEEWR further explained that:

As a result of [stakeholder] consultations it was clear there is broad support for around one third of the recommendations. These recommendations are reflected in the Bill. The Minister has committed to continue to work with stakeholders on the remaining recommendations with a view to introducing further legislation in the new year. In doing so, the Minister has publicly stated that he has neither ruled in nor out any of the Panel's remaining

recommendations.5 6

2.5 Issues identified and discussed in this chapter are those which are relevant to provisions in this bill, and emphasis is given to key issues identified by submitters. Discussion of suggested amendments which may be picked up in a future bill will be discussed if and when such a bill comes before the committee.

Standing to apply to vary awards

2.6 The bill proposes to give registered organisations standing to apply to vary awards. This provision attracted broad support, including from the ACTU, the Housing Industry Association (HIA), the Maritime Union of Australia (MUA), THE Australian Chamber of Commerce and Industry (ACCI) and Ai Group.7 The Chamber of Commerce and Industry of Western Australia also offered support, but argued that unregistered organisations should also have standing.8

5 Chamber of Commerce and Industry of Western Australia, Submission 15, pp 1-2. See also, for example, Business Council of Australia, Submission 20, pp 3-6; Australian Federation of Employers and Industries, Submission 23, p. 1; Australian Chamber of Commerce and Industry, Submission 25, p. 7; Ai Group, Submission 26, p. 3. These concerns were reiterated by ACCI and AMMA during the public hearing in Canberra: Mr Daniel Mammone, Director of Workplace Policy and Legal Affairs, Australian Chamber of Commerce and Industry, Proof

Committee Hansard, 21 November 2012, p. 4; Ms Lisa Matthews, Senior Workplace Policy Adviser, Australian Mines and Metals Association, Proof Committee Hansard, 21 November 2012, p. 7.

6 Department of Education, Employment and Workplace Relations, Submission 28, p. 5. See also, Mr John Kovacic, Deputy Secretary, Workplace Relations and Economic Strategy, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 19.

7 See, for example, Australian Council of Trade Unions, Submission 8, p. 2; Housing Industry Association, Submission 14, p. 6; Maritime Union of Australia, Submission 21, p. 2; Australian Chamber of Commerce and Industry, Submission 25, p. 27; Ai Group, Submission 26, p. 8.

8 Chamber of Commerce and Industry of Western Australia, Submission 15, p. 1.

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Union officials only to act as bargaining representatives for workers the union is eligible to represent.

2.7 The bill would provide that an official of an employee organisation cannot be a bargaining representative for an employee unless that organisation is itself entitled to represent the industrial interests of the employee in relation to work that will be

performed under the proposed enterprise agreement. This amendment responds to Review Panel recommendation 21.

2.8 The proposal had widespread support, including but not limited to the ACTU, HIA, Chamber of Commerce WA, and Australian Mineral and Metals Association (AMMA).9

2.9 The MUA was opposed to the amendment, taking the view that:

...the philosophy underpinning the bargaining representative regime is that an employee should be able to be represented by a person or organisation of their own free choice. Given the fundamental importance of freedom of association as enshrined in the ILO Convention Concerning Freedom of Association and Protection of the Right to Organise, we feel it inappropriate to restrict an employee *s free choice of bargaining representative in the manner proposed by [the bill].10 11

Agreement clauses that permit *opting out * to be unlawful terms.

2.10 The bill would clarify, consistent with recent decisions of the full bench of Fair Work Australia, that terms which enable employees to 'opt out' of an enterprise agreement are prohibited.11

2.11 A group of submitters, including the HIA, ACCI and Ai Group were opposed to the amendment.12 The HIA submitted that, while it recognised that opt out clauses had the potential to undermine bargaining certainty, its overall position was that parties should be free to include them if desired. Similarly, the Business Council of Australia (BCA) submitted that:

The proposal to prevent opt-out clauses in enterprise agreements is disappointing. Such clauses provide for the situation where individual employees for a range of reasons may wish to have an alternative

employment arrangement with their employer. It is of particular concern

9 Australian Council of Trade Unions, Submission 8, p. 3; Housing Industry Association, Submission 14, p. 5; Chamber of Commerce and Industry of WA, Submission 15, p. I; Australian Mines and Metals Association, Submission 30, p. 3.

10 Maritime Union of Australia, Submission 21, p. 3.

11 Department of Education, Employment and Workplace Relations, Submission 28, p. 7, citing Construction, Forestry, Mining, and Energy Union v Queensland Bulk Handling Pty Ltd [2012] FWAFB 7551 (3 September 2012); Aldi Foods Pty Ltd v Transport Workers' Union of Australia; National Union of Workers, NSW Branch [2012] FWAFB 9398 (1 November 2012).

12 Housing Industry Association, Submission 14, p. 8; Australian Chamber of Commerce and Industry, Submission 25, p. 28; Ai Group, Submission 26, p. 9.

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that this amendment is retrospective and will remove the opportunity to use opt-out clauses in current agreements in the future.13

2.12 On the other hand, the Australian Manufacturing Workers Union (AMWU) supported the amendment, arguing that:

[Permitting opt-out clauses can lead to manipulation of bargaining and agreement-making to undermine good faith bargaining entirely. When the good faith bargaining framework provided by the Act is premised on a majority vote for an agreement following good faith negotiations with the group of employees to be covered by that agreement, the facility of *opting out * of an agreement renders the framework meaningless. Those who can *opt out * can negotiate and bargain for a new agreement, including potentially taking protected industrial action. Those who do not *opt out * are at risk from manipulation of the real group of employees ultimately to be covered by the agreement.14 15

Prohibition on single employee enterprise agreements

2.13 The bill proposes to prohibit single employee enterprise agreements. This measure was opposed by a number of submitters, including the HIA, ACCI, and Ai Group.1'' Master Builders Australia also opposed this prohibition, preferring a *better

off overall test * as the test for allowing EAs, regardless of employee numbers.16

2.14 Master Electricians considered that the amendment was unfair on small businesses, many of which have fewer than three staff, and proposed instead to limit the operation of the provision to proprietary limited companies with more than 1

employee, and specifically exclude partnerships and sole traders.17

2.15 However, the ACTU supported the provision, submitting that:

The practical reality is that such agreements serve to artificially *lock down * the tenns and conditions in an enterprise before a sufficient workforce has been engaged to genuinely participate in good faith bargaining. Single employee agreements would therefore be attractive to newer businesses seeking to satisfy the limited *market rate * conditions associated with sponsoring guest workers. This amendment resolves the legal dispute in a manner which is consistent with the underlying policy of genuine good faith collective bargaining.18

2.16 The AMWU felt similarly, explaining that:

13 Business Council of Australia, Submission 20, p. 5.

14 Australian Manufacturing Workers * Union, Submission 11, p. 1.

15 Housing Industry Association, Submission 14, p. 8; Australian Chamber of Commerce and Industry, Submission 25, p. 27; Ai Group, Submission 26, p. 8.

16 Submission 18, p. 8.

17 Submission 3, pp 1-2.

18 Australian Council of Trade Unions, Submission 8, p. 4.

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As we further submitted to the Panel, to provide that a collective enterprise agreement can be made with a single employee flies in the face of a

structure of bargaining and agreement making in an Act premised upon collective bargaining, that is, employees negotiating collectively with their employer. The extensive public discussion, and phasing out of Australian Workplace Agreements through the use of Individual Transitional Enterprise Agreements prior to the commencement of the Act, together with the explicit provisions of the Explanatory Memorandum make it abundantly clear that an individual agreement is not a collective agreement, and collective agreement making provisions in the Act should not be able to be manipulated in this way.19

Aligning the period for lodgement of unfair dismissal applications with the limitation period for unfair dismissal-related general protections claims

2.17 The bill would extend the period for lodgement of unfair dismissal claims and reduce the limitation period for unfair dismissal-related general protection claims. These measures would increase the allowable period in which to lodge a claim for unfair dismissal from 14 to 21 days, and reduce from 60 to 21 days the allowable period in which to lodge a dismissal-related general protection claim. The Department

set out the background of the amendments this way:

Aligning the timeframes for applications at 21 days reflects [ReviewJPanel recommendations 40 and 49, which were made in response to concerns raised by both employers and unions. Employers raised concerns that many general protections dismissal claims were in fact more properly

characterised as out of time unfair dismissal claims and that different timeframes allow employees to withdraw an unfair dismissal claim after an unfavourable conciliation and lodge a general protections dismissal claim instead. These practices undermine the intent of the provisions and

downplay the seriousness of general protections claims. Unions argued that the current 14 day time frame for unfair dismissal applications did not allow for sufficient time for dismissed employees to seek advice.20

2.18 In respect of the proposed increase in the time allowed to lodge an unfair dismissal claim, submitters' opinions were divided. The committee notes support for the measure from AMWU, the National Tertiary Education Union (NTEU), the MUA and the ACTU. For example, the ACTU submitted that:

We believe that 21 days is an appropriate period to enable employees to seek advice on potential unfair dismissal applications. We accept that an alignment of the time limits for termination of employment matters in the context of the package of amendments as a whole.21

19 Submission if, pp 2-3.

20 Department of Education, Employment and Workplace Relations, Submission 28, p. 5.

21 Australian Council of Trade Unions, Submission 8, p. 5. See also Australian Manufacturing Workers' Union, Submission 11, p. 4; National Tertiary Education Union, Submission 6, p. 5; Maritime Union of Australia, Submission 21, p. 4.

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2.19 During the public hearing in Canberra, Mr Tim Lyons, Assistant Secretary of the ACTU, explained that 21 days provided people with sufficient time to seek appropriate advice before making the decision lodge an unfair dismissal claim:

We support the increase in the lodgement time for unfair dismissals because this is a really practical thing. I used to do a lot of unfair dismissals as an organiser, and giving people three weeks to seek proper advice and have a discussion with the employer before they decide whether or not to lodge a claim gives people more time to deal with the matters, get the proper advice and ensure that, if a claim is made, it is a claim that has merit and a claim that has been properly considered.22 23

2.20 Other submitters supported, or did not object to, the increase to 21 days, but argued the lodgement period should be longer. For example, the Employment Law Council of Western Australia considered that the increase was positive but should extend to 90 days and the Redfem Legal Centre considered the deadline should be 60 days.~J The Kingsford Legal Centre agreed, arguing that, even at 21 days, people are likely to file claims with little or no prospects of success because they have not had adequate time to seek legal advice. This would result in a higher workload and costs for FWA and employers.24

2.21 On the other hand, the increase was opposed by organisations such as the Australian Federation of Employers and Industries and the AMMA.2' Submitters such as HIA supported alignment of the claim period with the general protections claim period (discussed in the following paragraphs), but considered that both should be

reduced to 14 days.26

2.22 Having regard to the proposal in the bill to decrease from 60 to 21 days the allowable claim period for dismissal-related general protection claims, submitters were again divided. Support for this measure was received from a number of submitters, including ACCI and Ai Group.27

2.23 Other submitters considered that the time limit should be maintained at its current level 28 or increased. Submitters arguing for the latter camp included the Employment Law Centre of Western Australia and the MUA. The MUA sumbitted that:

22 Mr Tim Lyons, Assistant Secretary, Australian Council of Trade Unions, Proof Committee Hansard, 21 November 2012, p. 17.

23 Employment Law Centre of WA, Submission 1, p. 1; Redfem Legal Centre, Submission 22, P-4.

24 Kingsford Legal Centre, Submission 17, p. 2.

25 Australian Federation Employers and Industries, Submission 23, p. 2; Australian Mines and Metals Association, Submission 30, pp 3,11.

26 Housing Industry Association, Submission 14, p. 9.

27 Australian Chamber of Commerce and Industry, Submission 25, p. 30; Ai Group, Submission 26, p. 10.

28 See, for example, Queensland Nurses' Union, Submission 10, p. 3.

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Unlike an unfair dismissal application, where failed conciliation may ultimately result in arbitration before the Tribunal, failed conciliation of a general protections dispute is a precursor to court action. The

considerations informing the decision to bring a general protections dispute application are therefore more complex, involving considerations of greater costs, lengthier and more formal proceedings and additional commitment and concomitant stress.29

2.24 Similarly, the NTEU called for the limit to be set at 28 days, to reflect the extra time needed to prepare for a General Protection claim, as opposed to the time required to lodge an application. The same position was taken by Kingsford Legal Centre, although they sought a 90 day limit, or at least the retention of the existing 60 days.30

2.25 Job Watch argued against alignment of the time periods on the basis that telephone conciliation of unfair dismissal claims often resolved matters. However, if it did not, employees could discontinue the unfair dismissal claim and file a general protection application where that was a more appropriate course of action. This would not be possible if both unfair dismissal and general protection claims were subject to 21 day time limits.31

2.26 The committee notes DEEWR's submission that aligning the timeframes will ensure that:

" dismissed employees make the right claim in the right jurisdiction;

" employees have an appropriate timeframe to seek advice about a dismissal so they can make this choice in an informed way; and

" employers will respond to one claim in respect of a dismissal, not an unfair dismissal claim and later a general protections claim.32

2.27 DEEWR also submitted that the 21 day time limit was arrived at as a

compromise between the various groups who took part in the consultation process, and that it is an equitable approach which provides adequate time for employees to seek advice while also providing certainty to employees.33

Broadening FWA power to issue costs orders

2.28 The bill would give FWA the power to order costs where a party has

unreasonably failed to discontinue, unreasonably failed to agree to settlement or has unreasonably caused the other party to incur costs.

29 Maritime Union of Australia, Submission 21, p. 4.

30 National Tertiary Education Union, Submission 6, p. 5; Kingsford Legal Centre, Submission 17, p. 5.

31 Job Watch, Submission 12, pp 4 * 5.

32 Department of Education, Employment and Workplace Relations, Submission 28, p. 5.

33 Department of Education, Employment and Workplace Relations, Submission 28, p. 6.

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2.29 This amendment received qualified support from the ACTU, ACCI, and the HI A (ACCI and HI A supported the measure provided it extended to union officials).34

2.30 However, a number of other submitters did not support the amendment. The Employment Law Centre of Western Australia and JobWatch were among them, the latter arguing that FWA can already refuse to grant a lawyer permission to appear, and there are existing procedures for security of costs in unfair dismissal applications. JobWatch considered that existing measures are adequate to achieve the policy outcomes sought by the amendment.33

Departmental Response

2.31 The Department submitted that the amendment responded to Panel recommendation 45 and reflected the Panel's concern that unscrupulous lawyers or agents were encouraging dismissed employees to pursue unfair dismissal claims without merit on a no-win no-fee basis. The amendment would facilitate costs orders

to be made against a person or their legal representative when they have unreasonably pursued or defended a claim but, according to the Department, would not stop a party from robustly pursuing a genuine claim.36

FWA power to dismiss unfair dismissal applications

2.32 The bill would also give Fair Work Australia the power to dismiss unfair dismissal applications where the applicant unreasonably fails to attend or comply with orders/directions or discontinue a matter after a settlement agreement has been concluded. The amendment responds to a recommendation of the Expert Panel, and was broadly supported.37 38

Power to appoint tn>o full-time Vice Presidents.

2.33 The Act currently provides for the appointment of a President, Deputy Presidents and Commissioners to FWA.3S Currently FWA has two Members who were originally appointed as Vice Presidents and a number of Members who were originally appointed as Senior Deputy Presidents, under the previous legislative

34 Australian Council of Trade Unions, Submission 8, p. 5; Australian Chamber of Commerce and Industry, Submission 25, p. 31; Housing Industry Association, Submission 14, p. 5.

35 JobWatch, Submission 12, p. 7.

36 Department of Education, Employment and Workplace Relations, Submission 28, p. 6.

37 See, for example, Australian Council of Trade Unions, Submission 8, p. 5; Housing Industry Association, Submission 14, p. 10; Chamber of Commerce and Industry of Western Australia, Submission 15, p. 1; Ai Group, Submission 26, p. 10.

38 Fair Work Act 2009, section 575.

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scheme.39 The committee was informed that during consultations Justice Iain Ross, President of FWA, proposed that two Vice President positions be created in order to attract senior legal specialists with high level expertise and to assist him in the administration and management of the tribunal, a proposal subsequently included in the bill.40

2.34 Submitter opinion on the amendment varied widely. For example, the Business Council of Australia, Chamber of Commerce and Industry of WA, AMMA and ACCI were opposed, taking the view that a need for the new positions had not been established.41 On the other hand, Ai Group was not opposed, provided the appointments were made on merit.42

2.35 The Law Council of Australia raised a matter of judicial independence, arguing that unless the existing Deputy Presidents were appointed to the new Vice President positions, the effect of new vice presidents being appointed would be to 'reduce the status' of the current Deputy Presidents and that:

Henceforth responsibilities that would have been capable of being delegated or given to them by nature of their senior status would instead be given to the new statutory Vice Presidents. This would have the tendency to reduce the independence of the Tribunal in that it will reduce the role and

privileges associated with particular individuals.43

2.36 The Law Council further argued that:

As a general principle, once a person has been appointed to sit on a Court or independent Tribunal with designated powers and privileges, any change that would have the effect of removing or reducing that particular person's powers or privileges while not affecting the powers and privileges of other Members of that Tribunal, has a tendency to undermine the independence of the Court or Tribunal. That is so because such action can be portrayed as

39 When the Australian Industrial Relations Commission transitioned to Fair Work Australia (as provided for by the Fair Work Act 2009), transitional provisions provided that the existing Vice Presidents, Senior Deputy Presidents and Deputy Presidents of that body were all appointed as Deputy Presidents of Fair Work Australia. However, each retained their title, status and remuneration (in particular the two former Vice Presidents): Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, schedule 19, items 1, 2 and 4. See also, Law Council of Australia, Submission 29, p. 3.

40 Department of Education, Employment and Workplace Relations, Submission 28, p. 10. See also Mr John Kovacic, Deputy Secretary, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 20.

41 Australian Chamber of Commerce and Industry, Submission 25, p. 34; Australian Mines and Metals Association, Submission 30, p. 4.

42 Ai Group, Submission 26, p. 12.

43 Law Council of Australia, Submission 29, p. 3.

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being done because the individual Member is not in favour with the

Parliament or the Executive.44 45

2.37 During the public hearing Mr John Kovacic, Deputy Secretary, DEEWR, emphasised that the positions had been created on the basis of a recommendation made by the President of Fair Work Australia, and that 'the positions will be publically advertised and will be subject to a merit based selection process consistent with government policy'.43

President's power to decide a matter personally

2.38 The bill provides that the President of FWA would have the power to decide a matter personally, even after it has been allocated to a single member of the full bench for decision. The most substantive submission in respect of this proposal came from

the Law Council of Australia, which criticised the move in the following terms:

Proposed s 615C provides that after the President has allocated a matter to a single Member or a Full Bench the President can decide *to perform the function or exercise a power * himself or herself. Upon that occurring, the earlier direction that the single Member or Full Bench determine the matter is revoked. There are no preconditions to that decision and it can occur at any time, even during a proceeding. The President does not need to have considered submissions, nor be satisfied that it is in the public interest to do so. The [Law Council's Industrial Law] Committee considers it

inappropriate that the Fair Work Act should include a provision that empowers the President to take over a matter allocated to a Full Bench and deal with it. Should such a power be exercised it would have the potential to reduce the standing of the Tribunal, given the potential for such an action to be characterised or perceived as an attack on the independence and/or competence of the Full Bench. That it might occur as a consequence of, or

following submissions made by, a party would tend to emphasise the potential for the action to be portrayed as one intended to achieve a result or procedure different from that which the Full Bench might have expected to determine or adopt.46 47

2.39 Flowever, the Department submitted that the provision was advantageous as it would allow matters before the FWC to be escalated in significant cases and potentially save the parties time and further expense on later appeals. The committee notes the Department's contention that the inclusion of such a measure received broad

support from stakeholders dunng the consultation phase.4

44 Law Council of Australia, Submission 29, p. 3. This criticism was endorsed by ACCI during the public hearing in Canberra: Mr Daniel Mammone. Director of Workplace Policy and Legal Affairs, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 21 November 2012, p. 3. See also, Mr Steve Knott, Chief Executive, Australian Mines and Metals Association, Proof Committee Hansard, 21 November 2012, pp 10-11.

45 Mr John Kovacic, Deputy Secretary, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 20.

46 Law Council of Australia, Submission 29, p. 2.

47 Department of Education, Employment and Workplace Relations, Submission 28, p. 11.

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Fair Work Australia to be renamed the *Fair Work Commission

2.40 The bill would rename FWA as the Fair Work Commission. This proposal elicited relatively little comment from submitters. A number of submitters saw merit in resurrecting the title 'Australian Industrial Relations Commission', on the basis that the name is well known and accepted in the community.48

Amendments arising from the Productivity Commission *s report into default superannuation funds

2.41 The bill contains amendments that arise from the Productivity Commission's report on default superannuation funds. Many submissions provided general support for the contention that default superannuation schemes are required. The Australian Institute of Superannuation Trustees advised that:

Default superannuation arrangements have existed in the industrial relations system since prior to the advent of the Superannuation Guarantee. They have operated to ensure universality, fairness and balance, in a way that is supported by the representatives of employers and employees, and by the industrial tribunal itself.49

2.42 However, these reforms also attracted a significant amount of criticism. The submission from Russell Investments summed up the tone of many:

The Bill partly adopts the recommendations of the Productivity

Commission. Importantly, key recommendations from the Productivity Commission are not included in the Bill. We are concerned that the apparently hurried nature of this response and the failure to adopt the Productivity Commission recommendations as a coherent package will lead to the potential for significant adverse outcomes for ordinary

superannuation fund members.50

Exclusion of Corporate and Tailored MySuper products from nomination as default funds

2.43 The bill would amend the Act to provide that a superannuation fund is eligible to be included on the Default Superannuation List in a modem award if it is a 'generic MySuper product'. Corporate MySuper products are expressly excluded from eligibility. This would remove the ability of employers to contribute to a corporate fund as the default fund (even though it is a MySuper product) in respect of

48 See, for example, Chamber of Commerce and Industry (WA), Submission 15, p. 3; Maritime Union of Australia, Submission 21, p. 7; Australian Chamber of Commerce and Industry, Submission 25, p. 39; AiGroup, Submission 26, p. 13; Australian Mines and Metals Association, Submission 30, p. 4

49 Australian Institute of Superannuation Trustees, Submission 9, p. 3. A notable exception to this general sentiment was the Financial Services Council, Submission 31, p. 9.

50 Russel] Investments, Submission 16, p. 1.

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employees covered by a modem award.'1 This was the cause of considerable criticism from a number of submitters.'2

2.44 Those who opposed the change argued that the retention of corporate funds as default funds in awards has been the result of careful bargaining and negotiation, and that removal of these funds from eligibility to be a default fund, and the consequent inability of employers to contribute for Superannuation Guarantee purposes, would disrupt agreed arrangements and operate to the detriment of employees.

2.45 It was argued that in many cases the types of funds which stand to become ineligible offer terms and conditions which are substantially more favourable for members than some or all of the funds typically listed in Modem Awards. It was submitted that the proposed legislative changes would mean members of many of these funds are likely to be significantly disadvantaged, for example through higher fees and/or inferior insurance arrangements.'3 A few examples follow.

2.46 Corporate Super Association did not support the exclusion of corporate MySuper products, describing the proposed amendment as:

...unjust, unexplained and is not based on any reasonable policy

grounds....to exclude a fund that has qualified for MySuper status simply because it is not a public offer fund is not justifiable. It results in the

exclusion of funds that have a long-standing recognition in awards and which provide generous and reliable benefits that have been agreed with large groups of employees subject to awards1.54

2.47 Corporate Super Specialist Alliance specifically criticised the rationale provided by the Productivity Commission, arguing that:

The suggestion in the Productivity Commission Report that employers choose default funds for ease of administration, and not in the best interest of its employees, is without substantiation and is intuitively incorrect. Employers are usually members of the default fund also, so why would they

not select the fund most suitable to members?"

2.48 Opponents of the change commonly argued that certain corporate

superannuation arrangements should be able to be used as a default fund by a specific employer even though not listed in a relevant award. Such funds should include standalone corporate funds offering MySuper or tailored MySuper arrangement and other funds offering a MySuper facility.'6 51 52 53 54 55 56

51 Except in the case of defined benefit members.

52 See, for example, Qantas Group, Submission 5, pp 1-5; Australian Mines and Metals Association, Submission 30, p. 3; Rio Tinto, Submission 32, p. 7.

53 See, for example, Mercer Australia, Submission 13, p. 2; Russell Investments, Submission 16, pp 3-4; Financial Services Council, Submission 31, pp 10-11.

54 Corporate Super Association, Submission 2, p. 2.

55 Corporate Super Specialist Alliance, Submission 4, p. 2.

56 See, for example, Mercer Australia, Submission 13, p. 3.

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2.49 Opponents also addressed the 'grandfathering' provision currently in the Modem Awards. This provision enabled employers to retain their existing default super fund if it was the default at 12 September 2008. Some submitters argued that if the proposed amendments were passed, then the grandfathering provisions should be retained to bring about certainty/7

2.50 Ai Group, while expressing support for the bill's other provisions in respect of superannuation, was critical of the removal of 'grandfathering' provisions which would preclude employers to from continuing to contribute to corporate MySuper products/8 AiGroup called for the bill to be amended to include a grandfathering arrangement in each modem award for corporate funds with MySuper products/9

2.51 During the public hearing in Canberra, Mr Dick Grozier, Director, ACCI, suggested that alternatively the proposed bill could be amended to provide that modem awards would permit contributions into tailored or corporate MySuper products.57 58 59 60

Consultation

2.52 Some submitters also expressed concern that they were not 'warned' of the impending change to the superannuation arrangements. A number of submitters argued that the amendment flew in the face of legislation tabled as late as September 2012 (the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012), the Explanatory Memorandum for which provided in part:

A term of a modem award will still have effect if it requires or permits superannuation contributions to a class of fund but does not specify a particular fund. For example, most modem awards include a grandfather clause that peimits an employer to make contributions to a fund that the employer was contributing to before 12 September 2008, provided the fund is an eligible choice fund.61

2.53 These submitters considered that the reassurance they had taken from the MySuper Core Provisions Bill Explanatory Memorandum had been misleading. In

57 See, for example, Russell Investments, Submission 16, p. 5.

58 Ai Group, Submission 26, p. 5.

59 Ai Group, Submission 26, p. 5. Ai Group suggested a clause such as the following: 'any superannuation fund that offers a MySuper product to which the employee was making superannuation contributions for the benefit of its employees before 12 September 2008, providing that the superannuation fund is an eligible choice fund'.

60 This 'would provide for these companies specific funds which are authorised to offer MySuper products the same status as contributions that go into public sector schemes or defined benefit schemes': Mr Dick Grozier, Director Industrial Relations, NSW Business Chamber, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 21 November 2012, p. 5.

61 Explanatory Memorandum, Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, paragraph 4.20.

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addition, some submitters argued that the money they had spent on attaining MySuper status would now be wasted.62

2.54 However, the Department told the committee that in addition to consultations it had conducted, the Fair Work Review Panel had also engaged in lengthy consultations as part of its review process.63

Time and cost implications

2.55 Other concerns were associated with the time and cost of implementing the proposed changes. The Corporate Super Specialist Alliance submitted that the Productivity Commission Report significantly underestimated the time and effort required by an employer in switching funds, based on the need to go through a

selection process, the cost of professional assistance and the time needed to undertake a communication programme to employees.64

2.56 The amendment would bring about the need to make specific purpose agreements to deal with super. Some submitters argued that this would be both expensive and disruptive. Associated with this is an argument that it would bring multiple laters of bureaucracy into play - an application to APRA to become a MySuper fund, approval by the Default Selection Panel, and then vetting by FWA.6"

2.57 It was also submitted that, even once switching of funds has been achieved, many large employers have different groups of employees covered by a number of different awards. That potentially increases cost and complexity for that employer as

they have to direct default contributions to a number of different funds.66

2.58 Instead, some submitters called for any MySuper fund to be eligible to be a default fund.67 68 As an alternative, there was a consistent call for the retention of 'grandfathering' provisions.6S

Support for superannuation reforms

2.59 However, criticism of the move was not unanimous. Mr Tim Lyons, Assistant Secretary, ACTU, reminded the committee that proposed changes gave effect to 'what the Productivity Commission wanted, which is for somebody who is not the employer

62 See, for example, Corporate Super Association, Submission 2, p. 3; Corporate Super Specialist Alliance, Submission 4, p. 4.

63 Mr John Kovacic, Deputy Secretary, Workplace Relations and Economic Strategy, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 23.

64 Corporate Super Specialist Alliance, Submission 4, p. 4. See also Russell Investments, Submission 16, p. 4.

65 See, for example, Corporate Super Specialist Alliance, Submission 4, p. 2; Financial Services Council, Submission 31, p. 6.

66 Russell Investments, Submission 16, p. 4.

67 See, for example, Financial Services Council, Submission 31, p. 4;

68 See, for example, Ai Group, Submission 26, p. 5.

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to look at the question of what an appropriate default super product is and to make that decision for disengaged workers'.69

2.60 Dr Alison Morehead, Group Manager, DEEWR, advised the committee that any workplace that has an enterprise agreement may choose to list superannuation funds in that agreement:

If the parties to the agreement have chosen to list superannuation funds in them, they do not need to go through the process that default funds in

awards will go through under the bill. Anyone who has My Super product that is in an enterprise agreement is able to continue doing that and is not part of the process. The process that is suggested is about awards and about employees who rely on the default funds which are listed in awards.70 71

2.61 In its submission, the ACTU argued that:

This approach recognises that because of the highly imperfect nature of the *market * for default funds, and because the new MySuper regulations wall allow product tailoring and differential pricing, MySuper-compliance is a necessary but insufficient condition for a fund that wishes to be named as a default in an award. It is therefore appropriate to develop a selection process that builds on MySuper-compliance by combining input from those with expertise in superannuation or related fields with input from industrial stakeholders. This provision secures that objective/1

2.62 The ACTU went on to argue that the transition arrangements contained in the bill were appropriate to the circumstances:

This provision recognises that there may be circumstances where it is in the interests of members for a newly excluded fund to be allowed to continue to receive default contributions for a transitional period. For some employers it may take time to identify a new fund appropriate to their circumstances and to put new administrative arrangements in place. It is therefore appropriate for the Commission to have discretion in this area.72

2.63 The Australian Institute of Superannuation Trustees (AIST) also expressed strong approval for the measures, submitting that:

AIST fully supports the Bill in relation to the selection of super funds in awards. AIST has made submissions to the issues paper issued by the Productivity Commission in April 2012, its report in August 2012, and was involved in meetings with the Productivity Commission and the public hearings. Throughout this process, and the subsequent response of the

69 Mr Tim Lyons, Assistant Secretary, Australian Council of Trade Unions, Proof Committee Hansard, 21 November 2012, p. 18.

70 Dr Alison Morehead, Group Manager, Workplace Relations Policy, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 24.

71 Australian Council of Trade Unions, Submission 8 , p. 6. See also, Mr Tim Lyons, Assistant Secretary, Australian Council of Trade Unions, Proof Committee Hansard, 21 November 2012, pp 18-19.

72 Australian Council of Trade Unions, Submission 8, p. 6.

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Government, AIST has seen a progressive strengthening of consumer protections, and increased transparency, contestability, accountability and practicality in the emerging proposals.73

2.64 The AIST also considered the transitional arrangements to be satisfactory:

The transitional authorisation provided to the regulator...ensures that employers can be given a reasonable amount of time to transition across to new default arrangements, should this be necessitated by changes to a default fund term in an award.74

2.65 Industry Super Network (ISN) were also in support, submitting that:

ISN welcomes the Bill which increases transparency in the process by which default superannuation funds are named in modem awards and ensures the process has as its overarching consideration the best interests of

employees. The Bill implements the key recommendations of the final report of the Productivity Commission and successfully incorporates those key recommendations into a functional system that recognises that Superannuation Guarantee payments are a form of deferred wages.7'

Power to appoint Expert Panel Members to conduct four yearly reviews

2.66 The bill proposes to provide members of the new Fair Work Commission with the power to appoint three expert panel members to sit with the FWC members during the four yearly reviews of default fund terms in modem awards.

2.67 The measure was criticised by some. For example, HIA was concerned that these new provisions introduce another layer of governmental intervention allowing the *conflicted * parties of FWC to continue to select default superannuation funds. Whilst HIA does not have a preference over industry or retail funds it expressed concern that

[T]he proposed provisions favour industry funds and would enable the removal of a default fund as part of the 4 yearly review. Such a function is anti-competitive and will reduce flexibility.76 *

2.68 In contrast, the ACTU, the MUA, and the Ai Group, among others, support this measure .'' The AIST also expressed strong support, arguing that the proposal:

It is most efficient for all stakeholders, including employers, and society generally for the existing industrial regulator, Fair Work Australia ( *FWA *), to be directly responsible for the selection of default funds...An expert panel within FWA provides appropriate alignment between expert

73 Australian Institute of Superannuation Trustees, Submission 9, p. 1.

74 Australian Institute of Superannuation Trustees, Submission 9, p. 6.

75 Industry Super Network, Submission 19, p. ii.

76 Housing Industry Association, Submission 14, p. 6.

See for example, Australian Council of Trade Unions, Submission 8; MUA, Submission 21, p. 2; Ai Group, Submission 26, p. 6.

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superannuation knowledge and the overall regulation of workplace relations.78 79

2.69 The Financial Services Council expressed concerns that four-yearly reviews may lead to a short-term focus, to the detriment of members' long term interests./9

2.70 However, AIST supported the requirement for default funds to be reviewed 4- yearly:

AIST supports efforts to ensure that the relevance and appropriateness of default funds is reviewed frequently, and we believe that the creation of default superannuation fund lists as proposed in [the bill] is suitable for this.

We also believe that this process achieves the Productivity Commission's principles... of best interests, contestability and competition, transparency, procedural fairness, minimum regulatory burden, market stability, consistency with other policies and regular assessment.80

2.71 During the public hearing in Canberra, Mr Kovacic, Deputy Secretary, DEEWR, explained to the committee the rationale behind four yearly reviews:

The Productivity Commission recommended a major review every eight years with an interim review at a four yearly term. The government1 s view was that that was probably too long a period of time. Conversely, having an ongoing opportunity to vary modem awards would go contrary to the concept of a stable and secure safety net, so it probably goes to the other end of the spectrum. In the government's view, the four-yearly time frame is an appropriate time frame which will ensure that those sorts of

developments in the marketplace in terms of products and whatever will certainly be adequate to provide the opportunity to be reflected in modern awards.81

Conclusion

2.72 The evidence before this committee indicates broad overall support for the bill. It is clear to the committee that this first stage of amendments to the Act are the product of lengthy consultations and reflect an appropriate balance of the needs of both employer and employee groups.

2.73 Consistent with its undertaking when the Act came into force, the government conducted a review of the Act within two years of its implementation. The Review Panel consulted widely and received more than 250 submissions. The Review Panel concluded that the Act was working well and the economic outcomes achieved under the Act were consistent with Australia's productivity and prosperity.

78 Australian Institute of Superannuation Trustees, Submission 9, p. 2.

79 Financial Services Council, Submission 31, p. 12.

80 Australian Institute of Superannuation Trustees, Submission 9, p. 6.

81 Mr John Kovacic, Deputy Secretary, Workplace Relations and Economic Strategy, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 21 November 2012, p. 25.

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2.74 The amendments contained in this bill reflect the government's

implementation of around a third of the recommendations made by the Review Panel - those amendments that attracted broad support from the majority of employer and employee groups.

2.75 Nevertheless, submitters and witnesses hold divergent views on some amendments to the bill arising from the Review Panel. Some submitters have welcomed the bill because of its timely and necessary reforms, where others have expressed concerns about the amendments.

2.76 The committee is mindful of the detailed and lengthy consultations that both the Review Panel and DEEWR have conducted, and that this bill represents the first of a number of bills in the Fair Work reform package. Added to this, the committee notes the overall support for passing of the bill - even among those submitters who have expressed criticisms about particular provisions.

2.77 In relation to the amendments pertaining to superannuation, it is important to remember that the amendments only operate in cases where a person has not otherwise indicated their choice of super fund. Furthermore, enterprise agreements may continue to specify coiporate MySuper funds as the default fund.

2.78 It is also of fundamental importance that member funds be protected through a thorough and independent assessment of default funds specified in awards, which is precisely what the FWA review process is designed to achieve.

Recommendation 1

2.79 The committee recommends that the Senate pass the bill.

Senator Gavin Marshall

Chair

COALITION SENATORS * DISSENTING REPORT

Introduction

1.1 Coalition Senators are highly disappointed that once again, the Government has rushed through the Committee a significant Bill that will affect each employer, employee and independent contractor in Australia without the Committee being able to conduct fulsome inquiries.

1.2 This Bill was introduced into the House of Representatives at 4.30pm on 30 October and called on for debate the next morning 31 October with a vote later that day. The Minister has made no explanation for the critical need for this legislation to be passed and the Department did not provide any explanation at the Hearing. While Coalition Senators have formed some views which are explored in this report, given the brief nature of the inquiry and the time constraints of the hearing it is noted that not all submissions have received the scrutiny they deserved. Should more time have been allowed, the Committee could have heard from more witnesses.

1.3 Coalition Senators are concerned that the Government has titled this Bill as the *Fair Work Amendment Bill 2012' under the auspices of enacting

recommendations from the Fair Work Review. Despite this deceptive title, this Bill also makes significant changes to the Fair Work Act in relation to the operation of Fair Work Australia, Modem Awards and Superannuation.

Recommendation

That the Senate Committee be given an opportunity to fully consider legislation prior to debate in the Senate.

Superannuation

1.4 Coalition Senators have long expressed concern about the Government's failure to address the current closed shop, anti-competitive arrangements for the selection of default funds under Modem Awards through Fair Work Australia. Sadly the amendments in this Bill will continue to propagate these closed-shop arrangements.

1.5 The current process for the selection of default funds under modem awards, initiated by this government and run by Fair Work Australia lacks transparency. It is littered with inherent conflicts and inappropriately favours union dominated industry super funds.

1.6 Coalition Senators welcomed the Government's belated recognition in its 2010 pre-election policy1 on superannuation where they promised to introduce an open, transparent and competitive process to select default funds under modem awards.

1 Australian Labor Party, Fairer, Simpler Superannuation, 2010, Election Policy Document.

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1.7 Despite this election commitment, it took Minister Shorten a considerable amount of time to ask the Productivity Commission to examine this important issue.

1.8 After pre-empting its final report, Minister Shorten then cherry-picked those aspects of the Productivity Commission *s report that maintained the status-quo.

1.9 Coalition Senators are deeply disappointed that the government has introduced legislation into Parliament which, instead of ensuring genuine competition, will impose an additional layer of government intervention in the default fund market -particularly in light of the Government *s election commitments.

1.10 The government has sought in this legislation to limit the number of MySuper products in Modem Awards to a maximum of 10, despite the Productivity

Commission's clear recommendation that:

Recommendation 8.4

The number of default products listed in a given modem award should be at the discretion of the Default Superannuation Panel.2

1.11 Further, the government has ignored the Productivity Commission's findings in a number of areas including but not limited to:

" The Productivity Commission's proposed 'Default Superannuation Panel' will not be created as recommended - rather it will be subsumed into the existing Minimum Wage Panel;

" The new Panel is not the final decision maker under this Bill as recommended - instead the Full Bench of Fair Work Australia (FWA) will approve default funds in each award after a recommendation from the Expert Panel;

" The process of including funds in awards will only occur every 4 years

starting in 2014 when Modem Awards are due for review - as opposed to an ongoing application process; and

" All awards must have default funds - currently there are 13 awards that do not list default funds.

1.12 Coalition Senators firmly believe that genuine competition in the default fund market is critically important to ensure efficiencies and value for Australians in default super funds are maximised. If passed by the Parliament, this would see the continuation of a process where conflicted parties within Fair Work Australia will continue to select default super funds under modem awards.

1.13 In submissions to the Committee, the Financial Sendees Council said:

We believe the market structure proposed in this Bill for default super / MySuper will limit competition in the $1.4 trillion superannuation industry and result in reduced fee pressure and innovation for consumers.3

1.14 Coalition Senators also agree with the OECD:

2 Productivity Commission, Default Funds in Modem Awards , Final Report, p. 25.

3 FSC, Submission 31, p. 3.

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All OECD countries rely fundamentally on competition in product markets to organise production. Competition stimulates innovation and efficiency in the use of resources, thereby leading to greater product diversification and lower prices. Therefore, competitive product markets are in the interest of all consumers.4

1.15 The government is currently also legislating through its various MySuper Bills all the consumer protection requirements it judges are important in a default fund product.

1.16 Given this matter is under active consideration, there is no reason why every product which qualifies as a MySuper product should not be able to compete freely in the default fund market. This will surely achieve the best outcome for employees.

1.17 The Government has provided no justification for the additional cost and complexity which comes with an additional layer of government intervention in that market.

1.18 Coalition Senators are troubled by submissions that express concerns about the Minister's consultation process. The Financial Sendees Council said:

We note that the Explanatory Memorandum indicates that: 'the Bill was developed following extensive consultation with superannuation industry stakeholders ...... ' This is incorrect. There was minimal consultation with the superannuation industry on this legislation. Apart from a single meeting held on 23 October 2012, there was no exposure draft legislation and therefore no consultation on the draft provisions. The first time the industry saw the legislation was when it was presented to Parliament.5

1.19 Given the Government *s promise of open and transparent governance, this appears to be yet another example of a distinct lack of consultation. This, combined with the rushed nature of this inquiry and the speed at which this Bill is to be progressed through the Parliament, makes for bad decision making and leaves the

effect of this Bill susceptible to unintended consequences.

1.20 Quite clearly, there are significant issues with the superannuation aspects of this Bill which will lead to poor outcomes for employers and employees alike, as evidenced in Qantas * submission:

There is no cogent rationale for changing the position as proposed in the Further MySuper Bill less than 2 months ago. Such removal will lead to inconsistencies and impact negatively on employers with employer- sponsored funds as discussed below.

1.21 Coalition Senators are deeply concerned that Minister Shorten has been so desperate to protect the vested interests of his friends in the union movement that he has lost sight of his responsibility as a Minister of the Crown to act in the public

4 The Organisation for Economic Co-operation and Development (OECD), Competition: Economic Issues.

5 ESC, Submission 31, p. 5.

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interest.

Recommendation

1.22 That the Bill be amended to ensure that all MySuper products are eligible to be selected under the Modern Awards.

Fair Work Review

1.23 On December 20 last year, Minister Shorten finally announced the details for the review of the Fair Work Act. In doing so, he appointed three so-called

*independent * reviewers, Professor Ron McCallum, Dr John Edwards and the Hon. Michael Moore, who were given skewed and limited Terms of Reference, asking them to view the issues with blinkers on.

1.24 The Terms of Reference failed to incorporate vital ingredients of productivity, flexibility and union militancy but were clearly skewed to look in a particular narrowly focussed direction. Despite having the *independent * Office of Best Practice Regulation attempting to allay Coalition Senators * fears, documents obtained under Freedom of Information laws revealed that there was real concern within that office and the Department of Finance about the *narrow * scope of the review and the omission of productivity, the impact of union militancy and the cost impact on red tape.

1.25 Further Freedom of Information requests revealed that Mr Shorten only signed off on the Terms of Reference after political advisers had rewritten them to achieve Labor *s political goals.

1.26 Coalition Senators note that this is the Professor McCallum who recently predicted the Baillieu Government would lose the next election and praised the Leader of the Victorian Labor Opposition Daniel Andrews6 and who also said prior to his appointment to the panel that *only tinkering would be required to the Fair Work Act, which would stay in place for the next decade *.7 Such comments hardly inspire

confidence that rigorous independent scrutiny would be applied to the review.

1.27 In May 2006 just two months after policies 'dead, buried and cremated' were introduced the good professor gave a very robust ideological account of the legislation, saying:

...it will make our workforce docile and bring in a neo-liberal hegemony into this country...

And

6 Baillieu likely to lose election: McCallum, AAP, 13 August 2012.

7 Unpacking the Fair Work Act, Professor Ron McCallum, 30 May 2011, www.hwlebsworth.com.au/latest-news-a-publications/publications/worknlace-relations-and- safetv/item/347-unpacking-the-fair-'work-act.html

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I fear for this country; I fear for the fact that workers are going to be in a

perilous position. We are going to see, I think within a very short time, 30% of working women in part-time employment becoming part of the working poor.

1.28 As well as railing against the independent Australian Fair Pay Commission, including the trade union boss and community sector worker who were members as:

...full of what I would call neo-classical and neo-liberal economists...

1.29 Coalition Senators note that when it comes to the Fair Work Act after a full two years of operation Professor McCallum believes:

I think this act should be under scrutiny for a longer time...

1.30 Further the professor raged against the use of the Corporations power by the Coalition when in government but has been strangely silent on its use for the Fair Work Act.

1.31 Other members of the panel included: Dr John Edwards, a former political adviser to Paul Keating who went on to write a book titled John Curtin: Australia *s Greatest Prime Minister. He apparently had not heard of Robert Menzies. It seems that in selecting the reviewers the most important consideration was their predisposition to the Labor school of thought.

1.32 Coalition Senators believe that the Terms of Reference deliberately excluded the vital ingredients of productivity, flexibility and union boss militancy and were clearly skewed towards a predetermined outcome. Despite the Review being a disappointing document on so many levels, Coalition Senators note that on certain issues the reviewers were mugged by stark realities.

1.33 The Coalition has flagged general support for the review.8

Vice Presidents of Fair Work Australia

1.34 This Bill also contains the creation of two additional Vice President positions at Fair Work Australia - two of the highest offices in the organisation. Mr Shorten has completely failed to explain why these additional positions are required or justified, apart from the Department's submission that the President of Fair Work Australia sought the additional roles. These two positions would slot in as the second and third most senior officers of the tribunal.

1.35 Since the announcement of these two additional positions, there has been widespread community concern, including from within Fair Work Australia.

1.36 The Australian Financial Review reported recently that:

In an email obtained by the Weekend Financial Review, Senior deputy president Les Kaufman wrote to Fair Work president lain Ross on

8 Address to the Norton Rose Australia Employment Conference by Senator Eric Abetz, 31 August 2012.

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Wednesday questioning the need for two positions, which reintroduces a level of seniority at the tribunal that was removed under the Fair Work Act in 2009.

He said the appointments would further erode the standing of the tribunal and "gives rise to the perception it is being stacked. Although I have no direct interest in the creation of the two new vice-president positions because, as you know my commission expires on December 1, I wish to

express my dismay at what appears to be a retrograde step," Kaufman wrote to Justice Ross.

Deputy presidents Graeme Watson and Peter Richards have also written to Justice Ross over concerns the federal government will use the opportunity to install government-friendly appointees. 9

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1.37 Many submissions to the Committee expressed deep reservations about the inclusion of these two positions. Comments include:

From our perspective the need for the creation of these additional positions and the requirement that they be statutory positions is unclear. Neither the Fair Work Act Review Panel nor submissions to the review have identified the absence of these statutory positions as inhibiting the performance of Fair Work Australia.10 11

And:

This was not recommended by the Panel. It is unclear why these amendments are necessary or required and are opposed without amendments.

It is unclear why the existing Vice Presidents would not be suitable for reappointment to the new statutory Vice Presidential roles.11

1.38 To this end, there was wide stakeholder support for the appointment of the two Members of Fair Work Australia titled as 'Vice President' to the new positions. Mr Steve Knott of AMMA told the Committee:

The legislation previously recognised the two existing vice presidents * Vice President Lawler and Vice President Watson *but the current legislation does not. The proposal is to have the legislation recognise those two roles once again and put two new people into those roles. It is a real

pea-and-thimble trick. For those with long memories in industrial relations, we will go back to the late eighties when there was new legislation and everybody got appointed except one member of the tribunal, a fellow by the name of Justice Staples. I think this does give the opportunity *and, again, we have commented on this publicly *to really damage the independence

9 Australian Financial Review , 10 November 2012, p. 3.

10 Submission 20, p. 6.

11 Submission 25, p. 38.

36

29

or the perceived independence and impartiality of the tribunal. We have senior appointments made to the tribunal which, through the political cycle *there are people who are appointed by one side who may not be appointed by another side, but that is the way it goes over the fullness of time in the political cycle.

1.39 Coalition Senators are deeply concerned that the appointment of pro-Labor vice presidents would bring into question the tribunal *s integrity which has already suffered considerable damage courtesy of the Health Services Union scandal.

1.40 In a significant submission, the Law Council of Australia said:

As a general principle, once a person has been appointed to sit on a Court or independent Tribunal with designated powers and privileges, any change that would have the effect of removing or reducing that particular person *s

powers or privileges while not affecting the powers and privileges of other Members of that Tribunal, has a tendency to undermine the independence of the Court or Tribunal.

Members of FWA are appointed to a quasi-judicial position. The status of FWA depends upon the independence and impartiality of its Members being maintained and being seen to be maintained.

Should the Government appoint the two individuals currently designated Vice President to the two statutory Vice President positions, then their status will not be reduced. However, if the two Deputy Presidents

designated Vice Presidents are not so appointed, the effect of the Bill will be to reduce their status. Henceforth responsibilities that would have been capable of being delegated or given to them by nature of their senior status would instead be given to the new statutory Vice Presidents.

This would have the tendency to reduce the independence of the Tribunal in that it will reduce the role and privileges associated with particular individuals.12

1.41 Coalition Senators" strong view is that regardless of the views on Vice Presidents Watson and Lawler, in the interests of protecting the tribunal they should be appointed to the positions - consistent with submissions referenced in this Report.

1.42 It is noted that there has been public speculation13 about the appointment of such people as Mr Jeff Lawrence, Mr Josh Bomstein and Justice Michael Walton.

1.43 During the public hearing Mr John Kovacic, Deputy Secretary, DEEWR, emphasised that the positions had been created on the basis of a recommendation made by the President of Fair Work Australia, and that 'the positions will be publically advertised and will be subject to a merit based selection process consistent with

government policy'.14

12 Submission 29, p. 4.

13 http://catallaxyfiles.eom/2012/l 1/17/shorten-delivers-for-his-mates/

14 Proof Committee Hansard, 21 November 2012, p. 20.

37

30

1.44 Coalition Senators note that despite the Government *s *merit based selection" processes, and the promise before the 2007 election by then Labor Leader Kevin Rudd that:

I give you this as an absolute guarantee here on your program. I will not be prime minister of this country and appoint some endless tribe of trade union officials to staff or ex trade union officials to staff the key positions in this body. That's not my intention. That's not the way in which it's going to work.15

1.45 There has been an overwhelming number of people appointed to Fair Work Australia with a trade union pedigree, including in the last round Mr Bemie Riordan a former Electrical Trades Union official who mysteriously had civil proceedings against him settled the day before his appointment.

1.46 Despite the Explanatory Memorandum stating that there would be no cost associated with this Bill, Mr Kovacic stated:

There are costs, and those costs are to be absorbed by Fair Work Australia. It is difficult to be precise as to the actual cost, given that the Remuneration Tribunal is yet to determine remuneration for those positions. I think a

ballpark figure in the order of $1.5 million per annum is what we have been projecting.

1.47 The Coalition trusts that the resourcing of these positions will not come at the expense of Fair Work Australia's newly established branch to oversee the financial accountability and transparency of trade union bosses.

Recommendation

1.48 The creation of two additional Vice Presidents of Fair Work Australia be strongly opposed.

Recommendation

1.49 Should the positions be created, Vice Presidents Watson and Lawler be appointed to the positions.

*Fair Work Commission *

1.50 The Fair Work Review Panel *s clear recommendation that:

The Panel recommends that the FW Act be amended to change the name of Fair Work Australia to a title which more aptly denotes its functions. It is recommended that the new title contain the word *Commission * and that it no longer contain the words *Fair Work *.16

15 Hon. Kevin Rudd MP, 7.30 Report , 30 April 2007.

16 Fair Work Review Panel, Recommendation 50.

38

31

1.51 Despite this, Coalition Senators were somewhat surprised that the legislation seeks to change Fair Work Australia's name to *Fair Work Commission * - in clear contradiction of the recommendation.

1.52 The Government has refused to provide any explanation for why this recommendation was partially rejected, however Mr Steve Knott from AMMA has been able to shed some light on this matter in his evidence to the Committee:

We understand, and you get this through the bush telegraph, that the very highest levels of government want the name Fair Work retained and it has now come forward and was put forward as a decision as opposed to a

consultation issue that it will be the Fair Work Commission.17

1.53 It is clear that the Prime Minister herself intervened to protect the *Fair Work * name in the title of the Commission, contrary to the recommendation of a million dollar review and the wishes of the President of Fair Work Australia.18

1.54 Coalition Senators note that there was widespread support for a change of name, the Maritime Workers Union submitted:

The MUA supports calls for further amendment of the name to its natural form...

The Commission has been and remains a cornerstone of a functioning Australian democracy and is renowned for its fair and efficient management of industrial relations following federation with the enactment of the Conciliation and Arbitration Act 1904.

As such, the Commission deserves a name that is recognised throughout Australia and should revert to its longstanding and accepted form.

1.55 Coalition Senators note that there is wide stakeholder support for the name being changed to *Australian Workplace Relations Commission *.

Recommendation

1.56 The name of *Fair Work Australia' be amended to 'Australian Workplace Relations Commission *.

Other recommendations

Barclay v. Bendigo TAPE

1.57 The High Court *s unanimous judgement in the Barclay v. Bendigo TAFE case found that union bosses should not be an untouchable class in the workplace - something also recommended by the Review Panel.

17 Proof Committee Hansard , 21 November 2012, p. 10.

18 Proof Estimates Hansard, 28 May 2012, p. 52.

39

32

1.58 Coalition Senators welcome the High Court decision and the Fair Work Panel Review *s recommendation to this end.19

1.59 However, Coalition Senators found it disappointing and emblematic that Labor, through Minister Shorten, intervened in the High Court on the side of the union boss, Mr Barclay, arguing that it actually was the intention of the Fair Work Act to make union bosses untouchable even if they did the wrong thing.

1.60 Labor intervened in Barclay using more than $160 OOO20 of taxpayers * money to argue for the union bosses against a taxpayer funded education institution.

1.61 Indeed, in a damning judgement by High Court Justice Heydon, it has now been confirmed that Mr Shorten acted as an ex-union boss first and Minister of the Crown second after foolishly intervening on the side of the Australian Education Union in the Barclay v. Bendigo TAPE case.

1.62 Justice Heydon said:

...the Minister's stance before and during the oral hearing was not that of an intervener, but that of a partisan. For example, some of the Minister's oral submissions were directed to factual material. This is hardly the province of an intervener... 21

1.63 The Committee was told by Ms Lisa Matthews of AMMA:

That (this recommendation) is a step in the right direction and we would have liked to have seen that in this current round of reforms.

1.64 Coalition Senators are disappointed that the Government did not use the *first tranche * to enshrine this recommendation into legislation that would ensure that union bosses are treated the same as all other employees in the workplace.

1.65 There is broad concern in the community in relation to reports22 that the Government will give union representatives and members a new avenue to sue for alleged discrimination against them when acting in that capacity under changes to discrimination laws announced Attorney-General Ms Nicola Roxon.

1.66 Coalition Senators are concerned that the new legislation would allow for expanded protections for union bosses who do the wrong thing in the workplace, despite the High Court *s judgement in the Barclay v. Bendigo TAFE case and the Fair Work Review Panel recommendation.

19 Recommendation 47.

20 Proof Estimates Hansard , 17 October 2012, p. 107.

21 Board of Bendigo Regional Institute of Technical and Further Education v Barclay [No 2] [2012] HCA 42 (3 October 2012).

22 Union ties *basis for discrimination *, The Australian, 22 November 2012, p. 1.

40

33

JJ Richards

1.67 Then Opposition Leader Kevin Rudd pledged, that the Fair Work Act would not allow the return of *strike first, talk later *. Yet, the decision of the Federal Court in the JJ Richards case tells a different story.

1.68 The Federal Court's judgment accepts that the argument advanced on behalf of JJ Richards was understandable and reasonable but for the specific wording in the Fair Work Act which entitles unions to obtain protected action ballots in circumstances where most reasonable people would argue that should not be allowed.

1.69 The Government is yet to tell us whether this was simply a drafting error or that Labor deliberately misled the Australian people. Their silence is interesting and causes Coalition Senators to suspect the latter.

1.70 When asked at the Hearing, Mr John Kovacic of the Department, said:

Without having seen the appearances of the early witnesses this evening, I would imagine it is a reasonable expectation that there might have been differing views as to the approach on those recommendations. That was consistent with what emerged in the consultations that the minister

convened around the panel *s report, where there was clearly not a consensus view around on how to respond to those particular recommendations. As I mentioned in the opening statement, this bill really reflects those recommendations where there is a consensus...23

1.71 Coalition Senators believe that if the provisions of this case had exposed a drafting error, the Government would move with some speed to implement the stated policy that received electoral support at the 2007 election. Coalition Senators are concerned that, should the Government not rectify this, it will be viewed as a broken promise in a similar vein to the Carbon Tax that Australia had to have despite promises to the contrary in 2010.

Recommendation

1.72 Fair Work Review Panel Recommendations 31 and 47 be implemented as soon as practically possible.

Key Performance Indicators

1.73 Coalition Senators are concerned that despite some of the amendments in this Bill coming out of the Fair Work Review *s Post-Implementation Review, witnesses could not point to these amendments leading to any substantive increases to the Government *s Key Performance Indicators24 for the Fair Work Act.

1.74 Mr Daniel Mammone from the Australian Chamber of Commerce and Industry told the Committee in relation to the key performance indicator of Working Days Lost due to Industrial Disputes:

23 Proof Committee Hansard , 21 November 2012, p. 23.

24 Department of Education, Employment and Workplace Relations, Annual Report 2011-12.

41

34

So, in terms of the first tranche response bill, there are no changes in terms of the restrictions on taking protected industrial action per se.25

1.75 While there was evidence from the Australian Council of Trade Unions, consistent with public statements from the Minister for Employment and Workplace Relations that:

Taking a longer term view (see figures below), it is clear that current levels of industrial disputes are at historically very low levels even when one takes into account the peaks associated with large bargaining rounds.26

1.76 Coalition Senators note that the most recent Industrial Disputes data released by the Australian Bureau of Statistics reveals an 8 year high on working days lost due to industrial action. It is clear that both the Minister and the ACTU have used a very long term view to try and misconstrue the statistics. This dishonest approach does not allow for a transparent industrial relations debate.

1.77 Coalition Senators note that the 293 100 working days lost due to industrial action is the equivalent of 1,221 people sitting out on strike for a whole year. Avoiding such an outcome would lead to a significant productivity improvement

1.78 In relation to another Key Performance Indicator, productivity, Ms Lisa Matthews of AMMA said:

In relation to productivity improvements, we cannot really see any of the aspects of the bill adding to industry productivity.

1.79 While the first tranche legislation will make changes around the edges, Coalition Senators are disappointed that the Government hasn't taken this opportunity to address the militancy, flexibility nor productivity problems that have been unleashed in the wider community courtesy of this Act.

Conclusion

1.80 While having broad-ranging concerns with this Bill, Coalition Senators believe the concerns can be addressed with relatively minor amendments.

Recommendation

1.81 The Senate amend the Bill in line with recommendations in this report.

Senator Chris Back Senator Bridget McKenzie

Deputy Chair

25 Proof Committee Hansard, 21 November 2012, p. 3.

26 Answer to Question on Notice.

42

APPENDIX 1

SUBMISSIONS RECEIVED

Submission Number Submitter

1 The Employment Law Centre of WA

2 Corporate Superannuation Association

3 Master Electricians Australia

4 Corporate Super Specialist Alliance

5 Qantas Group

6 National Tertiary Education Union

7 Victorian Automobile Chamber of Commerce

8 Australian Council of Trade Unions

9 Australian Institute of Superannuation Trustees

10 Queensland Nurses' Union

11 Australian Manufacturing Workers' Union

12 Job Watch Inc

13 Mercer Pty Ltd

14 Housing Industry Association

15 Chamber of Commerce and Industry WA

16 Russell Investments

17 Kingsford Legal Centre

36

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

Master Builders Australia Ltd

Industry Super Network

Business Council of Australia

Maritime Union of Australia

Redfem Legal Centre

Australian Federation of Employers and Industries

Victorian Employers' Chamber of Commerce and Industry

Australian Chamber of Commerce and Industry

Australian Industry Group

Australian Business Industrial

Department of Education, Employment and Workplace Relations

Law Council of Australia

Australian Mines and Metals Association

Financial Services Council

Rio Tinto Ltd

Nab Wealth

The Association of Superannuation Funds of Australia Limited

44

1

ADDITIONAL INFORMATION

Answers to questions on notice from ACTU received 22 November, 2012.

______________________ _______________________ ___________________ 37

ANSWERS TO QUESTIONS ON NOTICE

1 Answers to questions on notice from ACTU received 22 November,

2012.

2 Answers to questions on notice from DEEWR received 23 November,

2012.

46

Witnesses who appeared before the Committee

APPENDIX 2

Canberra, 21 November 2012

BREEN, Mr Adrian, Senior Executive Lawyer, Workplace Relations Legal Group, Department of Education, Employment and Workplace Relations

C ACC AMO, Mr Tony, Director Workplace Operations, Australian Mines and Metals Association

CLARKE, Mr Trevor, Senior Legal and Industrial Officer, Australian Council of Trade Unions

CULLY, Mr Peter, Branch Manager, Workplace Relations Policy Group, Department of Education, Employment and Workplace Relations

GROZIER, Mr Dick, Director Industrial Relations, Australian Business Industrial and New South Wales Business Chamber

KNOTT, Mr Steve, Chief Executive, Australian Mines and Metals Association

KOVACIC, Mr John Anton, Deputy Secretary, Workplace Relations and Economic Strategy, Department of Education, Employment and Workplace Relations

LYONS, Mr Tim, Assistant Secretary, Australian Council of Trade Unions

MAMMONE, Mr Daniel, Director of Workplace Policy and Director of Legal Affairs, Australian Chamber of Commerce and Industry

MATTHEWS, Ms Lisa Maree, Senior Workplace Policy Adviser, Australian Mines and Metals Association

MOREHEAD, Dr Alison, Group Manager, Workplace Relations Policy Group, Department of Education, Employment and Workplace Relations

O'SULLIVAN, Mr Jeremy, Chief Counsel, Workplace Relations Legal Group, Department of Education, Employment and Workplace Relations

48

The Senate

Education, Employment

and Workplace Relations

Legislation Committee

Higher Education Support Amendment (Streamlining and Other Measures) Bill 2012 [Provisions]

November 2012

© Commonwealth of Australia

ISBN: 978-1-74229-716-3

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

MEMBERSHIP OF THE COMMITTEE

Members

Senator Gavin Marshall, Chair, ALP, Vic.

Senator Chris Back, Deputy Chair, LP, WA

Senator Catryna Bilyk, ALP, Tas.

Senator Bridget McKenzie, Nat., Vic.

Senator Lee Rhiannon, AG, NSW

Senator Matt Thistlethwaite, ALP, NSW

Secretariat

Mr Tim Watling, Secretary

Ms Bonnie Allan, Principal Research Officer

Ms Natasha Rusjakovski, Senior Research Officer

Mr Tim Hillman, Research Officer

Ms Sarah Bainbridge, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600

Ph: 02 6277 3521 Fax: 02 6277 5706

E-mail: eewr.sen@aph.gov.au

52

TABLE OF CONTENTS

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

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

CHAPTER 1.................................................................................................................. 1

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

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

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

Purpose of the bill..................................................................................................... 1

Key provisions of the bill.........................................................................................2

CHAPTER 2 ..................................................................................................................5

Issues.............................................................................................................................5

Lack of detail............................................................................................................ 5

Increased access for under-represented groups .............. 7

Risk based approach.................................................................................................7

Opportunities for further refinement ....................................................................... 9

Conclusion...............................................................................................................10

AUSTRALIAN GREENS ADDITIONAL COMMENTS...............................11

APPENDIX 1...............................................................................................................13

Submissions received by the Committee 13

54

RECOMMENDATIONS

Recommendation 1

2.12 The committee recommends that the Government continue to consult with stakeholders in the formation of the VET Guidelines provided for in the bill.

Recommendation 2

2.25 The committee recommends that the bill be passed.

56

CHAPTER 1

Introduction

Reference

1.1 On 11 October 2012, the Senate referred the provisions of the Higher Education Support Amendment (Streamlining and Other Measures) Bill 2012 (the bill) to the Senate Education, Employment and Workplace Relations Legislation Committee (the committee) for inquiry and report by 19 November 2012.

1.2 The bill was introduced in the House of Representatives by Senate by the Parliamentary Secretary for Higher Education and Skills, Ms Sharon Bird MP, on 19 September 2012. The bill was read for the first time in the Senate on 11 October 2012.

Conduct of inquiry

1.3 The committee contacted a number of organisations inviting submissions to the inquiry by 26 October 2012. Details of the inquiry were also made available on the committee's website.1

1.4 Submissions were received from 7 individuals and organisations, as detailed in Appendix 1.

Purpose of the bill

1.5 The Explanatory Memorandum (EM) states that the bill aims to improve the Higher Education Loan Program (HELP) schemes, particularly VET FEE-HELP through implementation of the recommendations arising from the VET FEE-HELP Post Implementation Review. In particular the bill's intention is to strengthen the integrity and quality framework underpinning the HELP schemes, improve information sharing and transparency with the national education regulators, improve arrangements for the early identification of low quality providers, and facilitate better management of risk to students and public monies.2

1.6 The EM states that the bill would achieve these outcomes by:

" implementing a risk managed approach to provider approvals and

administrative compliance, including consideration of reports by the national education regulators;

" implementing more effective suspension and revocation actions;

" simplifying the guidelines around VET FEE-HELP;

1 Committee website

2 Explanatory M emorandum, p. 1.

2

" improving the flexibility of the census date requirement;

" providing enabling legislation for specified certificate IV level qualifications to be eligible for VET FEE-HELP; and

" improving Ministerial and Secretarial delegation arrangements.

Key provisions of the bill

Schedule 1

1.7 Item 4 would remove the current requirement for a VET FEE-HELP provider to be a body corporate, and provides that the Minister may approve a provider if they are of a kind specified in the VET Guidelines (provided for in Schedule 3). The Schedule would also provide an alternative means for the Minister to approve an applicant as a VET provider when they are a low risk applicant. The additional provision would allow approval without the Minister needing to be satisfied that an applicant (both the body and the key decision makers in it) were fit and proper for the purpose. Various other Items in the Schedule make associated changes.3 Taken together, the changes are directed at easing the process for Ministerial approval of providers who are deemed to be low risk.

1.8 Item 14 would expand the financial information to which the Minister must have regard in making a decision about an applicant's financial viability to include not only annualised financial information already required under the Act, but also any more recent information that the Minister may require to be produced for the purposes of making a well-informed decision.

1.9 Items 25 to 33 amend the definition of 'VET course of study' to expand the Minister's powers to determine the course qualifications applicable for VET FEE- HELP, through the specification of a course in the VET Guidelines. This is necessary to give effect to the 2012 Council of Australian Governments (COAG) National Partnership Agreement on Skills Reform and to allow for a managed trial of certificate IV qualifications under VET FEE-HELP. Item 29 is notable in that it removes a prohibition on the Minister making a determination about a course being eligible for VET FEE-HELP within 6 months of a course starting. The EM claims this is necessary to provide flexibility and responsiveness to student and industry needs.

Schedule 2

1.10 Items 1 to 18 would allow a decision to revoke the approval of a higher

education or VET provider to take effect on the day following the last day on which a notice of motion to disallow the instrument can be moved in either House of Parliament. This would provide for more timely and effective revocation to prevent an

organisation from continuing to offer FEE-HELP or VET FEE-HELP to students

3 See, for example, Items 23 and 24.

58

during the period between the Minister's decision to revoke a provider's approval and the time when the notice of revocation of approval takes effect.

1.11 Items 19 to 25 provide that the Minister may seek information from the Tertiary Education Quality and Standards Agency (TEQSA) or a relevant VET regulator in taking a decision to approve, revoke or suspend a higher education or VET provider's eligibility for the purposes of VET FEE-HELP and FEE-HELP. Before they can be approved, providers are required to comply with any requirements

set out in the Guidelines. Items 26 to 29 provide that these information-seeking powers would apply to applications for approval made before, on or after the commencement of the powers.

Schedule 3

1.12 The Schedule would allow for the consolidation of four existing sets of guidelines (the VET Provider Guidelines, VET FEE-HELP Guidelines, VET Tuition Fee Guidelines, and VET Administration Guidelines) into one set of VET Guidelines.

Schedule 4

1.13 Items 1 and 4 would remove the current requirement that the number of enrolments in a course should be determined on a date (the census date) at least 20 per cent of the way through a course. The amendment would see the date set through the Administration Guidelines (for FEE-HELP) or the VET Guidelines (for VET FEE- HELP).

1.14 Items 2, 3 and 5 would provide for the Minister and Departmental Secretary to make delegations to persons who are not Australian Public Service employees. The EM provides that the amendments do not:

...in any way alter existing arrangements in relation to Ministerial and Secretarial delegations, but provides that, during unforeseen situations like machinery of government changes and changes to Administrative Arrangement Orders, the business of all departments that administer

funding or programs under the Act can continue. The existing arrangements in relation to the level of delegation will remain at high level managerial staff of the APS.4

4 Explanatory M emorandum, p. 48.

60

CHAPTER2

Issues

2.1 Submissions to the inquiry were generally favourable to the bill. On the whole, submitters considered bill would improve access to education and reduce administrative burden.1

2.2 The sentiments expressed by the Tasmania Department of Education were typical of those received in support of the bill:

...[W]e would support measures that would enable legislation to allow specified Certificate IV level qualifications to be eligible under VET FEE- HELP. Benefits of introducing VET FEE-HELP in Tasmania for Diploma, Advanced Diploma and specified Certificate IV level qualifications will include allowing us to prioritise government subsidies to the areas of greatest needs such as foundation skills and pathway qualifications in Tasmania's priority industries and occupations.1 2

2.3 The National Tertiary Education Union (NTEU) was a notable exception to the widespread support received, arguing that the expansion of VET FEE-HELP to a broader range of courses and providers had the potential to adversely reflect on VET quality and access, and declined to support the bill on that basis.3 Nonetheless, even this submitter conceded the attempt in the bill to strengthen quality assurance and streamline administration through risk-based applications.

2.4 A number of other submitters raised specific concerns with various aspects of the bill. These are addressed in turn.

Lack of detail

2.5 A number of submitters, while supportive of the bill's objectives, noted that much of the practical detail would come into effect through the VET Guidelines, and that without being able to examine those, a fully informed assessment was not possible. RMIT University was typical of many submitters in calling for further consultation with the sector 'to enable the objectives of the bill to be realised as there is a risk that the changes could create further complexities and add to the

implementation cost'.4

1 See, for example, Navitas Limited, submission L p. 1; RMIT University, submission 4, p. 1; TAPE Directors Australia, submission 6, p. 1.

2 Tasmania Department of Education, submission 2, p. 2.

3 NTEU, submission 3, pp 2-4.

4 RMIT University, submission 4, p. 1.

6

2.6 RMIT pointed to the bill's shifting of census date requirements from the Act to the VET Guidelines as a case in point, submitting that it supported the move:

...provided that, as set out in the Explanatory Memorandum to the Bill, institutions will be able to choose their preferred method of calculating census dates. This will then enable universities to best tailor the delivery and timings of their course offerings according to their strategies and the needs of the market. RMIT understands that the Bill is being amended to create greater flexibility. However, if these Guidelines did not follow this model or were changed in the future, RMIT notes that these changes would cause large providers to incur substantial costs to change their systems. Changes to census dates could obviously also have implications for RMIT students, particularly where they have dual enrolments in both higher education and VET with varying census dates.5

2.7 RMIT also made the point that consultation, and prior warning of substantive changes, was critical for reasons of practicality:

It is vital that consultation is undertaken during this process to ensure the objectives of the program can be met. Providers require sufficient lead time (at least 6 months) to prepare and implement administrative systems changes in response to legislative amendments. Similarly, lead-time is particularly critical for students as they make their study decisions in advance, and the accessibility of finance is a key factor in decision≠ making. 6

2.8 ACPET expressed similar concerns, submitting that:

While ACPET strongly supports measures to reward high quality providers with a reduced burden we are concerned that at this juncture there is a

distinct lack of detail around how risk will be determined and applied and how this will in turn influence the Minister *s approval and reporting requirements.7

2.9 In its submission, the Department of Industry Innovation Science Research and Tertiary Education (DIISRTE) set out in some detail the consultation undertaken in the course of the Post-Implementation Review (PIR) of VET FEE-HELP, which included online surveys, face to face interviews with Registered Training Organisations (RTOs), focus groups and questionnaires. The discussion paper which followed was made available online and comments invited. Further consultation forums were subsequently held.8

2.10 The committee was impressed by the level and quality of consultation undertaken to date, and the committee considers that submitters have every reason to

5 RMIT University, submission 4, p. 2.

6 RMIT University, submission 4, p. 1.

7 ACPET, submission 5, p. 2.

8 DIISRTE, submission 7, pp 2-5.

62

7

be optimistic about the level and quality of engagement in the forthcoming Guidelines process.

2.11 Nonetheless, the committee understands the concerns expressed by these submitters, and encourages the Government to continue to consult stakeholders in generating the new Guidelines.

Recommendation 1

2.12 The committee recommends that the Government continue to consult with stakeholders in the formation of the VET Guidelines provided for in the bill.

Increased access for under-represented groups

2.13 The National Tertiary Education Union (NTEU) took issue with the assertion in the Explanatory Memorandum (EM) that increased take-up of VET FEE-HELP by Indigenous Australians, students with disabilities and those living in remote and regional Australia was key to lifting VET participation among those groups. The NTEU argued that:

The reasons for low participation amongst specific demographic groups are far more complex than an inability of individuals to pay up-front fees. The NTEU considers it an abrogation of the Government *s responsibilities to rely on the provision of [income-contingent loans] as the primary policy instrument for improving educational participation amongst

underrepresented groups of Australians. One only needs to examine the evidence from the higher education sector and see that after more than two decades of HECS, students from the specified demographic groups remain underrepresented in our universities.9

2.14 The committee notes the NTEU's concerns in this regard, and some of the underlying reasons why some in the community are under-represented in the higher education and VET space. However, the committee considers that the bill would provide a net improvement in access to training, regardless of the demographic background of the potential student.

Risk based approach

2.15 Submitters generally viewed the introduction of risk-based assessment of education providers as a positive move that would aid efficient administration while also safeguarding students. Navitas submitted that it was:

...supportive of any moves to reduce regulatory burden and supports the Business Council of Australia *s proposition that adopting a risk-based approach to regulatory design, implementation and review is critical to

9 N TEU , submission 3, p. 2.

63

8

lifting regulatory performance and to realising and sustaining the benefits of current and future competition and regulatory reforms.10 11

2.16 Similarly, RMIT University submitted that it:

...supports the introduction of a risk based approach to the process of

approving providers to offer VET FEE-HELP. A differentiated approach allows for greater efficiency and effectiveness of processes, by not burdening low risk institutions such as RMIT with the same processes that may be required for higher risk providers. This approach would materially reduce application times.11

2.17 However, the Australian Council for Private Education and Training (ACPET) expressed concern that the approach outlined in the EM would 'automatically deem public providers to be low risk and private providers to be high risk', noting that this is currently the case in relation to the Commonwealth's Tuition Protection Scheme (TPS).12 ACPET expanded on its case this way:

ACPET is of the firm view that the VET sector has a sophistication and complexity beyond a simple dichotomy of the public/private divide and therefore this dichotomy should not play a significant part of the risk assessment process. ACPET has not had the opportunity to review and consider the risk rating framework prior to the introduction of the Bill, and in fact we are not aware if the framework has been developed. The

Explanatory Memorandum supporting the Bill should explicitly recognise that any provider with a recognised track record of quality may be

considered to be low-risk irrespective of ownership.13

2.18 However, the committee notes that one of the objectives of the bill is to enable a broader set of information to be assessed as part of the approval process. This is likely to result in a more informed decision, based on a broader set of criteria than a

provider's public or private status. The DIISRTE submission states that:

The Government *s ability to consider information from the national and non-referring jurisdiction education regulators is limited. Similarly, for RTOs offering both higher education and VET courses, information on

their conduct across the HELP schemes cannot be exchanged for the puiposes of approval, suspension or revocation. These amendments allow the Minister to seek information from the Tertiary Education Quality and Standards Agency (TEQSA) or the National Vocational Education and

Training Regulator or the relevant regulators from non-referring jurisdictions to improve decision making for application, administrative compliance, suspension and revocation puiposes for FEE-HELP or VET

FEE-HELP. These amendments will improve information sharing and

10 Navitas, submission 1, p. 1.

11 RMIT University, submission 4 , p. 2.

12 ACPET, submission 5, p. 2.

13 ACPET, submission 5, p. 2.

64

9

transparency with the regulators and will enhance arrangements to identify low quality providers.14

Opportunities for further refinement

2.19 RMIT University considered that the administrative and reporting efficiencies proposed in the bill might not go far enough, and that there may be further opportunity for improvement.

RMIT welcomes the amendments to allow greater information sharing between Government agencies as long as this includes provisions to share information across both State and Commonwealth agencies to minimise

duplication, and protects sensitive and commercial-in confidence information. RMIT notes that opportunities to share information go beyond the approval and revocations of approval, and include opportunities to streamline VET reporting across jurisdictions. This would significantly reduce compliance costs and increase efficiencies for providers and government agencies. However, it is not yet clear how the Bill or any proposed future action will fully address this opportunity.15

2.20 The committee encourages DIISRTE to examine any potential for further efficiency gains in the administration of VET, in line with RMIT's suggestion.

2.21 TAFE Directors Australia also took the opportunity to point out what it saw as:

...a fundamental inequity in the current FEE HELP arrangements whereby, with two exceptions, students undertaking higher education qualifications in TAFE institutes do not have the same entitlement to income-contingent loans as students studying in universities.16

2.22 RMIT University made a similar point:

In a demand driven VET environment in Victoria, there have been

substantial increases in student fees as a result of policy and funding decisions by government. This means that fees at all certificate levels may be increasing and could constitute barriers to entry. It is critical that all tertiary students have access to an income contingent loan to ensure equity of access, reduce barriers to entry and increase uptake.17

14 DIISRTE, submission 7, p. 5.

15 RMIT University, submission 4, p. 2.

16 TAFE Directors Australia, submission 6, p. 1.

17 RMIT University, submission 4, p. 2.

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Conclusion

2.23 The committee has considered all the submissions before it, and noted the generally positive reception of the bill. It is clear that, as a general rule, submitters can see significant merit in the objectives the bill seeks to further.

2.24 It has also considered a number of issues raised by submitters as being potentially problematic, but does not consider that any justify the bill's amendment or rejection.

Recommendation 2

2.25 The committee recommends that the bill be passed.

Senator Gavin Marshall

Chair

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AUSTRALIAN GREENS

ADDITIONAL COMMENTS

The Australian Greens:

" Note the concerns raised by a number of submitters that much of the detail will be effected through the VET Guidelines and is therefore not available for examination or assessment; and supports the Committee *s recommendation that the Government continues to consult with stakeholders in formulating the VET Guidelines provided for in the bill.

" Note the concerns raised by TAPE Directors Australia and RMIT University that VET students currently do not have equitable access to FEE HELP loans.

" Agree with the NTEU *s submission that 'it is an abrogation of the

Government's responsibilities to rely on the provision of [income-contingent loans] as the primary policy instrument for improving education participation amongst underrepresented groups of Australians'.

" Support the goal of a fee and charges free TAPE system, where income

contingent loans are unnecessary and the Commonwealth government increases its contribution to the costs of a high quality accessible system.

" Do not support the shifting of costs for vocational education and training on to the student via TAPE student fees, which in turn necessitate students raising debts to participate in VET through the VET-FEE HELP system. For this reason any extension of the VET-FEE HELP scheme is noted with concern as pre-empting higher student fees.

" Call on the Government to prioritise and increase its VET funding to the

TAPE system to ensure a high quality, accessible and viable public VET system.

Senator Lee Rhiannon Greens Senator for NSW

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APPENDIX 1

Submissions received by the Committee

Submission Number

1

2

3

4

5

6

7

Submitter

Navitas Limited

Tasmanian Department of Education

National Tertiary Education Union (NTEU)

RMIT University

Australian Council for Private Education and Training (ACPET)

TAPE Directors Australia

Department of Industry Innovation Science Research and Tertiary Education

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70

The Senate

Education, Employment

and Workplace Relations

Legislation Committee

Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012 [Provisions]

August 2012

© Commonwealth of Australia

ISBN: 978-1-74229-675-3

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

Members of the Committee

Members

Senator Gavin Marshall, Chair, ALP, Vic,

Senator Chris Back, Deputy Chair, LP, WA

Senator Catryna Bilyk, ALP, Tas.

Senator Bridget McKenzie, Nat., Vic.

Senator Lee Rhiannon, AG, NSW

Senator Matt Thistlethwaite, ALP, NSW

Participating Members

Senator Rachel Siewert, AG, WA

Senator Richard Di Natale, AG, Vic.

Secretariat

Mr Tim Watling, Secretary

Ms Bonnie Allan, Principal Research Officer

Ms Natasha Rusjakovski, Senior Research Officer

Mr Jarrod Baker, Research Officer

Mr Tim Hillman, Research Officer

Mr Ming Li, Research Officer

Ms Sarah Bainbridge, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600

Ph: 02 6277 3521 Fax: 02 6277 5706

E-mail: eewr.sen@aph.gov.au

74

Table Of Contents

Members of the Committee......................................................................................iii

Recommendations.......................... vii

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

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

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

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

Purpose of the bill..................................................................... 1

Key provisions of the bill........................................................................................2

Compatibility with human rights.............................................................................3

Other inquiries......................................................................................................... 4

Acknowledgement................................................................................................... 4

Notes on references................................................................................................. 4

CHAPTER 2 ................................................................................................................. 5

Key issues.....................................................................................................................5

Overview..................................................................................................................5

Schedule 1.................................................................................................................5

Schedules 2 and 3 ......................................................... 18

Coalition senators' Dissenting Report .................................................................. 21

APPENDIX 1..............................................................................................................23

Submissions received by the Committee...............................................................23

APPENDIX 2 ..............................................................................................................27

Witnesses who appeared before the Committee...................................................27

APPENDIX 3 ..............................................................................................................29

Supplementary payments and services available to single parents affected by changes to grandfathered status...............................................................................29

Recommendations

Recommendation 1

2.56 The committee recommends that the Senate defer consideration of the bill until the Parliamentary Joint Committee on Human Rights has concluded its inquiry and the committee *s report has been considered.

Recommendation 2

2.57 The committee recommends that the government consider deferral of Schedule 1 of the bill until the Senate Education, Employment and Workplace Relations References Committee completes its inquiry into the adequacy of Newstart Allowance and other payments, and the government has had an opportunity to respond to any recommendations that might be forthcoming.

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78

CHAPTER 1

Introduction

Reference

1.1 On 19 June 2012, the Senate referred the provisions of the Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012 (the bill) to the Senate Education, Employment and Workplace Relations Legislation Committee (the committee) for inquiry and report by 22 August 2012.1

Conduct of inquiry

1.2 The committee advertised in The Australian on 4 June 2012, calling for submissions by 23 July 2012. Details of the inquiry were also made available on the committee's website.1 2

1.3 The committee also contacted a number of organisations inviting submissions to the inquiry. Submissions were received from 37 individuals and organisations, as detailed in Appendix 1.

1.4 A public hearing was held in Melbourne on 9 August 2012. The witness list for the hearing is at Appendix 2.

Purpose of the bill

1.5 The bill was introduced in the House of Representatives by

the Hon. Bill Shorten MP, Minister for Financial Services and Superannuation and the Minister for Employment and Workplace Relations on 31 May 2012. It seeks to implement measures relating to Parenting Payment, the liquid assets test and the definition of termination payments in line with announcements in the 2012-13

Budget.

1.6 The bill has three objectives. Broadly, the bill proposes to:

" amend the Social Security Act 1991 to remove transitional arrangements for certain Parenting Payment recipients (Schedule 1);

" amend the Social Security Act 1991 to increase the liquid assets limit for certain income support applicants (Schedule 2); and

1 Journals of the Senate, 2012, p. 2528.

2 Senate Standing Legislation Committee on Education, Employment and Workplace Relations, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, httpWvww.aph.gov.au/Parliamentarv Business/Committees/Senate Committees?url=eet_ctte/s ocial securitv_2012/index.htm. accessed 3 July 2012.

2

" amend the definition of 'termination payment' in the Social Security Act 1991 as it relates to income maintenance periods (Schedule 3).3

1.7 According to the Financial Impact Statement, Schedule 1 measures would save $727.9 million over four years and the Schedule 2 measure would cost $36 million over four years.4 5

Key provisions of the bill

Removal of grandfathering provisions

1.8 Schedule 1 of the bill seeks to remove 'grandfathering' provisions, established on 1 July 2006, with the result that from 1 January 2013, eligibility for parenting payment for all recipients would cease when the child of a partnered parent turns 6 years old, or when the child of a single parent turns 8 years old." Parents no longer

eligible for parenting payment would be moved to Newstart Allowance. For those coming from Parenting Payment (PP) Single this means a lower rate of payment and similar activity requirements. (PP Partnered is the same payment rate as Newstart). There are also other financial consequences, which are discussed in Chapter 2.

1.9 Previously, 'grandfathered' recipients could receive parenting payment until their youngest child turned 16 years old if the child was in their care before 1 July 2011. Changes passed by Parliament on 9 May 2012 reduced this age to

12 years. The government's stated intention is that these further changes would encourage parents with school age children to return to the workforce earlier and ensure that all parents are treated equally.6

1.10 Currently, more than two thirds of parents in receipt of parenting payment cease to receive PP once their youngest child turns 6 (or 8 in the case of single parent families). However, one third of recipients of PP, all of whom began claiming PP before 1 July 2006, are currently eligible for PP until their child turns 12. The bill proposes to remove this distinction. If passed, this proposal will eventually affect all

147 000 grandfathered PP recipients. On 1 January 2013, just under 63 000 recipients would be affected (of which the majority are PP Single).

3 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, pp 2-3.

4 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, p. 3.

5 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, p. 2.

6 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, p. 2.

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Liquid assets limit

1.11 Schedule 2 of the bill would amend the Liquid Assets Waiting Period thresholds to allow newly unemployed Australians and new students to retain more of their savings when they commence looking for wrork or studying. Currently, people claiming Newstart Allowance, Youth Allowance, Sickness Allowance and Austudy Payment who have liquid assets above a maximum reserve amount ($2500 singles without dependents or $5000 otherwise) must in most cases wait 13 weeks before receiving income support. The bill proposes to double, from 1 July 2013, the maximum reserve amount to $5000 for singles without dependents and $10 000 for others, resulting in reducing waiting times for around 21 000 applicants each year by up to five weeks.7

Definition of 'termination payment'

1.12 Schedule 3 of the bill proposes to revise the technical definition of

'termination payment' for the purposes of the Income Maintenance Period, such that termination payments would include payments that are redundancy payments, leave payments and other payments connected with termination of employment. The effect of this change would be to clarify that any payments made to an employee at the

termination of their employment is considered in determining the Income Maintenance Period.8

Compatibility with human rights

1.13 The explanatory memorandum contains a Statement of Compatibility with Human Rights (the Statement), which acknowledges the implications of the bill on the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the right to education under Article 13 of the ICESCR. The Statement concludes that the bill is compatible with human rights

and that any adverse impact the bill may have on those rights is reasonable and for legitimate reasons.9

1.14 The Australian Council of Social Service (ACOSS) wrote to the

Parliamentary Joint Committee on Human Rights ('Human Rights committee') arguing that the intention of the bill to cease parenting payments when a single parent's child turns 8 years old is a violation of human rights. On 21 June 2012, the Human Rights committee held a hearing in relation to the bill, during which evidence was received

___________________________________________________________________________________ 3

7 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, pp 2-3. See also Michael Klapdor, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Bills Digest No. 164, 2011-12, Parliamentary Library, pp 15-20.

8 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, p. 3. See also Michael Klapdor, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Bills Digest No. 164, 2011-12, Parliamentary Library, pp 20-22.

9 Explanatory Memorandum, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, pp 15-17.

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4

from ACOSS, the Australian Human Rights Centre in the University of New South Wales, the National Council for Single Mothers and their Children, the National Welfare Rights Centre, and the Department of Education, Employment and Workplace Relations (the department).10 11

1.15 The Human Rights committee has not finalised its consideration of the bill.

Other inquiries

1.16 The Senate Education, Employment and Workplace Relations References Committee is currently inquiring into the adequacy of the allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of the labour market. This inquiry will consider, in particular, the adequacy of Newstart Allowance. Submissions closed on 3 August 2012, and the committee will report by 1 November 2012.11

Acknowledgement

1.17 The committee thanks those individuals and organisations who contribution to the inquiry by preparing written submissions and giving evidence at the hearing.

Notes on references

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

10 Parliamentary Joint Committee on Human Rights, Proof Committee Hansard, 21 June 2012, Canberra. http://www.aph.gov.au/Parliamentarv Business/Committees/Senate Committees'?url=humanri ghtsctte/activitv/index.htm (accessed 1 August 2012).

11 More information, including the terms of reference for the inquiry, is available on the committee's website: http://www.aph.gov.au/Parliamentarv Business/Committees/Senate Committees?url=eet ctte/ newstart allowance/index.htm (accessed 1 August 2012).

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CHAPTER 2

Key issues

Overview

2.1 The key issues discussed in submissions and during the hearing relate to Schedule 1 of the bill - the proposal to remove the grandfathering provisions. The committee heard that under the proposed changes, families transitioned to Newstart Allowance would suffer financially and lose incentives to work. The timing of the measure was problematic, particularly in light of the Senate Education, Employment and Workplace Relations References Committee's concurrent inquiry into, among other matters, the adequacy of Newstart Allowance.

2.2 The Department of Education, Employment and Workplace Relations (the department) submitted that the changes to eligibility would encourage workforce participation and achieve fairness by ensuring parents in like circumstances have access to the same support.1

Schedule 1

Background

2.3 Schedule 1 of the bill seeks to remove 'grandfathering' provisions established on 1 July 2006 and would supersede transitional amendments passed in 2011 and earlier this year.1 2 If the bill is passed, from 1 January 2013:

" eligibility for parenting payment for partnered recipients would cease when the youngest child under their care turns 6 years old, or when the youngest child of a single parent turns 8 years old.

" all grandfathered recipients would have participation requirements when their youngest child turns 6 (currently this is not until that child turns 7)∑3

2.4 Abolition of the grandfathering clause is expected to save $727.9 million over four years.4 The proposed amendment would impact one third of current recipients, all

1 Department of Education, Employment and Workplace Relations, Submission 19, p. 1.

2 Australian Parliamentary Library, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Bills Digest No. 164, 2011-12, p. 5. Note: The changes passed in July 2011 and May 2012 transition parents onto Newstart Allowance at an earlier date than they would have under the 2006 transitional provisions: Department of Education, Employment and Workplace Relations, Submission 19, p. 5.

3 Department of Education, Employment and Workplace Relations, Submission 19, p. 1.

4 Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Explanatory Memorandum, p. 3.

6

of whom began claiming parenting payment before 1 July 2006, who currently remain eligible until their youngest child turns 12 (even if that child is bom after 2006). If passed, just under 63 000 recipients would be affected on the commencement date of 1 January 2013. This proposal would eventually affect all 147 000 grandfathered

parenting payment recipients, the majority of whom are single parents. "

2.5 Parents no longer eligible for parenting payment would be eligible to apply for Newstart Allowance.5 6 For those coming from Parenting Payment Single this means a lower rate of payment and, in some instances, earlier activity requirements. (Parenting Payment Partnered is the same payment rate as Newstart). Those who were in receipt of Parenting Payment Single, who have participation requirements and earn more than $36,000 a year, would not be eligible for Newstart Allowance.7

2.6 Schedule 1 amendments did not go through a detailed consultation process. Ms Terese Edwards, Chief Executive Officer, National Council for Single Mothers and their Children, described her disappointment:

First of all, apart from us talking about the flawed assumptions, it also prevents us from providing information about what actually does work. When we have information from women who have been able to fulfil

various goals and aspirations, and they are faring well and supporting their family, those questions of what actually worked, what they had in play and whether they think it could be replicated for others represents a whole lot of misleamings. We believe policy formation without the voices of those it is going to impact upon is flawed from the start.8

Financial impact

2.7 Many submitters and witnesses expressed concern that the move from Parenting Payment to Newstart Allowance would have a significant financial impact on families, particularly those led by a single parent. During the hearing the department made it clear that despite the 'range of supports and assistance available' in addition to Newstart Allowance, it did not assert that parents who lost their

grandfathered status and were moved to Newstart would be 'financially better off.9

2.8 In general terms, parents transferring from Parenting Payment Single to the maximum Newstart Allowance rate for single principal carers would lose $118.70 a

5 Department of Education, Employment and Workplace Relations, Submission 19, p. 5.

6 Department of Education, Employment and Workplace Relations, Submission 19, p. 3.

7 Department of Education, Employment and Workplace Relations, Submission 19, p. 5. The cut≠ off point for Newstart Allowance is approximately $36 000 p.a. The cut-off point for Parenting Payment Single is $47 000 p.a.

8 Ms Terese Edwards, Chief Executive Officer, National Council for Single Mothers and their Children, Proof Committee Hansard, 9 August 2012, p. 32.

9 Ms Jennifer Taylor, Deputy Secretary, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 9 August 2012, p. 33.

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fortnight.10 11 With the exception of the pensioner education supplement, the same supplementary payments and services are available on Parenting Payment Single and Newstart Allowance, as detailed in Appendix 3.

2.9 Newstart Allowance also has a stricter 'income free area', the amount of money that may be earned without impacting the a recipient's payment. Whereas on Parenting Payment, single parents may earn $174 a fortnight, plus an additional $24.60 for each additional child, before being penalised, parents transitioned to Newstart would start to see a reduction in payments after they earn more than $62 a

fortnight.11 During the Melbourne hearing Ms Maree O'Halloran, President of the National Welfare Rights Network, explained the practical difference between the income free threshold on the two payment types:

It would take less than two hours at the minimum wage before [single parents] would start to lose their Newstart allowance, whereas for the parenting payment single they can have a shift of four hours before they

start to lose.12

2.10 The strict earning threshold described above is still more generous for single parents than other Newstart recipients who are not principal carers of children. During the hearing the committee asked about the cost implications of retaining the larger 'income free' threshold for single parents on Newstart Allowance. The department advised that such a measure 'would reduce the savings over the forward estimates by

approximately $491 million'.13

2.11 At the committee's request the department provided two case studies to illustrate the financial impact of the proposed changes.14

10 Department of Education, Employment and Workplace Relations, Submission 19, p. 11. The Parenting Payment rate of up to $648.50 a fortnight will continue to be paid to single parents transferred to Newstart Allowance who have been granted an exemption on the grounds of foster caring, home schooling, distance education or a large family.

11 Currently from $62 to $250 it is 50 cents in the dollar, beyond that it is 60 cents in the dollar. From 1 January 2013 that becomes a flat 40 cents in the dollar over $62. Mr David Pattie, Branch Manager, Income Support Programs, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 9 August 2012, p. 39. As a consequence of

legislation passed by the Parliament in May 2012, from 1 January 2013 single parents on Newstart Allowance will be able earn up to $400 a fortnight before they become ineligible for the payment.

12 Ms Maree O'Halloran, President, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 24.

13 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012). The department noted that this figure has not been agreed to by the Department of Finance and Deregulation and does not include additional costs that would be incurred by service delivery agencies.

14 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

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2.12 The first example describes the circumstances of a grandfathered single parent on Parenting Payment Single with a nine year old child. The parent satisfies their participation requirement of 30 hours per fortnight, earns $500 per fortnight, and pays $350 per week in rent. This recipient would receive $140.79 less per fortnight were

the bill to pass.13

2.13 The second example describes the circumstances of a grandfathered single parent on Parenting Payment Single with two children aged nine and 14. The parent satisfies their participation requirement of 30 hours per fortnight, earns $500 per fortnight, and pays $350 per week in rent. This recipient would receive $139.77 less per fortnight were the bill to pass. 15 16

Adequacy of Newstart Allowance

2.14 As discussed in the previous section, the bill would see grandfathered recipients of Parenting Payment transitioned to Newstart Allowance. Much of the evidence received by the committee focused on the inadequacy of Newstart Allowance, particularly for single parents with dependents.17

2.15 The Australian Council of Social Service (ACOSS) advised there is agreement amongst a range of peak organisations that Newstart Allowance is so low that it is causing entrenched poverty and acting as a barrier to people who are looking for work. During the Melbourne hearing Dr Cassandra Goldie, Chief Executive Officer, explained how widespread this view is:

The consensus that the Newstart allowance is now operating as a barrier to participation is held by the Business Council of Australia, the Australian Industry Group, the OECD and the Henry tax panel, which recommended

that Newstart allowance be increased. Also, experts from Professor Whiteford to Judith Sloan have made it clear that in their view the Newstart allowance as the base payment to be out looking for paid work is now

operating as a disincentive and a bander.18

15 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

16 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

17 See for example Brotherhood of St Laurence, Submission 12; Care Inc, Submission 17; Anglicare Australia, Submission 21; Jobs Australia, Submission 27; Susan Barclay, Submission 32; St Vincent de Paul Society, Submission 34; Western Australian Council of Social Service, Submission 35; Name Withheld, Submissions 1-7, 11, 14, 16, 25, 26, 28 and 38.

18 Dr Cassandra Goldie, Chief Executive Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 8.

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2.16 Dr Goldie also cited research that parenting payment recipients are ten per cent below the poverty line and those on Newstart are thirty per cent below the poverty line.19

2.17 The Salvation Army submitted that Newstart allowance is inequitable and inadequate as it is lower than pensions for retirees, below the poverty line, and has a more restricted earning threshold compared to the Parenting Payment.20 Mission Australia referred the committee to the conclusions of the Henry Tax Review about the inadequacy of Newstart, especially in contrast to other OECD countries.21

2.18 The National Council of Single Mothers and their Children submitted that Newstart Allowance is not suited to single parents as it is an unemployment benefit that is structured primarily for job seekers, as opposed to parents and carers. Further, Newstart provides an inadequate level of support for families, has limited study

support and the low allowable earnings creates a disincentive to work. The Council expressed concern that single mothers pushed onto Newstart would not have sufficient disposable income to become work ready and participate in the job market.22 This view was also broadly supported by the National Welfare Rights Network.23

2.19 During the hearing in Canberra the committee heard that many concerns about the Schedule 1 would be ameliorated if Newstart Allowance was paid at a higher rate, although there would also need to be 'proactive and incentive-based assistance for

getting some of these groups of people back into the workforce'24 with more targeted employment support services,25 26 and an increase the income free area.-6

2.20 The committee heard of a range of other financial assistance payments and concessions available to parents receiving Newstart. However, the majority of these

19 Dr Cassandra Goldie, Chief Executive Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 9.

20 Salvation Army, Australian Southern Territory, Submission 18, p. 5.

21 Mission Australia, Submission 13, p. 6. See also, Australia *s Future Tax System , Commonwealth of Australia, 2010. (This publication is often called the 'Henry Tax Review', after Mr Ken Henry, the Chair of the review panel). Available online: http://www.taxreview.treasurv.gov.au/Content/Content.aspx?doc=html/home.htm (accessed

10 August 2012)

22 National Council of Single Mothers and their Children, Submission 22, p. 3.

23 Ms Maree O'Hall oran, President, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, pp 19-20.

24 Ms Netty Horton, Territorial Social Program Director, The Salvation Army, Proof Committee Hansard, 9 August 2012, p. 3.

25 Dr Prins Ralston, Acting Chief Executive Officer, Mission Australia, Proof Committee Hansard, 9 August 2012, p. 16.

26 Ms Maree O'Halloran, President, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 24.

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payments are already received by parents on Parenting Payment .21 The department did not comment on the adequacy or otherwise of Newstart Allowance. However, the department did note the current inquiry being conducted by the References Committee and observed in its submission that:

The level of social security welfare support is a matter for the Government however, the Government has been clear that it considers the breadth of financial assistance with employment and other service provides adequate support for recipients while also providing appropriate incentives to work.27 28

Quality of employment support sendees for parents on Newstart

2.21 Many submitters and witnesses emphasised their support for activity requirements under Parenting Payment and Newstart. However, the committee heard that the current level of employment services support for parents could be improved."9

2.22 For example, Mission Australia submitted that single parents would be better supported if they were immediately placed on Stream 2, rather than Stream 1, job support services. Stream 2 provides intensive case management and is not ordinarily

available until a recipient has spent 26 weeks on Stream l.30 At the public hearing in Melbourne Dr Prins Ralston, Mission Australia, explained why immediate access to Stream 2 services should be provided to parents moved from Parenting Payment to Newstart:

Stream 1 seivicing in the Job Services Australia contract, as a result of the Newstart allowance, provides a very limited set of services. The service level there is intended for people who have recently fallen out of work and are classified as job ready'. The department has actually identified that these people are very far away from the job market in general. So if you think about somebody who has been out of work for possibly eight years since the birth of their child that is a significant period to be out of the job market. We are basically classifying those people as job ready. That, in our view, is a nonsense.31

2.23 The Salvation Army, among others, also called for measures to better support the transition to employment by parents and ensure that employment results in an improved financial situation for families.32

27 See Appendix 3 for a breakdown of available payments (this table was prepared by the Department of Education, Employment and Workplace Relations).

28 Department of Education, Employment and Workplace Relations, Submission 19, p. 7.

29 See for example, The Australian Council of Social Service, Submission 10; National Welfare Rights Network, Submission 30; The National Council of Single Mothers and their Children, Submission 22; Australian Youth Affairs Coalition, Submission 36.

30 Mission Australia, Submission 13, p. 4.

31 Dr Prins Ralston, Acting Chief Executive Officer, Mission Australia, Proof Committee Hansard, 9 August 2012, p. 16.

32 The Salvation Army, Australian Southern Territory, Submission 18, p. 7.

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2.24 The department advised that a number of programs provide employment services and promote workforce participation, and that parents who moved to Newstart Allowance would still be able to access these services.33 This includes assistance through Job Services Australia and Disability Employment Services to find and retain employment. Additional services such as the Employment Pathway Fund and the Employment Assistance Fund are also intended to help job seekers. Further, special participation requirements have been developed for single parents.34 35

2.25 Parents who were grandfathered and transition to Newstart Allowance would also have access to two additional services that were announced in the 2011-2012 budget and received additional funding in the 2012-13 budget:

" Career Advice for Parents (a free telephone service which provides career advice).

" Access to Training Places for Single Parents (with guaranteed places assured for grandfathered parents transitioning to Newstart to attain accredited training and support services for single and teenage parents).33

2.26 The department also advised that parents are not required to accept or continue working in a job that does not render them financially better off (and accounting for factors like childcare and transport costs).36

The policy rationale for grandfathering

2.27 The department argued that the proposed measure is fair because it would see all parents treated equally once their youngest child reaches six years old for partnered parents or eight years old for single parents.37

2.28 A number of submitters disagree with this assessment, arguing that bringing all parents down to the same level does not promote fairness, especially if vulnerable families would suffer financially. For example, the Salvation Army expressed the following concerns:

The broad premise for us is that we are worried that the parents who are going to get a reduction in their income through schedule 1 will be more disadvantaged. We are also saying that, of that group, many of those people

33 Ms Jennifer Taylor, Deputy Secretary, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 9 August 2012, p. 37.

34 Department of Education, Employment and Workplace Relations, Submission 19, pp 8-10. See also Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

35 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

36 Department of Education, Employment and Workplace Relations, Submission 19, pp 10-11.

37 Department of Education, Employment and Workplace Relations, Submission 19, p. 1.

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are likely to be at the lower end of the likelihood of gaining employment, so we are worried about the impact on them and their children.

The group of people we see [who will be impacted by the grandfathering clause] are disadvantaged for a range of reasons...and we are very

concerned about the impact of a reduction in their rate of pay, should they then be required to transfer to Newstart and have an even more serious impact than their low income already has.38

2.29 The committee asked witnesses to comment on the policy rationale for the grandfathering clauses. The Salvation Army inferred that: 'perhaps it was considered too harsh to make those changes to people currently in receipt of those payments'. The only reason it could see why grandfathering clause was being removed now was because of'a fiscal imperative to save money'.39

2.30 During the Melbourne hearing Mr Peter Davidson, Senior Policy Officer, ACOSS, explained that:

The logic of grandfathering was that it was considered too harsh for people already on an income-support payment, whether it was PPS [Parenting Payment Single] or the DSP [Disability Support Payment], to be bumped down to a lower payment and suffer that loss of income.40

2.31 In the lead up to the 2012-13 budget ACOSS prepared a paper identifying possible cost savings that in their view would not unduly impact upon vulnerable Australians.41 ACOSS identified $8 billion that could be saved by cutting:

" Poorly targeted subsidies for 'gap fees * or other private expenditure for health and community services ($3.4 billion)42;

" Poorly targeted tax concessions ($3.6 billion)43; and

" Tax shelters that enable people on high incomes to avoid their income tax obligations ($1 billion).44

38 Ms Netty Horton, Territorial Social Program Director, The Salvation Army, Proof Committee Hansard, 9 August 2012, p. 3.

39 Ms Netty Horton, Territorial Social Program Director and Major Bradley Halse, Manager Government Relations, The Salvation Army, Proof Committee Hansard, 9 August 2012, p. 6.

40 Mr Peter Davidson, Senior Policy Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 11.

41 Australian Council of Social Service, Waste not, want not: Making room in the budget for essential services , ACOSS Paper 188, April 2012. Australian Council of Social Service, Response to question taken on notice, 9 August 2012 (received 13 August 2012).

42 Australian Council of Social Service, Waste not, want not: Making room in the budget for essential services, ACOSS Paper 188, April 2012, pp 6-7.

43 Australian Council of Social Service, Waste not, want not: Making room in the budget for essential sei-vices, ACOSS Paper 188, April 2012, pp 7-9.

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2.32 While the government has implemented some of these cost savings, ACOSS expressed disappointment that other remaining opportunities were not pursued before taking the drastic decision to cut support for vulnerable single parents. During the Melbourne hearing Dr Cassandra Goldie, Chief Executive Officer, ACOSS, was unable to identify a policy justification for removing the grandfathering clause, and submitted that this measure was not necessary or appropriate given the other areas where savings could be made:

In our view, it is at its heart simply *but, with respect, cruelly *a cost≠ saving measure. We were one of the strong supporters of the federal government's effort to return to overall surplus in the May budget. We presented to the government and talked in the public arena about a range of ways that we could roll back unfair tax breaks and start to cut some of the rebate arrangements that were not fairly targeted...Some of those measures were taken up, but clearly there is more work we could do to find the

savings in the budget that we need to cover requirements for infrastructure, social services and all those pressures that we know are on the federal budget. But this is not the way to find those savings.44 45

2.33 In a response to a question taken on notice, the department was unable to advise the policy reasons behind the decision to introduce the grandfathering clause in 2006, explaining that:

The introduction of these transitional arrangements in 2006 was a decision taken by the Government of the day. The second reading speech and

explanatory memorandum relating to the Parenting Payment transitional arrangement do not indicate a rationale for the provisions.46

Is a lower payment an incentive to work?

2.34 The Department has asserted that the proposed changes would remove disincentives for parents to return to the workforce.4' However, the National Welfare Rights Network and a number of other organisations argued that the proposed lower income free thresholds on Newstart, outlined earlier, would discourage parents from

working.48

44 Australian Council of Social Service, Waste not, want not: Making room in the budget for essential services, ACOSS Paper 188, April 2012, pp 10-11.

45 Dr Cassandra Goldie, Chief Executive Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 9.

46 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

47 Department of Education, Employment and Workplace Relations, Submission 19, p. 3. See also, Ms Jennifer Taylor, Deputy Secretary, Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 9 August 2012, p. 33.

48 See for example Mr Gerard Thomas, Policy and Media Officer, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 19.

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14

2.35 ACOSS submitted that the proposed change would be negative rather than incentivising, as the vast majority of parents affected by the proposals are already required to seek part time employment and would face no additional job seeking requirements.49 50 Further, in its view, the bill represents 'a cost saving measure that was not needed to improve employment outcomes'.30

2.36 The department referred the committee to studies supporting the Welfare to Work reforms. For example:

" Only 50 per cent of single parents work, compared to the OECD average of 60 per cent;

" Single parents comprise 70 per cent of jobless families;

" Parenting payment recipients tend to receive the payment for 5-7 years on average;

" The changes to the eligibility of parenting payment in 2006 resulted in much higher parent participation rates in the workforce; and

" Single parents receiving Newstart Allowance have a higher placement rate (65 per cent) than parents receiving grandfathered parenting payment (57 per cent).51

2.37 During the public hearings the committee asked witnesses to comment on the statistical data provided by the department to support its assertion that the bill would provide an incentive for recipients to work.

2.38 The Salvation Army expressed doubt that the department's figures represented people over the full range of abilities and employment histories, noting that some of its clients have difficulty finding employment, even where there is a financial

incentive.52

2.39 Mission Australia advised that, while it had not conducted an empirical study, anecdotal evidence did not support the department's assertions. Dr Prins Ralston, Acting Chief Executive Officer, observed that single parents may have casual work but that he could cite no evidence to support the proposition that parents who moved from Parenting Payment to Newstart Allowance were more likely to obtain 'sustainable work'.53

49 Australian Council of Social Service, Submission 10, p. 9.

50 Australian Council of Social Service, Submission 10, p. 9.

51 Department of Education, Employment and Workplace Relations, Submission 19, p. 4.

52 Major Bradley Halse, Manager, Government Relations, The Salvation Army, Proof Committee Hansard, 9 August 2012, p. 4.

53 Dr Prins Ralston, Acting Chief Executive Officer, Mission Australia, Proof Committee Hansard, 9 August 2012, p. 16.

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15

2.40 The National Welfare Rights Network pointed out that any increase in participation rates could not necessarily be attributed to reduced payment rates, but rather to the activity requirements and increased support to obtain employment. In the Melbourne hearing Mr Gerard Thomas, Policy and Media Officer, provided an assessment of the data, observing that:

[It] was the activation and the supports which increased the level of parents' engagement in employment. The department has not released any data showing that it was the cut in payment that did that. Certainly, that may have pushed some people into employment who may not otherwise have been in employment, but there is the other question... of the tighter income test. That would certainly have pushed many people off...the Newstart allowance, where they would have remained on the higher parenting payment at that time. It is a lot more complex a story than just the

percentages that DEEWR is talking about. The analysis also does not tell us whether these parents were financially better off. It does not look at the differences between what people can earn and keep on Newstart and

parenting payment.54 55 56

2.41 ACOSS queried some of the assumptions inherent in the conclusions reached by the department, in particular noting that the 2006 reforms and increased participation requirements were also accompanied by increased support services for job seekers, and other measures. During the Melbourne hearing Mr Peter Davidson,

Senior Policy Officer, explained that a complex range of factors should be considered when interpreting the statistical data provided by the department. Once this is done the 'effect on off-benefit rates six months after claiming is about the same for the two groups *11 to 12 percentage points'. "3

2.42 The committee asked the department to explain whether the data it had provided accounted for differences between the Newstart and Parenting Payment cohorts. In particular, whether factors such as the length of time people had been on income support, and whether the Newstart cohort included the recently unemployed who were job ready. The department confirmed that these other factors had not been

taken into account. "6

Tinting of the measure

2.43 A number of submitters and witnesses expressed concern about the commencement date of 1 January 2013 for a range of reasons.

54 Mr Gerard Thomas, Policy and Media Officer, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 23.

55 Mr Peter Davidson, Senior Policy Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 11. See also Australian Council of Social Service, Response to question taken on notice, 9 August 2012 (received 13 August 2012).

56 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012).

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16

2.44 Some submitters considered that it would be premature for the Senate to consider the bill without the benefit of the References Committee's findings in relation to the adequacy of Newstart Allowance/7

2.45 ACOSS urged the committee to consider the bill along with the findings of the References Committee's inquiry into the adequacy of income support payments and other matters. During the Melbourne hearing Mr Peter Davidson, Senior Policy Officer, explained that:

[If] we were to consider this measure as part of a wider reform of income support arrangements then the way to do that is to consider them all

together, and not to pass this one now on the promise that there might be an increase in the Newstart next year, for example. The system needs to be considered as a whole in order to protect people from poverty and achieve the best outcomes for people/8

2.46 Mission Australia agreed, submitting that the committee should postpone any action in relation to the proposed amendment, at least until after the references inquiry is completed/"9 During the Melbourne hearing Dr Prins Ralston, Acting Chief Executive Officer, advised that:

Our view would be that in terms of both inquiries adopting a separate or an individualised approach, as opposed to them acting in concert, one might have a detrimental effect on the other. So we would rather see both

inquiries actually acting in concert and taking input from the other.57 58 59 60

2.47 Similarly, the National Welfare Rights Network argued that given the 'direct relevance' of the bill to the reference inquiry:

We recommend and urge that any further action on the Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012 be postponed in relation to the proposed amendment to remove the grandfathering arrangement at least until such time as the outcome of the inquiry is

known.61

2.48 Concerns were also expressed that the measures would commence in January, which was widely described as a time when families are more likely to experience

57 Some submitters also referred to the concurrent inquiry by the Parliamentary Joint Committee on Human Rights. See for example, Mission Australia, Submission 13, p. 4 and the Australian Council for Social Service, Submission 10.

58 Mr Peter Davidson, Senior Policy Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 13.

59 Mission Australia, Submission 13, p. 2.

60 Dr Prins Ralston, Acting Chief Executive Officer, Mission Australia, Proof Committee Hansard, 9 August 2012, p. 15.

61 National Welfare Rights Network, Submission 30, p. 4. See also Mr Gerard Thomas, Policy and Media Officer, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 20.

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17

financial stress and find it difficult to obtain or maintain employment. ACOSS submitted that while 'it is never a good time to cut payments to people who are struggling', January is especially difficult because it is:

[A] time when many clients will be difficult to contact. It is also well established that the post-Christmas period is the time when parents on income support are under the greatest financial stress, when debts accumulate, and when demand for relief services reaches its peak.62

2.49 Mission Australia and the National Welfare Rights Network reported that January is a particularly difficult time for families and is a month when there is a surge in requests for assistance due to financial pressures coinciding with a period when rates of unemployment peak.63

2.50 The department advised that moving the implementation date to

1 March 2013 would 'reduce the savings over four financial years by approximately $51 million'.64 65

2.51 Some submitters also expressed concern that parents impacted by the bill would not receive adequate notice and counselling prior to the commencement date.66 The department advised that it would advise parents of any changes that affected them if and when the legislation was passed. Ms Marsha Milliken, Group Manager, assured the committee that:

The Department of Human Services, Centrelink...will be writing

immediately the legislation is passed, and inviting them to come into an interview with DHS so that they can talk with DHS about their family circumstances *-the ages of their children, the change to the income support that will occur on 1 January... There will be a range of information sources as well through DHS as well as the opportunity for a face-to-face meeting.66

62 Australian Council of Social Service, Submission 10, p. 9. See also Mr Peter Davidson, Senior Policy Officer, Australian Council of Social Service, Proof Committee Hansard, 9 August 2012, p. 13.

63 Mission Australia, Submission 13, p. 3; National Welfare Rights Network, Submission 30, p. 8. See also Ms Maree O'Hall oran, President, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, p. 20; Australian Youth Affairs Coalition, Submission 36, p. 4.

64 Department of Education, Employment and Workplace Relations, Response to question taken on notice, 9 August 2012 (received 15 August 2012). The department noted that this figure was indicative only and that there would be additional costs due to other measures that will be implemented on 1 January 2013

65 See for example, Ms Maree O'Hall oran, President, National Welfare Rights Network, Proof Committee Hansard, 9 August 2012, pp 19, 26; Ms Terese Edwards, Chief Executive Officer, National Council of Single Mothers and their Children, Proof Committee Hansard, 9 August 2012, p. 27.

66 Ms Marsha Milliken, Group Manager. Income Support and Remote Service Implementation Group. Department of Education, Employment and Workplace Relations, Proof Committee Hansard, 9 August 2012, p. 35.

95

Schedules 2 and 3

2.52 Schedules 2 and 3 received general support. Some submitters called for minor amendments. For example, the National Welfare Rights Network supports Schedule 2 of the bill with amendment, calling for the Liquid Waiting Periods threshold amount to be indexed annually to the Consumer Price Index, to ensure it keeps pace with inflation.67

Committee view

2.53 The committee agrees that it is important to support parents to participate meaningfully in the workforce, particularly as their children get older and their capacity to work increases.

2.54 The committee has considered the evidence that moving grandfathered recipients from Parenting Payment Single to Newstart Allowance would result in a reduction in support for vulnerable families, while also failing to provide recipients with an incentive to obtain work, or increase the amount of work they undertake. The committee notes, but is not convinced by, the department's assertion that this measure is fair and would promote workforce participation.

2.55 The Senate Education, Employment and Workplace Relations References Committee is currently inquiring into the adequacy of Newstart Allowance (and a number of other matters). The committee notes the direct link between that inquiry and this bill. Depending on the outcome of that inquiry, and any subsequent government consideration of any recommendations made, some of the concerns about the impact of the bill may be ameliorated.

67 National Welfare Rights Network, Submission 30, pp 17-18.

19

Recommendation 1

2.56 The committee recommends that the Senate defer consideration of the bill until the Parliamentary Joint Committee on Human Rights has concluded its inquiry and the committee *s report has been considered.

Recommendation 2

2.57 The committee recommends that the government consider deferral of Schedule 1 of the bill until the Senate Education, Employment and Workplace Relations References Committee completes its inquiry into the adequacy of Newstart Allowance and other payments, and the government has had an

opportunity to respond to any recommendations that might be forthcoming.

Senator Gavin Marshall

Chair

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98

Coalition senators * Dissenting Report Introduction

1.1 Coalition senators do not support the Committee majority's recommendations, and consider that the bill in its entirety should be considered by the Senate as soon as possible.

Importance of workforce participation

1.2 Coalition senators' primary objections to the majority report have their foundation in their strong support for initiatives that promote workforce participation and provide appropriate incentives to encourage those who are out of the workforce to find and maintain paid employment.

1.3 In this sense, the bill represents a continuation of the important changes implemented by the Howard Government's Welfare to Work initiative. At that time, the Labor party vehemently opposed the measures.1 Coalition Senators are pleased to note that despite initial reservations, the current Labor government fully accepts the Howard Government's Welfare to Work changes and, by removing the grandfathering clause, is legislating to ensure that those changes apply to all Australians.

1.4 The Department of Education, Employment and Workplace Relations cited evidence that indicates that children who grow up in jobless families are themselves much more likely to experience unemployment as adults:

Children who grow up in jobless families are far more likely to be out of work as adults compared to those who had a working parent. It is therefore vital that the income support system seeks to incentivise work in order to break the dependency cycle. The system must provide the right balance of

support and incentives to work to ensure that parents are in a position to benefit from the opportunities the economy has to offer, particularly as their children get older and the parent1 s capacity for work increases, and provide their families with positive role models and greater financial security.1 2

1.5 At the public hearing in Melbourne the committee heard how important it is for Australians to be engaged in the workforce. For example, while not in favour of Schedule 1 of the bill, Ms Netty Horton, Territorial Social Program Director, Salvation Army, explained to the committee:

We would like to be very clear in that we are fully supportive of moving as many people as possible *single parents or unemployed people in general *-towards being able to work, and some of the focus of our submission has been around our experiences in working with the most

1 Australian Labor Party, Australian Democrats and Australian Greens, 'Dissenting Report', Senate Community Affair's Legislation Committee, Inquiry into the provisions of the Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005 and the Family and Community Services Legislation Amendment (Welfare

to Work) Bill 2005, 28 November 2005, para 1.26-1 .21.

2 Department of Education, Employment and Workplace Relations, Submission 19, p. 3.

2 2

disadvantaged group of those people in our community and recognising that they need additional support and incentives to move them into the paid workforce. We recognise that that is the best way out of poverty and the best way to ensure participation both for them and for their children in the community.3

1.6 Coalition senators believe that the bill would introduce measures to further promote workforce participation, which can only be a good thing for not only those who are out of work but for the country as a whole.

1.7 Coalition senators do not support the recommendations contained within the Chair *s report.

Senator Chris Back Deputy Chair

3 Ms Netty Horton, Territorial Social Program Director, The Salvation Army, Proof Committee Hansard, 9 August 2012, p. 1. Witnesses supported employment participation but did not support the bill.

too

1

2

3

4

5

6

7

8

9

10

*∑

12

13

14

15

Submissions received by the Committee

APPENDIX 1

Submitter

Name Withheld

Name Withheld

Name Withheld

Name Withheld

Name Withheld

Name Withheld

Name Withheld

Name Withheld

Home based Learning Network HBLN

Australian Council of Social Service ACOSS

Name Withheld

Brotherhood of St Laurence

Mission Australia

Ms Danielle Williams-Brennan

Home Education Association

101

24

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

Name Withheld

Care Inc

The Salvation Army Australia Southern Territory

Department of Education Employment and Workplace Relations

Welfare Rights Centre

Anglicare Australia

National Council of Single Mothers and their Children

Ms Brigid Walsh

Council of Single Mothers and their Children

Name Withheld

Name Withheld

Jobs Australia

Name Withheld

Women's Legal Services NSW

National Welfare Rights Network

Name Withheld

Ms Susan Barclay

Name Withheld

102

25

St Vincent de Paul Society

35 WACOSS

36 Australian Youth Affairs Coalition

37 Name Withheld

38 Name Withheld

Confidential

Additional Information Received by the Committee

1 Additional information provided by The Salvation Army Australia

received 9 August, 2012.

2 Additional information provided by ACOSS received 10 August,

2012.

Answers to Questions on Notice

1 Answers to questions on notice from Department of Education,

Employment and Workplace Relations received 15 August, 2012.

103

104

APPENDIX 2

Witnesses who appeared before the Committee

Melbourne, 9 August 2012

DAVIDSON, Mr Peter, Senior Policy Officer, Australian Council of Social Service

EDWARDS, Ms Terese, Chief Executive Officer, National Council of Single Mothers and their Children, Inc.

GOLDIE, Dr Cassandra, Chief Executive Officer, Australian Council of Social Service

GRAHAME, Ms Teresa, Social Worker, Welfare Rights Centre, Queensland

HALSE, Major Bradley, Manager, Government Relations, The Salvation Army

HORTON, Ms Netty, Territorial Social Program Director, The Salvation Army

MILLIKEN, Ms Marsha, Group Manager, Income Support and Remote Service Implementation Group, Department of Education, Employment and Workplace Relations

O'HALLORAN, Ms Maree, President, National Welfare Rights Network

PATTIE, Mr David, Branch Manager, Income Support Programs, Department of Education, Employment and Workplace Relations

RALSTON, Dr Prins, Acting Chief Executive Officer, Mission Australia

STANLEY, Ms Jane, Executive Officer, Council of Single Mothers and their Children, Inc.

TAYLOR, Ms Jennifer, Deputy Secretary, Department of Education, Employment and Workplace Relations

105

106

APPENDIX 3

Supplementary payments and services available to single parents affected by changes to grandfathered status

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107

Payment or supplementary benefit

(see glossary for description)

Pate of payment

(as at 20 March 2012 unless otherwise stated)

Current single parent on

Parenting Payment Single (PPS) Grandfathered single parent transferred to Newstart Allowance (NSA) as a single principal carer

Training SupplementS41.60 per fortnight Yes - oligiblo Yes - eligible

Carer Allowance

5114.00 per fortnight

(plus 51000 pa Child Disability Assistance payment if receiving Carer Allowance for a child under 16) Yes - eligible Yes - eligible

Job Services AustraliaRate not applicable Job Services Australia provides opportunities for training, skills development, work oxpericnco and tailored assistance v/ith increased flexibility and access to support and services that are relevant to a job seekers' individual circumstances: and a free service for employers to help thorn find staff to moot their business needs

Providers may access the Employment Pathway Fund to help their eligible job seekers address their vocational and non-vocational barriers to employment. Support may include toots, training courses, work oxpericnco, transport costs as well as assisting them to overcome any

personal difficulties that may be hindering their ability to find and keep a job.

May volunteer for assistance prior to commencement of compulsory participation requirements.

Yes - eligible Yes * eligible

Career Advice for Parent Service for grandfathered Parenting Payment recipients moving affected by changes to eligibility; Rate not applicable Access to professional career advice through their Job Services Australia provider for affected parents - measure announced in 2011-12 Budget and extended in the 2012-13 Budget

Yes - eligible Yes - eligible

Disability Employment Services Rate not applicable. Disability Employment Sen/ices help individuals with injury, disability or a health condition to secure and maintain sustainable employment. May volunteer for assistance prior to commencement of compulsory participation requirements.

Yes - eligibleYes - eligible

Access to Training Places for Single Parents The 2011-12 Budget included Government funding of an 580 million contribution to the States and Territories to provide flexible and

appropriate vocationally oriented training for single and loonago parents.

In addition, a $1.75 billion National Partnership Agreement v/ith the States and Tcrritorios has been agreed to introduce an entitlement for working age Australians to access a government-subsidised training

place to obtain a qualification up to their first Certificate III, including foundation skills or lowor qualifications within the Certificate III

Dependent on individual circumstances Yes - eligible

Note This is a general guide only. Eligibility for certain payments may vary depending on individual circumstances. Parents who v/ant further information on their individual entitlements should contact Centrelink at Yww.lnimanservices.qov.au. or on 13 24 68

The Senate

Environment and Communications

Legislation Committee

Greenhouse and Energy Minimum Standards Bill 2012 [Provisions]

Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012 [Provisions]

August 2012

109

© Commonwealth of Australia 2012

ISBN 978-1-74229-673-9

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

Committee membership

Committee members Senator Doug Cameron (ALP, NSW) (Chair) Senator Mary Jo Fisher (LP, SA) (Deputy Chair) Senator Catryna Bilyk (ALP, TAS) Senator Bridget McKenzie (NATS, VIC) Senator the Hon. Lisa Singh (ALP, TAS) Senator Larissa Waters (AG, QLD)

Committee secretariat

Ms Sophie Dunstone, Acting Secretary Mr Chris Lawley, Senior Research Officer Ms Jacquie Hawkins, Research Officer Mrs Dianne Warhurst, Administration Officer

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Teh 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet:

www.aph.gov.au/Parliamentarv Business/Committees/Senate _Committees?url=ec ctte/ index.htm

111

IV 112

Table of Contents

Committee membership............................................................................................iii

Abbreviations and acronyms..................................................................................vii

Chapter 1 - Introduction............................................................................................1

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

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

COAG agreement.....................................................................................................6

Government consultation..........................................................................................6

Overview of the bills................................................................................................7

Senate Scrutiny of Bills Committee.......................................................................10

Key issues................................................................................................................11

Chapter 2 - Key issues .............................................................................................. 13

Committee comment.............................................................................................. 15

Coalition Dissenting Report.....................................................................................17

Appendix 1 - Submissions and answers to questions taken on notice ......... 19

vi 114

Abbreviations and acronyms V ll

ABARES Australian Bureau of Agricultural and Resource

Economics and Sciences

ANZCERTA Australia New Zealand Closer Economic

Relations Agreement

CECClean Energy Council

COAG Council of Australian Governments

CO2 carbon dioxide

Committee, theSenate Environment and Communications Legislation Committee

DCCEEDepartment of Climate Change and Energy Efficiency

DEWHA Department of Environment, Water, Heritage

and the Arts

E3 ProgramEquipment Energy Efficiency Program

GEMS (Registration Fees) bill Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012

GEMS billGreenhouse and Energy Minimum Standards Bill 2012

IT information technology

MBPS Minimum Energy Performance Standards

RIS Regulation Impact Statement

SES Senior Executive Service

TTMRA Trans-Tasman Mutual Recognition

Arrangement

UNFCCC United Nations Framework Convention on

Climate Change

Vll 115

viii 116

Chapter 1

Introduction

Conduct of the inquiry

1.1 On 30 May 2012, the Greenhouse and Energy Minimum Standards Bill 2012 and the Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012 (the bills) were introduced to the House of Representatives by the Parliamentary Secretary for Climate Change and Energy Efficiency, the Hon Mark Dreyfus MP.1

1.2 On 21 June 2012, the Senate referred the provisions of the bills to the

Environment and Communications Legislation Committee (the Committee) for inquiry and report by 15 August 2012.1 2

1.3 The bills have also been referred to the House of Representatives Standing Committee on Climate Change, Environment and the Arts for inquiry.3 On 4 July 2012, the House Committee informed the Committee it would wait until the conclusion of the Senate *s inquiry before determining whether to proceed with its own inquiry.4

1.4 In accordance with usual practice, the Committee advertised the inquiry on its website and wrote to relevant organisations inviting submissions. The inquiry was also advertised in The Australian newspaper on 4 July 2012. The Committee received two submissions which are listed at Appendix 1.

1 House of Representatives Votes and Proceedings, No. 111-30 May 2012, p. 1522.

2 The bills were refereed by the Senate Selection of Bills Committee '[t]o address concerns the scheme may increase costs and green tape for those involved'. See Senate Selection of Bills Committee, Report No. 7of 2012, Appendix 2.

3 House of Representatives Selection Committee, Report No. 55-31 May 2012, p. 3.

4 House of Representatives Standing Committee on Climate Change, Environment and the Arts website, 'Letter to the Chair of the Senate Environment and Communications Legislation Committee dated 4 July 2012', available: www.aph.aov.au/Parliamentary Business/Committees/House of Representatives Committees

?url=cceaAaems/index.htm (accessed 26 July 2012).

117

2

Background

Household energy; consumption in Australia 5

1.5 The Australian Bureau of Resources and Energy Economics estimates that residential households accounted for around 11% (440 petajoules) of Australia's total final energy consumption in 2009-10.6

1.6 Elousehold energy is used for various purposes, such as:

" operating household appliances (approximately 39% of household energy);

" space heating and cooling (31 % of household energy);

" water heating (24% of household energy); and

" cooking (5% of household energy).

1.7 Household appliances include lighting, refrigerators, freezers, televisions, information technology (IT) equipment, washing machines, clothes driers, microwaves and dishwashers.

1.8 Since 1989-90, household energy consumption in Australia has grown by 41%, or at an annual rate of 1.6%. The increase in energy can be attributed to a range of factors such as increases in the size of Australia's population, the number of households and the average size of houses by floor area. An overall rise in the number of appliances per person is also considered to have increased household energy consumption relative to 1989-90. This trend was mostly driven by the increased ownership of refrigerators, televisions, lighting and IT equipment.

1.9 It is anticipated that by 2020, household energy consumption will increase to 467 petajoules as the population and number of households increase.7

Improving energy efficiency

1.10 Energy consumed by appliances and equipment is a major source of

greenhouse gas emissions in Australia. The stationary energy industry in Australia (comprising electricity, heat production and manufacturing industries) produced

5 Unless otherwise referenced, statistics and information in this section are drawn from Nhu Chee and Pam Pham, Economic Analysis of End-use Energy Intensity in Australia, Bureau of Resources and Energy Economics, Canberra, May 2012, pp 40-51, available: http://bree.gov.au/documents/uublications/energv/Energv intensitv.pdf (accessed 4 July 2012).

6 The joule is the standard unit of energy in general scientific applications with a petajoule being a measure of energy equivalent to 101" joules. One petajoule, or 278 gigawatt hours, is the heat energy content of approximately 43 000 tonnes of black coal or 29 million litres of petrol. See Department of Energy, Resources and Tourism, Energy in Australia 2012, Canberra, February 2012, p. xii.

Department of the Environment, Water, Heritage and the Arts (DEWHA), Energy use in the residential sector: 1986-2020, DEWHA, Canberra, 2008, p. ix.

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201.4 million tomies of carbon dioxide (CO2) equivalent emissions in 2010, representing 54.1% of Australia's net emissions (excluding Land Use, Land Use Change and Forestry).8 It is predicted that by 2020, Australia's total stationary energy emissions will increase to 332 million tonnes of CO2 equivalent emissions, 33% above

2000 levels.9

1.11 The Commonwealth Government has committed to reducing Australia's greenhouse gas emissions by at least 5% on 2000 levels by 2020 and reducing emissions by 80% compared with 2000 levels by 2050.10 11

1.12 Improving energy efficiency is considered to be the "low hanging fruit" of emission reduction efforts as it is arguably the easiest, simplest and most cost efficient way of lowering greenhouse gas emissions.11 In 2007, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) estimated that 55% of Australia's emission reduction target to 2050 could be met through energy efficiency

improvements.12

Equipment Energy Efficiency Program

1.13 In 1992, the national Equipment Energy Efficiency (E3) Program was established to coordinate several state-based schemes that required a range of appliances to meet Minimum Energy Performance Standards (MBPS)13 and to display

8 Department of Climate Change and Energy Efficiency (DCCEE), Australian National Greenhouse Accounts: National Inventory Report 2010 , volume 1, pp x and 36, available: www.climatechange.gov.au/pLiblications/greenhouse-acctg/~/media/publications/greenhouse- acctg/NationalInventorvReport-2010-Vol-l .pdf (accessed 3 July 2012).

9 DCCEE, Australia's emissions projections 2010, www.climatechange.gov.au/publications/proiections/australias-emissions- proiections/emissions-piOiection-2010.aspx (accessed 4 July 2012).

10 DCCEE, Fact Sheet: Australia's Emissions Reduction Targets, p. 1, available: www.climatechange.gov.au/en/government/reduce/national-targets/~/media/government/reduce/NationalTarget-Factsheet-20111201 -PDF .pdf (accessed 4 July 2012).

11 A. Talberg and I. McCluskey, Bills Digest No.4 2012-13: Greenhouse andEnergy Minimum Standards Bill 2012, 14 August 2012, p. 4, available: http://parlinfo.aph.gov.au/parlInfo/download/legislation/billsdgs/1847699/upload binary/18476 99.pdf (accessed 15 August 2012).

12 Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Technology: Toward a low emissions future, ABARES Research Report 07.16, ABARES, Canberra, September 2007, p. 7, available: http://adl.brs.gov.au/data/warehouse/pe abare99001392/rr07 16 low emissions.indd.pdf (accessed 5 July 2012).

13 Minimum Energy Performance Standards (MEPS) are minimum standards and regulations that certain products manufactured in or imported into Australia must meet. MEPS are enforced by state government legislation and regulations in Australia and national regulations in New Zealand. For more information see Equipment Energy Efficiency, About MEPS, available: www.energvrating.gov,au/programs/e3-program/meps/about/ (accessed 3 August 2012).

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energy rating labels.14 The E3 Program is currently administered by the Commonwealth government, state and territory governments and the New Zealand government.15

1.14 The E3 Program is a mandatory scheme that requires a range of appliances sold in Australia to display energy rating labels to show the amount of energy consumed by the appliance. Appliances currently required to display energy rating labels are:

" refrigerators;

" freezers;

" clothes washers;

" clothes dryers;

" dishwashers

" air conditioners; and

" televisions.16

1.1 The E3 Program applies to the supply of appliances and most appliances are supplied by retailers.17 When offered for sale by a retailer, appliances must display an energy rating label. The energy rating label has two main features: a star rating and a comparative energy consumption rating (shown in Figure 1 opposite).

1.15 A star rating of between one and ten stars is used to give a comparative

assessment of a model's energy efficiency. The greater the number of stars, the higher the efficiency. The star rating is determined by the energy consumption and size of the product. These values are measured under Australian Standards which define test procedures for measuring energy consumption and minimum energy performance criteria.18

14 Council of Australian Governments (COAG), National strategy on energy efficiency, COAG, Canberra, July 2009, p. 18.

15 Since 1983 Australia and New Zealand have collaborated under the Australia New Zealand Closer Economic Relations Agreement (ANZCERTA). In 1996 the two nations agreed to the Trans-Tasman Mutual Recognition Arrangement (TTMRA). These two agreements require Australia and New Zealand to strive to minimise business costs between the two countries. As

such there is trans-Tasman collaboration on energy labelling and standards under the E3 Program.

16 Equipment Energy Efficiency, About energy> rating labels, available: www.energvratiniZ.gov.au/programs/e3-program/energv-rating-labelling/about/ (accessed 3 August 2012).

17 Equipment Energy Efficiency, Legal Obligations for Retailers, available: http://www.energyrating.gov.au/regulations/legal-obligations/ (accessed 7 August 2012).

18 Equipment Energy Efficiency, About energy> rating labels, available: www.energvi-ating.gov.au/i3rograms/e3-PiOgram/energv-rating-l abelling/about/ (accessed 3 August 2012).

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1.16 The comparative energy consumption (usually kilowatt hours per year) provides an estimate of the annual energy consumption of the appliance based on the tested energy consumption and information about the typical use of the appliance in the home.

1.17 Energy rating labels are designed to enable consumers to compare the energy efficiency of domestic appliances on a fair and equitable basis and provide an incentive for manufacturers to improve the energy performance of appliances.19 20

Figure 1: Energy Rating Labels"0

*À.'*†âˆ‘*ë R

ENERGY RATING

Compare models at www.cnergyrattng.gov.au

uw Power Input kW Capacity Output 4.7$ m 0.82

UNO0 Yts.

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0.82

YES r j N O[7 ]

Mode 2 *ì" Mode 3 g ]

1.18 Analysis from 2009 estimated that E3 standards already implemented will:

...reduce household electricity use in 2020 by about 13% compared with business as usual (BAU), and measures currently planned could bring about a further reduction of nearly 15%.21

19 Equipment Energy Efficiency, About energy rating labels, available: www'.energyrating. gov.au/programs/e3-program/energv-rating-labelling/about/ (accessed 3 August 2012).

20 Equipment Energy Efficiency, Sample labels , available: www.energyrating.gov.au/products- themes/cooling/air-conditioners/sample-labels/ (accessed 1 August 2012).

21 George Wilkenfeld and Associates, Prevention is cheaper than cure -Avoiding carbon emissions through energy efficiency, January 2009, p. 4, available: ww-\v.encrgvrating.gov.au/v/D-content/uploads/Energv Rating Documents/Librarv/Equipment Energy Efficiency Program %28E3%29/200901 -proiected-impacts.pdf (accessed 3 August 2012).

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COAG agreement

1.19 In July 2009, the Council of Australian Governments (COAG) adopted the National Strategy on Energy Efficiency to accelerate energy efficiency efforts, streamline responsibilities across levels of governments, and to help households and businesses prepare for the introduction of the Carbon Pollution Reduction Scheme (CPRS).22 As part of the strategy, COAG agreed to establish national legislation to provide:

...a nationally consistent policy framework covering appliance and equipment minimum energy performance standards and labelling, streamlining governance arrangements and regulatory processes, simplifying compliance and enforcement responsibilities for all stakeholders, and reducing transaction costs for business.23

Government consultation

1.20 In August 2009, the Commonwealth Government released a discussion paper on a proposed national energy efficiency program and labelling scheme.24 25 26 Six public hearings were held around Australia to gather feedback from stakeholders.2?

1.21 In January 2010, the government published a Regulation Impact Statement (RIS) on a proposed national scheme and held an additional six public hearings."6 A

22 COAG, National Strategy on Energy * Efficiency, 2 July 2009, p. 1, available: www.coag.gov.au/sites/default/files/National strategy energv_efficiencv.pdf (accessed 3 August 2012).

23 COAG, National Strategy on Energy Efficiency, Measure 2.2.2, 2 July 2009, available: www.coag.gov.au/sites/default/flles/National strategy energy efficiencv.pdf(accessed 3 August 2012).

24 DEWHA. Discussion paper on proposed national legislation for Minimum Energy Performance Standards (MEPS) and Energy * Labelling, DEWHA, Canberra, August 2009, available: www.energvrating.gov.au/wp-content/uploads/Energy Rating Documents/Librarv/General/National Legislation/200908-

meps-labelling-discussion.pdf (accessed 6 August 2012).

25 DCCEE, National legislation for MEPS and energy * labelling. DCCEE, Canberra, August 2011, available: www.climatechange.gov.au/government/submissions/~-/media/submissions/gems/industrv- exposure-draft-of-bill-consultation-paper-pdf.pdf (accessed 6 August 2012).

26 DEWHA, Consultation Regulation Impact Statement: National legislation for appliance and equipment for Minimum Energy * Performance Standards (MEPS) and energy labelling, DEWHA, Canberra, January 2010, available: www.energvrating.gov.au/wp- content/uploads/2011/04/20100 l-consultation-ris-national-MEPS-labelling.pdf (accessed 6 August 2012).

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Supplementary Discussion Paper followed, focussing on compliance obligations and enforcement measures.27

1.22 In August 2011, the government released a draft of the Greenhouse and Energy Minimum Standards (GEMS) bill, inviting submissions.28 The government published a consolidated response addressing key concerns raised by stakeholders during this process.29

Overview of the bills

Purpose of the bills

1.23 The bills seek to deliver a national framework to regulate energy efficiency and labelling standards for appliances and other products supplied or used within Australia.30

1.24 The bills would give effect to the COAG agreement of August 2009 (see earlier section) and 'certain commitments under the United Nations Framework Convention on Climate Change to adopt policies and measures to mitigate climate change and limit Australia's anthropogenic emissions of greenhouse gases'.31

1.25 Upon introducing the bills, the Parliamentary Secretary stated:

The E3 Program is an important part of ensuring affordable energy for all Australians, and assisting Australia's transition to a low-carbon future.

The benefits are real and significant. By 2020, existing E3 measures are forecast to save Australian households and businesses $5.2 billion per year and reduce household electricity use by 13 per cent per year, compared with

business as usual. The planned regulatory program is forecast to bring about

27 DCCEE, Supplementary discussion paper on compliance obligations and enforcement measures for the proposed national legislation for Minimum Energy Performance Standards (MEPS) and energy labelling , DCCEE, Canberra, 2010, available: www.energvrating.gov.au/wp-content/uploads/2011/02/201005-meps-suppleinentarv-paper-

compliance.pdf (accessed 6 August 2012).

28 DCCEE, National legislation for MEPS and energy labelling, DCCEE, Canberra, August 2011, available: www.climatechange.gov.au/govemment/submi ssions/~-/media/submissions/gems/industrv- exposure-draft-of-bill-consultation-paper-pdf.pdf (accessed 6 August 2012).

29 DCCEE, Responses to issues raised in August 2011 consultation on the Draft Greenhouse and Energy * Minimum Standards (GEMS) Bill, available: http:// cl i matechan ge. gov.au/government/submissi ons/cl osed-consultations/~/media/govemment/submissions/GEMS-responses-to-maior-consultation-issues- pdf.pdf (accessed 6 August 2012).

30 Greenhouse and Energy Minimum Standards Bill 2012, Explanatory Memorandum, p. 1.

31 Greenhouse and Energy Minimum Standards Bill 2012, Explanatory Memorandum, p. 1.

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a further reduction of almost 15 per cent, saving Australian households more than 25 per cent of their yearly power bills.32 33

Greenhouse and Energy Minimum Standards Bill 2012 '

1.26 The Greenhouse and Energy Minimum Standards Bill 2012 (the GEMS bill) is intended to address inconsistencies arising from the E3 Program whilst delivering 'a national and expanded E3 Program1.34 35 36 The GEMS bill would allow the Commonwealth Government to set mandatory minimum efficiency requirements for products and set nationally-consistent labelling requirements.

GEMS products

1.27 The GEMS bill would require 'GEMS products' to be registered in the *GEMS Register * in the relevant 'product classes'.3"

1.28 A GEMS product is defined as 'a product that uses energy [for example a refrigerator or television] or affects the amount of energy used by another [for example insulation or window glass]' and 'is in a product glass covered by a GEMS determination1. *6

1.29 GEMS products would be either category A products or category B products. Category B products would be required to 'have a high impact on energy use or greenhouse gas production'.37

1.30 A single product could be included in more than one product class (for example a combined clothes washer and dryer may fall within 'clothes washing machine1 and 'clothes dryer' product classes).

Supplying GEMS products

1.31 Subject to certain exceptions, GEMS products would only be able to be supplied if they comply with the relevant GEMS determination and its requirements. GEMS products would not be able to be supplied where the model is not registered. Non-compliant GEMS products would not be able to be used for commercial purposes.

32 The Hon Mark Dreyfus QC MP, House of Representatives Hansard , 30 May 2012, p. 12.

33 Information in this section has been drawn from the Greenhouse and Energy Minimum Standard Bill 2012, Explanatory Memorandum.

34 Greenhouse and Energy Minimum Standards Bill 2012, Explanatory Memorandum, p. 2.

35 Greenhouse and Energy Minimum Standards Bill 2012, clause 12.

36 Greenhouse and Energy Minimum Standards Bill 2012, subclause 11(1).

37 Greenhouse and Energy Minimum Standards Bill 2012, subclause 29(2).

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1.32 Contravention of these requirements would amount to a criminal offence of strict liability attracting a financial penalty.

1.33 These provisions would not commence until 1 October 2013 to allow existing registrations under the state-based E3 Program one calendar year to be transferred to the proposed new national program.

GEMS determinations

1.34 A GEMS determination, made by the minister, would specify one or more 'product classes' and would specify requirements for products in those product classes.

1.35 The GEMS bill specifies the circumstances in which the minister could make a GEMS determination including the requirement for the minister to obtain consent from participating jurisdictions (the Commonwealth Government and state and territory governments).38

Registering GEMS products

1.36 Once a GEMS determination is made by the minister, an interested party (such as a manufacturer, importer or supplier) would be required to register models of each GEMS product on the GEMS Register. The GEMS Register would be operated by the GEMS Regulator who must approve an application unless certain requirements

are not met.

1.37 The GEMS bill would require registrants to provide certain information, such as changes to a product or contact details, and information pertaining to the import and manufacture of products.39

1.38 Registrations could be suspended or cancelled for non-compliance, the provision of incorrect information, or non-compliance with a notice.

GEMS Regulator

1.39 The GEMS Regulator would be a Senior Executive Service (SES) Officer and would be responsible for administering the Act; maintaining the GEMS Register; assisting the minister in the making of GEMS determinations; monitoring and enforcing compliance with the Act; and reviewing and evaluating its operation. The GEMS Regulator would be afforded wide-ranging powers.

1.40 The GEMS Regulator would be empowered to appoint GEMS inspectors from Commonwealth, state or territory agencies. GEMS inspectors would be given certain powers to enter public areas of business premises without a warrant to perfonn certain limited functions (such as inspecting GEMS products, inspecting information or

38 Greenhouse and Energy Minimum Standards Bill 2012, clauses 23-34.

39 Greenhouse and Energy Minimum Standards Bill 2012, Explanatory Memorandum, p. 39.

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10

purchasing GEMS products available to the public). In circumstances where a GEMS inspector reasonably suspects there may be evidential material on a premise, the inspector would be afforded certain higher level powers.

Enforcement

1.41 The GEMS Regulator would be allowed to apply for civil penalty orders within six years of an alleged contravention of the GEMS requirements. The GEMS Regulator would also be able to publicise certain offences, contraventions and adverse decisions.

Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012

1.42 The Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012 accompanies the GEMS bill and would establish legislative power for the GEMS Regulator to levy fees from businesses registering product models under the GEMS bill.

1.43 Registration fees would recover some of the costs incurred under the E3Program, including the costs of processing registration applications and a portion of the costs of monitoring compliance with the GEMS bill.40

Senate Scrutiny of Bills Committee

1.44 The Senate Scrutiny of Bills Committee highlighted several issues with the bills in respect of an individual *s personal rights and liberties.41

1.45 In examining the GEMS Bill, the Scrutiny Committee highlighted issues concerning:

" the strict liability offences to ensure enforcement of the GEMS legislation (clauses 16-19, and 144);

" the reversal of onus on defendants to provide evidential proof of a particular factual matter (clauses 16-19); and

" insufficiently defined administrative powers in relation to the delegation of authority to a state or territory official (clause 80).42

1.46 In respect of these matters, the Scrutiny Committee left the question of whether the proposed approach is appropriate to the consideration of the Senate as a whole.43

40 Greenhouse and Energy Minimum Standards (Registration Fees) Bill 2012, Explanatory Memorandum, p. 3.

41 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, No. 6 of 2012, pp 28-34.

42 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, No. 6 of 2012, pp 28-31.

43 Senate Standing Committee for the Scrutiny of Bills, Alen Digest, No. 6 of 2012, pp 28-31.

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1.47 However, the Scrutiny Committee has sought the minister's advice in relation to the following issues:

" the broad discretionary power of the GEMS Regulator to impose written conditions on a product model *s registration (clause 45);

" the lack of procedural fairness concerning the suspension or cancellation of a product model *s registration (clauses 49 and 54); and

" the ability of the GEMS Regulator to publicise matters of fact connected with the enforcement of the legislation (clause 162).44

1.48 In relation to the GEMS (Registration Fees) Bill, the Scrutiny Committee has sought the minister's advice 'as to whether consideration might be given to an amendment to the bill which clarifies the intention that registration fees are limited to cost recovery purposes * (clauses 8-9).'45

1.49 The minister is yet to respond to these issues.

Key issues

1.50 The Committee received two submissions to the inquiry. Both of these were broadly supportive of the bills and identified some key issues including:

" the need for a nationally-consistent approach to regulate energy minimum standards and labelling requirements;

" criminal sanctions; and

" the requirement to provide sales data to the regulator.46

1.51 These matters are discussed in Chapter 2.

44 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, No. 6 of 2012, pp 30 *32.

45 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, No. 6 of 2012, pp 33-34.

46 Clean Energy Council, Submission 1, p. 1; Lighting Council of Australia, Submission 2, pp 1-2.

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12

128

Chapter 2

Key issues

2.1 As mentioned in Chapter 1, the Committee received two submissions to the inquiry: one from the Clean Energy Council (CEC) and the other from the Lighting Council of Australia. Both submissions were supportive of the intent of the bills.1

2.2 The CEC, a peak body representing Australia's clean energy and energy efficiency industries, welcomed the government's commitment to establish a national legislative framework for regulating the energy efficiency of products supplied within Australia and to allow for the program's future expansion.1 2

2.3 The CEC stated:

Energy efficiency remains one of the most important policies that governments can deliver to both reduce emissions and to protect consumers from rising electricity prices.3

2.4 The CEC was particularly supportive of the establishment of a single national regulator and the harmonisation of standards, registration processes and fees.4 According to the CEC, the national scheme proposed in the bills would replace a '...confusing and uncertain environment for business and their consumers...' with a well-coordinated and nationally consistent approach that would '...reduce regulatory burden on businesses and provide certainty to industry and end users'.5

2.5 The CEC was also supportive of the scheme's expansion to cover a greater range of products and the closing of loopholes in state law that currently allow imported products to enter Australia without meeting minimum efficiency standards.6

2.6 The Lighting Council of Australia, a peak body representing Australia's lighting industry, supported the intent of the bills, '...namely, to achieve nationally consistent regulation of equipment energy efficiency by transferring responsibilities from the states to the Commonwealth'.7

2.7 The Lighting Council was, however, concerned with two elements of the bills: the application of criminal sanctions and the mandatory provision of sales data to the regulator.

1 Clean Energy Council, Submission 1, p. 1; Lighting Council of Australia, Submission 2, p. 1.

2 Clean Energy Council, Submission 1, p. 1.

3 Clean Energy Council, Submission 1, p. 1.

4 Clean Energy Council, Submission 1, p. 1.

5 Clean Energy Council, Submission 7, p. 1.

6 Clean Energy Council, Submission 1, p. 2.

7 Lighting Council of Australia, Submission 2, p. 1.

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2.8 The Lighting Council argued that the proposed criminal sanctions for failing to comply with energy performance standards and the labelling regime are '...disproportionate to the nature of offences'.8 According to the Lighting Council, the criminal sanctions in the bill are more onerous than for Australia's electrical safety regime. The Lighting Council stated;

Transgressing a [Minimum Energy Performance Standard] and labelling regime surely is far less serious than avoiding electrical safety regulatory requirements where lives could be at risk.9

2.9 The Lighting Council suggested that civil penalties would be adequate enforcement for the labelling and minimum energy performance standards.10 11

2.10 The Lighting Council also objected to the requirement for industry to supply sales and import data to the regulator. The Lighting Council was particularly concerned that sensitive commercial data may not be kept confidential.11

2.11 In response to the concern raised by the Lighting Council regarding

enforcement, the Department of Climate Change and Energy Efficiency (DCCEE) stated:

The range of enforcement mechanisms in the Greenhouse and Energy Minimum Standards Bill 2012 ensures the Australian Greenhouse and Energy Minimum Standards (GEMS) Regulator can adopt a response to contraventions of energy efficiency laws that is proportionate to the circumstances. Lesser remedies to contravention, such as administrative action or infringement notices, allow an appropriate response to minor contraventions of the law. More serious remedies like potential criminal penalties, in the form of fines rather than imprisonment, ensures a deterrence and response to more serious contraventions.

A proportionate approach to contravention is important because the impact of contravention will be proportionate to the circumstances. Contraventions relating to products with low energy intensity are likely to have a comparatively lower impact while products with high energy intensity, or supplied in large quantities, may have a higher negative impact. Deterrence is also important given it often will be unfeasible to recall non-compliant products once they are supplied to end users...12

2.12 With respect to the provision of commercial data to the regulator, the department informed the committee:

The Australian Government will institute legal and administrative safeguards to prevent improper disclosure of infomiation obtained under the Act. These safeguards will apply to all potentially sensitive information

8 Lighting Council of Australia, Submission 2, p. 1.

9 Lighting Council of Australia, Submission 2, p. 1.

10 Lighting Council of Australia, Submission 2, p. 1.

11 Lighting Council of Australia, Submission 2, p. 1.

12 DCCEE, Answers to questions on notice , 2 August 2012 (received 10 August 2012), p. 2.

130

obtained under the Act, not only sales and import data obtained under section 56.

15

The legal safeguards in the GEMS legislation will be supported by an information handling policy, which will be released by the Australian GEMS Regulator. This policy will govern the treatment of all potentially sensitive information obtained under the Act but will pay particular attention to the protection and use of data obtained under section 56.13

Committee comment

2.13 Improving the energy efficiency of products is one of the easiest and most cost-effective ways to reduce greenhouse gas emissions. The proposed legislation will help Australia meet the government's commitment to reducing Australia's greenhouse gas emissions by at least 5% on 2000 levels by 2020. The legislation will also help

Australia meet its international obligations under the UNFCCC.

2.14 By transforming the existing E3 Program currently administered by the states and territories into a single national framework for regulating the energy efficiency of products, the proposed legislation will reduce the regulatory burden on business and harmonise standards, fees and registration processes.

2.15 Despite the small number of submissions received for this inquiry, the Committee notes that the government has undertaken consultation on the proposed energy minimum standards and labelling scheme over a number of years. The

Committee is therefore confident that stakeholders are supportive of the bills.

2.16 Accordingly, the Committee recommends that the bills be passed.

Recommendation 1

2.17 The Committee recommends that the bills be passed.

Senator Doug Cameron Chair

13 DCCEE, Answers to questions on notice , 2 August 2012 (received 10 August 2012), pp 4-5.

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132

Coalition Dissenting Report

Criminal sanctions

Coalition Senators note concerns raised by Lighting Council Australia in respect of these bills in relation to criminal sanctions1 and note also assurances given by the Department of Climate Change and Energy Efficiency1 2 in response to the committee *s request.

These assurances include an excerpt of a draft GEMS Enforcement Policy incorporating a GEMS enforcement pyramid.

Coalition Senators, however, intend during Parliamentary debate to seek assurances from the Government reflecting the assurances offered by the Department and believe that such a proportionate approach should ideally be embodied within the legislation.

Coalition Senators note also the numerous issues and concerns in respect of an individual *s personal rights and liberties raised by the Senate Scrutiny of Bills Committee.3

Coalition Senators are deeply concerned that the Minister is yet to respond to these issues and believe that the bills should not be further considered at least until such a response is forthcoming.

Provision of sales data

Coalition Senators are not persuaded by the arguments presented by the Department of Climate Change and Energy Efficiency to justify powers requiring the provision of sales data,4 5 which were also raised as areas of concern by Lighting Council Australia. ^

While the concerns of Lighting Council Australia focused predominantly on the importance to maintain confidentiality of such commercial data, the concerns of Coalition Senators are broader.

Coalition Senators are increasingly concerned at the heavy burden of regulation and red tape being imposed on business across all areas of government. In the absence of

1 Lighting Council of Australia, Submission 2, p. 1.

2 Department of Climate Change and Energy Efficiency, Answers to written questions on notice received 10 August 2012, pp. 2-3.

3 Senate Standing Committee for the Scrutiny of Bills, Alert Digest, No. 6 of 2012, pp. 28-34.

4 Department of Climate Change and Energy Efficiency, Answers to written questions on notice received 10 August 2012, pp. 4-5.

5 Lighting Council of Australia, Submission 2, p. 2.

18

more compelling reasons than those provided, Coalition Senators believe the provisions of this bill are excessive and would add an unnecessary potential burden on business that is not warranted by the claimed benefits to government.

For these reasons, Coalition Senators believe sections of the bills relating to the conferral of powers requiring the provision of sales data should be opposed.

Recommendation 1

That these bills should not be further considered until such time as the Minister or Government respond to concerns highlighted by the Senate Scrutiny of Bills Committee.

Recommendation 2

That, in any future consideration of these bills, sections relating to the conferral of powers requiring the provision of sales data should be opposed.

Senator Simon Birmingham Senator Bridget McKenzie

134

Appendix 1

Submissions and answers to questions taken on notice

Submissions

1 Clean Energy Council

2 Lighting Council Australia

Answers to questions taken on notice

Department of Climate Change and Energy Efficiency

135

20

136

The Senate

Environment and Communications

Legislation Committee

Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012

November 2012

© Commonwealth of Australia 2012

ISBN 978-1-74229-731-6

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

Membership of Committee

Committee members Senator Doug Cameron (ALP, NSW) (Chair) Senator Simon Birmingham (LP, SA) (Deputy Chair) Senator Catryna Bilyk (ALP, TAS) Senator Bridget McKenzie (NATS, VIC) Senator the Hon. Lisa Singh (ALP, TAS) Senator Larissa Waters (AG, QLD)

Substitute members Senator Chris Back (LP, WA) to replace Senator Bridget McKenzie (NATS, Vic) on 14 November 2012

Participating members Senator Chris Back (LP, WA) Senator John Madigan (DLP, VIC) Senator Nick Xenophon (IND, SA)

Committee secretariat Ms Sophie Dunstone, Acting Secretary Dr Ian Holland, Inquiry Secretary Mr Gerry Mclnally, Principal Research Officer Mr Jarrod Baker, Senior Research Officer Mr Patrick Hodder, Research Officer Ms Carol Stewart, Administrative Officer Mrs Dianne Warhurst, Administrative Officer

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Teh 02 6277 3526 Fax'. 02 6277 5818 Email, ec.sen@aph.gov.au Internet'.

www.aph.gov.au/Parliamentary Business/Committees/Senate Committees?url=ec ctte/ index.htm iii

iii 139

iv 140

TABLE OF CONTENTS

Membership of committee........................................................................................ iii

List of Recommendations.........................................................................................vii

Chapter 1

The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012 : Background and details of the bill .................................. 1

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

2010 National Health and Medical Research Council rapid review ...................... 6

2011 Senate Inquiry..................................................................................................8

Purpose of the bill................................................................................................... 10

Provisions of the bill............................................................................................... 11

Chapter 2

Noise and Noise Measurement................................................................................13

Low Frequency Noise and Infrasound...................................................................13

Noise Measuring Methodology..............................................................................14

Changes to wind turbine technology......................................................................17

Chapter 3

Health..........................................................................................................................19

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

Number of health complaints relating to noise.....................................................20

The health effects of audible sound ....................................................................... 21

Proposed causes of health effects: infrasound.......................................................24

Proposed causes of health effects: Psychogenesis and Nocebo effect ................. 28

Health and wind farm noise: future research ......................................................... 32

Chapter 4

Noise Regulation of wind farms..............................................................................35

Existing regulations................................................................................................35

The adequacy of current noise regulations for wind farms ................................... 39

Noise compliance mechanisms ................................................................................ 40

Chapter 5

A consideration of the administrative issues in the bill ....................................... 49

Conclusion.................................................................. 55

Coalition Senators * Additional Comments ........................................................... 57

Dissenting Report by Senator John Madigan and Senator Nick Xenophon........................................................................................................................61

Introduction...............................................................................................................61

The impact of noise on sleep and health.................................................................62

Reporting of wind speed and noise data..................................................................64

Conclusion.................................................................................................................65

Attachment to Dissenting Report by Senator John Madigan and Senator Nick Xenophon..............................................................................................67

Appendix 1

Submissions, additional information, correspondence and answers to questions taken on notice...........................................................................................75

Appendix 2

Public Hearings............................................................................................................85

Appendix 3

Snapshot of NHMRC Wind Farms and Human Health Project ....................... 87

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List of Recommendations

Recommendation 1

2.20 The committee recommends that specific noise measures, thresholds and measuring locations not be included in legislation, as there is insufficient consensus on these elements of the proposed bill.

Recommendation 2

3.51 The committee recommends that there should be no regulatory changes prior to the release of the NHMRC's assessment in 2013, as this would be premature.

Recommendation 3

4.59 The committee recommends that, where there is ongoing debate over noise compliance issues for particular wind farms, that governments consider making data for those operations available to an independent authority for review of compliance.

Recommendation 4

5.31 The committee recommends that the bill not be passed.

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Chapter 1

The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012: Background and details of the bill

1.1 The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012 (the bill) was introduced to the Senate on 28 June 2012. The bill is a private members bill co-sponsored by Senators Madigan and Xenophon.

1.2 On 11 October 2012 the Senate referred the provisions of the bill to the Environment and Communications Legislation Committee for inquiry and report.

1.3 In accordance with usual practice the committee advertised the inquiry on its website. In addition, the committee wrote to relevant organisations and certain individuals inviting submissions. The committee received submissions from approximately 165 individuals and organisations, and some form letters. The committee also received a number of items of correspondence that, while addressing wind farm noise in general, did not comment on the bill. These items were not published as submissions, but have been received and noted by the committee. Owing to the large numbers of documents that were accepted as correspondence, and the provision of duplicate submissions, some submission numbers were not used: the list

of submissions in Appendix 1 is therefore complete, despite some submission numbers being missing.

1.4 The committee held a public hearing in Canberra on 14 November 2012. At the hearing, and subsequently, the committee received evidence from a range of experts, both from Australia and overseas. The committee is very grateful to overseas witnesses for their co-operation in giving evidence at what would have been for them very inconvenient times, and in providing prompt responses to questions taken on notice.

1.5 The committee received written submissions that contained adverse comments about a range of individuals and organisations, all of which were given an opportunity to provide written response. These have been published by the committee and are included in the list in Appendix 1. During the public hearing, Mr Steven Cooper made comments critical of a NSW Department of Planning employee, Mr Jeff Parnell. Mr Cooper said:

I had discussions with him prior to my undertaking the work, and at a recent meeting that was at Cullerin he refused to talk to me...The one officer who is handling noise, at a meeting which was part of an audit process for Cullerin, refused to talk to me and had his back to me for the

entire two hours.1

1 Mr Steven Cooper, Proof Committee Hansard, 14 November 2012, p. 32.

2

1.6 Mr Parnell, a scientist with thirty years' experience with NSW government agencies, wrote to the committee, providing a different account of the meeting described by Mr Cooper, and gave the committee names of others present who he said could corroborate his account. He stated:

The meeting discussed in evidence by Mr Cooper occurred at the home of a resident that had raised concerns regarding a nearby wind farm to the Department... Mr Cooper was introduced as being present as an observer only and did not sit around the coffee table with everyone else, but sat a metre or so away, not behind me but to the side... Mr Cooper was not part

of the meeting and did not contribute or speak to me until we were shaking hands at the end...2

1.7 Mr Cooper had wanted to speak to Mr Parnell about another matter, but Mr Parnell pointed out that it would not have been appropriate in the circumstances:

When we were leaving the... residence, Mr Cooper said to me *I sent you an email * referring to an email regarding a newspaper clipping in a South Australian paper which discussed the quality of a report he had submitted to the Department. As the project (Flyers Creek Wind Farm) was still having its response to submissions prepared at the time, I replied *This is not the right forum to discuss this, but I am happy to do so at another time *. That was the full extent of my conversation with Mr Cooper.

1.8 Mr Cooper also stated during the hearing that he had provided information in a submission to the Department of Planning, that he had raised some issues in that submission, but that' there has been no response'.

1.9 Mr Parnell replied that he had not responded because it would not be

appropriate to do so under the relevant planning processes:

it can be seen on the Department *s website that the Flyers Creek Submissions Report has not been completed. It has therefore been inappropriate to comment on Mr Cooper's submission. It should however be

noted that it is the proponent that prepares responses to submissions, not the Department...I propose to the Committee that Mr Cooper *s version of events is not true and was designed to portray myself as being

unprofessional in the carrying out of my duties.

Background

1.10 The scientific evidence shows that the climate is changing. Greenhouse gas emissions caused by human activity are contributing, and if climate change is not tackled it will cause significant human, enviromnental, and economic costs. In addition to the Intergovernmental Panel on Climate Change, organisations which have given the government this advice include the CSIRO, the Bureau of Meteorology and

2 Mi∑ Jeff Parnell, correspondence to the committee, received 28 November 2012.

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the Australian Academy of Science. More recently the World Bank commissioned report Turn down the heat has added to the international evidence.3

1.11 The Government's response on climate change includes increasing renewable energy supply, energy efficiency measures and putting a price on carbon.

The expansion of renewable energy generation and wind farms

1.12 In 2009 the Australian Government implemented a legislative target, the Renewable Energy Target (RET), aimed at sourcing 20 per cent of energy from renewables by the year 2020.4 5 The RET ensures a guaranteed market for electricity generated from renewable sources by requiring wholesale purchasers of electricity

('liable entities') to meet a share of a renewable energy target in proportion to their share of the national wholesale electricity market. The compliance of liable entities with the RET is ensured by the creation of Large-scale Generation Certificates (LGCs). Generators of renewable energy, such as wind farms, receive LGCs which can then be sold to liable entities to enable them to meet their individual RET target.3

1.13 Although the Renewable Energy (Electricity) Act 2000 is technology neutral - in that it does not provide additional incentives for one type of clean energy over another - it encourages the most cost-effective form of clean energy generation.6

1.14 According to the Australian Government, in order to meet this target, the number of wind farms 'can be expected to increase significantly in the new few years'.7 As explained by the Clean Energy Council:

Wind power as the lowest cost form of large scale renewable energy is an integral part of the renewable energy mix that will be required to meet Australia's legislated target of 41,000 gigawatt hours by 2020.8

1.15 Australia currently has 59 wind farms consisting of 1345 wind turbines with 2480 megawatts of capacity.9 By way of comparison Liddell Power Station in New South Wales for example is 2000 megawatts. The Energy Supply Association of

3 Potsdam Institute for Climate Impact Research and Climate Analytics (for the World Bank), Turn down the heat, November 2012, http://ww.worldbank.org/en/news/2012/11/19/world- bank-flash-tura-down-heat-why-tackling-climate-change-matters-development (accessed 26 November 2012).

4 The Renewable Energy Target replaced the Mandatory Renewable Energy Target and commenced on 1 January 2010.

5 Environment, Communications and the Arts Legislation Committee, Renewable Energy (Electricity) Amendment Bill 2010 [Provisions]; Renewable Energy * (Electricity)(Charge) Amendment Bill 2010 [Provisions]; Renewable Energy (Electricity)(Small-scale Technology Shortfall Charge) Amendment Bill. 2010 [Provisions] , June 2010, pp 1 *2.

6 Pacific Hydro, Submission 207 , p. 3.

7 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, p.2.

8 Clean Energy Council, Submission 165, p. 1.

9 Clean Energy Council, Submission 165, p. 5.

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Australia (ESAA) detailed the rise of wind power in recent years, suggesting this is being driven by the requirements of the RET:

Electricity generation from wind farms has increased markedly over the past few years in order to help meet the RET. The rapid expansion in the number of wind farms has seen production increase from 1.7TWh in 2005≠

06 to 5.8TWh in 2010-11. Wind energy has increased from 650MW of capacity in 2006 to 2175MW in 2011.10 11

Issues of appropriate noise levels /planning laws

1.16 As with all large scale developments, individual state governments make and administer their own regulations regarding developments.

1.17 The Clean Energy Council argued that planning responsibilities, including sound and placement matters, fall within the domain of individual states, and that wind farms should be treated in the same way as all other projects:

Every Australian state government has planning guidelines that are best suited to the unique requirements of their community, industry, and land use configurations. Planning rules for wind farms (and for any other major project) must simultaneously consider various technical issues and social issues...Appropriate regulations and community consultation should apply to any wind farm, as they do to any new infrastructure.11

1.18 In its submission to the committee, the Queensland state government affirmed that it has systems in place to ensure developments balance community, ecological and economic considerations. It stated that it:

...has existing requirements that address environmental impacts, including noise impacts, through the State Development and Public Works Organisation Act 1971, Sustainable Planning Act 2009 and Environmental Protection Act 1994. The environmental impact assessment processes are rigorous, and address the:

" existing environment;

" project's environmental impact; and

" ways of avoiding, mitigating or offsetting these impacts.12

1.19 It was argued to the committee by Pacific Hydro that noncompliance with current state planning and noise regulations attracts strong penalties 'which can include financial penalties and shutdowns.'13

1.20 In its submission, Infigen Energy - the largest owner and operator of wind energy in Australia - argued that the current planning regimes in Australia are stringent by international standards:

10 Energy Supply Association of Australia, Submission 205 , p. 1.

11 Clean Energy Council, Submission 165, p. 3.

12 Queensland Government, Submission 217, p. 1.

13 Pacific Hydro, Submission 207, p. 2.

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The State Governments have been doing a very thorough job of writing and enforcing some of the most stringent wind farm planning regulations in the world. The Victorian Government has specified a minimum distance between neighbouring residences and turbines of two kilometres. This compares with jurisdictions, with far more extensive experience with wind energy, such as Canada, Denmark, and the USA, specifying much smaller setback distances of 500-600 metres.14

1.21 Similarly, the ESAA notes that:

Currently, planning laws are administered by state governments. There is no clear or justifiable reason for the Federal Parliament to interfere with existing state government planning laws.15

1.22 The growth of Australia's wind farm industry has not been without its critics. The planning laws applying to wind farms have also been criticised by some groups. For example, the Western Plains Landscape Guardians Association argued in their submission that:

There has arisen within the community an increasingly pressing concern that the present planning guidelines for wind turbine noise control, right across Australia, are not doing their job. In the majority of turbine installations within Australia serious problems have resulted for neighbours once the plant begins operation, even when noise guidelines have supposedly been complied with.16

1.23 Similarly, the Parkesbourne/Mummel Landscape Guardians Inc. argued that:

The [NSW] planning legislation does not give adequate attention to the needs of the neighbours of developments. And the noise guidelines are completely inadequate to protect the health and well-being of the neighbours of wind farms.17

1.24 Planning issues are explored further in Chapter 4. In addition to planning concerns, opponents of wind farm developments also cite the potential harm to human health caused by wind farm noise. These concerns are canvassed in Chapter 3 of this report.

Current state and territory noise regulations and guidelines for wind farm development

1.25 In relation to noise turbine compliance requirements, the following figures provide some context:

14 Infigen Energy, Submission 202, p. 2.

15 Energy Supply Association of Australia, Submission 205, p. 2.

16 Western Plains Landscape Guardians Association, Submission 131, p. 2.

17 Parkesbourne/Mummel Landscape Guardians Inc., Submission 50, p. 3.

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" The World Health Organisation adopts a guideline value of 40dB(A) for general sleep disturbance effects;18

" South Australia adopts a guideline of 35dB(A) in rural living zones or 40dB(A) in other zones or the background noise +5dB(A), whichever is greater;19 and

" Victoria applies NZS 6808:2010 which specifies a guideline of the greater of 40dB(A) or background noise +5dB(A) or in special circumstances a 'high amenity noise limit' of 35dB(A).20

" New South Wales draft guidelines for new wind farm developments specify 35dB(A) or background noise +5dB(A), whichever is the greater. Furthermore, the 'noise criteria must be established on the basis of separate daytime (7am to 10pm) and night-time (10pm to 7am) periods'.21

1.26 Internationally, many countries use noise standards similar to those currently used in Australia:

" Sweden applies a standard noise limit of 40dB(A), and 35dB(A) in low- background noise areas;

" Denmark applies a noise limit of 44dB(A) at a wind speed of 8 metres per second (m/s) and 42dB(A) at 6nVs. For sensitive areas the allowable noise limit is reduced by 5dB(A) at the respective wind speeds.

" The Netherlands applies a 40dB(A) noise limit at night, increasing incrementally up to 50dB(A) at 12nVs.22

2010 National Health and Medical Research Council rapid review

1.27 In July 2010 the National Health and Medical Research Council (NHMRC) released a review of the available evidence at the time culminating in the report: Wind Turbines and Health: A Rapid Review of the Evidence (Rapid Review). The Rapid Review concluded that:

18 Birgitta Berglund, Thomas Lind vail and Dietrich Schwela (eds.), Guidelines for Community Noise, World Health Organization, 1999, sec 4.3.1.

19 South Australian Government, Environment Protection Authority, Wind Farms Environmental Noise Guidelines, July 2009, p. 3.

20 Government of Victoria, Department of Planning and Community Development. Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, sec. 14, p. 45; see also Standards New Zealand Paerewa Aotearoa, Standards New Zealand FactSheet, Revised Wind Farm Noise Standards NZS 6806:2010 * Frequently Asked Questions, 26 July 2010, p. 3.

21 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 6.

22 Clean Energy Council, Submission 165 Attachment A, p. 17.

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" There is currently insufficient published scientific evidence to positively link wind turbines with adverse health effects;

" Relevant authorities should take a precautionary approach; and

" People who believe they are experiencing any health problems should consult their GP promptly.23

1.28 The findings of the Rapid Review have been used by many supporters of wind power * including developers * to argue that wind farms have no adverse impacts on human health and therefore developments should be approved.24 Critics of wind farms have argued that the Rapid Review which is being used to justify the current regulations of wind farms was not sufficiently thorough, omitted vital information, and has contributed to a lack of understanding regarding the health impacts of wind

farms. For example, the Waubra Foundation's Dr Laurie argued to the committee that:

The 2010 NHMRC document omitting this vital knowledge about the known adverse health impacts of low-frequency noise is still being widely used by wind developers and government departments to assert that there are no known health problems with wind farms."5

1.29 The Chief Executive Officer of the NHMRC previously clarified that the Rapid Review is a work in progress:

I do want to make a point to anybody who is relying on [the Rapid Review],

We regard this as a work in progress. We certainly do not believe that this question has been settled. That is why we are keeping it under constant review. That is why we said in our review that we believe authorities must take a precautionary approach to this.26 27

1.30 The NHMRC informed the committee that there is a review of the evidence regarding the impacts of wind farms on health currently underway:

The NHMRC has commissioned a third party contractor to conduct a systematic review of the literature examining the potential effects of wind farms on human health. The review is being overseen by an expert working committee that comprises of experts in epidemiology, sleep, psychology, acoustics and a consumer...As this review is not yet complete we are unable to submit any additional advice than that which has been outlined in the NHMRC Wind turbines and health * a rapid review of evidence (2010).21

23 National Health and Medical Research Council, Response to adverse comment received on 12 November 2012, p. [1],

24 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Fanns, 23 June 2011, p. 25.

25 Dr Sarah Laurie, Chief Executive Officer, Waubra Foundation, Committee Hansard, p. 17.

26 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Fanns, 23 June 2011, p. 25.

27 National Health and Medical Research Council, Submission 39, p. [1].

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1.31 According to the NHMRC, the Revised NHMRC Public Statement: Wind Turbines and Health Public Statement will be published in May 2013.28

2011 Senate Inquiry

1.32 In 2011 the Senate Community Affairs References committee conducted an inquiry examining the social and economic impact of rural wind farms. The Community Affairs committee received in excess of one thousand individual submissions, many letters and other documents, and had access to much published information. Public hearings and site visits were held in various capital cities and regional areas. The committee tabled its report, The Social and Economic Impact of Rural Wind Farms (Inquiry Report) in Parliament on 23 June 2011 making seven recommendations.

1.33 From the outset, the Inquiry Report delineated the relevant responsibilities of State and Commonwealth governments:

Planning and compliance issues for wind farms are matters for the state governments...The Commonwealth also has responsibility for certain aspects of the development of wind farms, such as air safety, and it may become involved in planning processes under the provisions of the

Environment Protection and Biodiversity Act 1999.29

1.34 In relation to the health impacts of wind farms, the committee concluded that:

Adverse health effects may be caused by wind turbines but they may be caused by factors other than noise and vibration, such as stress related to sleeplessness or perceptions of harm. There is insufficient rigorous research to know the answer.30

1.35 After the tabling of that report, Dr Sarah Laurie from the Waubra Foundation was reported as saying: *Given the Senate recommendations and strength of evidence to the inquiry, the precautionary principle should be adopted.'31 The Clean Energy Council's policy director Russell Marsh was reported as saying:

[The Inquiry Report] acknowledges the important contribution that wind energy makes to employment and economic development.. .There is no reason to slow the development of new wind farms based on this report.32

28 National Health and Medical Research Council, Snapshot of NHMRC Wind Farms and Human Health Project, available from: https://www.nhrnrc.gov.au/ files nhmrc/file/vour health/wind farms timeline snapshot 1208 14.pdf. accessed: 21 November 2012.

29 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Farms, 23 June 2011, p. 3.

30 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Farms, 23 June 2011, p. 27.

31 Graham Lloyd, 'Blow for wind farms as senators push probe into noise and health fears', The Australian, 24 June 2011.

32 Graham Lloyd, 'Blow for wind farms as senators push probe into noise and health fears', The Australian, 24 June 2011.

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Government response to 2011 Senate Inquiry

1.36 On 13 September 2012 the Commonwealth Government tabled its response in the Senate which addressed the seven recommendations made in the Inquiry Report.

1.37 In response to recommendations one through three which relate to noise standards, complaint resolution, and infrastructure locations, the Commonwealth reasserted the prerogative of individual states and territories to establish their own planning regimes and requirements.33

1.38 The Commonwealth accepted recommendations four through six in principle. Recommendations four, five and six pertain to the need for research of the possible effects of wind farms on human health, including the impacts on human health of infrasound. The Commonwealth explained that:

The NHMRC is already actively engaged in supporting the assessment of the available research on this issue and will shortly commission a

comprehensive review of the literature to inform any update to its 2010 public statement. The review will include audible noise, infrasound and low-frequency noise. A reference group will be established to advise on the

review and will include members of the public, industry, researchers, sound engineers/consultants and planning representatives74

1.39 Furthermore, the Commonwealth noted that there is a range of funding mechanisms available for researchers to explore the potential impact of wind farms on human health.35

1.40 The Commonwealth did not accept recommendation seven which called for:

...the draft National Wind Farm Development Guidelines to be redrafted to include discussion of any adverse health effects and comments made by NHMRC regarding the revision of its 2010 public statement. 36

1.41 As well as noting that the result of the possible revision of the NHMRC's 2010 public statement would depend on the outcome of available research, the Commonwealth advised that no further work would be undertaken on the National Wind Farm Development Guidelines in recognition that relevant jurisdictions have taken appropriate steps, saying:

The Australian Government understands that jurisdictions have developed, or are currently developing, planning application, assessment and approval processes within their own planning frameworks to manage community

33 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, pp h-A.

34 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, p. 4.

35 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, p. 4.

36 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Farms, 23 June 2011, p. 49.

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concerns about wind farm developments such as turbine noise, shadow flicker, electromagnetic interference and impacts on landscapes and wildlife. The EPHC Standing Committee therefore has decided to cease further development of the Guidelines.37 38

Purpose of the bill

1.42 The bill seeks to amend the Renewable Energy (Electricity) Act 2000 (Act) to give powers to the Clean Energy Regulator that ensure that accredited power stations that are wind farms, either in whole or in part, do not create excessive noise.jS The accreditation of wind power stations who do create excessive noise would be suspended, thereby preventing them from creating and on-selling Large-scale Generation Certificates (LGCs)

Large-Scale Generation Certificates

1.43 The Act provides for the creation of LGCs by accredited power stations that generate their electricity through renewable technology. Each LGC represents one megawatt hour (MWh) of generated renewable energy electricity. Accredited renewable energy power stations create LGCs which can be sold through the open LGC market, where the price varies according to supply and demand. LGCs improve the financial viability of renewable energy projects by allowing them to sell both the electricity generated, and the LGCs.

1.44 Demand for LGCs is created by the Large-Scale Renewable Energy Target (RET) that specifies the amount of renewable energy to be generated by renewable energy power stations, for every year up to 2030. The RET places a legal requirement on 'liable entities' (typically electricity retailers) to purchase a set number of LGCs each year taking into account factors such as volume, specific exemptions, and that year's national renewable energy target.

1.45 Liable entities must surrender the required number of LGCs to the Clean Energy Regulator to meet their annual liability. If a liable entity does not surrender its required number of LGCs in a year, it is liable to pay a shortfall charge - currently set at $65 per LGC not surrendered. By comparison, the Clean Energy Regulator has estimated the volume weighted average market price for a LGC for the 2012 year as $35.24.39 Energy Australia warned in its submission that if the LGC market was

37 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, p. 5.

38 Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012, Explanatory Memorandum, p. 2.

39 Clean Energy Regulator, Volume weighted average market price for a renewable energy certificate/large-scale generation certificate, available from: . accessed: 21/11/2012.

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insufficiently supplied, liable entities would pass the additional costs of the shortfall charge onto consumers resulting in higher power prices.40

1.46 Producers of renewable energy can sell both their electricity to the National Energy Market as well as the LGCs that they earn. This significantly improves renewable energy projects' financial viability.

Provisions of the bill

1.47 The bill includes one schedule that includes nine sections which will be considered in this section thematically.

1.48 Sections one, two and four deal with issues of definition. Section two defines 'wind farm' as 'a power station that generates some or all of its power from wind'. Sections two and four together define what constitutes 'excessive noise' for the puipose of the bill. A wind farm is deemed to create excessive noise if the level of noise attributed to the wind farm exceeds background noise by 1 OdB(A) or more when measured within 30 metres of any premises that is used for residential, work, or

congregational purposes. The issues surrounding wind faim noise, and appropriate noise standards, are discussed in further detail in Chapter 2 of this report.

1.49 Section three amends subclause 14(2) of the Act which related to the eligibility of power stations for accreditation under the Act. Section three of the bill adds an additional criteria to the existing eligibility criterion in the Act, namely, that a wind fami can only receive accreditation if 'the Regulator is satisfied that the wind

farm does not, and will not, create excessive noise.'

1.50 Section five of the bill amends the Act to require the operator of a wind farm to publish on the internet information pertaining to noise, wind speed and direction, weather conditions, and power output of individual turbines.

1.51 Sections six through eight of the bill amend the subclause in the Act that empowers the Regulator to suspend the accreditation of a power station in three ways. The effect of the suspension of a power station is that the suspended power station can no longer earn RECs for the duration of the suspension, however, the power plant can continue to operate.

1.52 At present the Regulator 'may' suspend the accreditation of a power station if the Regulator 'believes on reasonable grounds' that the power station 'is being operated in contravention of a law of the Commonwealth, a State, or a Territory'. Section six of the bill proposes to substitute 'must' for 'may', thereby removing discretion in this matter from the regulator.

1.53 Secondly, section seven proposes to extend the scope of laws that an operator can be in contravention by replacing 'law of with 'law (whether written or unwritten) of or in force in'. The Explanatory Memorandum of the bill explains that the puipose of this is to:

40 Energy Australia, Submission 159, p. [3]; Energy Supply Association of Australia, Submission 205, p. 2.

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...make it clear that a power station's accreditation may be suspended if it contravenes any law in force...including the common law tort of nuisance which is captured by the proposed reference to 'unwritten' laws.41

1.54 Lastly, section 8 of the bill details an additional set of criteria that apply specifically to wind farms. The Regulator must suspend the accreditation of a wind farm if the regulator believes on reasonable grounds that the a wind farm is creating excessive noise, or if the wind farm is not collecting and publishing the data stipulated in section five of the bill.

1.55 Section 9 of the bill outlines the scope of the bill, namely, that the

amendments will apply to power stations regardless of whether the power station is already accredited at the date of commencement, or is seeking accreditation after the commencement of the bill.

41 Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Fanns) Bill 2012, Explanatory Memorandum, p. 4.

Chapter 2

Noise and Noise Measurement 2.1 The sound generated by wind turbines is caused by the conversion of wind energy to rotational and acoustic energy. The rotational energy produces electricity while the acoustic energy produces sound.1 According to the Clean Energy Council:

Noise is often the most important factor in determining the separation distance between wind turbines and sensitive receivers like houses. The assessment of noise therefore plays a significant role in determining the viability of and the size of wind farms.2

2.2 The committee received evidence from many of the same acousticians as the Community Affairs References Committee in its 2011 inquiry into the social and economic impact of rural wind farms. The Clean Energy Council, and the acoustic

consultants, Sonus Pty Ltd provided the committee with the same technical information about the nature of sound as they did to the Community Affairs Committee.

2.3 The Sonus paper, prepared in 2010, discusses two principal types of noise that a wind farm may generate. These are mechanical noise from the turbine itself, and aerodynamic noise from the operation of the blades. Within the category of aerodynamic Noise the Sonus paper includes different types of noise:

" Amplitude Modulation - Commonly described as the "swish" noise that comes from the blades as they rise and fall; " Low Frequency Noise - has a frequency range between 20 and 200 (Hz) often described as a "ramble"; and " Infrasound - has a frequency range under 20 Hz and often

described as inaudible.3

Much of the controversy in this inquiry concerns the subset of noise categories within aerodynamic noise.

Low Frequency Noise and Infrasound

2.4 Mr Steven Cooper from the Acoustic Group submitted that there are 'low frequency, infrasound components' in wind turbine noise that have:

...a unique signature associated with turbines and you can measure them near the turbines and measure them up to seven kilometres away...and seven kilometres away I can see this signature and the pattern is there. You

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3

Community Affairs Committee Report, The social and economic impact of rural wind farms, June 2011, p. 5.

Clean Energy Council, Submission 165, p. 2.

Clean Energy Council, Submission 165, Attachment 1, Sonus, Wind Farms Technical Paper, Environmental Noise, November 2010, pp. 8-10.

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cannot hear it because it is lower than the threshold of hearing, both in frequency and in level, but it is there.4

2.5 Professor Hansen added that low frequency noise is particularly difficult to avoid, as the techniques used to mitigate higher frequency are significantly less effective:

The problem with wind farm noise is that it is dominated by low-frequency noise by the time it gets to people's residences. Many residences, especially if windows are open, are sort of transparent to that noise.

The noise level at low frequencies is not much less than what it is outside, whereas the higher-frequency noise *if there is a little bit left *gets attenuated through the walls of the house and the roof. What you are left with when you are inside is a dominant low-frequency noise, and there is no higher-frequency noise to mask it. There is nothing to mix with it. It is just this low-frequency, annoying noise.5

2.6 Sonus discussed the nature of infrasound from wind farms in their paper for the Clean Energy Council. It described the low frequency noise, which includes infrasound, as being:

...easily measured and can also be heard and compared against other noise sources in the environment. Low frequency sound produced by wind farms is not unique in overall level or content and it can be easily measured and heard at a range of locations well in excess of that in the vicinity of a wind farm.6

2.7 Dr Leventhall's paper in the journal Canadian Acoustics cited showing that wind turbines do produce infrasound but not at perceptible or harmful levels:

Modem up-wind turbines produce pulses which also analyse as infrasound, but at low levels, typically 50 to 70dB, well below the hearing threshold. Infrasound can be neglected in the assessment of the noise of modem wind

turbines (Jakobsen 2004).7

2.8 The current NSW guidelines, which are probably some of the most stringent in the world, also discount low frequency or infrasound as a significant component of wind turbine noise emissions.

Noise Measuring Methodology

2.9 Mr Cooper described the difficulties in measuring noise in his experience over 35 years:

4 Mr Cooper, The Acoustic Group, Proof Committee Hansard, 14 November 2012, p. 30.

5 Professor Hansen, Proof Committee Hansard, 14 November 2012, p. 12.

6 Clean Energy Council, Submission 165, Attachment 1, Sonus, Wind Farms Technical Paper, Environmental Noise, November 2010, p. 44.

7 G. Leventhall, 'Infrasound from wind turbines: Fact, Fiction or Deception', Canadian Acoustics, Vol. 34, No. 2, 2006, p. 32.

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In some cases I have been to houses and I could not hear a thing and I could not measure anything. That is the nature of the beast. Sometimes the wind blows in different directions. That is the variability that you get. It happens in all sorts of noise studies. Take noise from a hotel. Sometimes there is a noise problem; sometimes there is not.8

2.10 Professor Hansen discussed the technical difficulties in measuring background noise:

It is also important to define how background noise is measured. When you are trying to make a statement that you cannot exceed background noise by a certain amount, you need to be able to define how you measure it. For obvious reasons, there should not be a single number representing an average over many weeks or a single number as a function of wind turbines. Background noise is much lower late at night, in the early hours of the morning and also in cases when you have significant wind shear and there is no wind at the residence where the noise is being experienced. So there really should be different values of background noise at different hours of the night with different wind conditions for the measurement.9

2.11 Pacific Hydro Australia submitted that they have conducted testing at two of their wind farms and compared that to other natural and manmade sources and found that:

...[the] levels of inffasound at the wind farms to be well below the World Health Organisation hearing threshold and significantly lower than at the beach.10 11

2.12 The current method of measuring noise is to measure dB(A). According to evidence in the Community Affairs Report in 2011, this measure is appropriate because:

...it simulates human hearing. Dr Warwick Williams, a Senior Research Engineer at the National Acoustic Laboratories, explained that the A- weighting heavily discounts the low frequencies and the very high frequencies. A-weighting discounts infrasound as it is below the level of human hearing.11

2.13 Professor Salt, in constrast, was not convinced that the A-weighted measure was adequate to detect potentially harmful noise such as low frequency and inffasound:

I do believe that the sound from wind turbines is a problem. I also think that the current method of using A-weighted sounds to characterise wind turbine noise is as big a problem, because that is missing the low-frequency content

8 Mr Steven Cooper, Proof Committee Hansard, 14 November 2012, p. 30.

9 Professor Hansen, Proof Committee Hansard, 14 November 2012, p. 10.

10 Pacific Hydro Australia, response to adverse comment, received on 22 November 2012, p. 1.

11 Community Affairs References Committee, The social and economic impact of rural wind farms, June 2011, p. 12.

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that these machines generate. I agree that the legislation, at the moment, is not considering different measurements, but at some point it needs to be considered that measuring infrasound levels from these machines could be extremely important to understanding how they affect people.12 13

2.14 Professor Hansen also agreed that there is a deficiency inherent in regulating noise using A-weighting:

...all of the current regulations are written in terms of A-weighted sound level and A-weighting does not properly account for low frequency components. Some regulations apply a five dB penalty if a noise is dominated by low frequency components, but in many cases this is insufficient to properly account for the true effect of low frequency noise. L'

2.15 The Sonus report of 2010 explained that G-weighting is the most appropriate mechanism for picking up infrasound, and also what levels of dB(G) could have adverse impacts:

Weighting networks are applied to measured sound pressure levels to adjust for certain characteristics. The A-weighting network (dB(A)) is the most common, and it is applied to simulate the human response for sound in the most common frequency range. The G-weighting has been standardised to determine the human perception and annoyance due to noise that lies within the infrasound frequency range (ISO 7196, 1995).

A common audibility threshold from the range of studies is an infrasound noise level of 85 dB(G) or greater. This is used by the Queensland Department of Environment and Resource Management's (DERM's) draft Guideline for the assessment of low frequency noise as the acceptable level

of infrasound in the environment from a noise source to protect against the potential onset of annoyance and is consistent with other approaches, including the UK Department for Environment, Food and Rural Affairs

(DEFRA., Leventhall, 2003).14

2.16 Mr Cooper said that the underestimation of noise is compounded by the fact that the attenuation rate of low frequency noise is less than that of mid or high frequency noise:

The noise for general noise in the dBA drops off at six dB per doubling of distance. Every time you double the distance, it goes down six dB. But, when you deal with low frequencies and you deal with line sources, it goes off at a lower rate. It is identified in one of Dr Chapman's reference documents. It shows that the rate of low frequency is a much lower rate than normal noise. So what happens is that the low frequency and

12 Professor Salt, Proof Committee Hansard, 14 November 2012, p. 2.

13 Professor Hansen, Proof Committee Hansard, 14 November 2012, p. 14.

14 Clean Energy Council, Submission 165, Attachment I, Sonus, Wind Farms Technical Paper, Environmental Noise, November 2010, p. 10.

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particularly the infrasound are underestimated as you go further away from the wind farm.15

2.17 Mr Cooper also critiqued other conclusions of the various reports by Sonus. Specifically Mr Cooper questioned the report carried out by Sonus into the Cape Bridgewater wind farm. He suggested that there were various technical discrepancies or omissions in the report that related to the noise levels inside and outside of the dwelling, and that the report omitted relevant data, including that of the wind speed.16

Committee View

2.18 In the committee's view the technical issues raised by Mr Cooper are best answered by Sonus. The committee is also of the view that even if the report were found to be flawed in the terms that Mr Cooper suggests, there was still no evidence

provided that would suggest that infrasound is present at harmful levels.

2.19 The committee notes that, even amongst supporters of the bill, there appeared to be no agreement about what noise measurement should be included in the bill, nor what noise thresholds should be adopted.

Recommendation 1

2.20 The committee recommends that specific noise measures, thresholds and measuring locations not be included in legislation, as there is insufficient consensus on these elements of the proposed bill.

Changes to wind turbine technology

2.21 Wind Farm technology has changed since the introduction of turbines in Australia. These changes have made a significant difference to how sound is produced and the types of noise generated. Mr Jonathan Upson from Infigen Energy also explained that new turbines have resulted in lower levels of infrasound that those that

were manufactured 15 to 20 years ago:

...downwind turbines *that is, turbines with the rotor downwind of the tower *were known for producing higher levels of infrasound. Those types of turbines have not been made in probably 15 or 20 years, so it is possible for that turbine design to have higher low-frequency and infrasound levels than the large turbines of today.17

2.22 Alstom Wind gave evidence to the committee that while there are noise reduction benefits this was not the primary driver for the technical innovations:

In the early eighties turbines did not have variable speed control; they operated at fixed speed because of the size of the turbine. As the industry has developed, to reduce the cost of energy globally, one of the big

differences introduced about 10 years ago is what we call variable speed pitch control. Variable speed pitch control in a turbine *and all modem

15 Mr Steven Cooper, Proof Committee Hansard, 14 November 2012, p. 33.

16 Mr Steven Cooper, Answer to Questions on Notice, received 25 November 2012.

17 Mr Jonathan Upson, Infigen Energy, Proof Committee Hansard, 14 November 2012, p. 58.

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turbines now employ this *means that the tip speed of the turbine can be varied through variation of the generator speed.

There has been significant technical development in the industry- *nothing to do with noise generation but to increase the efficiency and reduce the cost of energy of the wind industry. As a side effect of that what we can do is we can manually reduce the tip speed during normal power production to reduce the sound power level, purely because sound power is generated by the tip speed of the turbine. So we can control that. It was a secondary effect of the technical innovation in the industry. It was not developed for noise puiposes at the start.18

Committee View

2.23 The committee is aware that wind turbines, like most industrial sources, create noise. The argument that was presented to the committee by Dr Sarah Laurie and others was that this noise is hazardous because of its low frequency and infrasound

component.

2.24 It was also suggested that tins potential to do harm is compounded because noise is routinely measured in dB(A) and not dB(G) which picks up very low frequency noise and infrasound. If the noise is not being measured then it cannot be regulated. The committee believes that, as part of transparency and openness, low frequency and infrasound should be measured and endorses Recommendation 1 of the

Community Affairs Committee's 2011 report that 'noise standards...should include appropriate measures to calculate the impact of low frequency noise...19

2.25 The committee heard evidence from a number of acousticians that infrasound is produced at various levels by a variety of different natural and industrial sources. This includes wind turbines. The question that concerns the committee is whether wind turbines emit noise, regardless of the frequency, at levels that are likely to cause harm. In light of the evidence received through this inquiry the committee is of the view that while infrasound is produced it is not at levels that are likely to cause harm. This is considered further in the next chapter.

18 Mr Josef Tadich, Alstom Wind, Proof Committee Hansard, 14 November 2012, p. 51.

19 Community Affairs References Committee, Tim social and economic impact of rural wind farms, June 2011, p. 15.

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Chapter 3

Health

Introduction

3.1 The bill being considered by the committee does not directly mention health effects of wind farm noise. However, as the second reading speech by Senator Madigan indicated, and as the submissions reflect, health issues are the rationale behind the bill.

3.2 The committee acknowledges the concerns of residents, who need to understand whether there may be health impacts of existing wind farms in their area, or of a wind facility planned for their district.

3.3 Individual witnesses, and some organisations, reported to the committee a range of symptoms they said were being experienced by people living up to ten kilometres away from wind farms. The most common reported complaint was sleep disturbance.1 Others included headaches, nausea, anxiety and a range of other symptoms, many (though not all) common to stress-related conditions. Examples of individuals expressing concern about current health impacts included these:

members of my family have experienced various symptoms including excruciating painful ear pressure, severe headaches, severe nausea to the point of being unable to keep food down, profuse nose bleeds, dizziness, chronic and severe sleep disturbance and worrying chest pains. We have never suffered any of these symptoms before the wind farm was built too close to our home at Waubra.1 2

Once the turbines were operating I began to suffer extremely bad headaches and had a very cold body after sleeping... I can no longer work or go to the

property... without suffering nausea, pains in the head, pains in the chest, and difficulty breathing...3

1 get head aches, nervous tension, nose bleeds...angina...[another person] now has diabetes which has been brought on by those B turbines.4

3.4 The committee also heard from people who had not experienced health effects but were concerned about the potential for them:

I have spent hundreds of hours talking to, listening to, reading about, and corresponding with, real, normal people for whom a real, normal life is no longer possible... These are people...whose lives have been completely

devastated by a wind farm development nearby. I have listened to their

1 Waubra Foundation, Answers to Questions on Notice, received 23 November 2012.

2 Samantha Stepnell, Submission 51.

3 Janine Dean, Submission 174.

4 Enid Thomas, Submission 176.

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explanations of the impact on their lives, knowing that their experience will become our experience if the proposed development near us goes ahead.5

Our community has recently been involved in a proposal for an industrial wind facility in our heritage-listed Trawool Valley. Concerned about excessive noise and the potential adverse health affects as a result of infrasound, low frequency sound and vibration, our community organised an information session in August 2012. We invited some members of other wind facilities close by and two residents from the Waubra area attended. They recounted their experience of living in close proximity to a wind energy facility and also of their belief that it was creating excessive noise and that the complaints procedure was ineffective and deficient to adequately address their countless concerns.6

3.5 There is an extremely diverse range of adverse effects on people and on animals that have been claimed in submissions to this inquiry and in other sources.7 It is unlikely that all of these are due to wind farms, but the issue nevertheless requires thorough attention.

3.6 As noted in Chapter 1, the National Health and Medical Research Council is considering the current literature in detail and will address this issue definitively in 2013.

Number of health complaints relating to noise

3.7 The committee heard a range of views about the scope of effects on people residing near wind turbines. The Waubra Foundation claimed it was aware of:

over 40 families from Queensland, New South Wales, Victoria and South Australia who have left their homes because of excessive noise from the wind turbines near their former homes, and the consequent serious health problems they experienced.8

3.8 On the other hand, others considered the concern to be limited in geographic scope, arguing that it tends to be in particular sites and not others:

expressions of concern among residents living adjacent to wind farms only occur in relatively few places. The overwhelming majority of wind farms around the world do not have any sorts of examples of people expressing anxiety. There is something like 200,000 wind turbines around the world and most of the concern which is being expressed is in areas like Ontario, in Canada *but not in other places in Canada *several areas of the east in the United States, the United Kingdom and Ireland, and some places in Australia.9

5 Tony Walker, Submission 156.

6 Dr Adam McCarthy and Ms Rebecca Fagan, Submission 181.

7 See, for example, Professor Simon Chapman, Submission 185, Attachment 4.

8 Waubra Foundation, Submission 197, p. 3.

9 Professor Simon Chapman, Proof Committee Hansard, 14 November 2012, p. 47.

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3.9 Given that as of April 2012 there were approximately 1345 turbines operating in 59 facilities around Australia,10 11 the numbers expressing concern appear small compared to the numbers of residents near these turbines. The committee received just over 160 submissions, of which a little under 140 supported the bill and/or expressed concern about noise effects. Of these, the majority were from people worried about whether they might experience noise or health effects from proposed wind farms, rather than from people who claimed to have actually experienced annoyance or other adverse effects. The submissions related to a minority of Australia's wind fann operations.

3.10 Professor Chapman indicated that he had commenced gathering data from wind farm operators about numbers of complaints about noise, and numbers of residents within five kilometres of wind farms. The committee notes that the research

is in its early stages and has not been peer reviewed. Nevertheless, his results to date are that in only two cases out of the 35 wind farms for which he had data at the time of making his submission, were there more than five complaints to the operator, and for the majority the number was zero.11 These figures appear indicative of the overall level of complaint, and consistent with committee evidence.

Committee view

3.11 The number of health-related complaints about wind farms is small in proportion to the number of people living near these facilities. The numbers also vary greatly from one facility to the next, for reasons not apparently related to the number

of residents in the area.

3.12 The committee believes that, while small in number, the nature and cause of the complaints must be taken seriously.

The health effects of audible sound

3.13 Noise can be annoying, and can lead to adverse health effects. This is most evident for extremely loud noise, the effects of which can include deafness. However, noise does not have to be extremely loud to have health effects: other pathways exist, such as through sleep disturbance.12

3.14 Health effects from wind farm noise result from the same mechanisms as from other sound sources. Dr Shepherd stated:

wind turbine noise really is no different to other forms of annoying

community noise such as aviation noise, road traffic noise or nightclub or

10 Clean Energy Council, There's power in wind: national snapshot , April 2012, http://www.cleanenergvcouncil.ore.au/dins/cec/factsheets/CEC POWER-OF- WIND NATIONAL-SNAPSHOT Mav-2012 FINAL/CEC PQWER%200F%20WIND NATIONAL%2QSNAPSHOT Mav%202012

FINAL.pdf (accessed 20 November 2012)

11 Professor Simon Chapman, Submission 185, pp. 2-3.

12 Professor Simon Chapman, Proof Committee Hansard , 14 November 2012, p. 47.

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neighbourhood noise in that people do find it very annoying and it has a potency to disrupt sleep.13

3.15 The committee received some evidence from individuals reporting sleep disturbance from audible sound.

We have a property literally in the middle of the Waubra Wind

Farm...From our residence we have... 5 [turbines] within 1.5 km. with the closest 600 metres. We are surrounded by turbines on three sides... Since the turbines were turned on in 2009, we have had on average 3-4 nights per week of disrupted sleep.14

We have 4200 acres at Waubra of high quality farming land...our home is 800 to 900 metres from 4 turbines...our bedroom is closest to the turbines some nights you put your head on the pillow and all that you can hear is the constant noise and the constant rotation of the turbine blades.15

I live [near Leonards Hill, Victoria] where there are 2 - 125mtr wind turbines which are situated between 550-650 metres from the back door. I hear the noise from the turbines day and night, inside and outside... After a week of the turbines operating I started to suffer severe tension head aches and tightness in my shoulders, neck and my lower jaw felt tight and my teeth ached. I would wake up in the morning with vertigo when I stood up out of bed and have a bad runny nose. It has been over a year now that the turbines have been operating and my symptoms are becoming worse, I still have all of the above and now I get pains in my chest, eye spasms while

reading or watching TV, do not sleep as I wake up in fright two or three times and do not know why but you can just hear the turbines in the bedroom.16

3.16 There was no evidence to the committee of a causal link between the

relatively low levels of noise that are produced by wind farm noise and the symptoms reported by those living near wind turbines. Though there is evidence linking community noise in general to health problems, there is little research on turbines in particular, and none at all testing the relationship between turbine noise and health- related quality of life.17

13 Proof Committee Hansard, 14 November 2012, p. 26.

14 Steve Coleman, Submission 79.

15 Samantha Stepnell, Submission 51.

16 Louis Hughes, Submission 83.

17 Daniel Shepherd, David McBride, David Welch, Kim Dirks, and Erin Hill, 'Evaluating the impact of wind turbine noise on health-related quality of life', Noise & Health, Vol. 13, No. 54, 2011.

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3.17 The NHMRC reviewed some of the literature available in 2010, and noted the conclusion of one of the few relevant studies, 'that no adverse health effects other than annoyance could be directly correlated with noise from wind turbines'.18

3.18 The committee was provided with two recent publications that sought to examine the relationship between wind turbine noise and sleep or mental health.19 Both were based on questionnaires filled out by residents, though the nature of the survey was different in each case. The study by Shepherd included 39 respondents living near wind turbines and 158 in a control group. There were no differences between the groups in self-reported illness or self-rating of general health, but the turbine group survey responses indicated lower physical health-related quality of life

than the control group, and this was linked to their responses to questions on sleep quality and self-reported energy levels. The study by Nissenbaum and others included 38 respondents near two wind farms, and 41 respondents in a control group, with results that increased daytime sleepiness and reduced sleep quality was reported among those closer to turbines though, counter-intuitively, there was no difference in the use of sleep medications as a result.

3.19 The committee received commentary that questioned some key aspects of the studies. This included discussion around the noise level assessment and significance of key health indicators in the case of the paper by Nissenbaum and others,20 and about causal factors in both papers.

3.20 The possibility that respondents were influenced by their own attitudes toward wind farms, or the views of others, was an issue. Discussing both studies, Professor Chapman commented:

Both of those studies suffer from the same problem. That is that there has been considerable activity, in both regions studied in those two papers, of anti-wind-turbine activity. For example, in the New Zealand paper there

had been, for a large number of years, a resident group called 'something guardians'. I cannot remember the name of the area now but they were the local landscape guardians group over there. They have a website which lists all of their activities against wind turbines and so forth. So the idea that this was an environment which was unpolluted by people going around saying, 'These wind turbines are going to cause health problems *will probably

18 NHMRC, Wind Turbines and Health: A Rapid Review of the Evidence, July 2010, p. 4, citing E. Pederson & K. Persson Waye, 'Perception and annoyance due to wind turbine noise - a dose- response relationship', Journal of the Acoustical Society of America, Vol. 116, No. 6, 2007, pp. 3460-3470.

19 Michael A. Nissenbaum, Jeffery J. Aramini, and Christopher D. Hanning, 'Effects of industrial wind turbine noise on sleep and health', Noise & Health, Vol. 14, No. 60, 2012, pp. 237-243; Daniel Shepherd, David McBride, David Welch, Kim Dirks, and Erin Hill, 'Evaluating the impact of wind turbine noise on health-related quality of life', Noise & Health , Vol. 13, No. 54, 2011, p.333.

20 Intrinsik Environmental Services, Review of Nissenbaum MA, Aramini JJ, Hanning CD. Effects of industrial wind turbine noise on sleep and health', Undertaken for Canadian Wind Energy Association, 14 November 2012, provided in Infigen Energy, answers to questions on notice, received 25 November 2012.

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make you unable to sleep well and will affect your quality of life in a detrimental way *was not mentioned in that paper at all. I think that the failure to mention that was really a very severe problem. It was also absent in the other paper *the more recent one.21

3.21 The New Zealand study notes that, by concealing the questionnaire's specific puipose, such effects should be minimised, and Dr Shepherd wrote to the committee noting that the website of the local landscape guardians had not been updated for a long period before the survey was conducted.22 However, the committee was later advised by another researcher that there had been a television broadcast featuring wind farm opponents, specifically mentioning sleep disturbance effects, in August 2009.23 This was quite close to the date of the survey, and also indicated that critics of the facility were active at that time.

3.22 The committee is unable to form a view about how this discussion will ultimately play out. It expects that information, including these two recent studies, will be considered by the NHMRC in the course of its review. As the NHMRC noted in 2010, 'the measurement of health effects attributable to wind turbines is...very

complex'.

Committee view

3.23 There is limited, and contested, published evidence that wind farm noise may be associated with annoyance and sleep disturbance in some individuals, but the causes are not clear; this is also considered further below. State governments and planning authorities currently have in place guidelines that are intended to address audible noise pollution, including from wind farms. Some aspects of these are discussed in subsequent chapters.

Proposed causes of health effects: infrasound

3.24 The effects of audible and mid-frequency noise are relatively well-known and understood. However, most inquiry participants appeared to refer not to normal audible noise issues, but to possible health effects from low frequency sound, or inffasound. It has been suggested by some inquiry participants, including some researchers or professionals,24 that there may be pathways by which infrasound may be creating symptoms of health problems, even though the sound is not audible. The Waubra Foundation, while referring to the 'full spectrum * of noise, commented:

Currently, there are a growing number of Australian residents who are experiencing serious health problems resulting directly from exposure to excessive noise from operating wind turbines...This pattern of exposure

21 Simon Chapman, Proof Committee Hansard, 14 November 2012, p. 49.

22 Correspondence from Dr Shepherd, received 19 November 2012.

23 Review of Shepherd et al by Fiona Crighton, University of Auckland, provided in Infigen Energy, answers to questions on notice, received 25 November 2012.

24 For example Professor Alec Salt, Submission 18, and Proof Committee Hansard, 14 November 2012, pp. 1-8.

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related symptoms has been long known to acousticians working in the field of both infrasound and low frequency noise...-'

3.25 This is often referred to as 'wind turbine syndrome'. One witness observed:

I shall leave the scientific and/or neurological theories and explanations to the experts. Nevertheless, the existence of low frequency sound energy, produced by wind turbines, and inaudible to the human ear, may be the reason for this syndrome. While this low frequency noise or sound energy (aka infrasound) may be inaudible and thus not able to be consciously perceived by the human ear, it does appear that the ear's vestibular system is still capable of perceiving the presence of this infrasound, and so send signals to the central nervous system for processing, in this case without the conscious awareness of the affected individual.25 26

The potential health impacts of low frequency noise

3.26 Professor Alec Salt in his written and oral evidence to the committee asserted that the human ear perceives sounds that may be inaudible to most people. According to Professor Salt the inner ear 'does respond to low-frequency sounds at levels well below those that are heard' through outer hair cells that:

...respond well to low frequencies and infrasound, and if you measure the ear's responses to an infrasound stimulus, they can be four- to five-times larger than to any sounds you normally hear. So, the ear is extremely sensitive and responds very strongly to infrasound stimuli.27

3.27 The key question for Professor Salt is 'whether these responses stay confined just to the ear and do not have any effect on you at all, but I think this is very, very unlikely'.28

3.28 Dr Levanthall commented specifically on Professor Salt's arguments by stating that:

In contrast to the unproven claims made by Professor Salt, my own belief continues to be that infrasound from wind turbines is just another sound, which you hear if it is above your hearing threshold and you don *t hear if it is below. There is no mystery about infrasound, but it has been falsely used by those opposed to wind turbines in order to alarm others, and also as a

distraction, which they know will be difficult and time consuming to work on, whilst at the same time the^ ask for a moratorium on further

constructions until the work is done.29

25 Waubra Foundation, Submission 197, p. 2.

26 Dr Peter Trask, Submission 162.

27 Professor Salt, Proof Committee Hansard, 14 November 2012, pp. 1-2.

28 Professor Salt, Proof Committee Hansard, 14 November 2012, pp. 1-2.

29 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 2.

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3.29 Dr Leventhall argued that people are not affected by sounds they cannot hear. He cited studies on deaf people to see if exposure to infrasound caused any effects. The conclusion of the studies according to Dr Leventhall was that:

Work with deaf people shows that they are not influenced by infrasound which they cannot hear. (Landstrom and Bystrom 1984, Landstrom 1987).30 This work showed that infrasound just below the hearing threshold had no effect on either hearing or deaf people. That which was just above the normal threshold made hearing people sleepy but had no effect on deaf people. People were not affected by sound which they could not hear.31

3.30 Other research has shown no brain response in subjects exposed to 90dB sound at 12Hz, a level that, while higher than typical for wind farm infrasound, is below the generally accepted threshold for hearing at that frequency.32 Dr Leventhall described this:

There is recent confirmation in the work of Dommes et al, who used

functional magnetic resonance imaging fMRI to investigate brain activity of subjects listening to infrasound and low frequency sound...It was shown that infrasound above the threshold level i.e. which was audible, activated the auditory cortex, which is the part of the brain associated with hearing. Infrasound below the threshold level i.e. inaudible, did not excite the auditory cortex.33

3.31 In drawing attention to what it considered the neglect of infrasound as a health issue, the Waubra Foundation made reference to a literature review A Review of published research on low frequency noise and its effects (2003). The Waubra Foundation was critical of the NHMRC and others for not considering this report

when reaching conclusions in this area.34

3.32 The Waubra Foundation drew attention to this document as demonstrating 'the adverse health effects of low frequency noise on human health'.35 However, the 2003 report does not appear relevant to wind turbine noise. That report points out that most of what is written in popular sources is misleading and 'should be discounted'.36 It

30 Cited in Dr Leventhall's paper as: U. Landstrom and M. Bystrom, 'Infrasonic threshold levels of physiological effects', Journal of Low Frequency Noise & Vibration, Vol. 3, No. 4, 1984, pp. 167-173; U. Landstrom, 'Laboratory and field studies on infrasound and its effects on humans', Journal of Low Frequency Noise & Vibration, Vol. 6, No. 1, 1987, pp. 29-33.

31 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 2.

32 E. Dommes, H.C. Bauknecht, G. Scholz, Y. Rothermund, J. Hensel and R. Klingebiel, 'Auditory cortex stimulation by low frequency-tones - An fMRI study', Brain Research, Vol. 1304, 2009, pp. 129-137.

33 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 2.

34 Sarah Laurie, Proof Committee Hansard, 14 November 2012, p. 17.

35 Waubra Foundation, Submission 197, p. 5.

36 Geoff Leventhall, Peter Pelmear and Stephen Benton, A Review of published research on low frequency noise and its effects, Department for Environment, Food and Rural Affairs, London 2003, p. 8.

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concluded that 'No medical condition has been reported in the literature... to be associated with the perception of infrasound or its enhancement'.37

3.33 Dr Leventhall was the principal author of that report. He wrote to the committee, indicating that low frequency noise 'and infrasound from wind turbines were not considered in the report as they were not believed to be a problem. A belief which I still hold'.38 He rejected the idea that infrasound presented an issue different in nature from other sounds. While the report focussed on low frequency noise, this was because that was the brief he was given, and did not imply that it was qualitatively

different from other noise.39 He pointed out that the review cited peer reviewed research showing that, in an experiment during which some subjects were exposed to low frequency noise and others were not, there was 'no significant difference in medical or psycho-social symptoms between the groups'.40 Finally, Dr Leventhall was

critical of reference made by some witnesses including Dr Laurie to the NIEHS (National Institute of Environmental Health Sciences) report Infrasound Brief Review of Toxicological Literature (2001). He noted that that review in fact only showed health effects from low frequency sounds at levels typically around one million times higher than those generally involved in the case of wind farm noise.41

3.34 In its answers to questions on notice and elsewhere, the Waubra Foundation has also drawn attention to the results of a 2004 published study by Chen Yuan Huang Qibai and Hanmin Shi.42 The Waubra Foundation claimed that this showed that

exposure to low frequency sound 'causes increases in heart rate and blood pressure as well as symptoms such as nausea'.43 However, the study in fact exposed subjects to these sounds at 110 and 120dB, levels several orders of magnitude higher than those

involved in wind farms. This research also therefore appears not relevant in considering possible effects of low frequency sounds from wind turbines.

3.35 Professor Seligman pointed out that people are exposed to a great deal of infrasound. Its presence is ubiquitous and this raised questions for the committee about how it would be possible that inaudible infrasound could cause health problems in one particular setting and not in others. Professor Seligman indicated that he and colleagues were planning some research in this area:

37 Geoff Leventhall, Peter Pelmear and Stephen Benton, A Review of published research on low frequency noise and its effects, Department for Environment, Food and Rural Affairs, London 2003, p. 59.

38 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 2.

39 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 3.

40 Correspondence from Dr Geoff Leventhall. 16 November 2012, pp. 5-6.

41 Correspondence from Dr Geoff Leventhall, 16 November 2012, p. 9.

42 Chen Yuan Huang Qibai and Hanmin Shi, 'An Investigation on the Physiological and Psychological Effects of Infrasound on Persons *, Journal of Low Frequency Noise, Vibration and Active Control, Vol. 23, No. 1, pp. 71-76, 2004.

43 Waubra Foundation, Answers to Questions on Notice, received 23 November 2012.

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My first comment is that the environment is awash with infrasound, which is both from natural and man-made sources and which is often far in excess of what is produced by wind farms.

The second point is that there is a claim that it is modulation of low-

frequency noise that can produce the symptoms that have been described. The Melbourne Energy Institute, in combination with the Department of Psychology, are planning to do a double-blind study with this type of noise to see if we can actually induce the symptoms that have been described.44

3.36 The Public Health Association of Australia commented on the current literature in the field, stating:

It is important to note though that reviews of all the literature to date have failed to identify any adverse physiological effects attributed to exposure to wind turbines, with the exception of those mediated by noise in a small proportion of exposed people whose symptoms may or may not be related to perception, annoyance and other psychosocial factors related to the uptake of the new technology.45

Proposed causes of health effects: Psychogenesis and Nocebo effect

3.37 Late in the inquiry process, the committee was provided with recent research, peer reviewed and accepted for publication by the leading journal Health Psychology , but not yet released.46 The research comprises a controlled double blind study, in which subjects were exposed to infrasound and sham infrasound.

Fifty-four participants were randomised to high or low expectancy groups, and presented audiovisual information, integrating material from the internet, designed to invoke either high or low expectations that exposure to infrasound causes specified symptoms.47

3.38 The authors' results and conclusions were:

High expectancy participants reported significant increases, from pre≠ exposure assessment, in the number and intensity of symptoms experienced during exposure to both infrasound and sham infrasound. There were no symptomatic changes in the low expectancy group.

Conclusion: Healthy volunteers, when given information about the expected physiological effect of infrasound, reported symptoms which aligned with that information, during exposure to both infrasound and sham infrasound. Symptom expectations were created by viewing information

44 Peter Seligman, Proof Committee Hansard, 14 November 2012, p. 35.

45 Melanie Walker, Deputy CEO, Public Health Association of Australia, Proof Committee Hansard, 14 November 2012, p. 43.

46 Fiona Crichton, George Dodd, Gian Schmid, Greg Gamble & Keith J. Petrie, 'Can expectations produce symptoms from infrasound associated with wind turbines?', Health Psychology, forthcoming (2013).

47 Correspondence from Fiona Creighton, 22 November 2012 (quoting the abstract of the forthcoming paper).

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readily available on the internet, indicating the potential for symptom expectations to be created outside of the laboratory, in real world settings. Results suggest psychological expectations could explain the link between wind turbine exposure and health complaints.48

3.39 This research is consistent with the views expressed by Professor Chapman, that one of the factors likely to be involved in symptom reports from people near wind farms is the nocebo response (the opposite of a placebo response). A medical journal review published this year explains the response:

A nocebo effect is the induction of a symptom perceived as negative by sham treatment and/or by the suggestion of negative expectations. A nocebo response is a negative symptom induced by the patient *s own negative expectations and/or by negative suggestions from clinical staff in the absence of any treatment. The underlying mechanisms include learning by Pavlovian conditioning and reaction to expectations induced by verbal information or suggestion. Nocebo responses may come about through unintentional negative suggestion on the part of physicians and nurses. Information about possible complications and negative expectations on the patient *s part increases the likelihood of adverse effects.49 50

3.40 Nocebo responses produce real symptoms, but the cause is psychological rather than physical in origin:

CHAIR: Professor Chapman, if people do suffer the nocebo effect, do they actually feel ill?

Prof. Chapman: Yes, very much so. There is no suggestion that they are making it up or that they do not feel ill or that, in many cases, you cannot physiologically measure the problems that they are having *they do... 1 want to emphasise that, by talking about nocebo effects or psychogenic

effects, I am not saying at all that people who say that they are feeling nauseous or have any of the other 207 diseases or symptoms I have seen on the internet are making it up. They very often genuinely do have those symptoms, but it is whether or not they are actually being caused by the turbines or by the anxiety which is being spread about the turbines.30

3.41 The possibility that psychological factors, rather than infrasound, are a key *link between wind turbine exposure and health complaints' is also consistent with some of the anecdotal evidence received by the committee. Significant numbers of submissions came from people who were being informed and becoming worried about the claimed effects of a wind farm prior to one commencing operation near them, expressing fear or anxiety about negative health effects:

48 Correspondence from Fiona Creighton, 22 November 2012 (quoting the abstract of the forthcoming paper).

49 Winfried Hauser, Ernil Hansen and Paul Enck, 'Nocebo Phenomena in Medicine *, Dtsch Arztebl Int, Vol. 109, No. 26, 2012, pp. 459-65.

50 Proof Committee Hansard , 14 November 2012, p. 50.

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I will be close to proposed wind development if it is built, and don *t want to be getting sick in my own home and unable to sleep just like the people at Waubra who came and told me about their situation.51

[From a resident 3.4 kms from a proposed development] There is already enough evidence to prove people are suffering from the effects of low frequency noise, infrasound and vibration from industrial wind turbines, these noise levels can affect people living up to and beyond 10KM from industrial wind turbines.52

I was told of side effects of other people from other wind farms before the Waterloo windfarm was built and thought that it would not get me, but it has.53

I live 9kms away, within the 5km to 10km zone of the potential effects of a proposed wind farm... IF the proposed wind farm is built near me I will

have my symptoms [of pre-existing fibromyalgia] exacerbated and my recovery jeopardised, but not the data to confirm the cause. 54

From my reading and research it appears that sleep disturbance, nausea, irregular heartbeat and headaches have been reported by people living in close proximity to wind turbines. I will see and hear 46 turbines from my house, currently under construction. Excessive noise is a major concern for me.55

My serious concerns of being impacted by excessive noise by the Proposed ...Wind Farm as i live approximately 4k from the nearest (Proposed ) Wind Turbine. As I already have suffered from Mental Illness for 20+ years. The impact of of this will undoubtedly force myself to leave this Tranquil Valley.56

There is currently a proposal for a wind development close to my home. I have major concerns regarding health problems caused by noise emissions from turbines. I am alarmed by reports of sleep disturbance, tinnitus, and

headaches by people living in the vicinity of wind farms.57

This letter is to request an initial and ongoing review of The Bald Hills Wind farm that is currently under construction, I am deeply concerned about the severe impact this will have on our young family, our business and our lifestyle.58

51 Name withheld, Submission 31.

52 Dianne Jackson, Submission 48.

53 Roger Kruse, Submission 160.

54 Anna Dominguez Smith, Submission 172.

55 Annette Allwood, Submission 178.

56 William Kelly, Submission 180.

57 Claudia Scheid, Submission 196.

58 Stuart and Brianna Kilsby, Submission 204.

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3.42 There was some evidence to suggest that psychological expectations may have played a role in the reporting of symptoms. Anecdotal evidence submitted to the committee includes symptoms being associated with phenomena other than wind farms, symptoms not occurring coincident with the start of wind farm operation, not being related to whether there is wind blowing, or being at distances far greater than those usually reported:

About five kilometres west of us is the Macarthur Wind Farm...Upon

returning from an overseas trip, I immediately noticed adverse health effects. I am restless and not sleeping well. In the short time I have been home, I am noticing a pattern already. When the wind is in the west, and also if it is very mild, with no or little wind, I have trouble sleeping, and pressure in my ears builds up. I am really alarmed at how quickly I have noticed these symptoms, as the Macarthur Wind Farm is only in the testing phase with a small number of turbines turning.39

I have problems daily that are only happening when I am near a wind farm or high voltage electricity... I began noticing the noise when the wind farm had been operating for several months.59 60

Some people may not be affected but [others are]... People who stand

underneath them cannot hear anything and up to 10 km away in some cases further they are heard...61

3.43 Another submitter described symptoms that she associated with the turbines, but also said there was no pattern to their occurrence.62 A further submitter identified a precise date on which she believes she became sensitive to low frequency sound, but it was long after turbines were built in her area, and she experiences symptoms wherever she goes, not only near the turbines in her region.63

Committee view

3.44 The committee concludes that, while it is possible that the human body may detect infrasound in several ways, there is no evidence to suggest that inaudible infrasound (either from wind turbines or other sources) is creating health problems. In contrast, there is an established literature confirming the existence of psychogenic, or nocebo, effects in general, and at least one study suggesting they may be responsible for symptoms in some wind turbine cases.

3.45 The committee wishes to emphasise that it does not doubt that the symptoms are real. It also does not doubt that some people may be affected by audible noise. It is concerned, as Dr Tait from Doctors for the Environment Australia expressed, that the

59 Maria Linke, Submission 32.

60 Bradley Kermond, Submission 164.

61 Marie Burton, Submission 3.

62 Enid Thomas, Submission 176.

63 Elisabeth Jonkman, Submission 29.

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discussion about a purported wind turbine syndrome is hampering progress on the issue:

Part of the problem, I think, of going around and promoting a wind turbine syndrome and going into communities and getting people scared about wind turbines is that it has muddied the water and it is distracting us from actually dealing with those small groups of people who have got a legitimate problem and do need us to be having some sort of debate about how we as a society work to help them with the issues that they are

" ∑ 64

experiencing.

3.46 As Dr Shepherd pointed out, some individuals may be particularly sensitive to noise, though the underlying causes of the sensitivity are not well understood.63 The needs of these individuals should be addressed, but in the context of established medical research.

Health and wind farm noise: future research

3.47 The NHMRC have set out the timetable for their wind farms and human health project, which is included in Appendix 3. Doctors for the Environment Australia supported this work.64 65 66 And both they and the Public Health Association of Australia argued that to support the current bill would be to pre-empt the NHMRC's work.67

3.48 The committee notes the strong academic record of the NHMRC's Wind Farms and Human Health Reference Group, established to 'ensure a thorough and robust evaluation of the evidence occurs'. It notes the inclusion of two external

observers, from the Waubra Foundation and the Clean Energy Council, 'to ensure transparency of processes and to assist the Reference Group fulfil their Terms of Reference'.68

3.49 The committee notes Professor Seligman's plans, in conjunction with others, to conduct research to test whether modulation of low-frequency noise can produce the some of the symptoms heard about in this inquiry.69

64 Dr Tail, Doctors for the Environment Australia, Proof Committee Hansard, 14 November 2012, p. 46.

65 Proof Committee Hansard , 14 November 2012, pp. 26-27.

66 Dr Tait, Doctors for the Environment Australia, Proof Committee Hansard, 14 November 2012, p. 45.

67 Doctors for the Environment Australia and Public Elealth Association of Australia, Submission 23.

68 NHMRC, Wind Farms and Human Health Reference Group, http://www.nhmrc.gov.au/vour- health/wind-farms-and-human-health/wind-farms-and-human-health-reference-group (accessed 26 November 2012)

69 Peter Seligman, Proof Committee Hansard, 14 November 2012, p. 35.

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Committee comment

3.50 This committee is not a group of experts, and does not draw any conclusions about the experiences of any particular individual reporting effects from wind turbine operation. However, the wide range of symptoms, the regular expression of anxiety about wind farm construction, and the widely varying relationship between the facilities and the symptoms experienced, all suggest a complex situation that cannot obviously be ascribed to the operation of wind turbines alone. The committee concurs with Dr Tait that recurring claims of a wind turbine syndrome, for which there is no peer-reviewed evidence, are obscuring the focus on assisting properly the small number of people whose cases do need attention. The committee is also concerned that a nocebo response is dex^eloping, caused by the reproduction and dissemination of claims about adverse health impacts - claims not grounded in the peer-reviewed literature currently available.

Recommendation 2

3.51 The committee recommends that there should be no regulatory changes prior to the release of the NHMRC's assessment in 2013, as this would be premature.

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Chapter 4

Noise Regulation of wind farms

Existing regulations

4.1 Governments apply noise standards to wind farms to ensure that noise levels do not exceed certain thresholds. These standards apply firstly during the planning process and secondly with regard to compliance measures on completion of the turbines and operation of the wind farm.

4.2 The World Health Organization's guidelines for community noise say that in order to avoid sleep disturbance, noise inside bedrooms should be limited to 30dB(A). The guidelines assume that with the window partly open, there will be a noise reduction of 15dB(A) between the outside of the building and inside the bedroom. The World Health Organization therefore recommends a maximum external sound level of 45dB(A) at night, but says that 40dB(A) should be the maximum for all new developments whenever feasible.1

4.3 Although noise standards for wind farms vary across the world, current standards in Australia are particularly strict. In November 2010, Sonus concluded that:

The standards and guidelines used for the assessment of environmental noise from wind farms in Australia and New Zealand are amongst the most stringent and contemporary in the World.2

New and more stringent provisions

4.4 The introduction of new planning provisions has meant that the standards in New Zealand and some Australian jurisdictions have become markedly tighter in the last two years. The New Zealand standards are considered first because they inform some Australian standards.

4.5 The New Zealand government operated a standard 6808:1998 Acoustics - The assessment and measurement of sound from wind turbine generators. It revised its wind farm standards in 2010. This updated New Zealand Standard 6808:2010, Acoustics - Wind Farm Noise, like its predecessor, recommends that at noise sensitive

locations:

the level of sound from a wind farm should not exceed the background sound level by more than 5 dB, or a level of 40 dB LA90(iomin), whichever is the greater.3

1 Birgitta Berglund, Thomas Lindvall and Dietrich Schwela (eds.), Guidelines for Community Noise, World Health Organization, 1999, sec 4.3.1.

Sonus Pty Ltd, Wind Farms Technical Paper, Environmental Noise, November 2010, p. 4. 2

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4.6 However, the New Zealand Standard 6808:2010 contains stricter new provisions including the ability for an authority to apply lower noise limits in designated areas, known as 'the high amenity limit *.3 4 5

4.7 In Australia, noise standards (including noise emanating from wind farms) are set by the states or local government authorities as part of their planning guidelines. Standards between jurisdictions are similar but not uniform, and the current standards for Victoria, New South Wales (NSW), South Australia, and Western Australia are given below.

4.8 The Victorian government applies New Zealand Standard 6808:2010 in its policy and planning guidelines for wind farms, modified by certain additional provisions. " The compliance and complaint mechanisms of the Victorian government

are covered in later sections.

4.9 The Victorian government has also introduced new restrictions on the location of wind farms. On 29 August 2011, the Victorian government amended the Victoria Planning Provisions and all planning schemes in Victoria with regard to wind energy facilities. Amendment VC82 prohibits a wind energy facility in the following circumstances and locations:

Turbines within two kilometres of an existing dwelling except where the planning pennit application includes evidence of written consent from the owner of the dwelling to the location of the turbine.

Areas of high conservation and landscape values including National and State Parks described in a schedule to the National Parks Act 1975 and Ramsar wetlands as defined under section 17 of the Environment Protection and Biodiversity Act 1999.

Locations that feature a high degree of amenity, environmental value, or significant tourist destinations including the Yarra Valley and Dandenong Ranges, Momington Peninsula, Bellarine Peninsula, Macedon and McHarg Ranges, Bass Coast and the Great Ocean Road region.

Locations identified for future urban growth including land in the Urban Growth Zone and designated regional population corridors specified in the

3 Standards New Zealand Paerewa Aotearoa, Standards New Zealand Fact Sheet, Revised Wind Farm Noise Standards NZS 6806:2010 * Frequently Asked Questions, 26 July 2010, p. 3. Note: L90 is a measurement of the sound level exceeded for 90 per cent of the time.

4 Standards New Zealand Paerewa Aotearoa, Standards New Zealand Fact Sheet, Revised Wind Farm Noise Standards NZS 6806:2010 * Frequently Asked Questions, 26 July 2010, p. 3.

5 Government of Victoria, Department of Planning and Community Development, Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, sec. 14, p. 45.

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Regional Victoria Settlement Framework Plan in the State Planning Policy Framework.6

4.10 Under amendment VC78, the Victorian government amended the planning provisions to make Councils the responsible authority for all wind farm planning permit applications.7 However, the Pyrenees Shire Council in Victoria stated that based on legal opinions sought by various councils, the State government was the responsible planning authority for both determining the permit for a wind farm, and monitoring and enforcing compliance.8

4.11 In NSW, responsibility for the assessment of a proposed wind farm depends on the scale (capital investment value) and location (local, regional, state significant) of a proposed wind farm. Small local wind farms are typically assessed and determined by Councils. Larger more significant proposals may still be Council assessed, but determined by a Joint Regional Planning Panel. Significant development proposals are state assessed and determined by the statutory Planning Assessment Commission.9

4.12 Typical set back distances between wind farms and residential properties in NSW currently vary between 0.8 - 2.0 km, with the average being 1.2 km.10 11 The Draft NSW Guidelines propose increasing the minimum setback to 2km, unless the wind farm proponent receives specific written consent from all landowners within a 2km

zone.11

4.13 The proposed new noise standards for NSW 'are stringent by both Australian and world standards being approximately 10dB(A) lower than most European countries'.12 The Sonus Wind Farms Technical Paper notes that 10dB(A) is a significantly lower amount given that reducing a noise source by even 5dB(A)

6 Government of Victoria, Department of Planning and Community Development, Amendment VC82, http://w w w .dpcd.vic.gov.aU /planning/planningapplications/moreinformation/w indenergv#polic

y (accessed 27 N ovember 2012)

7 Government of Victoria, Department of Planning and Community Development, Amendment VC78, h ttp ://w w w .d p c d .v ic .g o v .a U /p la n n in g /p la n n in g a p p lic a tio n s /m o re in fo rm a tio n /w in d e n e rg y # p o lic

y (acce sse d 27 November 2012)

8 Pyrenees Shire Council, Submission 211 , p. 1; Mr Chris Hall, Senior Town Planner, Pyrenees Shire Council, Proof Committee Hansard , 14 November 2012, p. 22.

9 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 1.

10 NSW Govermnent, Submission 819 to the Senate Community Affairs Committee Inquiry into the Social and Economic Impact of Rural Wind Farms, 2011, p. 3.

11 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 2.

12 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 6.

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requires either the distance between the source and the receiver to be approximately doubled, or a reduction of up to two thirds in the total number of turbines.1

4.14 The NSW Draft guidelines state that for a new wind farm development, noise levels at nearby residences 'should not exceed 35dB(A) or the background noise (Lw) by more than 5dB(A), whichever is the greater'. Furthermore, the 'noise criteria must be established on the basis of separate daytime (7am to 10pm) and night-time (10pm to 7am) periods'.14

4.15 The NSW government proposes to amend existing state mechanisms in order to give effect to the new provisions:

It is proposed to strengthen the regulation of noise from wind farms under the Protection of the Environment Operations Act 1997 with the Environment Protection Authority (EPA) having a regulatory role in relation to wind farms that are State Significant Development as well as existing transitional projects.15

4.16 The NSW guidelines note that low frequency noise 'is typically not a significant feature of modem wind turbine noise'. However, the guidelines include provisions for a 5dB(A) penalty 'if excessive levels of low frequency noise above the human threshold of hearing are occurring'.16

4.17 The new regulations in both Victoria and NSW may have had an impact on the development of wind farms in both those states. According to Clare Corke and Tina Latif, no new wind farm applications have occurred in Victoria or NSW since the introduction of the Victorian amendments and the NSW Guidelines .1'

4.18 The South Australian government updated its wind fann noise guidelines in 2009. The guidelines provide that noise from new wind farm developments should not exceed 35dB(A) at 'relevant receivers' in rural-residential localities and 40dB(A) in other zones, or the background noise by more than 5dB(A), whichever is greater.13 14 15 16 17 18 This meant that the base level noise limit was increased by 5dB(A) in non-rural- residential localities over the 2003 guidelines. The change was implemented:

13 Sonus Pty Ltd, Wind Farms Technical Paper, Environmental Noise, November 2010, p. 45.

14 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 6.

15 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 6.

16 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 34.

17 Clare Corke and Tina Latif, Gone with the wind: planning laws blow away investment, Climate Spectator, 6 July 2012, http://www.climatesi3ectator.com.au/commentarv/gone-wind-planninsz- laws-blow-awav-investment (accessed 21 November 2012)

18 South Australian Government, Environment Protection Authority, Wind Farms Environmental Noise Guidelines, July 2009, p. 3.

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to ensure consistency with the assessment limits applied by the South Australian Environment Protection (Noise) Policy 2007 to other noise sources in a general farming or rural locality.19

4.19 On 12 October 2012, the Statewide Wind Farms Development Plan Amendment (DPA) came into effect. It included changes to discourage wind farms in particular areas of scenic and amenity value, and the introduction of a 1km setback between turbines and dwellings and a 2km setback between turbines and townships.20 21 22

4.20 The Western Australian government has not developed its own specific wind farm guidelines, but in 2004 the government endorsed the South Australian Environment Protection Authority * Wind Farms Environmental Noise Guidelines. The committee is not aware of any further update to the Western Australian planning documents, which would indicate that the maximum noise level in Western Australia remains at 35dB(A) for all localities.

The adequacy of current noise regulations for wind farms

4.21 The committee received evidence from individuals and organisations arguing that existing mechanisms either do not effectively regulate for noise, and/or that the compliance and complaint mechanisms are ineffective. The Waubra Foundation submitted that 'noise pollution from industrial wind turbines' is 'unregulated'. The committee's understanding of existing regulatory systems, and evidence received

regarding ongoing scrutiny of some facilities, refutes this suggestion absolutely.

4.22 A second claim by the Foundation is that wind farm operators are able 'to break the law with impunity'. 2 Similar concerns were expressed in some individual submissions from people living in the proximity of wind farms. The following section looks at the issue of compliance with standards and complaint mechanisms.

4.23 One of the concerns arising in many submissions was the issue of low frequency noise and infrasound. In order to determine whether current regulations are adequate to regulate noise, mid-to-high frequency as well as low frequency sound and infrasound must be considered. A key element is the need to determine the extent to which low frequency sound and infrasound from wind farms is a problem, and whether the current regulations that focus on the A-weighting are adequate to deal with the low frequency sound. As discussed in previous chapters, the available evidence does not support the proposition that inaudible levels of low frequency noise and infrasound from wind turbines are problematic for health.23

19 Sonus Pty Ltd, Wind Farms Technical Paper, Environmental Noise, November 2010, p. 15.

20 The Hon. John Rau MP, Minister for Planning, Government of South Australia, Ministerial statement * Statewide Wind Farms DPA, 18 October 2012; The South Australian Government Gazette, Development Act 1993, Section 26(9): Statewide Wind Farms Development Plan Amendment, 18 October 2012, p. 4678.

21 Western Australian Government, Western Australian Planning Commission, Planning Bulletin No. 67 * Guidelines for Wind Farm Development, May 2004.

22 Waubra Foundation, Submission 197, p. 5.

23 Response to adverse comment from Dr Geoff Leventhall, 16 November 2012, p. 2.

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Committee view

4.24 Given that it is audible levels of sound from wind farms that must be

addressed in regulatory standards, it appears firstly that the A-weighting used to measure sound from wind turbines is fit for purpose, and secondly, that current regulations that specify sound levels as low as 35-40dB(A) at relevant receivers in Victoria, NSW, South Australia and Western Australia are sufficient to protect

citizens and communities from undue noise exposure.

Noise compliance mechanisms

4.25 Prior to the operation of a wind farm, noise assessment is an integral aspect of the development planning for a wind farm. Energy Australia points out that a wind farm would not receive planning approval unless the responsible authorities were satisfied that the relevant noise standards would be met.24

4.26 After completion of a wind farm, the states have similar requirements for assessing noise compliance. The Victorian standards require acoustic compliance reports to be prepared by an independent acoustic engineer, with the initial report after completion of the first turbine and at six-monthly intervals thereafter until full operation. A final compliance report is due 12 months following full operation of the facility, and those reports should be publicly available.2''

4.27 The NSW standards require the operator to prepare and submit a noise compliance report within 12 months of the operation of the facility, and that report should be publicly available. In addition, 'noise monitoring must be undertaken during "worst case" periods'.26

4.28 State governments also commission noise audits of wind farms. In 2012, the NSW government hired, by tender, an independent noise specialist to conduct a noise audit of all operating wind fanns in the state. The selection process ensured the independence of the auditors from the wind farm operators:

Importantly, the successful tenderer has not previously carried out monitoring or assessment work on the three wind farms that are the subject of these audits as it is essential that auditors do not review their own work.

Nor has the company ever done any work for either of the wind farm operators involved in the audit - Infigen Energy and Origin Energy - on any other facilities.27

24 Energy Australia, Submission 159 , p. [3],

25 Government of Victoria, Department of Planning and Community Development, Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, pp. 45≠ 46.

26 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, p. 7.

27 NSW Government, Department of Planning and Infrastructure, Wind Farms Compliance Audit * Frequently Asked Questions, May 2012, p. 1; see also NSW Government, Department of Planning and Infrastructure, Conduct of Wind Farm Audits, March 2012.

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4.29 There is community concern that the noise compliance audits are not representative of the actual noise experienced by wind farm neighbours. The Waubra Foundation alleged that wind farm noise audits misrepresent the typical noise emitted by wind farms:

The operation of the turbines during such an *audit * period, does not represent the reality and extent of noise and vibration pollution which the residents live with when such an audit is not occurring.2

4.30 Community concern about the audit process has been recognised by the NSW government. The government notes that these concerns will be discussed 'at length' with the successful tenderer and that the audit will be representative and will include worst case conditions:

Appropriate strategies will be adopted to ensure noise measurements are taken under normal wind farm and turbine operating conditions.

In order to ensure the most stringent analysis of compliance with consent conditions, the measurements will also be scheduled to take place at the times and under the conditions that typically produce worst case noise impacts from wind farms.28 29

4.31 The South Australian guidelines also recognise that there are community concerns around the representativeness of a compliance audit. The guidelines therefore recommend 'that compliance checking be repeated at different periods of the year where valid concerns exist'. The guidelines also point out that failure to collect representative data may result in one or more turbines being stopped.30 Furthermore, the South Australian guidelines note that the *à*°*ë will restrict operation of the wind farm' during periods of excessive noise from the wind farm.31

4.32 The committee was made aware of a number of investigations that indicated that wind farms were in compliance with their planning permits. These included Hepburn Wind's facility at Leonards Hill, which in October 2012 reported that it had:

received formal notification that, after thorough investigation and assessment, the Hepburn Shire Council is satisfied that the wind farm is compliant with the relevant noise standards.

At the request of the shire, the Victorian Environment Protection Authority (EPA) provided an independent assessment and have advised that they too are satisfied with the acoustic reporting.32

28 Waubra Foundation, Submission 197, p. 4.

29 NSW Government, Department of Planning and Infrastructure, Wind Farms Compliance Audit * Frequently Asked Questions, May 2012, p. 2.

30 South Australian Government, Environment Protection Authority, Wind Farms Environmental Noise Guidelines, July 2009, p. 8.

31 South Australian Government, Environment Protection Authority, Wind Farms Environmental Noise Guidelines, July 2009, p. 16.

32 Taryn Lane (Hepburn Wind), 'Compliance confirmed', October 2012, http://hepbumwind.com.au/2012/10/ (accessed 26 November 2012).

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4.33 In responding to a complaint about Capital Wind Farm (CWF), the NSW government Department of Planning and Infrastructure undertook noise monitoring at CWF and 'also reviewed the [CWF] operator's noise monitoring report'. However, the department did not find any instance of non-compliance as a result of this work."3

4.34 Infigen Energy, which operates facilities in New South Wales, South Australia, and Western Australia, made the following observations:

For our NSW wind farms, the register of complaints has been reviewed by the NSW Department of Planning and their Independent Environment Auditor on at least an annual basis. The NSW Department of Planning most recently examined the complaints registers during July and August 2012.

...In NSW, our wind farms also had to demonstrate compliance with the applicable noise regulations and consent conditions. Even after this, the NSW Government decided to undertake an additional noise audit this year, utilising an acoustic consultant of their own choosing, to repeat the compliance testing. It is worth nothing the consultant chosen by the NSW Government has appeared twice in the NSW Land & Environment Court on behalf of wind farm opponents, so it would be difficult to argue that the consultant was *pro-wind energy *.33 34

4.35 One of the issues raised in connection with compliance assessment was the ability of members of the public to access wind farm noise data. These matters are covered in a later section on transparency and access to data.

Committee view

4.36 The committee has seen evidence of adequate compliance mechanisms and audit processes in place, and acknowledges the work of state governments in strengthening aspects of these processes over the last three years.

Complaint mechanisms

4.37 One component of current planning regimes is the requirement that wind farm operators include a complaint mechanism to enable citizens to lodge a complaint about a wind farm, and mechanisms by which an authority can ensure that complaints are dealt with and compliance is met. This mechanism is intended to provide affected parties with a formal avenue to resolve disputes.

4.38 For example, guidelines in Victoria require a wind farm operator to prepare a complaint register prior to the commencement of operation. The plan shall include:

" how contact details will be communicated to the public;

" a toll free telephone number and email contact for complaints and

queries;

33 NSW Government. Department of Planning and Infrastructure, Wind Farms Compliance Audit * Frequently Asked Questions, May 2012, p. 3.

34 Answers to questions on notice from Infigen Energy, 23 November 2012.

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" details of the appropriate council contact telephone number and email address (where available); and

" a table outlining complaint information for each complaint received, including:

" the complainant's name;

" any applicable property reference number if connected to a

background testing location;

" the complainant's address;

" a receipt number for each complaint which is to be communicated to the complainant;

" the time, prevailing conditions and description of the complainant's concerns including the potential incidence of special audible characteristics; and

" the processes of investigation to resolve the complaint.33

4.39 In addition, the operator must provide a complaints report to the responsible authority each year. This report must include 'a reference map of complaint locations', and must also outline the 'complaints, investigation and remediation actions'.35 36 37

4.40 Various requirements apply for the evaluation of noise complaints including the measurement of sound levels at the same locations where the background sound levels were initially determined. In Victoria, if a breach in noise compliance is detected, an independent assessment report must be prepared including a remediation plan. If the complaint remains unresolved, the responsible authority may request an

independent peer review at the cost of the permit holder and on/off shut down testing. The responsible authority may also require independent assessment following noise complaints if the authority believes the complaints warrant investigation/'

4.41 In South Australia, the EPA can require the developer to repeat the

compliance checldng procedure if it receives any complaint that may be valid about an unreasonable interference on those premises from noise impacts.38

4.42 The NSW guidelines require the operator to establish a community consultative committee and to provide that committee with a record of all community concerns and complaints. The committee is empowered to conduct 'regular inspections

35 Government of Victoria, Department of Planning and Community Development, Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, pp. 46≠ 47.

36 Government of Victoria, Department of Planning and Community Development, Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, p. 47.

37 Government of Victoria, Department of Planning and Community Development, Policy and Planning Guidelines for Development of Wind Energy Facilities in Victoria, July 2012, p. 46.

38 South Australian Government, Environment Protection Authority, Wind Farms Environmental Noise Guidelines, July 2009, p. 15.

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of the wind farm in conjunction with its meetings, or at other times convenient to it'. The guidelines also include provisions for a dispute resolution process.39

4.43 The NSW government notes that it has responded to a complaint about CWF. The Department undertook noise monitoring at capital wind farm and 'also reviewed the Capital wind farm operator *s noise monitoring report'. However, the department

did not find any instance of non-compliance as a result of this work.40

4.44 Pacific Hydro states that it 'takes all complaints from community members seriously * and that it has 'a thorough complaints process which investigates concerns thoroughly'. However, the company notes that 'some complaints are challenging to

resolve'. Pacific Hydro has received complaints that it regards as unreasonable to resolve including:

increased mosquitos in the area and another where it is alleged an earth tremor was caused by the wind farm. We have also had a complaint about significant noise and health impacts from one of our wind farms while it was shut down for maintenance for an extended period.41

4.45 Hepburn Wind is a community-owned wind farm in Central Victoria. Hepburn Wind state that 'within our local community we enjoy overwhelmingly strong support', but they do acknowledge that there are a few objections, some of

which pre-date the project construction. Hepburn Wind state that while negotiating the resolution of complaints can be difficult, they are committed to dealing with concerns:

There are approximately 65 homes within 2.5 km of our wind farm. We currently have outstanding noise complaints at three of these homes. There is no relationship between distance to the wind farm and these complaints. In each case we are patiently awaiting the co-operation of the

complainants.42

4.46 The committee has also been made aware that certain complainants have either refused to engage in discussions with wind farm operators to try and resolve complaints. Dr Andja Mitric-Andjic stated in a submission that both her family and clients in her practice are suffering from a cluster of symptoms that she has attributed to the Hepburn wind farm, and in particular infrasound from the turbines.43 In response, Hepburn Wind point out that over the last two years, they:

have requested a face-to-face meeting with Dr Mitric-Andjic via email, telephone or letter on 10 occasions ...

39 NSW Government, Department of Planning and Infrastructure, Draft NSW Planning Guidelines Wind Farms, December 2011, pp. 38M2.

40 NSW Government, Department of Planning and Infrastructure, Wind Farms Compliance Audit * Frequently Asked Questions, May 2012, p. 3.

41 Response to adverse comment from Pacific Hydro, 22 November 2012.

42 Hepburn Wind, Submission 215, p. [1],

43 Dr Andja Mitric-Andjic, Submission 141, p. 1.

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All of these requests have been either rejected or ignored. Despite writing multiple letters to our local newspapers and making a submission to the current Inquiry, we have yet to meet Dr Mitric-Andjic ...

We carefully monitor the scientific literature on wind turbine noise, including infrasound, and we are happy to discuss this matter with Dr. Mitric-Andjic, but have been denied the opportunity to do so.

We find it difficult to understand, given the seriousness of Dr. Mitric- Andjic's claims, why she has been unable to find time to sit down with us at any time over the past 15 months to discuss her claims. We cannot

reconcile her apparent concern with her continued refusal to work towards resolution.44

4.47 The committee has also been informed that there is more to the complaints about wind farms than the matter of noise levels alone. According to Hepburn Wind, securing the resolution of complaints is hampered by anti-wind lobbying in the community with the result that some objectors have decided to opt out of the protections offered under the noise compliance protocols:

The anti-wind lobby has enjoyed a degree of success in undermining community confidence in the noise compliance processes. As a result, a number of objectors to our project chose not to participate in the noise compliance protocols imposed by our planning peimit. In effect, these

objectors opted out of the protections granted to them by the planning process.45

Transparency and access to noise data

4.48 The issue of access to data was raised by several witnesses. Emeritus Professor Colin Hansen stated that 'it is extremely difficult to get data' from a wind farm operator.46 Both Mr Les Huson and Mr Steven Cooper stated that it was crucial to know the wind speed at the hub height in order to determine compliance with noise standards, but that data was not available from either the wind farm operators or the relevant authority. Mr Cooper said that he was told the information was commercial- in-confidence.47 Mr Huson received similar advice and noted that he could not agree with certain clauses in the confidentiality agreement proposed by the wind farm operator.48 The Waubra Foundation noted that in their experience, the summary

acoustic reports provided to residents by wind farm operators either lacks raw data, or

44 Response to adverse comment from Hepburn Wind, 23 November 2012, p. [1].

45 Response to adverse comment from Hepburn Wind, 23 November 2012, p. [3]; see also Hepburn Wind, Submission 215, p. [4],

46 Emeritus Professor Colin Hansen, Proof Committee Hansard, 14 November 2012, p. 14.

47 Mr Steven Cooper, Proof Committee Hansard, 14 November 2012, pp. 28 *29.

48 Mr W Les Huson, Submission 216.

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has crucial pieces of data missing.49 50 51 52 Similar views were also expressed by Mr Huson.30

4.49 The committee heard of a difference in opinion between the Pyrenees Shire Council and the Victorian Department of Planning and Community Development over the publication of noise data and reports. Mr Hall stated that the Council had:

been advised that the Department of Planning and Community

Development have refused to provide information to landowners who have requested copies of noise data and reports on their properties. I would have thought individual assessments of some properties may need to be kept confidential, but I think the general report that is provided on the wind fann development as a whole should be disclosed once it has been signed off. I would personally like to see that information made available before it has been signed off, so that the public can review it.31

4.50 Wind farm operators and industry organisations were questioned at length about what data they were required to supply to state regulators as part of the compliance process and why this data could not be made publicly available.

4.51 In their submissions and responses at the committee's public hearing, many wind industry companies and organisations stated that the provisions in the bill that would require operators to collect, collate and publish wind speed and direction at the wind farm, weather conditions at the wind farm, and power output of individual turbines at the wind farm would be onerous and unnecessary. For example, Vestas noted that the power output of individual turbines is commercially sensitive, but that the generation output of wind farms is already publicly available from the Australian Energy Market Operator's website. Similarly weather and wind speed data is already available from the Bureau of Meteorology. 32

4.52 Mr Jamie McGilp stated that under the current standards, Acciona was required to have independent compliance testing undertaken. Mr McGilp also noted that Acciona supplied data on wind speed, noise levels and weather conditions to the regulator, in their case, the Victorian Department of Planning and Community Development:

All of that information, including wind speed, noise levels, weather conditions et cetera, is provided to the regulator such as DPCD in

Victoria.53

4.53 Pacific Hydro explained why the public availability of wind speed data is commercially sensitive information for a wind fann proponent, and proposed a

49 Waubra Foundation, Submission 197, p. 4.

50 Mr W Les Huson, Submission 216.

51 Mr Chris Hall, Senior Town Planner, Pyrenees Shire Council, Proof Committee Hansard, 14 November 2012, p. 23.

52 Vestas, Submission 191, p. [5],

53 Mr Jamie McGilp, Manager, Acciona, Proof Committee Hansard, 14 November 2012, p. 61.

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mechanism whereby the data could be made available to an independent statutory body:

By way of background, as far as we are aware all transmission connected and semidispatchable wind farms in Australia provide real time wind speed and energy generation data to the Australian Energy Market Operator (AEMO) ... It should also be noted that AEMO provides highly detailed energy generation data for Australian wind farms and this is available from their website.

Importantly, all wind speed data is provided to AEMO under the strictest confidentiality. This is due to the commercially sensitive nature of this data.

In addition to this data being the intellectual property of the wind farm owner that has been acquired at some expense, wind speed data is the critical element in establishing the commercial viability of wind energy projects. It is important to note that relatively minor variations in wind speed translate into meaningful differences in sent out energy costs, contract pricing and investor returns.

Wind speed data is the one element of the projects financial model that cannot be accessed by other parties. Other aspects such as turbine pricing, finance, transmission access and connection costs for example can be found through publicly available sources.

To make this data available would allow competitors and contract counterparties to gain invaluable intelligence on a project *s commercial status and allow them to create an accurate *shadow * financial model for the project, placing the wind farm proponent at a distinct commercial disadvantage.

For a wind farm proponent to make this data publically available would be akin to Apple placing the detailed design and cost structure of its next generation I-Phone on the internet 6 months before public launch.

While we would not be prepared to make wind speed data publicly

available, for the reasons outlined above, we would be prepared to consider a process whereby wind speed data is provided to an independent statutoiy body. As with our arrangements with AEMO, this lata would only be

provided under strict confidentiality and its use would need to be restricted by well-defined protocols.>4

4.54 The Public Health Association of Australia and Professor Simon Chapman both believed that the general principle of transparency in the regulatory data and process was a good idea.""

Committee view

4.55 The committee notes that current state regulations pertaining to the development of wind farms are stringent by world standards in terms of the 54 55

54 Correspondence to the committee from Pacific Hydro, 22 November 2012, pp. [1-2].

55 Melanie Walker, Proof Committee Hansard, 14 November 2012, p. 45; Simon Chapman, Proof Committee Hansard, 14 November 2012, p. 48.

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permissible noise levels and setback requirements. The committee notes that potential adverse health effects appear confined to the audible sound range, and considers that current state regulations adequately address noise levels in the audible range.

4.56 The committee notes that current standards in Victoria, NSW, and South Australia limit the noise attributable to wind farms to between 35-40dB(A) or 5 dB(A) above the background noise, whichever is greater. These standards are also endorsed by the Western Australian government. The standard of 5dB(A) above background

noise already in place in these states is significantly lower than the 10dB(A) above background noise proposed in the bill.

4.57 Planning decisions, as always, must weigh up the overall benefits of developments against local effects that those developments may have. This is true for rural developments such as land clearing or irrigation projects, urban developments such as shopping centres and residential development, and infrastructure in all areas, such as roads, hospitals or power stations. The stringent tests being applied to wind farm developments overall indicate local effects are now being taken very seriously.

4.58 There should be community confidence in the regulatory process and in particular in the capacity for successful examination of complaints and the implementation by regulators of enforcement action in the event of non-compliance.

This requires balancing the need for transparency in compliance data, with the protection of privacy and of commercial in confidence information of business operators. The committee does not believe any puipose is served through the release

of raw data to residents, as residents are not the agents responsible for regulation and enforcement. Regulators should have access to the data, and should act on complaints about non-compliance, particularly where those complaints are backed by professionally-obtained acoustic data. The committee believes that there is merit in the compromise, put by Pacific Hydro late in the inquiry, to make industry data available to an independent body to test compliance claims.

Recommendation 3

4.59 The committee recommends that, where there is ongoing debate over noise compliance issues for particular wind farms, that governments consider making data for those operations available to an independent authority for review of compliance.

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Chapter 5

A consideration of the administrative issues in the bill

5.1 The committee has established that there is no evidence available to it to show that wind farms produce health impacts different in nature to those caused by other noise sources. Wind farms do produce noise, which is why they are subject to planning regulations, including guidelines prepared specifically for wind farm proposals, intended to ensure that noise issues are addressed.

5.2 In the course of considering health and noise issues, the committee has identified a number of reasons why the bill is inappropriate. In addition to these points, there are a range of other arguments that were put to the committee regarding why the bill should not be supported.

The bill is discriminatory against one kind of power generator

5.3 In its current form the bill discriminates against one kind of industrial noise producer. Ratch-Australia Corporation argued that '[t]he amendment singles out wind fami developments for an increased level of scrutiny.'1 The Clean Energy Council concurred with the view that wind farms are being singled out in the bill in comparison with the regulatory burden on other types of power generation:

Appropriate regulations and community consultation should apply to any wind fann, as they do to any new infrastructure - be it a conventional fossil fuelled power station, a tourist development, a road, a dam or a mine. Where appropriate, on the basis of merit, the planning scheme should manage impacts and relevant concerns. However, that must be balanced

within broader state policy objectives.

Treating wind farms differently from other forms of infrastructure could create a precedent that stifles investment in other projects essential to Australia."

5.4 Energy Australia also argued that the bill was not consistent in its treatment of all infrastructure:

The application of regulations and standards should apply equally to wind farms and other new infrastructure, for example, roads, fossil fuelled power stations, ports, or mines.1 2 3

5.5 The health implications from the noise from wind farms was discussed by the Public Health Association of Australia, which also could not understand why wind farms were being treated differently to other forms of power generation:

1 Ratch-Australia Corporation, Submission 117, p. 1.

2 Clean Energy Council, Submission 165, p. 3.

3 EnergyAustralia, Submission 159 , p. 5.

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We also note that electricity generation from other sources particularly fossil fuel mining and combustion has a range of well-documented adverse impacts. These include: visual impacts, dust and organic particulate and gas emissions, effects on local communities, and lifecycle environmental effects such as greenhouse gas emissions and consequent global warming. Noise is only one of the factors which affect health and well-being. These

other impacts have received disproportionally less attention than issues relating to wind turbines. A focus on a single aspect of one method of

electricity generation will create a skewed approach to the policy question of *as-healthy-as-possible * electricity generation choices in Australia.

Given this broad context of adverse effects, we submit that it is not

appropriate for a Bill intending to address any adverse effects to focus on only one aspect of a single electricity generation process.4 5

5.6 The Conservation Council of South Australia pointed out succinctly that 'noise is not unique to wind farm developments,'3 while Joe Hallenstein suggested 'that any noise legislation should cover ALL emitters of noise, be it noise from energy generation, industry, cars, farm equipment, barking dogs or bleating sheep'.6

5.7 The committee also noted the submission from Community for the Accurate Impact Assessment of the Dalton Power Station, a residents' organisation concerned about noise issues associated with the construction of a gas turbine power station in a rural area.7 The issues raised in that submission are the same as those raised about wind farms, and the committee sees no reason why the regulatory approaches to the two types of facility should be different.

The bill will not prevent wind farms from operating but could impact on electricity prices

5.8 The bill has also been criticised because it will not prevent wind farms from operating, even if there are issues of non-compliance. A wind farm that contravened the provisions in this bill would lose its capacity to earn Large Scale Generation Certificates (LGCs) until it established compliance. But this has no bearing on the wind farm's right to operate. As long as a wind farm complies with existing planning laws relating to noise, it will be able to operate, regardless of whether the bill passes.

5.9 This would not be the case. However, while not directly affecting wind farm operations, the bill's provisions would impose a financial penalty on the operating company and could increase electricity prices.

5.10 Energy Australia and the Energy Supply Association of Australia submitted that the Renewable Energy> (Electricity) Act 2000 currently creates a certain amount of LGCs to meet the Renewable Energy Target. They argued that if the number of LGCs falls then this would increase costs, and consequently prices:

4 Public Health Association of Australia, Submission 23, pp 2-3.

5 Conservation Council SA, Submission 198, p. 2.

6 Joe Hallenstein, Submission 46, p. 1.

7 Community for the Accurate Impact Assessment of the Dalton Power Station, Submission 167.

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Under the RET, liable retailers of electricity are statutorily required to acquit a certain number of Large Scale Generation Certificates (LGCs) to the Clean Energy Regulator each year. The Excessive Noise Bill significantly exposes electricity retailers who are statutorily required to acquire LGCs under the RET, where the retailer is sourcing LGCs from a wind farm subject to suspension of accreditation.8

The effect of this bill, should it be implemented, would be to increase the costs of complying with the RET. This would flow through to higher electricity prices. In many cases, wind farm developers have entered into power purchase agreements (PPAs) with electricity retailers. PPAs secure a price for the wind farm developer for the electricity generated and any

associated RET certificates. This also helps retailers to secure a source of certificates to meet their obligations under the RET. If electricity generation and RET certificate creation from a wind farm decreases as a result of this bill, retailers would then need to source certificates elsewhere. This increases the costs of compliance for retailers and would increase electricity prices as a result.9

Increased monitoring cost

5.11 There was concern that monitoring the obligations contained in the bill would be costly and impractical. The Clean Energy Council queried the expense of installing additional monitoring equipment:

The excessive noise bill requires ongoing monitoring of noise at numerous locations, as well as wind speed, direction, and undisclosed other *weather conditions *. Such monitoring, done properly, would come at significant cost.10 11

5.12 Pacific Hydro also suggested that the requirement to assess noise levels against background noise would create an impossible situation:

...we are of the view that the proposed legal limit cannot be measured continuously. To do so would require turning the wind farm on and off to establish the actual impact above the background noise level at the time. This is an entirely unworkable proposition.11

The bill involves the Commonwealth taking over planning and regulatoiy responsibilities from states

5.13 Several submissions highlighted that the bill involved the Commonwealth assuming control of planning and regulatory responsibilities that are the responsibility of State governments. Repower Australia put it that:

8 Energy Australia, Submission 159, p. 2.

9 Energy Supply Association of Australia, Submission 205, p. 2.

10 Clean Energy Council, Submission 165 , p. 3.

11 Pacific Hydro, Submission 207, p. 3.

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State Governments are responsible for establishing the planning framework for new infrastructure, such as wind farms, and already have clear standards relating to wind farm noise.12

5.14 The Energy Supply Association of Australia (ESAA) noted that:

The proposed legislation would also set a worrying precedent in terms of Commonwealth involvement in state planning issues. Currently, planning laws are administered by state governments. There is no clear or justifiable

reason for the Federal Parliament to interfere with existing state government planning laws in the case of wind farms.13

5.15 In the same vein, EnergyAustralia observed that:

Currently, the relevant jurisdictional Environmental Protection Agency is the only body that regulates noise compliance of wind farms. The Excessive Noise Bill implicitly proposes that the Clean Energy Regulator (as the regulatory agency in relation to the RET) will also have a role to play in regulating compliance of noise arising from wind farms.14

5.16 In contrast to these views, the Waubra Foundation argued that the bill is necessary because:

No responsible State noise pollution regulation authority is actively and thoroughly investigating the noise pollution, even when multiple complaints are made, and the seriousness of the situation is made clear. The investigation, if it occurs, is cursory, often with equipment which cannot

measure the full acoustic spectrum or the true background noise accurately, and it always occurs when the wind project operators are well aware that such an investigation is occurring.15

5.17 The Clean Energy Council expressed fears that duplicating planning requirements at the Commonwealth and State level would create inconsistency and confusion:

Noise guidelines form a part of an overall planning scheme and should be determined by individual state governments, to be considered and defined alongside other aspects of infrastructure planning. Setting a national rule sitting above existing state-based planning regimes will create

inconsistency and confusion for planners, industiy and the community...State governments should be left to design their noise requirements as part of their broader planning regime.16

5.18 The Queensland Government opposed most of the bill's provisions, and pointed out that it has existing processes for addressing impacts, including noise impacts. It also argued that the bill's removal of discretion in how a regulator acts

12 REpower Australia, Submission 137, p. 1.

13 Energy Supply Association of Australia, Submission 205, p. 2.

14 EnergyAustralia, Submission 159, p. 4.

15 Waubra Foundation, Submission 197, p. 4.

16 Clean Energy Council, Submission 165, pp 2-3.

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because it bypasses opportunities for more appropriate enforcement actions such as directions to comply.1'

Appropriateness of the noise standard in the bill

5.19 A number of submissions received by the committee queried the

appropriateness of the bill establishing a noise standard that applies only to one kind of operation. For example, the ESAA posited that:

A range of industrial and transport installations generate noise, often more consistently than turbines. There is no clear reason as to why wind farms alone should be shut down because of this. This Bill would place requirements on one particular technology which do not apply to any other

form of technology. Furthermore, defining 'excessive noise' as exceeding background noise by lOdB within 30 metres of a range of premises sets an astonishingly low threshold for what is considered to be excessive noise.17 18

5.20 Similarly, EnergyAustralia argued that the proposed noise standards were inappropriate:

In its operation, the [bill] would allow wind farms to be louder than existing noise guidelines at time of high background noise, and will restrict wind farms to unreasonable noise levels when background noise is very low. If background noise levels were about 5 dB then a wind farm would be

allowed to emit only 15 dB, 30m from a dwelling, workplace or congregation area...The proposed standards are overly onerous given that the World Health Organisation recommends noise levels in sleeping areas are kept to less than 30 dB for healthy sleeping conditions.19

5.21 The Clean Energy Council also questioned the selection and appropriateness of the noise standards to be established by the bill:

The excessive noise bill, at its core, demands that wind farms do not exceed background noise levels at residences by more than lOdB. However it does not describe the rationale behind the selection of this noise level. The excessive noise bill also neglects to describe the methodology of this measurement. For example, the measurement distance from dwellings or workplaces of 30m is totally arbitrary and unscientific.20

5.22 Vestas21 and Alstom22 also pointed out that the excessive noise provisions in the bill appear inappropriate and could have adverse consequences. Vestas states that:

The provisions of section 4 will actually allow wind farms to be louder than they would be permitted to be under existing noise guidelines at times of

17 Queensland Government, Submission 217.

18 Energy Supply Association of Australia, Submission 205, p. 2.

19 EnergyAustralia, Submission 159, p. 4.

20 Clean Energy Council, Submission 165, p. 2.

21 Vestas, Submission 191.

22 Alstom, Submission 186.

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high background noise. Such a rule will also restrict wind farms to

unreasonable noise levels when background noise is very low.23

Impact on operators

5.23 Although not retrospective, the bill would treat some operators unfairly and undermine investment confidence. TrustPower, a New Zealand-based renewable energy company, noted possible repercussions of the passage of the bill:

TmstPower's continued investment in Australian wind farms requires regulatory certainty over the life of a project. TrustPower considers the bill in its current form as practically unworkable with very significant unwarranted regulatory risk for existing and future wind farm

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investments.

5.24 Similarly, EnergyAustralia noted:

Imposing additional, more onerous, noise regulations in relation to existing assets is a serious concern and something that will have significant

ramifications in relation to the existing commercial and financing arrangements which undeipin these large infrastructure projects.23 25

5.25 The bill's requirement that operators provide various data measures was questioned on the grounds of cost, relevance, and reason. It was pointed out to the committee that a large amount of data is already publicly available through such sources as the Bureau of Meteorology and the Australian Energy Market Operator.26

5.26 The bill seeks to put commercially sensitive data into the public arena.27 Some submissions questioned the rationale behind releasing data on individual turbines noting that:

The power output of individual wind turbines is proprietary information and is protected vigorously by a project owner as well as the turbine

manufacturer. Other power stations are not required to publish operational data.28 29

5.27 As well as commercial sensitivity, the committee heard allegations that the data provided by operators to stakeholders was often unreliable.26 If the data is inaccurate, it is unclear how the public having access to this data would limit excessive noise.

23 Vestas, Submission 191, p. [4],

24 TrustPower, Submission 208, p. 2.

25 EnergyAustralia, Submission 159, p. 3.

26 Energy Supply Association of Australia, Submission 205, p. 3.

27 Clean Energy Council, Submission 165, p. 3.

28 EnergyAustralia, Submission 159, p. 5.

29 Waubra Foundation, Submission 197, p. 4.

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Conclusion

5.28 Every resident, whether in a city or rural area, should be protected from unreasonable environmental impacts by the operation of planning laws and guidelines. These processes, primarily the responsibility of states and territories, should be non- discriminatory as they apply to different kinds of development, and should make provision for monitoring and enforcement.

5.29 It is a principle of good practice law-making that laws and regulations should be designed to target their intended outcome, and nnnimise unintended consequences. They should, as far as possible consistent with meeting their objectives, minimise uncertainty and the costs associated with compliance.

5.30 On all of these tests, the current bill has significant shortcomings. The committee does not believe it should be passed.

Recommendation 4

5.31 The committee recommends that the bill not be passed.

Senator Doug Cameron

Chair

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Coalition Senators * Additional Comments

Coalition Senators are strongly of the view that the Gillard Government *s lack of responsiveness in relation to a significant issue affecting many people has greatly contributed to a deep sense of frustration and powerlessness among many in the

community affected by the issues this Bill seeks to address.

Coalition Senators note that at least some support for this Bill appears to be founded in a desire to see something happening in response to concerns about wind farms rather than nothing happening, for example:

I feel there needs to be independent health studies into rural wind farms, focusing on excessive noise ... However until that happens, I fully support the Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012.'

Coalition Senators appreciate the concerns about how this Bill would operate were it to be passed.

Nonetheless, Coalition Senators believe the issues this Bill seeks to address do need addressing, as has previously been highlighted by a Senate Committee inquiry.

The Senate Community Affairs References Committee's inquiry into The Social and Economic Impact of Rural Wind Farms reported on 23 June 2011.

Among several recommendations made by this Committee was that well resourced research be initiated as a matter of priority:

The Committee recommends that the Commonwealth Government initiate as a matter of priority thorough, adequately resourced epidemiological and laboratory studies of the possible effects of wind farms on human health.

This research must engage across industry and community, and include an advisory process representing the range of interests and concerns.1 2

Far from treating tins as a matter of priority, it took more than 14 months - and more than 7 months after an 8 February 2012 Senate motion calling on the Government to act immediately on the Senate committee *s recommendations3 - for the Gillard Government even to respond, on 13 September 2012.

1 Mrs Maria Linke, Submission 32, p. 1.

2 Senate Community Affairs References Committee, The Social and Economic Impact of Rural Wind Farms, 23 June 2011, p. 28.

3 Journals of the Senate, No. 74, 8 February 2012, pp. 2054 *2055.

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Even now after it took so long for the Government to respond, Coalition Senators consider deeply inadequate the Government *s response:

The Australian Government accepts these recommendations in principle.

The National Health and Medical Research Council (NHMRC) is already actively engaged in supporting the assessment of available research on this issue and will shortly commission a comprehensive review of the literature to inform any update to its 2010 public statement. The review will include

audible noise, infrasound and low-frequency noise. A reference group will be established to advise on the review and will include members of the public, industry, researchers, sound engineers/consultants and planning representatives.

The results of the literature review and the revised public statement will be published on the NHMRC website.

Further, there are a range of funding mechanisms within the Australian Government, in particular within the NHMRC, that could be used to fund additional research on the possible impacts of wind farms on human health,

including epidemiological and laboratory studies.4

This response is manifestly inadequate.

Nowhere in this Government response is there any suggestion of the Government initiating thorough, adequately resourced epidemiological and laboratory studies of the possible effects of wind farms on human health, let alone as a matter of priority.

Simply assessing available research is not adequate and is not what the Senate Community Affairs References Committee recommended.

These issues should be seriously and properly addressed and the only way debate surrounding these issues is going to progress meaningfully is for adequate research that is conducted in a manner in which all sides of the debate can have faith.

The Senate Community Affairs References Committee made good and worthy recommendations in June 2011 that remain good and worthy recommendations today.

In particular, had the recommendation cited above been implemented, and as a matter of priority as recommended - as Coalition Senators remain of the belief should have occurred - such action could most likely have obviated the introduction of this Bill or the conduct of this inquiry at this time.

Accordingly, Coalition Senators recommend that such action be taken. Further, given the intransigence of the Labor Government on these matters to date, Coalition Senators recommend that the Bill be amended so that its passage would actually require the Government to undertake such research.

4 Australian Government Response to the Senate Community Affairs Reference Committee Report The Social and Economic Impact of Rural Wind Farms, tabled 13 September 2012, p. 4,

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Recommendation 1:

That the Commonwealth Government initiate, as a matter of utmost priority, research into the potential health effects of wind farms, including adequately resourced epidemiological and laboratory studies of the possible effects of wind farms on human

health, as well as an independent study into the impact of wind farm project proposals on the environment and on the social and health aspects on the community.

Recommendation 2:

That the Bill be amended such that its purpose would be to cause such research and study to be undertaken.

Senator Simon Birmingham Senator Chris Back

South Australia Western Australia

Senator Bridget McKenzie

Victoria

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Dissenting Report by Senator John Madigan and Senator Nick Xenophon

Introduction

1.1 The Senate Economics Committee *s referral of the Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012 ('the Bill *) to the Environment and Communications Legislation Committee ('the committee *) gave an opportunity for an examination of the Bill, albeit with a constrained hearing

schedule and time frame which affected communities expressed concern to us about. Given the continuing public and scientific debate surrounding the impacts of noise generated by wind farms, this inquiry was an opportunity to examine the current state of evidence from communities, scientists and wind farm operators alike.

Noise Regulations

1.2 In our Dissenting Report to the Senate Economics Committee *s inquiry into the Bill (attached) we raised concerns regarding the adequacy of current noise guidelines. We take this opportunity to affirm these concerns and add the following comments to this particular and critical aspect of the debate.

1.3 The Bill seeks to establish a definition of *excessive noise *:

(6) For the puiposes of this Act, a wind farm creates excessive noise if the level of noise that is attributable to the wind farm exceeds background noise by 10 dB(A) or more when measured within 30 metres of any premises:

(a) that is used for residential purposes; or

(b) that is a person *s primary place of work; or

(c) where persons habitually congregate.

1.4 As explained by Mr Steven Cooper, a leading and well respected acoustician and Principal of The Acoustic Group:

excessive noise, which relates to the first part of the bill, may be identified in various planning documents and wind fann guidelines but is not defined. The purpose of the bill gives a methodology for defining excessive noise.

1.5 The importance of having a nationally applicable definition of excessive noise was discussed by Dr Bob Thome during the public hearing:

Dr Thome: The thing that none of us has is a consistency across all states. That leads to my mind to the most important function of this bill: it gives a consistent approach to excessive noise throughout all of Australia, whereas each individual state could and does have completely different criteria,

different standards. Back in the old days, there was a competition policy process whereby one state could not disadvantage the other states by having different criteria. In the days when I was working with it, we were dealing

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with environmental noise. We tried to get a consistency of approach through all the different states *this was back in the mid-nineties. This is where I would see the benefit of this particular bill in that it provides a certainty of approach to all states, it provides a certainty of approach to the

industry and it gives a clear definition to all the different states' legislation.

1.6 The benefits of a definition of excessive noise that applies to all states and territories are twofold: it provides clarity and consistency of application throughout Australia. Those who live close to wind farms can therefore be assured the wind farms are required to operate in accordance with established noise guidelines so that any disturbance caused by wind farm noise is minimised.

The impact of noise on sleep and health

1.7 The committee acknowledged sleep disturbance is the most commonly reported complaint in relation to the operation of wind fanns. Dr Nissenbaum, a radiologist at the Northern Maine Medical Centre in the United States, discussed the potential consequences of chronic sleep disturbance:

Senator Madigan: Dr Nissenbaum, why is chronically impaired sleep a health problem?

Dr Nissenbaum: When one has chronically impaired sleep... (it) will result in adverse health effects through stress mediated effects on the hormonal systems in the body. This will result in all sorts of stress related illnesses, as well as cardiovascular effects, as well as changes in cognition and mental health in a pretty significant subset of individuals.

Dr Nissembaum continued:

Some people are more immune than others, but we have to take people as they come, and a significant proportion of people will be affected in a negative way when there is chronic sleep disturbance. It is important to recognise that fact. Once we recognise that fact, the question becomes: do industrial wind turbines that are sited too close to people result in sleep disturbance? If we can prove that is correct, then we will know that over time very serious adverse health effects will develop.

1.8 Significantly, Dr Nissenbaum identified the need for further research to be undertaken in relation to the link between noise generated by wind farms and sleep disturbance. The impact of night time noise on sleep disturbance was discussed in the World Health Organisation *s *Guidelines for Community Noise *:

If negative effects on sleep are to be avoided the equivalent sound pressure level should not exceed 30 dBA indoors for continuous noise. If the noise is not continuous, sleep disturbance correlates best with LAmax and effects have been observed at 45 dB or less. This is particularly true if the background level is low. Noise events exceeding 45 dBA should therefore be limited if possible.

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1.9 These guidelines relate to residential areas in European urban environments. Therefore it is not unreasonable that the Bill seeks to require that wind farms operate within lower noise limits so as not to disturb the sleep of residents in quiet, rural Australian environments.

1.10 The committee has recommended that *specific noise measurements, thresholds and measuring locations not be included in legislation, as there is insufficient consensus on these elements of the proposal. * We fundamentally disagree with the committee's finding in this respect. The Bill is taking a conservative approach by only referring to dB(A), even though there is a mounting body of scientific evidence to suggest other spectrums should be considered.

1.11 The committee refers to recent research entitled *Can expectations produce symptoms from infrasound associated with wind turbines? * by Crichton, Dodd, Schmid, Gamble & Petrie regarding the *nocebo effect *. The report concludes:

Results suggest psychological expectations could explain the link between wind turbine exposure and health complaints.

1.12 The research by Crichton, Dodd et al specifically refers to infrasound which is not a subject addressed by this Bill. Furthermore, the research excludes audible sound which is the subject of the Bill. Excessive noise levels set by the Bill are not related to infrasound and as such the research of Crichton, Dodd et al is not relevant. With respect to the overall health effects of wind turbines the research by Crichton, Dodd et al suggests *psychological expectations could explain the link... * However in medical research other factors must be eliminated before making such a diagnosis, which is premature and pre-emptive.

1.13 Correspondence provided by Dr Nissenbaum stated:

On 'nocebo', if a physician provides the diagnosis of 'nocebo' (a psychologically mediated effect analogous to a 'psychosomatic illness/response'), medical protocols dictate that it be done subsequent to a process of thoroughly excluding the possibility of any pathophysiological pathways that are plausible, more likely, or more important (because of

serious downstream implications) to consider.

Dr Nissenbaum continued....

The 'nocebo' concept is inapplicable and it would be irresponsible to apply it as an explanation for the chronic sleep disorders which are the result of often unremembered nighttime arousals related to noise.

1.14 The committee received a range of evidence regarding possible links between noise produced by wind farms and health effects. This debate is continuing however the body of evidence demonstrating the impact of sleep disturbance and sleep deprivation on health continues to grow.

1.15 We are concerned that the current literature review underway by the NH&MRC is just that: a review of the literature rather than actual research into the

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relationship between wind farms and human health. While it is true that Federal Government grants are available for research purposes, given community concerns and the likelihood that more wind farms will be built in Australia near homes we

believe the Federal Government should establish and fund an independent expert panel in order to conduct further research. Tins is imperative given the Federal Government's ongoing financial support of wind farms to achieve the Renewable

Energy Target.

Recommendation

The Federal Government establish and fund an independent expert panel in order to conduct research into the impact of noise generated by wind farms on human health.

Reporting of wind speed and noise data

1.16 In order to test compliance, it is necessary for wind speed data to be made available:

Mr Cooper... the noise emission for the wind farm is expressed in terms of a DBA level versus the wind at the hub height. So the only way you can do a compliance check is to measure the noise at the residence and compare it with the wind at the hub height. If you cannot get the wind at the hub height, you cannot detemiine acoustic compliance. So you need that information. It is not available. The wind proponents or the authority will not supply the material.

Senator Xenophon: To use one of Senator Cameron *s classic phrases, there is some information asymmetry here with respect to that?

Mr Cooper: Yes. It is impossible for anybody to do a compliance check without this data.

Senator Xenophon: So it is a catch-22. You cannot work out whether there is compliance or not for a particular development without this data?

Mr Cooper: As it is expressed in terms of a noise limit versus the speed. If there were an absolute limit full stop it would be a different kettle of fish. But because the wind farms are expressed relative to the background level and the wind speed you have to do the compliance with respect to that criteria.

1.17 The committee has recommended *where there is ongoing debate over noise compliance issues for particular wind farms, that governments consider making data for those operations available to an independent authority for review of compliance *.

1.18 We agree with and are encouraged by the intention of this recommendation, however we believe it could be made stronger in a number of ways.

1.19 Firstly, the recommendation relates only to *ongoing debate over noise issues for particular wind farms * (emphasis added). The Bill is intended to apply to all wind

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farms and as such noise and wind speed data should be made available by all wind farms.

1.20 Secondly, the recommendation relies on *governments * making the data available. This makes the assumption that governments already have access to the data. We believe this assumption needs to be addressed by including an explicit requirement that wind farm operators must make data available to an independent authority directly.

1.21 Lastly, the recommendation does not specify when the data should be made available. We would suggest that wind and noise data be supplied to the independent authority at regular intervals (for example every three months) as well as on request in the event a specific complaint has been made. Data held by the independent authority should be publically accessible under defined protocols.

Recommendation

Where there is ongoing debate over noise compliance issues for wind farms, wind farm operators are required to provide data (including wind and noise data) to an independent authority every three months as well as on request in the event a specific complaint has been made.

1.22 We would like to take this opportunity to acknowledge that Pacific Hydro *s offer to provide data to an independent statutory body under strict confidentiality with the data *s use restricted by well-defined protocols. It is our understanding this offer to provide wind data is the first of its kind by a wind farm operator and believe Pacific Hydro should be given credit for setting an example for the rest of the industry.

Conclusion

1.23 This bill will ensure there are mechanisms in place to enable the monitoring of noise generated by wind farms and that where wind famis are shown to have created excessive noise, they are unable to receive Large Scale Renewable Energy Certificates for the electricity generated. We believe it is not appropriate for wind farms to be financially rewarded through these Certificates when they are shown to be non- compliant with noise guidelines. Therefore wind farm operators that are compliant have nothing to fear from the requirement that they must not create excessive noise.

Recommendation

The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012 be passed.

Senator Nick Xenophon South Australia

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Senator John Madigan Victoria

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210

Attachment to Dissenting Report by Senator John Madigan and Senator Nick Xenophon

Senate Economics Legislation Committee *s inquiry into the Renewable Energy (Electricity) Amendment (Excessive N oise from W ind Farms) Bill

2 012: Dissenting Report by Senators Madigan and Xenophon (Tabled 17 September 2012)

Dissenting Report by Senator John Madigan and Senator Nick Xenophon

Introduction

1.2 The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Famis) Bill 2012 was introduced as a result of the disappointing response of the Federal Government to the Community Affairs Committee's report into the Social and Economic Impact of Rural Wind Farms. The Community Affairs Committee inquiry received over 1000 submissions and heard evidence from a wide variety of witnesses, including rural residents, doctors, lawyers, community groups, environmental groups and wind farm operators. In response to the evidence received the committee made the following seven unanimous recommendations:

Recommendation 1

The Committee considers that the noise standards adopted by the states and territories for the planning and operation of rural wind farms should include appropriate measures to calculate the impact of low frequency noise and vibrations indoors at impacted dwellings.

Recommendation 2

The Committee recommends that the responsible authorities should ensure that complaints are dealt with expeditiously and that the complaints processes should involve an independent arbitrator. State and local government agencies responsible for ensuring compliance with planning permissions should be adequately resourced for this activity.

Recommendation 3

The Committee recommends that further consideration be given to the development of policy on separation criteria between residences and wind farm facilities.

Recommendation 4

The Committee recommends that the Commonwealth Government initiate as a matter of priority thorough, adequately resourced epidemiological and laboratory studies of the possible effects of wind farms on human health.

This research must engage across industry and community, and include an advisory process representing the range of interests and concerns.

Recommendation 5

The Committee recommends that the NHMRC review of research should continue, with regular publication.

Recommendation 6

The Committee recommends that the National Acoustics Laboratories conduct a study and assessment of noise impacts of wind farms, including the impacts of infrasound.

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Recommendation 7

The Committee recommends that the draft National Wind Farm Development Guidelines be redrafted to include discussion of any adverse health effects and comments made by NHMRC regarding the revision of its 2010 public statement.

1.3 It should be noted that Recommendations 4 and 6, relating to epidemiological studies of wind farms and human health and studies of the noise impacts of wind farms are yet to be conducted, despite the passing of more than a year since the committee reported. Furthermore, recommendations 1 and 2 are yet to be acted on by any of the states or territories.

1.4 The NHMRC is currently undertaking a *systematic review of the scientific literature to examine the possible impacts of wind farms on human health including audible and inaudible noise *. Given the NHMRC *s *rapid review * in 2009 could not reasonably be referred to as a thorough examination of the evidence, we welcome this

further examination of all available literature. We understand the 2009 review did not include an examination of a report by the United Kingdom's Department of Food and Rural Affairs entitled *A Review of Published Research on Low Frequency Noise and its Effects *. Given the relevance of such a study to the NHMRC review, we encourage the NHMRC to include this report in their examination of the literature.

1.5 With respect to the current NHMRC review, there are concerns that the bulk of anecdotal evidence (in the fonn of personal testimonies from affected residents) will not be included in the review unless it is submitted in an *organised * fashion with accompanying analysis. Such an examination of first hand claims is precisely what the Community Affairs Committee recommended, but no studies of this kind by independent researchers have taken place. Should affected communities be able to collate their experiences in the required format, any analysis they may perform could be labelled as *amateur * or *non-scientific * due to their lack of qualifications.

1.6 Therefore, appropriate weight may not be afforded to individual testimonies, even where analysis has been attempted.

1.7 Over the past 12 months we have spoken to many residents who have

complained about the noise produced by nearby wind fanns. Many of these residents had requested the wind farm operators conduct noise monitoring at their properties. To our knowledge, none of these residents has been given access to a full range of noise monitoring results.

1.8 It should also be noted that AGL withdrew their development application for the Hallett 3 wind farm only days before they were due to produce noise monitoring data, including wind mast data, for their Hallett 2 wind farm, as ordered by the Environmental, Resources and Development Court in South Australia.

1.9 Wind farm operators claim their wind farms are compliant with noise guidelines. For instance, Acciona have said their Waubra wind farm is operated in such a way so as to ensure that all noise compliance guidelines are met. However, noise monitoring by acousticians who are not employed by wind farm operators have

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revealed that some wind farms are not. Relevantly, a study by acoustician Dr Bob Thome has found that the wind fami at Waubra is operating outside noise regulations.

1.10 In June 2012 Senator Madigan submitted a copy of Dr Thorne's report to the Victorian Minister for Planning, the Hon Matthew Guy MLC, who had committed to suspending the operation of any wind farms found to be non-compliant with noise guidelines. No response has been received from the Minister *s office to date.

1.11 We are also aware of concerns raised by acousticians independent of the wind industry that the noise monitoring conducted by wind farm operators is not performed using equipment sensitive enough to measure infrasound and low frequency noise. Furthermore, we have been told that when noise monitoring equipment is installed, it

is not positioned inside homes.

1.12 Of further concern are doubts that the current noise guidelines - with which wind fami operators purport to comply - do not protect the quality of life which was enjoyed by nearby residents prior to the constmction of the wind fami.

1.13 If the Federal Government is to subsidise wind farms by way of Renewable Energy Certificates (RECs) this must not be at the expense of the quality of life of nearby residents. Therefore, RECs should only be issued where an operator can show they are consistently operating within acceptable noise standards.

1.14 We acknowledge the Economics Committee believes an examination of the practical operation of the bill, its interaction with state and local government laws and its impact on the Clean Energy Regulator falls outside of the expertise of this committee. However, we believe that the property rights of residents are affected by wind fami developments as many are being denied the quiet enjoyment of their homes, and in some cases are being forced to abandon their properties without compensation, just or otherwise.

1.15 It has been reported that over 20 homes have been abandoned at Waubra in western Victoria. We are told a further 5 homes in Waterloo, South Australia, have also been abandoned. Investment in the property markets in rural communities may suffer as a result, particularly if populations begin to dwindle. Declining mral populations and the associated reduction in economic productivity are, in our view,

economic issues worthy of further examination.

1.16 Therefore, whilst we disagree with the Economics Committee *s view (given the quality and depth of the reports provided by the committee in relation to other inquiries), we will seek for this matter to be referred to another committee for inquiry which ought to involve public hearings and evidence called by both sides of the wind

fami debate. It is also worth nothing there is an urgency that the empirical and scientific research necessary to thoroughly examine the issue of noise standards for wind farms and human health take place within a reasonable time frame.

Adequacy o f current noise guidelines

1.17 Currently the South Austral ian Environment Protection Authority * Wind Farm Environmental Noise Guidelines 2009 * ("SA EPA Guidelines) and the New Zealand Standard *NZS6808:2010 Acoustics - Wind Farm Noise * are the primary guidelines

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against which wind farm noise are assessed. These documents address both audible and inaudible characteristics of noise.

1.18 However, these standards require the use of dB(A) sound meters, which do not adequately take infrasound and low frequency noise into account. Infrasound can only be measured using equipment that does not use an A-weighted scale.

1.19 Wind farm operators have also been known to compare their noise emissions with the World Health Organisation *s *Guidelines on Community Noise *. It should be noted the WHO Guidelines do not address the inaudible characteristics of noise and were written in the context of issuing guidelines for densely populated European cities rather than rural environments.

1.20 Concerns have been raised that the SA EPA Guidelines do not protect nearby residents from *adverse noise impacts *, which is contrary to the aim of the Guidelines. This is partly due to the belief that the background noise level which has been set by the EPA is already too high for rural zones. Another concern is the lack of attention paid to infrasound and low frequency noise in these guidelines, other than describing them as *annoying characteristics * of noise which are not *present at modern wind farm sites. *

1.21 Until such time as the recommended epidemiological study into the possible effects of wind fanns on human health and the National Acoustics Laboratories study have been conducted, complaints from residents about the possible effects of wind farms noise cannot continue to be dismissed as *hysteria * or the results of a *nocebo * effect.

Difficulty faced by residents in obtaining noise monitoring results

1.22 Given the confident assertions of wind farms operators that they are operating within the current noise guidelines, their reluctance to release noise monitoring data to residents must be viewed with suspicion. That residents have been forced to initiate legal proceedings in order to access this data serves to compound the suspicion surrounding wind farm operators * claims.

1.23 The Renewable Energy (Electricity) Amendment (Excessive Noise from Wind Farms) Bill 2012 sought to create transparency in the operation of wind farms by requiring the publication on the internet information about noise, wind speed and direction, weather conditions and power output. It is our belief that the publication of such data would be of immense benefit to both communities and wind farm operators alike.

1.24 Such data would make it clear when wind farms are non-compliant which will enable their operators to take steps to adjust their operations in order to achieve compliance. Developers spend large amounts of time and money convincing communities around proposed developments that they take noise concerns seriously. However these efforts are undermined by the lack of transparency when it comes to releasing noise data from existing wind fanns.

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Concerns about wind energy ; intermittency and RECs

1.25 The intermittent nature of wind energy raises concerns about wind *s ability to cope with peak demand. The Australian Energy Market Operator (AEMO) anticipates the contribution of South Australian wind farms during future summer and winter peak demand will be 5% and 3.5% respectively of installed wind farm capacity. Furthermore, figures obtained by the AEMO demonstrated that during the heatwave between 20 January 2011 to 2 February 2011 *as demand (for electricity) increased, the contribution from wind generation fell *.

1.26 We hold reservations that this technology should be subsidised to the extent that it is, given its shortcomings in replacing baseload power due to its inherently intermittent nature. Further there is a concern that in economic terms, given the nature of the structure of the REC scheme and the issue of RECs in their current foim, that investment in alternative renewable energy sources is being compromised, particularly geothermal, solar thermal and tidal power. Those forms of alternative energy have the real potential to replace coal fired power stations.

1.27 Further to the previous paragraph, wind farm output can be bid into the National Electricity Market at zero dollars because wind farm owners can access RECs as an income stream once eligible energy has been generated. As the lowest cost output is the first to be dispatched to the grid, wind energy - with the assistance of RECs - has the ability to displace electricity from sources that have higher marginal costs of generation. This leads to the following questions:

" Is wind energy the most cost efficient form of renewable energy to achieve greenhouse gas abatement? and;

" Are RECs driving out investment from other forms of renewable energy

technology that could provide baseload generation, such as geothermal technology?

" It is time the energy production and efficiency of wind farms is examined

against the impact this technology is having on rural communities. Wind farm operators cannot continue to be rewarded with RECs if wind farms are not complying with acceptable noise standards.

1.28 It is hoped the Senate will support a resolution to refer this bill to another Senate Committee in order to allow for public submissions and evidence to be called from those who both support and oppose this bill.

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Senator John Madigan Democratic Labor Party Senator for Victoria

Senator Nick Xenophon Independent Senator for South Australia

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Appendix 1

Submissions, additional information, correspondence and answers to questions taken on notice

Submissions

Submission numbers not used have been intentionally left blank. A number of documents have been accepted as correspondence instead of as submissions, because they were about wind farm noise, but not directly relevant to the bill under consideration.

2 Mr Timothy Le Roy

3 Mrs Marie Burton

4 Name Withheld

6 Confidential

9 Mr Sam Walker

10 Mr Ronald Burton

11 Mr Mark Burfield

12 General Electric

13 Mrs Heather McKenry

16 Mr and Mrs Frank and Angela Kearns

18 Professor Alec Salt

23 Doctors for the Environment Australia and Public Health Association of Australia

25 Name Withheld

26 Emeritus Professor Colin Hansen

27 Ms Kate Headlam

28 Mr Cameron Rowe

29 Ms Elisabeth Jonkman

30 Kerrisdale Mountain Railway and Museum Inc

31 Name Withheld

219

76

32

33

34

35

36

37

38

39

40

41

42

44

46

48

49

50

51

52

53

55

56

58

60

61

63

64

65

Mrs Maria Linke

Mr and Mrs Ron and Chris Jelbart

Mr Keith Staff

Mr Andreas Marciniak

Confidential

Confidential

Mr and Mrs John and Heather McMahon

National Health and Medical Research Council

Mr and Mrs Allan and Anne Schafer

Confidential

Ms Lilli-Ann Green

Mr and Mrs Allan and Maxine Coulson

Mr Joe Hallenstein

Ms Dianne Jackson

Confidential

Parkesboume/Mummel Landscape Guardians Inc

Mrs Samantha Stepnell

Mr Patrick Holmes

Mr David Charles

Mr and Mrs John and Elizabeth Fincher

Mr Carl Stepnell

Holy Transfiguration Monastery

Mrs Patricia Gabb

Mr Bill Nicholson

Confidential

Confidential

Mr and Mrs John and Niki Zubrzycki

220

67

68

69

75

77

78

79

80

82

83

87

89

90

91

93

94

95

96

97

98

102

103

104

115

116

117

118

Ms Shelley McDonald

Mr and Mrs Peter and Lisa Allen

77

Peter Wingett, Linda Brookman, John O'Shea and Alexander McKinlay

Confidential

Mrs Rosemary Rees

Mr Maurice Newman

Mr Stephen Coleman

Confidential

Mr and Mrs Philip and Chris Ruediger

Mr Louis Hughes

Cooranga North Concerned Citizens Group

Confidential

Confidential

Mr and Mrs Andrew and Amiie Gardner

Ms Carmen Krogh

Name Withheld

Dr CD Hanning

Ms Sonia Trist

Dr Bob Thome

Mr Crispin Trist

Miss Hannah Bmty

Confidential

Confidential

Mr and Mrs Adrian and Tamako Johnson

Ms Sharyn Anderson

RATCH-Australia

Ms Geraldine Conheady

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78

119

120

121

122

123

124

125

126

128

129

130

131

132

133

134

135

136

137

138

139

141

142

143

144

148

149

Confidential

Name Withheld

Mr Rodney Brew

Maureen Campbell and John Foster

Mr and Ms Stuart and Brianna Robb

Mr Owain Rowland-Jones

Mr and Mrs Brian and Joanne Kermond

Confidential

Mr Phillip Duggan

Mr Ivan Chan

Name Withheld

Western Plains Landscape Guardians Association

Mr and Mrs Warwick and Megan Read

Robert and Krista Watkins, Bruce and Kem Watkins, Ann Dunford and Garth Dunford

Ms Belinda Wehl

Mr and Mrs Geoffrey and Vanessa Knox

Dr Wayne Spring

REpower Australia Pty Ltd

Ms Ruth Corrigan

Mr and Mrs Angelo and Daniela Tudini

Dr Andja Mitric-Andjic

The Acoustic Group Pty Ltd

Ms Robyn Brew

Mrs Janet Hetherington

Mr and Mrs CR and FL Schaefer

Mr Peter Dawes

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151

152

154

155

156

157

158

159

160

162

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

79

Name Withheld

Ms Sandra Clark

Confidential

Mrs Helen Lyon

Mr Tony Walker

Confidential

Ms Judy Hollamby

EnergyAustralia

Mr Roger Kruse

Dr Peter Trask

Mr Bradley Kermond

Clean Energy Council

Ms Felicity Martin

Community for the Accurate Impact Assessment of the Dalton Power Station

Confidential

Mr and Mrs Humphrey and Jennifer Price-Jones

Confidential

Australian Environment Foundation

Ms Anna Dominguez Smith

Confidential

Ms Janine Dean

Mr Roderick Dean

Mrs Enid Thomas

Mrs Kelli-Jane Abbott

Ms Annette Allwood

Mr Noel Dean

Mr William Kelly

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80

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

204

205

206

207

208

Adam McCarthy and Rebecca Fagan

Mr and Mrs David and Mary Morris

Mr Noel Thomas

Mr Sam McGuiness

Professor Simon Chapman

Alstom

Mrs Patina Schneider

Confidential

Dr David Burraston

Confidential

Vestas

Alan Watts and Colleen Watts

Flyers Creek Wind Turbine Awareness Group Inc

Mr Charlie Amott

Noise Watch Australia Inc

Ms Claudia Scheid

Waubra Foundation

Conservation Council of South Australia

Mrs Sue Braid

Confidential

Ms Sarah Last

Confidential

Mr and Mrs Stuart and Brianna Kilsby

Energy Supply Association of Australia

Young Lawyers for Law Reform

Pacific Hydro Australia

TrustPower Australia

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209 Inflgen Energy

210 Mrs Rosa Dawes

211 Pyrenees Shire Council

212 Mr and Mrs Shane and Wanda Allott

213 Mrs Chelsea Taylor

215 Hepburn Wind

216 Mr W Les Huson

217 Queensland Government

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Form Letters

1 Form Letter Style 1, received from approximately 4 individuals

2 Form Letter Style 2, received from approximately 3 individuals

3 Form Letter Style 3, received from approximately 2 individuals

4 Form Letter Style 4, received from approximately 9 individuals from Presentation Sisterhood, NSW

Additional Information

1 Additional Information from Michael Nissembaum MD, received 1 November 2012

2 Tabled document from Senator Madigan, at Canberra public hearing 14 November 2012

3 Tabled document from Mr Steven Cooper, at Canberra public hearing 14 November 2012

4 Tabled document from Senator Madigan, at Canberra public hearing 14 November 2012

5 Sonus Pty Ltd (November 2010) Infrasound Measurements from Wind Fanns and Other Sources, prepared for Pacific Hydro

Correspondence

1 Response to adverse comment, received from NHMRC on 12 November 2012

2 Response to adverse comment, received from Windlab on 13 November 2012

3 Response to adverse comment, received from Dr Geoff Leventhall on 16 November 2012

4 Response to adverse comment, received from Origin on 19 November 2012

5 Correspondence from Ms Fiona Crichton, received 21 November 2012

6 Response to adverse comment, received from Pacific Hydro on 22 November 2012

7 Correspondence from Pacific Hydro, received 22 November 2012

8 Response to adverse comment, received from Hepburn Wind on 23 November 2012

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Answers to questions taken on notice

1 Answer to Questions on Notice from Alstom, received 16 November 2012

2 Answer to Questions on Notice from Professor Colin Hansen, received 18 November 2012

3 Answer to Questions on Notice from Professor Peter Seligman, received 20 November 2012

4 Answer to Questions on Notice from Professor Simon Chapman, received 21 November 2012

5 Answer to Questions on Notice from Public Health Association of Australia, received 22 November 2012

6 Answer to Questions on Notice from Clean Energy Council, received 22 November 2012

7 Answer to Questions on Notice from Professor Peter Seligman, received 23 November 2012

8 Answer to Questions on Notice from Dr Michael Nissenbaum, received 23 November 2012

9 Answer to Questions on Notice from Waubra Foundation, received 23 November 2012

10 Answer to Questions on Notice from Energy Supply Association of Australia, received 23 November 2012

11 Answer to Questions on Notice from Pyrenees Shire Council, received 23 November 2012

12 Answer to Questions on Notice from Infigen Energy, received 23 November 2012

13 Answer to Questions on Notice from Infigen Energy, received 23 November 2012

14 Answer to Questions on Notice from Infigen Energy, received 25 November 2012

15 Answer to Questions on Notice from Mr Steven Cooper, received 25 November 2012

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228

Appendix 2

Public Hearings

Wednesday, 14 November 2012 - Canberra

REpower Australia Pty Ltd

Mr Michael Bagot, Project Manager, Development

Professor Simon Chapman

The Acoustic Group

Mr Steven Cooper, Principal Engineer

Energy Supply Association of Australia

Mr Kieran Donoghue, General Manager, Policy

Mr Ben Pryor, Policy Adviser

Mr Matthew Warren, Chief Executive Officer

Acciona

Ms Lisa Francis, Senior Manager, Institutional Relations and Media

Mr Jamie McGilp, Manager, Environment and Planning Team

Pyrenees Shire Council

Mr Chris Hall, Senior Town Planner

Dr Christopher Hanning

Professor Colin Henry Hansen

Waubra Foundation

Dr Sarah Elisabeth Laurie, Chief Executive Officer

Clean Energy Council

Mr Russell Marsh, Director of Policy

Vestas, Asia-Pacific

Mr Ken McAlpine, Director, Policy and Government Relations

Dr Michael Alexander Nissenbaum

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Dr Carl Phillips

Doctors for the Environment Australia

Dr James Ross, Member

Professor Alec Nicholas Salt

Melbourne Energy Institute, University of Melbourne

Professor Peter Seligman, Honorary Professor

Dr Daniel Shepherd

Alstom Wind, Asia-Pacific

Mr Josef Tadich, Technical Manager

Public Health Association of Australia

Dr Peter Tait, Convenor, Ecology and Environment Special Interest Group

Ms Melanie Jayne Walker, Acting Chief Executive Officer

Dr Robert Thorne

Infigen Energy

Mr Jonathan Upson, Senior Development and Government Affairs Manager

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Appendix 3

Snapshot of NHMRC Wind Farms and Human Health Project

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Snapshot of NHMRC Wind Farms and Human Health Project

Indicative timeframes for the systematic review of the potential health impacts of wind farms and update of the Public Statement: Wind Farms and Health. Timeframes are dependent on contractor availability and will be updated as necessary.

Timeline for future tasks

Date Action

Early August 2012 NHMRC to contract a systematic reviewer

Mid- late August 2012 NHMRC to call for stakeholder submissions of non-peer reviewed literature for consideration in the Literature Review

August - February 2012 Reviewer conducts the Systematic Review with input from the NHMRC Wind Farms and Human Health Reference Group

November 2012 NHMRC to select and engage peer reviewers

December - January 2012 Peer review of the Systematic Review to be conducted

February 2013 Reviewer to submit final Systematic Review document to NHMRC

February 2013 Reference Group to advise on what revisions the NHMRC Public Statement: Wind Turbines and Health are required in light of new evidence

February - March 2013 Reference Group to submit recommendations made in the Review Report to NHMRC Prevention and Community Health Committee (PCHC) and Council

(PCHC and Council dates will be advised shortly)

March 2013 NHMRC to publish results of the review

March 2013 NHMRC to revise the NHMRC Public Statement: Wind Turbines and Health as required

March 2013 Revised Draft NHMRC Public Statement: Wind Turbines and Health to be considered by PCHC and then Council for release for public consultation

March/ April 2013 NHMRC to advertise public consultation on the revised NHMRC Public Statement: Wind Turbines and Health

April - May 2013 Public consultation period

May 2013 Consider submissions and provide revised final draft to PCHC and then Council for recommendation for CEO release

May 2013 Revised NHMRC Public Statement: Wind Turbines and Health Public Statement published on NHMRC website following CEO approval

June 2013 NHMRC Wind Farms and Human Health Reference Group terms to be reviewed by NHMRC CEO

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The Senate

Environment and Communications

Legislation Committee

Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 [Provisions]

Water Amendment (Water for the Environment Special Account) Bill 2012 [Provisions]

November 2012

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© Commonwealth of Australia 2012

ISBN 978-1-74229-721-7

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

Committee membership

Committee members Senator Doug Cameron (ALP, NSW) (Chair) Senator Simon Birmingham (LP, SA) (Deputy Chair) Senator Catryna Bilyk (ALP, TAS) Senator Bridget McKenzie (NATS, VIC) Senator the Hon. Lisa Singh (ALP, TAS) Senator Larissa Waters (AG, QLD)

Substitute members Senator Sarah Hanson-Young (AG, SA) to replace Senator Larissa Waters (AG, QLD) for the inquiry into the Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 [Provisions]

Participating members Senator Bamaby Joyce (NATS, QLD) Senator Nick Xenophon (IND, SA)

Committee secretariat Ms Sophie Dunstone, Acting Secretary Ms Toni Matulick, Inquiry Secretary Ms Sophie Power, Principal Research Officer Mr Cirri s Lawley, Senior Research Officer Mrs Dianne Warhurst, Administration Officer

Committee address PO Box 6100 Parliament House Canberra ACT 2600

Tel: 02 6277 3526 Fax: 02 6277 58IS Email: ec.sen@aph.gov.au Internet:

www.aph.izov.au/Parliamentarv Business/Committees/Senate Committees?url=ec ctte/ index.htm iii

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Table of Contents

Committee membership............................................................................................iii

Abbreviations and acronyms..................................................................................vii

Chapter 1 - Introduction............................................................................................ 1

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

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

Overview of the bills................................................................................................5

Key issues regarding the bills...................................................................................9

Chapter 2 - Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 .......................... 11

Key issues regarding the bill..................................................................................11

Committee comment.............................................................................................. 14

Chapter 3 - Water Amendment (Water for the Environment Special Account) Bill 2012...................................................................................................... 17

Key issues regarding the bill..................................................................................17

Committee comment..............................................................................................31

Additional comments from Coalition senators .................................................. 33

Additional comments by Senator Nick Xenophon.............................................43

Appendix 1 - Submissions, tabled documents and answers to questions taken on notice.............................................................................................................49

Submissions - Water Amendment (Long Term Average Sustainable Diversion Limit Adjustment) Bill 2012..................................................................................49

Submissions - Water Amendment (Water for the Environment Special Account) Bill 2012................................................................................................................. 50

Tabled documents...................................................................................................50

Answers to questions taken on notice ................................................................... 50

Appendix 2 - Public hearings..................................................................................53

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Abbreviations and acronyms

ACF Australian Conservation Foundation

ADIC Australian Dairy Industry Council

Adjustment Mechanism bill Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012

ANEDO Australian Network of Environmental

Defender's Offices Inc

the Basin Plan Murray-Darling Basin Plan

CCSA Conservation Council of South Australia

EM Explanatory Memorandum

GL gigalitres

MDBA Murray-Darling Basin Authority

NFF National Farmers' Federation

NSW1C New South Wales Irrigators' Council

SEWPAC Department of Sustainability,

Environment, Water, Population and Communities

SDL sustainable diversion limit

Special Account bill Water Amendment (Water for the

Environment Special Account) Bill 2012

TWS The Wilderness Society

VFF Victorian Farmers Federation

Water Act Water Act 1997

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Chapter 1

Introduction

Conduct of the inquiry

1.1 On 20 September 2012, the Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 (the Adjustment Mechanism bill) was introduced to the House of Representatives by the Minister for Sustainability, Environment, Water, Population and Communities, the Hon Tony Burke MP.1

1.2 On 11 October 2012, the Senate referred the provisions of the Adjustment Mechanism bill to the Environment and Communications Legislation Committee (the committee) for inquiry and report by 19 November 2012. The provisions were referred on the recommendation of the Selection of Bills Committee. Reasons for referral included that:

The Bill will remove the power of the Minister and Parliament to oversee potentially significant changes to the Murray Darling Basin Plan...

Doubts have been expressed by various States, upstream and downstream, and stakeholder groups of all persuasions (irrigators and environmentalists) about the content of this Bill.1 2

1.3 On 30 October 2012, during the course of the committee's inquiry, the Adjustment Mechanism bill was amended in the House of Representatives.3 The amendments are discussed in further detail later in this report.

1.4 The Water Amendment (Water for the Environment Special Account) Bill 2012 (the Special Account bill) was introduced to the House of Representatives on 31 October 2012.4 5

1.5 The provisions of the Special Account bill were referred to the committee on 1 November 2012 for inquiry and report by 19 November 2012. The Selection of Bills Committee's reason for referral was that 'this bill commits future Parliaments to appropriate $1.77 billion. This approach deserves scrutiny given its impact on the budget'/

1 House of Representatives Hansard, 20 September 2012, p. 11363.

2 Senate Selection of Bills Committee, Report No. 13 of 2012, Appendices 7 and 8, http://www.aph.gov.au/Parliamentaiv Business/Committees/Senate Coinmittees?url=selection bills ctte/reports/2012/rep 1312.htm (accessed 19 October 2012).

3 House of Representatives Hansard, 30 October 2012, pp 96-97.

4 House of Representatives Hansard, 31 October 2012, p. 9.

5 Senate Selection of Bills Committee, Report No. 14 of 2012, Appendix 5, http://www.aph.gov.au/Parliamentaiv Business/Committees/Senate Committees?url=selection bills ctte/repoits/2012/repl412.htm (accessed 7 November 2012),

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1.6 Given the close relationship between the two bills, the committee decided to consider these bills together.

1.7 In accordance with usual practice, the committee advertised the inquiries on its website and in The Australian newspaper. The committee also wrote to relevant organisations inviting submissions.

1.8 The committee received 20 submissions to its inquiry into the Adjustment Mechanism bill 2012 and 16 submissions to its inquiry into the Special Account bill 2012. These are listed at Appendix 1.

1.9 The committee held public hearings relating to the bills in Adelaide on 8 November 2012 and in Canberra on 12 November 2012 (see Appendix 2).

1.10 The committee would like to thank the organisations who made submissions to the inquiries and the representatives who gave evidence at the public hearings. In particular, the committee notes the short period of time to provide a submission on the

Special Account bill and thanks those who made an effort to do so.

Note on references to submissions

1.11 Unless otherwise specified, references to submissions in Chapter 2 of this report are references to submissions to the inquiry into the provisions of the Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012. Similarly, references to submissions in Chapter 3 are references to submissions to the inquiry into the provisions of the Water Amendment (Water for the Environment

Special Account) Bill 2012.

Background

1.12 The Water Act 2007 (the Water Act) requires the Murray-Darling Basin Authority (MDBA) to prepare a Murray-Darling Basin Plan (the Basin Plan). Section 22 of the Water Act establishes the mandatory content of the Basin Plan. In particular, the Basin Plan must include a specific limit on the quantity of water that may be taken, on a sustainable basis, from the Basin as a whole, and a limit on the quantities of water that can be taken from the 'water resources, or parts of the water resources, of each catchment area1. These are known as 'sustainable diversion limits' (SDLs).6

1.13 Under section 23 of the Water Act, these SDLs must reflect an

'environmentally sustainable level of take'. This is defined in the Water Act to mean the level of water extraction from a water resource which, if exceeded, would compromise the resource's key environmental assets, key ecosystem functions, productive base or key environmental outcomes.7

1.14 The MDBA released a Guide to the Altered Proposed Basin Plan in October 2010. The first proposed basin plan was released in November 2011, a revised draft was released in May 2012, and the most recent draft plan was provided

6 Item 6 of section 22 of the Water Act.

7 Section 4 of the Water Act.

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to the minister in August 2012.8 In the August 2012 plan, the MDBA estimated that the:

... long-term average sustainable diversion limit for all surface water SDL resource units to be 10,873 [gigalitres (GL)] per year. This reflects a reduction of 2,750 GL per year from the Authority *s estimate of the BDL [baseline diversion limit] for all surface water SDL resource units.9

1.15 On 26 October 2012, the Prime Minister announced a government

commitment to recover a further 450GL of environmental water, primarily through farm efficiency projects, on top of the 2750GL environmental water recovery in the proposed Basin Plan. This included an announcement to provide $1.77 billion over ten years from 2014 to 'relax key operating constraints and allow an additional 450GL of environmental water to be obtained through projects to ensure there is no social and economic downside for communities'.10 11

1.16 On 1 November 2012, the minister wrote to the MDBA providing suggestions on its proposed Basin Plan.11 Some of these suggestions as they relate to the bills are discussed in Chapters 2 and 3.

1.17 The minister has stated the Basin Plan is 'on track to be finalised before the end of the year'.12

Calls fo r an adjustment mechanism

1.18 The explanatory memorandum (EM) to the Adjustment Mechanism bill states that an SDL adjustment mechanism 'has been sought by all Basin governments' as well as stakeholders.13

1.19 The Murray-Darling Basin Ministerial Council has requested that the MDBA work with Basin States to develop a proposal for a 'SDL Adjustment Mechanism'. The Council noted that:

8 See further MDBA, Altered Proposed Basin Plan, http://www.mdba.gov.au/proposed-basin- plan (accessed 26 October 2012).

9 Section 6.04, Proposed Basin Plan, August 2012, http://download.mdba.trov.au/altered- PBP/APBP-Proposed-Basin-Plan-20120806.pdf (accessed 26 October 2012). Note that separate SDLs are set for groundwater resources.

10 Prime Minister and Minister for the Environment, Returning the Murray-Darling Basin to Health, media release dated 26 October 2012, httD://www.pm.gov.au/press-office/returning- murrav-darling-basin-health (accessed 30 October 2012),

11 Department of Sustainability, Environment, Water, Population and Communities, About the Basin Plan, http://www.environment.gov.au/water/basin-plan/about.html (accessed 9 November 2012).

12 The Hon. Tony Burke, Minister for Sustainability, Environment, Water, Population and Communities, Returning the Murray-Darling Basin to Health, media release dated 26 October 2012, http://www.environment.gov.au/minister/burke/2012/mr20121026.html (accessed 30 October 2012).

13 Explanatory Memorandum, Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 (Adjustment Mechanism bill), p. 3.

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It would be essential that the Adjustment Mechanism operates on a

transparent and legally sound basis using the best available science, and a methodology developed in consultation with jurisdictions.14 15

1.20 The House of Representatives Standing Committee on Regional Australia recommended in its July 2012 report on the proposed Murray-Darling Basin Plan that:

...the Commonwealth Government develop a mechanism to adjust

sustainable diversion limits automatically in response to efficiencies gained by environmental works and measures.13

1.21 In coming to this conclusion, the House of Representatives Standing Committee observed that relying on the general mechanism for amendments to the Basin Plan in sections 45-48 of the Water Act would mean that 'any amendment to the SDLs could potentially be delayed for over six months'.16

Other recent inquiries

1.22 The Murray-Darling Basin Plan has also recently been considered by the Senate Rural and Regional Affairs and Transport References Committee during its inquiry into the management of the Murray-Darling Basin. In its second interim report, that committee did not form a specific view on the Adjustment Mechanism bill due to lack of time. However, the Rural and Regional Affairs and Transport References Committee stated:

Overall, the committee is very concerned with the lack of information about how the adjustment mechanism would work and the details in determining changes. The 2750 GL/y is a highly controversial figure but the committee

is of the view that the public and Parliament need to be reassured that any changes are based on appropriate information and processes. These are yet to be detailed by the MDBA. As a result, the Parliament is again being

asked to legislate on a matter with insufficient information.17

1.23 The House of Representatives Standing Committee on Regional Australia considered the Adjustment Mechanism bill in October 2012. That committee concluded by recommending that the bill be passed, stating that it was:

14 Notice by the Murray-Darling Basin Ministerial Council under section 43A(4) of the Water Act 2007, 9 July 20012, available at: http://download.mdba.gov.au/revised- BP/AttachmentA Main.ndf /accessed 22 October 2012).

15 Recommendation 3, House of Representatives Standing Committee on Regional Australia, Certain matters relating to the proposed Murray-Darling Basin plan , July 2012, p. 6.

16 House of Representatives Standing Committee on Regional Australia, Certain matters relating to the proposed Murray-Darling Basin plan, July 2012, p. 4.

17 Senate Standing Committees on Rural and Regional Affairs and Transport, Second Interim Report: the Basin Plan, 3 October 2012, p. 21.

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...confident that the proposed amendment strikes an appropriate balance between allowing the MDBA the capacity to act in a timely manner when making SDL adjustments and continued Parliamentary oversight.18

1.24 The Special Accounts bill has also been referred to the House of

Representatives Standing Committee on Regional Australia for inquiry and report. That committee has called for submissions by 15 November 2012 and will be holding a public hearing on 20 November 2012.

Overview of the bills

Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012

1.25 The Adjustment Mechanism bill seeks to amend the Water Act to provide a mechanism to adjust the long-term average SDLs under the Basin Plan 'without invoking the formal Basin Plan amendment process'.19 To achieve this, the bill would insert proposed new sections 23A and 23B into the Water Act to set out the process and conditions for adjustments to the SDL.

Proposed process for adjustments to the SDL

1.26 Proposed subsection 23A(1) would provide that, under the Basin Plan, the MDBA may propose an adjustment to an SDL for the water resources of a particular water resource plan area or a particular part of those water resources within a set amount, and, as a result of these adjustments, an adjustment to the SDL for Basin water resources as a whole.20

1.27 Proposed section 23B sets out the following process by which SDLs would be adjusted:

" the MDBA must give a notice of the proposed adjustment(s) to the minister, which must include certain information (as set out in subsections 23B(2) and (3));

" at the same, the MDBA must also prepare an amendment to the Basin Plan

giving effect to the proposed adjustments (see subsection 23B(5));

" as soon as practicable after receiving the proposed amendment, the minister must consider the amendment and may either:

" adopt the amendment in writing; or

" give the MDBA notice that the minister has decided not to adopt the amendment (new subsection 23B(6), as amended).

18 House of Representatives Standing Committee on Regional Australia, Advisory Report on the Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 , October 2012, p. 5.

19 Explanatory Memorandum, Adjustment Mechanism bill, p. 2.

20 See also Explanatory Memorandum, Adjustment Mechanism bill, p. 6.

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1.28 Once the minister adopted an SDL adjustment amendment, the amendment would be required to be registered on the Federal Register of Legislative Instruments (FRLI) and tabled in both houses of Parliament.21 Initially, the bill was put forward with a subsection 3 3(2A) which proposed that the amendment would be a non- disallowable legislative instrument under the Legislative Instruments Act 2003. However, this section was amended by the House of Representatives on 30 October 2012 to make the amendment a disallowable instrument.

Proposed conditions on adjustments to the SDL

1.29 The Adjustment Mechanism bill would impose the following conditions on adjustments to the SDL:

" the MDBA must seek and consider advice from the Basin Officials

Committee before proposing an adjustment to the SDL;22

" the MDBA must invite members of the public to make submissions on the

proposed adjustment and provide a reasonable amount of time for those submissions to be made and considered;23

" the adjustment to the total basin SDL must be no more than plus or minus

5 per cent;24

" the SDL must still reflect an 'environmentally sustainable level of take'25 for the Basin water resources, or part of those water resources.26

" the Basin Plan must include criteria for determining whether the MDBA

should propose an adjustment and the amount of adjustment.27 The EM states that:

It is envisaged that criteria to be specified in the Basin Plan will include that the mechanism must operate on a no-detriment basis. The adjustments would then not be able to weaken the social, economic and environmental outcomes inherent in the Basin Plan.28

1.30 The EM also states that:

It is expected that the criteria to be included in the Basin Plan will include stakeholder consultation requirements.29

21 Explanatory Memorandum, Adjustment Mechanism bill, p. 8.

22 Paragraph 23A(2)(c), EM, p. 6.

23 Proposed paragraph 23A(2)(d). This paragraph was inserted in amendments in the House of Representatives on 30 October 2012.

24 Proposed subsection 23A(4), EM pp 5-6.

25 As defined in s. 4 of the Water Act.

26 Section 23, EM pp 2 and 6.

27 Proposed paragraphs 23A(2)(a) and (b).

28 Explanatory Memorandum, Adjustment Mechanism bill, p. 2.

29 Explanatory Memorandum, Adjustment Mechanism bill, p. 3.

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1.31 As discussed earlier, the Adjustment Mechanism bill proposes to amend the Water Act to provide a mechanism to adjust the long-term average SDLs under the Basin Plan 'without invoking the formal Basin Plan amendment process'.30 The EM states that an SDL adjustment mechanism 'has been sought by all Basin governments' as well as stakeholders.31

1.32 The summary of the Adjustment Mechanism bill above incorporates the amendments in the House of Representatives on 30 October 2012. However, it is worth noting that the Adjustment Mechanism bill was amended in three key ways:

" to require that the public be consulted and their submissions considered before the MDBA proposes an adjustment;

" to provide the relevant minister with a discretion as to whether or not to adopt an amendment proposed by the MDBA; and

" to ensure that an amendment to the Basin Plan to adjust the SDL is a

disallowable legislative instrument.32

Water Amendment (Water fo r the Environment Special Account) Bill 2012

1.33 The Special Account bill gives effect to the Prime Minister's announcement of 26 October 2012 to provide $1.77 billion to fund projects to acquire an additional 450GL of water above the 2750GL benchmark in the Basin Plan.33

1.34 The Special Account bill would amend the Water Act to establish the Water for the Environment Special Account pursuant to section 21 of the Financial Management and Accountability Act 1997. The bill would appropriate $1,775 billion over a 10-year period from the 2014-15 financial year to the special account.34

1.35 The bill specifies the nature of amounts that would be credited to the account, the purposes for which amounts would be debited from the account and would require annual performance based reporting on the achievements of the account.35

1.36 The Special Account bill is designed to complement the Adjustment Mechanism bill in that it would allow funds to be dedicated to projects and programs to decrease the long-term average SDL. According to the EM, the Special Account bill would 'enable water to be recovered and constraints to be removed without negatively impacting on the wellbeing of communities in the Basin'.

30 Explanatory Memorandum, Adjustment Mechanism bill, p. 2.

31 Explanatory Memorandum, Adjustment Mechanism bill, p. 3.

32 House of Representatives Hansard , 30 October 2012, pp 96-97.

33 Prime Minister and Minister for the Environment, Returning the Murray-Darling Basin to Health, media release dated 26 October 2012, http://www.pm.gov.au/press-office/returning- murrav-darling-basin-health (accessed 30 October 2012).

34 Explanatory Memorandum, Water Amendment (Water for the Environment Special Account) Bill 2012 (Special Account bill), p. 3,

35 Explanatory Memorandum, Special Account bill, p. 2.

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Key provisions

1.37 The Special Account bill would insert a new part 2AA into the Water Act. Proposed subsection 86AA(1) provides that the object of part 2AA would be to enhance the environmental outcomes that can be achieved by the Basin Plan by protecting and restoring the environmental assets of the Murray-Darling Basin and protecting biodiversity dependent on the Basin water resources so as to give effect to relevant international agreements. Proposed subsection 86AA(2) sets out examples of how environmental assets of the Murray-Darling Basin may be protected and restored, and includes:

(a) increasing the flow of water through barrages to the Coorong;

(b) increasing the average depth of water in the Lower Lakes;

(c) reducing the average salinity levels in the Coorong and Lower Lakes;

(d) increasing the average depth of water at the mouth of the River Murray;

(e) flushing salt from the water resources of the Murray-Darling Basin to reduce the average salinity levels of the Basin;

(f) allowing for environmental watering of floodplains of the River Murray System;

(g) providing flows of water over the banks of rivers and streams to improve connections between water-dependent ecosystems in the River Murray System.

1.38 Proposed section 86AD sets out the puiposes of the Water for the

Environment Special Account. In summary, payments from the special account would be made if the aim was to further the object of part 2AA by:

" improving the water efficiency of the infrastructure that uses Basin water resources for irrigation;

" improving the water efficiency of any other infrastructure that stores, delivers or drains Basin water resources for the primary purpose of providing water for irrigation;

" improving or modifying infrastructure (including bridges and roads) that constrains the delivery of environmental water to the environmental assets of the Murray-Darling Basin in order to ease or remove those constraints;

" increasing the capacity in dams and storages to increase the capacity to deliver environmental water to the environmental assets of the Murray-Darling Basin;

" entering agreements to acquire an interest in land (including easements) to facilitate environmental watering of the environmental assets of the Murray- Darling Basin; and

" improving the rules, policies, practices and procedures in relation to the use and management of the Basin water resources.

1.39 Proposed paragraph 86AD(2)(b) provides that amounts standing to credit of the Account could be debited for the purpose of purchasing water access rights which

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relate to Basin water resources for the purpose of furthering the object of the new part 2AA.

1.40 Proposed paragraph 86AD(2)(c) provides that amounts standing to credit of the account could be debited for the purposes of making any other payments in relation to projects whose aim is to further the object of the new part 2AA; or to address any detrimental social or economic impact on the wellbeing of any community in the Murray-Darling Basin that is associated with a project or purchase using funds from the special account.36

1.41 Proposed section 86AE makes clear that water access rights acquired by the Commonwealth with amounts debited from the Water for the Environment Special Account would form part of the Commonwealth environmental water holding.37 The Commonwealth Environmental Water Holder must manage the holdings in accordance with sections 105 and 106 of the Water Act.

1.42 Proposed new section 86AG inserts a table which sets out the amount to be credited to the special account each financial year.

1.43 Proposed section 86AI requires an annual report to be given to the minister each financial year and that the minister must table the annual report in Parliament.

Key issues regarding the bills

1.44 Submitters and witnesses raised a number of key issues regarding the bills, including:

" transparency and consultation, in particular relating to the availability of certain key documents;

" ministerial discretion and parliamentary oversight under the Adjustment Mechanism bill;

" whether and how the object of part 2AA of the Special Account bill might be achieved;

" the purposes for which payments could be made from the Water for the

Special Account.

1.45 Some of the key issues regarding the Adjustment Mechanism bill are discussed in greater detail in Chapter 2, while those pertaining to the Special Account bill are discussed in Chapter 3.

36 Explanatory Memorandum, Special Account bill, pp 8-9.

37 As defined by section 108 of the Water Act.

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Chapter 2

Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 2.1 As mentioned in Chapter 1, submitters and witnesses raised a number of key issues regarding both the Water Amendment (Long-term Average Sustainable Diversion Limit Adjustment) Bill 2012 (the Adjustment Mechanism bill) and the Water Amendment (Water for the Environment Special Account) Bill 2012 (the

Special Account bill).

2.2 Key issues relating to the Adjustment Mechanism bill are discussed in the following sections of this chapter. Key issues regarding the Special Account bill are discussed in Chapter 3.

Key issues regarding the bill

2.3 Many submitters were generally supportive of an adjustment mechanism and therefore the intent of the Adjustment Mechanism bill.1 However, some concerns were raised about certain aspects of the bill, including:

" lack of opportunity for public participation in and consultation on the

adjustment mechanism;

" lack of ministerial discretion as to whether to adopt an adjustment amendment to the Basin Plan; and

" whether such an amendment to the Basin Plan is a disallowable instrument.

Transparency and consultation

2.4 The Adjustment Mechanism bill seeks to require in the Basin Plan the inclusion of criteria for determining whether the MDBA should propose an adjustment to the long-term average sustainable diversion limit (SDL) and the amount of any adjustment (see paragraphs 23A(2)(a) and (b)).

2.5 However, several submitters were concerned that the details of the adjustment mechanism *such as these criteria *have not yet been made public.1 2 For example, the NSW Irrigators' Council (NSWIC) suggested that it was 'entirely unable to provide opinion on that matter' because the Council had not yet seen the adjustment

mechanism.3 The NSWIC continued, however, that it:

1 See for example ACF, Submission 1; NSW Irrigators' Council, Submission 3; Murray Valley Winegrowers', Submission 10; and NSW Office of Water, Submission 15.

2 See for example NSW Irrigators' Council (NSWIC), Submission 3, p. 2; National Irrigators' Council, Submission 17, p. 2; Australian Dairy Industry Council Inc. (ADIC), Submission 8, pp 1-2; and Victorian Farmers' Federation (VFF), Submission 14, p. 4.

3 NSWIC, Submission 3, p. 2.

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...reserves its right to support the adjustment mechanism within the Draft Plan when we become privy to it. It may be the case that we support not only that mechanism, but the legislative change to accommodate it.4

2.6 The National Irrigators' Council was supportive of an adjustment mechanism but, similar to the NSWIC, was:

...concerned that Parliament would amend the Water Act to facilitate an SDL Adjustment Mechanism, when the details of the Mechanism, contained in the Basin Plan, have not been made public nor shown to stakeholders. To have confidence in the SDL Adjustment Mechanism we must understand the assumptions built into the mechanism's models,

including the "Initial Conditions of Development", that may affect the extent to which works and measures lead to SDL adjustments.

For this reason it is essential that the details of the SDL Adjustment Mechanism be provided to the Parliament, stakeholders and the community before the Water Act is amended.5

2.7 The Australian Dairy Industry Council (ADIC) argued:

It is unacceptable that Parliament should amend the Water Act to facilitate an unknown adjustment mechanism on a "trust us" basis. The Water Minister, Tony Burke, told Parliament in his second reading speech that the amendment introduced transparency to the SDL adjustment mechanism process - this commitment should extend to providing the details of the mechanism itself so that Parliament, stakeholders and the community can make an informed judgement of the Bill *s merits.6

2.8 Similarly, the Victorian Farmers * Federation (VFF) stated:

It is imprudent to consent to an amendment of the Act which will enshrine the SDL Adjustment Mechanism without an understanding of what will or will not be considered within any adjustment mechanism framework.7

2.9 The Department of Sustainability, Environment, Water, Population and Communities (SEWPAC) informed the committee that *[t]he adjustment mechanism bill is the bill that requires the plan to set out the criteria for those adjustments *.8

2.10 The committee also notes that the EM states:

It is envisaged that criteria to be specified in the Basin Plan will include that the mechanism must operate on a no-detriment basis. The adjustments

4 NSWIC, Submission 3, p. 2.

5 National Irrigators1 Council, Submission 17, p. 2.

6 ADIC, Submission 8, pp 1 *2.

7 VFF, Submission 14, p. 4.

8 Mr Anthony Slatyer, First Assistant Secretary, Water Reform Division, Department of Sustainability, Environment, Water, Population and Communities (SEWPaC), Proof Committee Hansard, 12 November 2012, p. 35.

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would then not be able to weaken the social, economic and environmental outcomes inherent in the Basin Plan.9

Ministerial discretion

2.11 The Adjustment Mechanism bill as originally drafted would have required the minister to adopt the recommendations of the MDBA with respect to adjusting the long-term average SDL. Various submitters opined that the minister *and not the MDBA *should have ultimate responsibility in this regard: that is, that the minister should have discretion whether or not to accept the MDBA's recommendations.10 11

2.12 Murray Irrigation argued:

...it is entirely inappropriate that an unelected authority be charged with making changes to legislation, given the Basin Plan is a legislative instrument, which may require significant budget allocations. As it currently stands, the responsible Minister has oversight of the Basin Plan and associated budgetary implications, which is how it must remain.11

2.13 The NSW Office of Water shared this view and stated: 'The final

responsibility for determining an SDL adjustment should be that of the Commonwealth Minister...not an independent agency1.12

2.14 To address the concern about ministerial discretion, the National Irrigators' Council recommended that the bill be amended so that the minister 'may' adopt the MDBA's recommendations on adjusting the SDL, rather than 'must'.13

Parliamentary oversight

2.15 Some submitters were concerned that proposed adjustments to the long-term average SDL would not be disallowable legislative instruments thereby circumventing the Parliament's ability to reject these adjustments.14 As a result, various submitters called for the adjustments to be disallowable instruments. For example, the National Irrigators' Council stated:

NIC does not support the abrogation of Ministerial and Parliamentary oversight and believe the Bill needs to be amended to ensure that the Murray Darling Basin MDBA does not have the ultimate power to accept or reject the proposed SDL Adjustments. This power must be retained by the

9 Explanatory Memorandum, Adjustment Mechanism bill, p. 2.

10 See for example River Lakes and Coorong Action Group, Submission 5, p. 2; ADIC, Submission 8, p. 3; Murray Irrigation, Submission 11, p.5; NSW Office of Water, Submission 15, p. 1; NFF, Submission 16, p. 2; and National Irrigators' Council, Submission 17, p. 3.

11 Murray Irrigation, Submission 11, p. 5.

12 NSW Office of Water, Submission 15, p. 1.

13 National Irrigators' Council, Submission 17, p. 3.

14 See for example ACF, Submission 1, p. 1; NSWIC, Submission 3, p. 3; National Irrigators' Council, Submission 17, p. 3; and Australian Network of Environmental Defender's Offices Inc. (ANEDO), Submission 9, p. 2.

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Parliament. As stated previously, stakeholders have no confidence in the MDBA to make a determination taking into account stakeholder concerns.

NIC is calling for the Parliament to have a determinative role, by allowing for the disallowance of a proposed SDL Adjustment.15

2.16 The ACF was also concerned that 'the Bill would prevent

effective...Parliamentary oversight of such adjustments...the Parliament would have no power of disallowance'16 as was the Australian Network of Environmental Defender's Offices (ANEDO):

The Bill...indicates that adjustment amendments adopted by the Minister will not be subject to disallowance by Parliament. Again, this is inconsistent with [the] Water Act which indicates that the Basin Plan is a legislative instrument that will be tabled before Parliament, and subject to disallowance...The Bill should be amended to provide that proposed adjustment amendments are disallowable legislative instruments.17

Committee comment

2.17 As outlined in Chapter 1, the Adjustment Mechanism bill was amended in the House of Representatives on 30 October 2012, after submissions had been received by the committee. In particular, the Adjustment Mechanism bill was amended to:

" require that the public be consulted and their submissions considered before the MDBA proposes an adjustment to the long-term average SDL;

" provide the relevant minister with discretion as to whether or not to adopt an adjustment proposed by the MDBA; and

" ensure that an amendment to the Basin Plan to adjust the long-term average SDL is a disallowable legislative instrument.

2.18 These amendments address most of the concerns raised during the course of the inquiry regarding the Adjustment Mechanism bill. Indeed, a number of witnesses expressed their support for the amendments.18 The ACF welcomed 'the amendments passed recently by the House of Representatives'19 as did Murray Valley Irrigators:

We continue to support the passage of the bill. We believe the amendments in the lower house have strengthened it in that there is greater oversight and transparency in the system, particularly as it accrues to the minister of water

being able to reject an adjustment if he believes that is appropriate, and the

15 National Ini gators' Council, Submission 17, p. 3.

16 ACF, Submission 1, p. 1.

17 ANEDO, Submission 9, pp 4-5.

18 See Mr Jonathan La Nauze, Healthy Rivers Campaigner, ACF, Proof Committee Hansard , 8 November 2012, p. 19; Mr Mark McKenzie, Chief Executive Officer, Murray Valley Irrigators, Proof Committee Hansard , 8 November 2012, p. 23; and Ms Stefanie Schulte, Economic Policy Analyst, NSWIC, Proof Committee Hansard , 12 November 2012, p. 1.

19 Mr Jonathan La Nauze, Healthy Rivers Campaigner, ACF, Proof Committee Hansard, 8 November 2012, p. 19.

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science and the modelling does not support and adjustment to the SDL. We believe that it will go to reducing some of the political friction between parties and lobbies *environmental, irrigator and community.20

2.19 On the basis that the amendments to the Adjustment Mechanism bill agreed in the House of Representatives on 30 October resolve the concerns raised during this inquiry regarding transparency and consultation, ministerial discretion and parliamentary oversight, the committee recommends that the bill be passed.

Recommendation 1

2.20 The committee recommends that the Adjustment Mechanism bill as amended in the House of Representatives on 30 October 2012 be passed.

20 Mr Mark McKenzie, Chief Executive Officer, Murray Valley Irrigators, Proof Committee Hansard, 8 November 2012, p. 23.

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Chapter 3

Water Amendment (Water for the Environment Special Account) Bill 2012 3.1 Some submitters and witnesses expressed general support for the Water Amendment (Water for the Environment Special Account) Bill 2012 (the Special Account bill). For example, the South Australian government submitted that the

Special Account bill was an 'important step in restoring the health of the Murray- Darling Basin'1 while the River Lakes and Coorong Action Group welcomed:

...the creation of a bill that supports responsive management of the basin system and at the same time aims to provide funding for the acquisition of an additional 450 gigalitres of water.1 2 3

3.2 However, some issues regarding the Special Account bill were also raised during the course of the inquiry, including:

" transparency and consultation, in the absence of the final Murray-Darling Basin Plan and other key documents;

" whether and how the object of the new part 2AA might be achieved;"1 and

" the purposes for which payments can be made from the Water for the

Environment Special Account (the Special Account).4

3.3 These issues are discussed in turn below.

Key issues regarding the bill

Transparency and consultation

3.4 In similarity with the Adjustment Mechanism bill, some submitters and witnesses argued that it was difficult to support the Special Account bill before a range of key documents relating to the legislation have been finalised. In particular, the committee heard that the Special Account bill should not be considered in

isolation from the final Murray-Darling Basin Plan, the water recovery strategy, the

1 Government of South Australia, Submission 10, p. 1.

2 Ms Elizabeth Tregenza, Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 1.

3 As set out in proposed section 86AA.

4 As set out in proposed section 86AD.

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environmental watering plan and any intergovernmental agreements underpinning the Basin Plan.5

3.5 The NSW Irrigators' Council (NSWIC) suggested that consideration of the bill be deferred 'until such time as the current Draft Basin Plan is able to be considered by the Senate, stakeholders and the public'.6 Ms Stefanie Schulte from the NSWIC told the committee:

In the absence of a finalised basin plan, as a legislative background for these bills it remains extremely difficult for us to evaluate in full the proposed amendments and provide detailed comments to the committee. We continue to reserve the right to endorse the bills; however, until such time as details of the final basin plan are made available along with the assumptions and features underlying the adjustment mechanism, we are unable to provide an endorsement to the committee.7

3.6 Similarly, the National Irrigators' Council stated that:

While the National Irrigators Council is supportive of the principle of additional funding for on-farm works, it is impossible for the NIC to provide an endorsement of the proposed Bill until we have seen the final Basin Plan, the water recovery strategy document, the Intergovernmental Agreement, the regulatory impact statement and other key documents.8

3.7 In response to these concerns about considering the Special Account bill in the absence of certain key documents, the Department of Sustainability, Environment, Water, Population and Communities (SEWPAC) acknowledged that the bill:

...is a facilitative bill. It is part of a broader suite of policy instruments including the respective basin plan, including the SDL adjustment mechanism bill and, ultimately, also including implementation agreements which are proposed between the basin jurisdictions and the Commonwealth government. So it is, if you like, one part of the jigsaw puzzle. It does not stand by itself or self-actuate by itself without all of those other mechanisms interacting in an integrated way.9

5 See, for example, NSWIC, Submission 13, p. 1; National Irrigators' Council, Submission 15, p. 2; Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 24; VFF, Submission 6, p. 1; Mr Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard, 8 November 2012, p. 29; Mr Matt Linnegar, Chief Executive Officer, National Fanners' Federation (NFF), Proof Committee Hansard, 12 November 2012, p. 9.

6 NSWIC, Submission 13, p. 3; see also National Imgators' Council, Submission 15, p. 2;

7 Ms Stefanie Schulte, Economic Policy Analyst, NSWIC, Proof Committee Hansard, 12 November 2012, p. 1.

8 Submission 15, p. 4; see also Mr Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard, 12 November 2012, p. 5.

9 Proof Committee Hansard, 12 November 2012, p. 31.

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Object o f part 2AA

3.8 Proposed subsection 86AA(3) of the Special Account bill provides that the object of the part 2AA of the Water Act would be achieved by:

(a) easing or removing constraints on the capacity to deliver environmental water to the environmental assets of the Murray-Darling Basin; and

(b) increasing the volume of the Basin water resources that is available for environmental use by up to 450 gigalitres (GL).

3.9 Many organisations raised issues relating to whether and how the object of proposed part 2AA might be achieved, and in particular:

" the list of examples in proposed subsection 86AA(2);

" the potential impacts of removing constraints as outlined in 86AA(3)(a);

" the use of the words 'up to' in paragraph 86AA(3)(b); and

" whether the bill would achieve the object of increasing the volume of Basin water resources available for enviromnental use by up to 450GL.

3.10 These issues are discussed in the following sections.

List of examples in proposed subsection 86AA(2)

3.11 As outlined in Chapter 1, proposed subsection 86AA(2) sets out a list of examples of how environmental water assets in the Murray-Darling Basin may be protected or restored. Several submitters queried this list;10 11 some suggested these examples would be more appropriately contained in the Basin Plan rather than in the legislation.11

3.12 Environment Victoria supported the list of examples but noted that it appeared 'to be limited to the Murray system'. Environment Victoria suggested the clause be amended to include the northern basin.12

3.13 The River Lakes and Coorong Action Group welcomed recognition of the:

... importance of the key environmental benefits of reducing levels of salinity in the Coorong, Lake Alexandria and Lake Albert; maintaining the Murray mouth; the critical need to flush accumulated salts from the whole system; increasing barrage flows to the Coorong to support critical fish migrations; and environmental watering of flood plains throughout the whole basin.13

10 See also VFF, Submission 6, p. 3; CSIRO, Submission 3, p. 2; and Murray Irrigation, Submission 5, pp 7-8.

11 Murray Irrigation, Submission 5, p. 7; Mr Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard, 8 November 2012, p. 32.

12 Environment Victoria, Submission 7, p. 1; see also Mr Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard, 12 November 2012, p. 3.

13 Ms Elizabeth Tregenza. Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 1.

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3.14 Similarly, The Wilderness Society (TWS) observed in relation to proposed subsection 86AA(2):

It is no fluke to me that the area that is highlighted there is the estuary of the river. The health of the river's estuary is pretty much a sign of the health of an entire river system. If we focus on the estuary and the health of this area we can generally say that, if we have a healthy estuary, we have a relatively healthy river.14

Constraint removal

3.15 In relation to the removal of constraints, the explanatory memorandum states that:

The Murray Darling Basin Authority (the Authority) has identified a suite of constraints throughout the Basin which could be addressed to maximise the environmental benefits from implementation of the Basin Plan.

The Bill provides funding to allow the constraints removal to facilitate delivery of the additional environmental water recovery and achieve improved environmental outcomes from those water holdings. This could

be done through a range of project including acquisition of flood easements, provision of access works (for example, bridges, culverts), changed watering regimes and increased outlet capacity on major dams and storages.15

3.16 However, concern was expressed during the inquiry that the removal of constraints could impact adversely on communities in the Murray-Darling Basin, for example, through flooding of infrastructure and assets.16

3.17 The National Irrigators' Council submitted that:

There are concerns that the potential third party impacts caused by removing or relaxing physical and regulatory constraints are not well understood and have not been adequately addressed in the Bill. Third party impacts include but are not limited to the flooding of private property,

homes and infrastructure.17

3.18 Mr Mark McKenzie from the Murray Valley Winegrowers told the committee that:

14 Mr Peter Owen, South Australia Campaign Manager, TWS, Proof Committee Hansard, 8 November 2012, p. 11.

15 Explanatory Memorandum, Special Account bill, p. 4.

16 See for example Goulbum Valley Water Action Group, Submission 2, p. 1; National Irrigators' Council, Submission 15, p. 4; VFF, Submission 6, p. 4; NSWIC, Submission 13, p. 2; see also Mr Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard , 8 November 2012, p. 32; Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, pp 25 and 28.

17 National Irrigators' Council, Submission 15, p. 4; see also Mr Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard, 12 November 2012.

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...we have communities that were built on flood plains over the last 150 years. Whether we like it or not, they are there, and the cost of mitigating collateral damage to them through generating floods down the system is going to be very significant.18

3.19 The National Farmers' Federation (NFF) also cautioned:

...if relaxation of constraints can lead to a better environmental outcome without the social and economic harm, I think people would say that that is a positive way to look at it. But...they require careful examination as to the potential risks which go with relaxation of constraints as well as the potential benefits.19 20 21

3.20 Other witnesses, however, did not share this concern. The Australian Conservation Foundation (ACF) pointed out that:

...when the Murray-Darling Basin Authority released their relaxed constraints model...they explicitly relaxed the constraints only to the point that kept flood levels below the minor flood warnings in all of the river reaches they tested. So the constraints that this modelling has assumed to remove would not result in any triggering of even minor flood warning levels, according the basin authority."0

3.21 Similarly, Ms Rachel Walmsley of ANEDO observed that:

I do not think it would be the authority's intent that the release of environmental water would be massive flood events. It would be a controlled, periodic release at certain times/1

3.22 In response to this issue, the MDBA told the committee:

The authority, in developing its proposals to increase environmental watering, will be making sure that that it works with stakeholders to look at where those potential issues are and, if needed, it will put in place restrictions so that that sort of thing does not happen.22

3.23 The MDBA further noted that:

... there are rules in place to manage those events and make sure that inadvertent flooding of private property does not happen.23

18 Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 28.

19 Mr Matt Linnegar, Chief Executive Officer, NFF, Proof Committee Hansard , 12 November 2012, p. 12.

20 Mr Jonathan La Nauze, Health Rivers Campaigner, ACF, Proof Committee Hansard, 8 November 2012, p. 19.

21 Ms Rachel Walmsley, Policy and Law Reform Director, ANEDO, Proof Committee Hansard, 12 November 2012, p. 20.

22 Mr Russell James, Executive Director, Policy and Planning Division, Murray-Darling Basin Authority, Proof Committee Hansard, 12 November 2012, p. 39.

23 Proof Committee Hansard, 12 November 2012, pp 39-40.

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3.24 The committee also notes that the explanatory memorandum states:

Constraints projects will only be implemented after community consultation, negotiation and detailed proposal design.24

Use of the words 'up to' in paragraph 86AA(3)(b)

3.25 Proposed paragraph 86AA(3)(b) of the Special Account bill states that the object of this part would be achieved by 'increasing the volume of the Basin water resources that is available for environmental use by up to 450 gigalitres'.2"

3.26 The South Australian government submitted that the bill is:

...important to ensure that the funding committed by the Commonwealth Government to recover the additional 450GL and address constraints to environmental water delivery is protected by legislation.26

3.27 The use of the words 'up to' in this paragraph caused some concern during the course of the inquiry. Several organisations felt that the use of this wording meant that the Special Account bill does not require or guarantee that an additional 450GL will be returned to the river system.27 For this reason, it was suggested that proposed subsection 86AA(3) should be strengthened.28 For example, ANEDO suggested that this paragraph be amended to state that the object of part 2AA is achieved by 'increasing the volume of Basin water resources that is available for environmental use by a minimum of 450 gigalitres'.29

3.28 When questioned about the use of the words 'up to', SEWPAC told the

committee:

The reason is that the bill makes a commitment to money. It provides a special appropriation and a fund to provide a framework with a given amount of money to recover water. The actual water recovery obviously depends on the vagaries of the future, including future prices and so forth. It

24 Explanatory Memorandum, Special Account bill, p. 4. See also evidence from the Department, Proof Committee Hansard, 12 November 2012, p. 40.

25 Emphasis added.

26 Government of South Australia, Submission 11, p. 2.

27 See for example ANEDO, Submission 9, p. 8; CCSA and TWS, Submission 11, p. 9; ACE, Submission 12, p. 1; Mr Tim Kelly, Chief Executive Officer, CCSA, Proof Committee Hansard, 8 November 2012, p. 9; Mr Rob Fowler, President, CCSA, Proof Committee Hansard, 8 November 2012, p. 10 and p. 12; Mr Jonathan La Nauze, Healthy Rivers

Campaigner, ACE, Proof Committee Hansard, 8 November 2012, pp 18 and 20; Mr Peter Cosier, Convenor, Wentworth Group of Concerned Scientists, 12 November 2012, p. 29.

28 See for example Environment Victoria, Submission 7, p. 1; ANEDO, Submission 8, p. 6; ACE, Submission 12, p. 2; CCSA and TWS, Submission 11, p. 9; Mr Rob Fowler, President, CCSA, Proof Committee Hansard, 8 November 2012, pp 10 and 13.

29 ANEDO, Submission 8, p. 6.

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is a commitment to money which we expect to progressively translate to water over time as the projects are committed and come into actuality.30

Increasing the volume of water for environmental use

3.29 During the course of the inquiry, there was some debate about whether the Special Account bill would actually achieve an increase in the volume of Basin water available for environmental use by up to 450GL, as set out in proposed paragraph 86AA(3)(b).

3.30 For example, the ACF was sceptical as to whether an extra 450GL could be recovered through water-saving infrastructure.31 In contrast, the Victorian Farmers' Federation (VFF) thought it was possible to find 450GL through environmental works and measures.32

3.31 In terms of finding the extra water, the department informed the committee about feasibility studies examining ways to find water from efficiency works and measures (that is, achieving equivalent environmental outcomes by using less water). The department explained:

There are feasibility studies underway that the Commonwealth is funding, in each of the jurisdictions, looking at candidate prospective projects of all different sorts around the basin that have the potential to be offset projects, essentially, to reduce the need for environmental water. But there is quite a substantial process being developed for how the full suite of proposals of that sort would come forward and go through an assessment process and the ones which meet the terms of the adjustment mechanism to see this through to reality.33

3.32 In this context, there was also conjecture as to whether an extra 450GL was enough and whether a total reduction in extractions of 3200GL was sufficient.34 35 The South Australian government submitted that:

Science analysis based on modelling by the Murray-Darling Basin Authority shows that the return of 3200GL is required to achieve a healthy %† . 35

river system.

30 Mi* David Parker, Deputy Secretary, Water Group, SEWPaC, Proof Committee Hansard , 12November 2012, p. 33.

31 Mr Jonathan La Nauze, Plealthy Rivers Campaigner, ACF, Proof Committee Hansard, 8 November 2012, p. 18.

32 Mr Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard, 8 November 2012, p .33.

33 Ms Mary Hardwood, First Assistant Secretary, Water Efficiency Division, SEWPaC, Proof Committee Hansard, 12 November 2012, p. 39.

34 See for example, CCSA and TWS, Submission 11, pp 3-4; River Lakes and Coorong Action Group, Submission 14, pp 2-3; Ms Elizabeth Tregenza, Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 2 and p. 5; ANEDO, Submission 8, pp 2 and 5.

35 Government of South Australia, Submission 10, p. 1.

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3.33 It was acknowledged that the Special Account bill and a recovery target of 3200GL was an improvement on the original plan of 2750GL/6 For example, the River Lakes and Coorong Action Group opined:

The extra 450 gigalitres offers some small comfort, and maybe the plan will be a basis on which we can move forward...every incremental amount of water that can be returned to the river *when we have a pretty clear

indication from the best available science that we are not going to get enough water *is going to be a positive.36 37

3.34 However, several organisations argued that 3200GL was still not sufficient.38 At the same time, the committee heard evidence that there was a great deal of scientific uncertainty around the exact volume of water required for a healthy river

system.39 In light of these scientific uncertainties, several organisations argued there was a need for an ongoing system of review and monitoring, including public consultation.40

3.35 Others cautioned about focussing on the volume of water and suggested that the emphasis should be on the actual outcomes. The River Lakes and Coorong Action Group claimed:

...it should be more about measuring the health of the river system as a

whole and less about focusing on numbers which may in fact not mean anything in reality.41

3.36 The VFF held a similar view:

36 See for example Ms Elizabeth Tregenza, Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 3; Mr Tim Kelly, Chief Executive Officer, CCSA, Proof Committee Hansard, 8 November 2012, p. 15; Mr Jonathan La Nauze, Healthy Rivers Campaigner, ACE, Proof Committee Hansard, 8 November 2012, p. 20.

37 Ms Elizabeth Tregenza, Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 7; see also p. 2.

38 See for example. Mr Peter Cosier, Convenor, Wentworth Group of Concerned Scientists, Proof Committee Hansard, 12 November 2012, pp 23-24; Mr Tim Kelly, Chief Executive Officer, CCSA, Proof Committee Hansard, 8 November 2012, p. 9; Mr Peter Owen, South Australian Campaign Manager, TWS, Proof Committee Hansard, 8 November 2012, p. 10; Ms Rachel Walmsley, Policy and Law Reform Director, ANEDO, Proof Committee Hansard,

12 November 2012, p. 16

39 See for example Professor Diane Bell, Representative, CCSA, Proof Committee Hansard, 8 November 2012, pp 13 and 14; Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 25; Mr Peter Owen, South Australia Campaign Manager, TWS, Proof Committee Hansard, 8 November 2012, p. 13.

40 River Lakes and Coorong Action Group, Submission 14, p. 4; see also Ms Elizabeth Tregenza, Proof Committee Hansard, 8 November 2012, pp 3 and 6; M" Peter Owen, South Australian Campaign Manager, TWS, Proof Committee Hansard, 8 November 2012, p. 15; M Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard,

12 November 2012, p. 4.

41 Ms Elizabeth Tregenza, Secretary, River Lakes and Coorong Action Group, Proof Committee Hansard, 8 November 2012, p. 3.

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Everyone talks about a volume *2,750 or 3,200. I do not think that this is about a volume. It has never been about a volume. This should be about environmental outcomes. It is not about the volume of water; it is about getting the environmental outcomes.4"

3.37 In this regard, the committee notes that in his second reading speech the minister listed various outcomes intended to result from the Special Account bill:

" salinity in the Coorong and Lower Lakes being further reduced so that it does not exceed levels which are lethal to insects, fish and plants that form important parts of the food chain;

" water levels in the Lower Lakes being kept above 0.4 metres for 95 per cent of the time, helping to maintain flows to the Coorong, to prevent acidification, and to prevent acid drainage and riverbank collapse below Lock 1;

" the maximum average daily salinity in the Coorong south lagoon being less than 100 grams per litre for 98 per cent of years and less than 120 grams per litre at all times in the model period;

" the maximum average daily salinity in the Coorong north lagoon being less than 50 grams per litre for 98 per cent of years;

" maintaining the Murray Mouth at greater depths, reducing the risk of dredging being needed to keep the mouth open;

" two million tonnes of salt being exported from the basin each year as a long-term average;

" barrage flows to the Coorong being increased, supporting more years where critical fish migrations can occur for estuarine fish,

" opportunities to actively water an additional 35,000 hectares of flood plain in South Australia, New South Wales and Victoria, improving the health of forests and fish and bird habitat, improving the connection to the river, and replenishing groundwater; and

" enhanced in-stream outcomes and improved connections with low-level flood plain and habitats adjacent to rivers in the Southern Basin, which can be achieved.42 43

3.38 The committee also notes that some witnesses called for these outcomes to be specified in the Special Account bill itself.44

42 Mr Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard, 8 November 2012, p. 29; see also Mr Matt Linnegar, Chief Executive Officer, NFF, Proof Committee Hansard, 12 November 2012, pp 10 and 15; Mr Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard, 12 November 2012, p. 7.

43 The Hon. Mr Tony Burke, Minister for Sustainability, Environment, Water, Population and Communities, Second Reading Speech, Water Amendment (Water for the Environment Special Account) Bill 2012, House of Representatives Hansard, 31 October 2012, p. 9.

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Purpose o f the Water fo r the Environment Special Account

3.39 In relation to the purpose of the Special Account, as set out in proposed section 86AD, the key issues raised during the course of the inquiry related to the use of funds from the Special Account to:

" increase the capacity of dams and storage;4:1

" purchase water access rights ("buybacks");44 45 46 and

" address social and economic impacts.47

3.40 These are discussed below.

Increasing the capacity of dams and storage

3.41 Proposed paragraph 86AD(2)(a)(iv) of the Special Account bill would enable payments to be made for projects which further the objects of the part by:

... increasing the capacity of dams and storages to deliver environmental water to the environmental assets of the Murray-Darling Basin.

3.42 Several organisations opposed this clause.48 For example, the ACF submitted that:

This provision should be restricted to projects which increase the outlet capacity of existing dams and storages where this is required in order to effectively water environmental assets.49

3.43 However, the committee notes that proposed subsection 86AD(4) provides a limit on paragraph 86(2)(a) and that any such payments must be in relation to a project whose aim is to further the objects of part 2AA as set out in 86AA(1); that is:

...to enhance the environmental outcomes that can be achieved by the Basin Plan, as in force from time to time, by:

(a) protecting and restoring the environmental assets of the Mmray-Darling Basin; and

(b) protecting biodiversity dependent on the Basin water resources;

so as to give effect to relevant international agreements.

44 See for example Mr Peter Owen, South Australia Campaign Manager, TWS, Proof Committee Hansard, 8 November 2012, p. 11 and Mr Rob Fowler, President, CCSA, Proof Committee Hansard, 8 November 2012, p. 14.

45 See proposed paragraph 86AD(2)(b).

46 See proposed paragraph 86AD(2)(a)(iv).

47 See proposed paragraph 86AD(2)(c)(ii).

48 See ACF, Submission 12, p. 3; ANEDO, Submission 8 , pp 7-8; Environment Victoria, Submission 7, p. 1; Ms Rachel Walmsley, Policy and Law Reform Director, ANEDO, Proof Committee Hansard, 12 November 2012, p. 21.

49 ACF, Submission 12, p. 3.

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Buybacks under proposed paragraph 86AD(2)(b)

3.44 Proposed paragraph 86AD(2)(b) of the Special Account bill would provide that funds from the Special Account may be used to purchase water access rights in relation to Basin water resources ("buybacks").

3.45 Several organisations opposed the idea of further buybacks/0 Many of these suggested that this clause be removed or deleted, or at the very least, limited in some way. For example, the National Irrigators' Council argued that buybacks should be a "last resort". Mr Tom Chesson, Chief Executive Officer of the National Irrigators'

Council, told the committee that the bill should be amended to 'limit the amount of buybacks' and in particular to:

... stipulate how much water could be purchased out through large-scale tenders and buyback.50 51 52 53 54 55

3.46 Similarly, Murray Irrigation felt that paragraph 86AD(2)(b) should be removed, stating:

Murray Irrigation does not support further Commonwealth buyback of water entitlements believing that any transfer of entitlement must be directly related to an efficiency, infrastructure or reconfiguration project.32

3.47 Mr Matt Linnegar, Chief Executive Officer of the NFF, told the committee that a limit should be placed on any future buybacks 'in light of the social and economic consequences that would follow'.33

3.48 These organisations expressed a preference for funds in the Special Account to be spent on upgrading infrastructure and other efficiency measures.34 For example, the Murray Valley Winegrowers told the committee there needed to be more strategic thinking :

...we would much prefer to have a look at investing the money in capital works, environmental works and measures, that can save money without

50 See for example, NFF, Submission 9, p. 1; NSWIC, Submission 13, pp 2-3; National Irrigators * Council, Submission 15, pp 2-3; ABIC, Submission 4, p. 2; VFF, Submission 6, p. 3.

51 Mr Thomas Chesson, Chief Executive Officer, National Irrigators Council, Proof Committee Hansard, 12 November 2012, p. 3.

52 Murray Irrigation, Submission 5, p. 8.

53 Mr Matt Linnegar, Chief Executive Officer, National Farmers * Federation, Proof Committee Hansard, 12 November 2012, p. 11.

54 See for example, NSWIC, Submission 13, pp 2-3; National Irrigators' Council, Submission 15, p. 2; Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 23; Mr Matt Linnegar, Chief Executive Officer, NFF, Proof Committee Hansard, 12 November 2012, p. 12; Mr Richard Stott, Chairman, NSWIC, Proof Committee Hansard, 12 November 2012, p. 5.

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eroding that economic base for our industries * and that is why the focus is on infrastructure, not buyback. 55

3.49 The NFF was of:

...the very strong view that such water recovery cannot and should not

come from increasing water acquisition. This can only be to the detriment to the social and economic outcomes in the Basin.56

3.50 As a result, the NFF argued that the clause should be amended to:

...link the acquisition of any water entitlements to delivering an outcome only against the recovery of water entitlements from off river water infrastructure and efficiency projects.57 58 59

3.51 In contrast, others felt buybacks to be the most efficient and cost-effective way of recovering water.68 For example, ANEDO claimed:

...research indicates that buying water access rights is the most

cost-effective means of returning water to the environment.51 *

3.52 In response to questions about buybacks, the department stated:

Essentially this clause is there because there is a consensus among basin jurisdictions...that in addition to the actual infrastructure investment on-farm, which traditionally has involved the spending of the cost of the

infrastructure in return for half of the water recovery, these projects under this program would do that; there would be an investment in infrastructure in return for half of the water saving but it would have an associated linked purchase at the farm level for the remainder of the water saving. So it is not just an infrastructure program; it is a linked purchase program that is

effectively tied at the farm gate...This would mean that the farmer would get the return on the infrastructure and additional water saving, which would then be sold at market price. That has the effect of bringing the

average recovery cost below the numbers that you talked about before...It is not imagined in that particular provision of the bill that there would be a standard water buyback associated with that 450 gigalitres.60

55 Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 24 and see also p. 26; see also Mi∑ Richard Anderson, Chair Water Council, VFF, Proof Committee Hansard, 8 November 2012, p. 30.

56 NFF, Submission 9, p. 1.

57 NFF, Submission 9, p. 2.

58 See for example, ACF, Submission 12, p. 1; Mr Alistair Wood, Submission 16, p. 1; River Lakes And Coorong Action Group, Submission 14, p. 3; Mr Jonathan La Nauze, Healthy Rivers Campaigner, ACF, Proof Committee Hansard, 8 November 2012, p. 20.

59 ANEDO, Submission 8, p. 6; see also Ms Rachel Walmsley, Policy and Law Reform Director, ANEDO, Proof Committee Hansard, 12 November 2012, p. 20.

60 Mr David Parker, Deputy Secretary, Water Group, SEWPaC, Proof Committee Hansard, 12 November 2012, p. 34.

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3.53 In response to questioning as to whether 450GL could be found through buybacks, the department advised the committee that subsection 86AD(4) limited paragraph 86AD(2)(b) in that:

The project or purchase has to be related to an adjustment. That adjustment has to take place under the SDL adjustment mechanism and that only permits water to be recovered in a socioeconomically neutral way.61

Social and economic impacts

3.54 The issue of balancing enviromnental with social and economic impacts was raised in relation to the Special Account bill, both in the context of buybacks and constraints removal.62

3.55 Several suggestions were made as to how social and economic issues should be dealt with. For example, ADIC recommended that the Special Account bill be amended to include a provision requiring all programs to be subjected to a socio≠

economic impact assessment as part of the approvals process.63 64 65

3.56 The National Irrigators' Council recommended that proposed subsection 86AD(4) be amended to provide that the over-riding objective should be to recover water in a way which does not have adverse social and economic impacts for local " ∑ 64

communities.

3.57 Ms Stefanie Schulte, Economic Policy Analyst for the NSWIC, told the committee that:

If the intention of the bills is to achieve greater environmental outcomes subject to social and economic neutrality, as is suggested in both of the explanatory memorandums, then the bill should in our opinion reflect this explicitly.6"

3.58 With respect to addressing adverse social or economic impacts, the committee notes that paragraph 86AD(2)(c)(ii) of the Special Account bill would enable funds from the Special Account to be spent to make payments:

61 Mr David Parker, Deputy Secretary, Water Group, SEWPaC, Proof Committee Hansard, 12 November 2012, p. 36 and see also p. 38.

62 See for example NSWIC, Submission 13, pp 1-2; also Mr Mark McKenzie, Chief Executive Officer, Murray Valley Winegrowers, Proof Committee Hansard, 8 November 2012, p. 25; ANEDO, Submission 8, pp 6-7; ADIC, Submission 4, p. 2; Murray Irrigation, Submission 5, p. 6; VFF, Submission 6, p. 2; Mr Matt Linnegar, Chief Executive Officer, NFF, Proof Committee Hansard, 12 November 2012, pp 9 and 13; Ms Rachel Walmsley, Policy and Law Reform Director, ANEDO, Proof Committee Hansard, 12 November 2012, p. 17.

63 ADIC, Submission 4, p. 3.

64 National Irrigators' Council, Submission 15, p. 4; see also Mi * Tom Chesson, Chief Executive Officer, National Irrigators' Council, Proof Committee Hansard, 12 November 2012, p. 2.

65 Ms Stefanie Schulte, Economic Policy Analyst, NSWIC, Proof Committee Hansard, 8 November 2012, p. 2,

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...to address any detrimental social or economic impact on the wellbeing of any community in the Murray-Darling Basin that is associated with a project or purchase referred to in paragraph (a) or (b) or subparagraph (c)(i) so as to offset any such impact...

3.59 However, some organisations felt that proposed paragraph 86AD(2)(c)(ii) was too broad, and were concerned that the minister might use most or all of the money in the Special Account bill to address social and economic issues.66

3.60 For example, Environment Victoria submitted that paragraph 86AD(2)(c)(ii) was:

...open ended and could result in the majority of the funds in the Special

Account being used for a range of purposes other than the acquisition of water for the environment.67

3.61 Indeed, ANEDO claimed that this paragraph:

...does not further these objects insofar as it is entirely concerned with socio-economic, as opposed to environmental, outcomes. Rather, it is likely to undermine the Objects of Part 2AA by directing funding away from projects or purchases that would otherwise increase delivery of

environmental water to Basin assets.68

3.62 In response to concerns about social and economic impacts, and the extent to which funds from the Special Account might be used to address these, the department informed the committee that:

Paragraph 86AD(2)(c)...is the paragraph which references these payments to furthering the objectives of the part, and the part in turn references the adjustment mechanism provisions of the plan. There is an interconnection

such that the special account funds can only be expended if it is to achieve the outcomes of the adjustment provisions of the plan. The adjustment mechanism bill is the bill that requires the plan to set out the criteria for those adjustments.69 70

3.63 The committee also notes that the explanatory memorandum states:

The Government is committed to building on the Basin Plan to achieve environmental outcomes beyond those delivered by a 2,750GL reduction while maintaining or improving economic and social outcomes./0

3.64 And:

The Bill establishes the Account to set aside these funds to enable water to be recovered and constraints to be removed without negatively impacting

66 CCSA and TWS, Submission 11, p. 9-10; ANEDO, Submission 9, p. 8; ACF, Submission 12, p. 2; Mr Rob Fowler, President, CCSA, Proof Committee Hansard, 8 November 2012, p. 10.

67 Environment Victoria, Submission 7, p. 3.

68 ANEDO, Submission 8, p. 7; see also ACF, Submission 12, p. 1.

69 Proof Committee Hansard, 12 November 2012, p. 35.

70 Explanatory Memorandum, Special Account bill, p. 2.

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on the wellbeing of communities in the Basin. That water will be recovered in a way that meets the requirements of the Basin Plan that there are no negative social or economic impacts on Basin communities/1

3.65 Further, the committee notes that the minister, in his second reading speech, drew attention to the proposed Basin plan which stipulates that additional water would only be acquired in ways that did not have 'negative social and economic

consequences such as infrastructure'.71 72

Committee comment

3.66 The committee welcomes the government's commitment, and the associated funding, to achieve environmental benefits in the Murray-Darling Basin: the Special Account bill would provide the Commonwealth with a secure funding stream to be used to recover up to an additional 450GL of water for environmental use in the Basin.

3.67 The committee recognises, however, that the Murray-Darling Basin Plan and other related documents are yet to be finalised and made publically available: it is therefore difficult for stakeholders to fully consider the implications of the Special Account bill. The committee looks forward to finalisation of the Basin Plan by the end of 2012 and the certainty its release will bring to stakeholders.

3.68 With regard to recovering an additional 450GL of water, the committee shares the concerns of submitters who suggested that the words 'up to' should be removed from paragraph 86AA(3)(b) of the Special Account bill. The committee therefore reconnnends that 'up to' is removed from the bill.

Recommendation 2

3.69 The committee recommends that the words *up to' are removed from paragraph 86AA(3)(b) of the Special Account bill.

3.70 The committee also acknowledges the mistrust on behalf of some stakeholders that the intended outcomes of the Special Account bill, as outlined by the minister in his second reading speech (see paragraph 3.37), will come to fruition. To address the issue, the committee recommends that the Special Account bill is amended to include the intended outcomes outlined by the minister.

Recommendation 3

3.71 The committee recommends that the Special Account bill is amended to include the intended outcomes listed by the minister in his second reading speech.

3.72 Irrespective, the committee believes the Special Account bill provides an important platform from which to work towards restoring the health of the Murray- Darling Basin. The committee therefore recommends that the Special Account bill be passed.

71 Explanatory Memorandum, Special Account bill, p. 2.

72 The Hon Tony Burke MP, Minister for Sustainability, Environment, Water, Population and Communities, House of Representatives Hansard, 31 October 2012, p. 12740.

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Recommendation 4

3.73 Subject to the preceding recommendations, the committee recommends that the Special Account bill be passed.

Senator Doug Cameron Chair

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Additional comments from Coalition senators The Coalition is committed to Murray-Darling Basin reform, indeed it was under the Coalition that this reform was started with the passing of the Water Act in 2007. We support the need to return more water to the environment, however, believe it should be done so in a way that balances this objective with the need to provide for robust

rural communities and for the Basin to remain Australia's food bowl.

The triple bottom line consideration of social, economic and environmental factors is essential to deliver reform in a way that minimises the cost to communities of reduced water availability and ensures we improve the efficiency of both river systems and irrigation communities.

The triple bottom line approach was a core part of the Howard GovemmenCs water reform strategy, however, sadly, since 2007 this approach has not been followed and we have seen an ad-hoc approach to buybacks and systemic underspending on water saving infrastructure projects.

In excess of $500 million of the funds set aside by the Howard Government for water saving infrastructure projects has been spent on administrative functions, and even advertising campaigns. Further funds have been spent in infrastructure projects that do not save any water. By treating this funding pool as a general purpose pool of funds, Labor has undermined our ability to ensure reform is delivered at least cost to communities in the Basin.

Progress to date shows the disparity in outcomes under the buyback program compared to the infrastructure program. In excess of 1031GL has been secured through buybacks yet just 284GL has been secured or is under contract through the infrastructure program.

The non-strategic approach to this reform is compounded by the endless delays and uncertainty inflicted upon communities by the Government's inability to meet deadlines and deliver on commitments. More than $100 million has been spent by the

Murray-Darling Basin Authority on developing the Basin Plan, which does not include the extensive engagement by communities and stakeholders in endless discussions over the five years this process has been underway, much of which they feel has been of little impact on the outcomes or proposals.

Murray Valley Winegrowers Inc Chief Executive, Mr McKenzie, highlighted the ad hoc process being applied, the effect this uncertainty is having on their ability to assess the Basin Plan and the impact it will have on their community:

We do not have the capacity to fully assess the plan at this point for a couple of reasons. One is that we do not have a water recovery strategy and we do not have an environmental watering plan in final form. They are still works in progress... From our perspective, we have always held that it would be better to do the work first rather than push on with a target which, with respect, is a political target, not a

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target to deliver a plan which the whole community in the basin can sign off on. That said, we are fatigued and we need certainty.1

These two Bills, especially the rushed way in which they have been introduced into and debated within the parliament with limited prior consultation on their content, have compounded concerns about the management of this refonn process from a number of groups and stakeholders, such as the Australian Daily Industry Council Inc:

The dairy industry is uncomfortable with the Water Act being amended to give effect to a Basin Plan and IGA that no one has yet seen, on a Trust us * basis that the Plan and IGA will contain the appropriate safeguards.* 2

The Coalition believes that angst in river communities should be reduced by not just providing certainty to communities about how much water is to be recovered but also giving certainty that it will be recovered by delivering on promises to prioritise water saving infrastructure investments and environmental works and measures, while

limiting remaining buybacks wherever possible.

Further, the Coalition believes that where safeguards are being promised by the government, such as the further recovery of water being subject to a *no socio≠ economic disadvantage test *, they should be enshrined in legislation. Communities

have lost trust with the government and much of the process surrounding Murray- Darling reform. They should not be asked to simply take on trust commitments to safeguard their future when such commitments could easily be enshrined into the Bills

under consideration.

Water Amendment (Long Term Average Sustainable Diversion Limit Adjustment) Bill 2012 [Provisions]

The Coalition supports the principle of the adjustment mechanism and welcomes its adoption as a sign of constructive engagement m the Basin plan process by all of the Basin States.

However, the Coalition held deep concerns when this Bill was introduced as it sought to remove ministerial and parliamentary oversight of potentially significant changes to Sustainable Diversion Limits across the Basin.

The MDBA outlined the magnitude of the changes possible which under the Bill as originally proposed it would have responsibility for:

In the current draft of the Basin Plan, the net effect of any proposed SDL adjustments cannot exceed plus or minus 5 per cent of the proposed surface

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water SDL for the Basin of 10,873 GL/Year, which equates to

approximately 540 GL.'1

The Coalition notes that there are plans and expectations that the adjustment mechanism will be applied in both directions. The Water Amendment (Water for the Environment Special Account) Bill 2012 provides for the recovery of more water for the environment under the adjustment mechanism, while the Victorian Fanners * Federation highlighted the potential to use the adjustment mechanism to achieve the

same environmental outcomes under the 2750GL base figure in the Basin Plan with less actual held entitlement:

... there are about 650 gigs of works and measures, so we could get away

with 2100 gigs of actual held entitlement to give 2,750 of environmental outcomes. I think this is an example of it not being about the amount of entitlement being held; it is about the environmental outcomes that can be achieved with a smaller volume of actual held entitlements.* * 4

The potential for such significant changes without any oversight caused concerns amongst both irrigators and environmentalists. The National Farmers * Federation stated that:

...it is the view of many agricultural stakeholders that the MDBA is

incapable of listening and hearing community concerns and incorporating these into subsequent iterations. Consequently, the NFF supports that the Minister or the MDB Ministerial Council retains oversight powers over the

SDL adjustment mechanism.5

The River, Lakes and Coorong Action Group expressed concerns arising for different reasons:

The implementation of a Murray Darling Basin Plan is a new process with many unknown factors, not all predictable. It is desirable that there should be the utmost transparency and reflection at all stages of implementation. The ongoing oversight of the Minister is also necessary to protect the Murray Darling Basin Authority from undue influence from any one sector.6

The Coalition is pleased that the Government has listened to concerns raised by both us and various stakeholder groups and agreed to amend this Bill to restore Ministerial and Parliamentary oversight. The Coalition appreciates the cooperative approach taken by the Government in providing such amendments.

' https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=6bd0bfba-1902-46e8-b9al-f8519102ede0 4 http://parhnfo.aph.gov.au/parllnfo/download/committees/commsen/b08783e6-bd80-4ec5-bb48-f689f4435e91/toc_pdf/Environment%20and%20Communications%20Legislation%20Committ

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Water Amendment (Water for the Environment Special Account) Bill 2012

The Coalition is concerned that this Bill appears to have been hastily put together, poorly thought out, or both. This Bill was announced with much fanfare by the Prime Minister seeking to gain as much political capital as possible in South Australia.

However, time and scrutiny have proven what is so often the case with the Prime Minister *s announcements - words and reality are miles apart. The Australian Conservation Foundation states that:

Despite statements by the Prime Minister and the Water Minister that the Special Account will provide for the recovery of 450 GL of environmental water and the achievement of the environmental outcomes associated with a total recovery of 3,200 GL, the Bill fails to guarantee the recovery of any

specific volume of environmental water.7

Meanwhile, many irrigators are concerned that the Bill allows for further buybacks despite contrary promises made at the time of the Bill *s announcement:

The Federal Minister responsible for the Basin Plan has made it clear that there are "downsides for local communities * from buybacks and has clearly stated that this Bill is designed to ensure that any water recovered from Basin communities above 2750 GL/y be refined to on-farm infrastructure,

yet clause 86AD 2(b) makes it very clear that large scale water buybacks are still very much on the agenda.

%†While there is much concern of the content of this Bill, it is also puzzling why this Bill has been introduced prior to the finalisation of the Basin Plan. Coalition Senators cannot see any reason, other than politics, why a Bill that aims to recover water over and above that recovered by the Basin Plan has been introduced ahead of the Basin Plan. Murray Valley Winegrowers Inc. viewed this situation as:

In broad terms, we would describe the process as cart before the horse, as we have worked through. It has been extremely difficult, I have to say, in defence of the MDBA, to play catch-up all the way through this process in

some ways. The process has been galloping ahead of them constantly.

Many stakeholder groups expressed deep concerns that the Bill fails to provide the guarantees of social and economic outcomes the Prime Minister made when announcing the so-called 3200GL target. The National Irrigators Council believes:

Despite the Government *s stated intentions *that the additional 450GL of environmental water to be obtained through projects funded by this Bill to ensure there is no social and economic downside for communities * there is

nothing in the Bill which specifically guarantees the *upward movement * will not cause social and economic downsides for communities.

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The Bill should be amended so that it specifically states that all projects funded under the provisions of this Bill are subjected to a *no detriment * economic and social impact test before being approved.0

The Victorian Farmers * Federation further states that:

To *enhance environmental outcomes * by the method suggested in the Bill (86AA (1)), there will undoubtedly be a socio-economic impact. This must be addressed within the framework of the Bill. It is simply unacceptable to relegate this to a few dot points where the literal use of the money is

outlined at 86AD, Purposes of the Water for the Enviromnent Special Account. This leaves the VFF with the view that government is of the belief that simply providing money towards socio-economic issues which arise will solve them. This is simply not the case.

The Australian Conservation Foundation also acknowledged the need to assess the wide range of social and economic impacts alongside environmental impacts and to do so based on robust evidence:

...decisions should be made on the basis of credible and robust social, economic and environmental cost-benefit criteria which incoiporates the interests of all affected stakeholders, not just large consumptive water users. This includes business, recreational, environmental, indigenous, local government and community interests.8 9

The concerns of irrigation communities about the potential impacts of further water recovery have been exacerbated by the non-strategic approach to water recovery to date, which was highlighted earlier in these comments. The effects of excess non- strategic buyback and limited delivery of water saving infrastructure projects threaten the viability of some irrigation schemes and communities, as highlighted by Murray Valley Winegrowers:

We believe we are at a tipping point ... the water authorities - Lower

Murray Water in Victoria and Western Murray Water on the New South Wales side * are at a point where their capacity to deliver reasonably economically priced water which is not going to push those irrigators out of business through water charges is at a tipping point.10

Considering the commitments made by the Government to protect communities against socio-economic detriment the Coalition believes amendments reflecting these commitments are warranted to ensure water recovery occurs via means that deliver socio-economic equivalence or better.

The Coalition have noted statements indicating such guarantees may be embedded in the Plan, such as this request made by Minister Burke to the MDBA:

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The Basin Plan should include criteria for determining adjustments to surface water SDLs due to *efficiency measures * so that water recovery projects giving rise to an adjustment which reduces the SDL (i.e. for improved environmental outcomes) do not worsen social and economic

impacts compared with 2750 impacts. This should be evidenced by the participation of farmers in programs providing investment in water efficiency and recovery projects on their farms, or, in the case of alternative arrangements proposed by a State, assessment by that State that the project(s) they propose will achieve neutral or improved socio-economic outcomes.11

Minister Burke *s second reading speech for this Bill also highlights his belief that a *no socio-economic disadvantage * test applies in practice to these reforms, if not in this actual Bill:

Importantly, the plan being proposed by the Murray-Darling Basin Authority stipulates that additional water beyond the benchmark should only be acquired through methods that deliver additional water for the environment without negative social and economic consequences such as

infrastructure.11 12

However, the Coalition believes that as we have not seen the final Plan it would be prudent to embed these commitments, or something similar, in this legislation to remove all doubt about the actual delivery of the Government *s commitment to avoid

socio-economic detriment. This point was also made by the National Irrigators Council:

...if it is a triple-bottom line approach then put it into the Act and make that very clear in the Act. Let us not pretend that a legislative instrument is the Act. It is not. It is subordinate to that. So put it in the Act.13

The Coalition also notes that implicit in the commitments being made by the minister is a reliance on infrastructure measures to recover the additional water rather than further buybacks. However, numerous submitters such as the National Farmers Federation and Murray Valley Winegrowers expressed concerns that this Bill in paragraph 86AD(2)(b) still appears to allow for further buybacks, in contrast to the Ministers assurances.

In response to questioning about this paragraph the Department sought to reassure those concerned by explaining the inclusion of paragraph 86AD(2)(b) as follows:

11 Letter from Minister Burke to the Hon Craig Knowles of November 1 2012. 12

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Essentially this clause is there because there is a consensus among basin jurisdictions...that in addition to the actual infrastructure investment on- farm, which traditionally has involved the spending of the cost of the

infrastructure in return for half of the water recovery, these projects under this program would do that; there would be an investment in infrastructure in return for half of the water saving but it would have an associated linked purchase at the farm level for the remainder of the water saving...This would mean that the farmer would get the return on the infrastructure and additional water saving, which would then be sold at market price...It is not imagined in that particular provision of the bill that there would be a standard water buyback associated with that 450 gigalitres.14

Once again, as with the *no socio-economic detriment" test, Coalition Senators believe the legislation should be amended to reflect the assurances being given by the Government that general buybacks will not occur under the funding appropriated in this Bill.

Environmental groups expressed a different concern that the promises of the Prime Minister *s announcement do not match the reality of the legislation. Many groups feel this legislation represents a betrayal of the commitment given by the Prime Minister to

achieve a 3200GL reduction, including Environment Victoria who stated:

The Bill does not commit to recovering 450 GL of environmental water for the Murray as announced by Prime Minister Gillard, instead it aims to increase *the volume of the Basin water resources that is available for environmental use by up to 450 gigalitres * (86AA (3)(b)). This is a central flaw in the Bill. The clause requires amendment to read *by at least 450

gigalitres * to make good on the Prime Minister *s commitment/5

The Conservation Council of SA and the Wilderness Society similarly thought that:

[The Bill] does not afford sufficient priority or guarantees with respect to the 450 GL additional water resource promised by the Prime Minister .16

This evidence clearly shows that the Prime Minister has been caught out embellishing the fact to suit her political ends and again demonstrates that the Prime Minister places securing media headlines ahead of presenting the facts of the matter in an even handed manner.

The Coalition nonetheless understands the arguments made by the Department of Sustainability, Environment, Water, Population and Communities * that the capacity of the Bill is limited by the constraints within the SDL adjustment mechanism and other factors:

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Essentially, for that slice of water above the 2,750 the bill creates the legal framework, including the special appropriations, so that there is clarity and certainty around the appropriation of those monies because it is not until a substantially later point in time that the SDL adjustment mechanism kicks in and triggers other consequences... It provides a special appropriation and a fund to provide a framework with a given amount of money to recover water. The actual water recovery obviously depends on the vagaries of the

future, including future prices and so forth. It is a commitment to money which we expect to progressively translate to water over time as the

projects are committed and come into actuality.

Coalition Senators oppose the last minute amendment proposed by Government Senators in the majority report to delete the words "up to" from paragraph 86AA(3)(b). Given the structure of this legislation, which appropriates a fixed amount

of funds, and the advice provided by the department to the committee, the proposed amendment is clearly unworkable, unachievable and unacceptable.

The Coalition notes the unusual step taken in this Bill to appropriate funds so far in advance. We are particularly concerned by what appears to be a lack of work done to justify the amounts being appropriated and their adequacy to meet the stated objectives of this Bill.

The Coalition is especially concerned about the costs associated with addressing the constraints within the system that would require removal under a 3200GL scenario. How a figure of $200m for constraints removal was identified is unclear, as are the ramifications if this funding pool is insufficient to remove all constraints necessary or what compensation may be forthcoming to those potentially affected by such constraints removal.

The practical implications of constraints removal are real and come with various costs, as demonstrated by the example of McCoys Bridge given by the Victorian Farmers * Federation:

If you go to the Goulbum Broken Catchment Management Authority and look at their Lower Goulbum floodplain risk assessment, it is a nonsense to say that you can put 40,000 megalitres a day passed McCoys Bridge

without causing serious flooding of not only public property but also private property.17

Senator McKenzie expanded further, stating:

If you look at the Goulbum Broken Catchment Management Authority's environmental flow hydraulic study, it says that if you had that much water at McCoys Bridge, you would flood 100 buildings, you would flood 250

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kilometres of road, you would flood 8000 hectares of dryland agriculture and you would flood 1000 hectares of irrigated agriculture.18

The coalition senators are also concerned that the ambiguity of legal liability of flooding events and the affect that flooding events could have on both public, private and environmental assets.

Many groups are concerned about the consequences for this Barmah Forest, where the largest eucalypt red gum forest in the world cannot physically cope with the volumes of water being proposed and will suffer tremendous damage. These concerns have been inadequately addressed. These concerns have been inadequately addressed. Mr McKenzie of the Murray Valley Wine Growers articulated this at the hearing, saying

in relation Barmah Forest that *it will drown'.19 20

The Wilderness Society and South Australian Conservation Council noted that:

Flooding of flood plains can bring positive benefits as well as problems for fanners and irrigators. The costs, benefits and risks need to be assessed^0

ANEDO and Environment Victoria expressed concerns that CEWH's liability was unclear, stating:

They could be held liable under the private flooding provisions of the Water Act 1989 (Vic),4 or under the common law of nuisance or negligence, for causing water to flow onto private property in a way that causes personal injury, property damage or economic loss."1

The National Fanners Federation and The MDBA also acknowledged the difficulties of addressing constraints, as well as the potential benefits, all of which point to the complexities in knowing whether the funding provided for their relaxation is adequate:

...if relaxation of constraints can lead to a better environmental outcome without social and economic harm, I think people would say that that is a positive way to look at it. But we should not think we can just click our

fingers and that all constraints would be gone and there would be no further third-party impacts from doing that. I think that is why we are saying that

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they require careful examination as to the potential risks which go with the relaxation of constraints as well as the potential benefits.22

One of the objectives of returning water to the environment is to reinstate some of the natural flooding events that used to happen. There is

development now on some of the floodplain areas, so there is a risk, if there are floods in the future, that private property would be affected ... There is a fundamental tension between the issue of increasing water on the

floodplain and the incidence of private property, and it is an issue that the authority and particular river operators are very aware of.23

It is clear that far more work will need to be done to determine the actual cost and implications of removing constraints than has been undertaken to date, which will clearly impact on the effectiveness of this legislation to recover the environmental water it targets under the terms required by the adjustment mechanism.

Coalition Senators hope the Government will address the numerous concerns outlined herein before a vote on this Bill is taken and especially expects that such a vote should not proceed until the final Basin Plan, Water Recovery Strategy and

Intergovernmental agreement are released.

Coalition Senators also recommend that, for the sake of clarity and to avoid all doubt, this Bill be amended to explicitly enshrine a *no detriment socio-economic test * and prohibit use of the funds appropriated under this Bill for general or open buybacks, as per the commitments given by the Minister on these matters.

Senator Simon Birmingham Senator Bridget McKenzie

Senator Anne Ruston

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2"' http://parlinfo.aph.gov.au/parlInfo/dow nload/committees/commsen/fb44fcc2-8e47-4d27-8c73-34d41190e456/toc_pdf/Environment% 20and% 20Communications% 20Legislation% 20Committ ee_2012_l l_12_1527.pdf;fileType=application% 2F pdf#search=% 22committees/commsen/fb4

4fcc2-8e47-4d27-8c73-34d41190e456/0000% 22

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Additional comments by Senator Nick Xenophon

Water Amendment (Water for the Environment Special Account) Bill 2012

The Prime Minister *s announcement of 26 October 2012 that an additional 450 gigalitres (GL) of water is to be returned to the Basin during the period 2014-2024 can potentially bring about significant improvements in the health of the River Murray.

However, this potential is limited due to a number of constraints and ambiguities in the Water Amendment (Water for the Environment Special Account) Bill 2012 (the *Special Account Bill *).

No guarantee 450GL will be delivered

According to the current wording of the Special Account Bill, enhanced environmental outcomes will be achieved by "increasing the volume of the Basin water resources that is available for the environmental use by up to 450 gigalitres" (emphasis added).1

Mr Rob Fowler, President of the Conservation Council of South Australia, expressed the inadequacy of this wording:

The 450 gigalitre object is not framed in a way in the bill which provides any assurance or guarantee that it will in fact be delivered. It is not even framed as an object of the bill; it is simply framed as one means of achieving the broader objects of the bill.1 2

Recommendation 1

Clause 86AA(3)(b) of the Water Amendment (Water for the Environment Special Account) Bill 2012 be amended so as to ensure 450 gigalitres is a minimum amount rather than a maximum amount to be returned to the environment.

Purposes of the Water for the Environment Special Account

Clause 88AD of the Special Account Bill sets out the purposes of the Water for the Environment Special Account and lists the different types of activities eligible to receive payments from the $1.77 billion fund. These activities include improving the water efficiency of irrigation infrastructure (including roads and bridges), increasing dam capacity, acquiring interests in land and purchasing water rights.

1 Clause 86AA(3)(b).

2 Mr Rob Fowler, Proof Committee Hansard, 8 November 2012, p. 10.

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Professor John Williams, Dean of Adelaide Law School and vice-president of the Australian Association of Constitutional Law, summarised the issues with clause 8SAD in his recent article in The Advertiser:

These are obvious activities that would be required to deliver the additional water for the Murray. However, the Bill does not prioritise these activities. The temptation to focus on infrastructure rather than reducing the over≠ allocation of the river may prove irresistible. Further, the link between the expenditure of the funds and measurable outcomes for the health of the River is poorly made.3

These concerns were shared by Mr Tim Kelly, Chief Executive Officer of the Conservation Council of South Australia:

The additional 450 gigalitres of water from a special account may never be achieved, even if up to $1.77 billion is spent on additional infrastructure. There is no absolute requirement in the special account bill for these funds

to be spent to achieve the additional water.4

As a result I propose an amendment to clause 88 AD requiring that priority be given to projects with maximum guaranteed water returns to the system within the shortest timeframe, taking into account social and economic factors, as well as early adopters of water efficiency measures.

Recommendation 2

Clause 88AD of the Water Amendment (Water for the Environment Special Account) Bill 2012 be amended to ensure that funding priority is given to projects with maximum guaranteed water returns to the system within the shortest timeframe, taking into account social and economic factors, as well as early adopters of water efficiency measures.

It is again worth noting the consistently glib attitude taken by both the Federal Government and the MDBA when it comes to recognising ini gators for past efficiencies and investigating the comparative efficiencies of different irrigation regions. I again refer to evidence given by the MDBA *s Chief Executive, Dr Rhondda Dickson, during Senate Estimates in May of this year:

Senator XENOPHON: No, but you can establish how efficient an area is and when it became efficient, can't you? That is a matter of fact, isn't it?

3 Professor John Williams, "River Murray agreement to waterproof SA may turn out to be a castle built on sand", Adelaide Advertiser, 12 November 2012.

4 Mr Tim Kelly, CEO of the Conservation Council of South Australia, Committee Hansard, 12 November 2012, p. 9.

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Dr Dickson: You could presumably do that. But I guess, as to how you might rank efficiencies, that is not really our job. It is more to look at what is a sustainable level of extraction rather than who is the most efficient.5

This issue has not been addressed in these Bills.

Recommendation 3

Urgent modelling is undertaken to establish the comparative efficiencies of irrigation communities in the Murray-Darling Basin to ensure fair treatment of irrigators.

It is also imperative that local knowledge is taken into account through consultation with irrigator groups throughout any regulatory reforms of the Murray. For example, Mr Mark de Lacy McKenzie, Chief Executive of Murray Valley Wine Growers Inc told the Senate Rural and Regional Affairs and Transport Committee recently:

There is a classic example downstream on the South Australian border here which is the Lindsay Island issue you have probably heard about. We have a huge wetland on Lindsay Island which can be, with check banks and regulators, effectively irrigated. Rather than an overbank flow at 1,200

gigalitres to achieve that naturally it can be done with 95 gigalitres. We have circumstances like that all through the basin.6

Furthermore, given the current inability of many South Australian irrigators to access funding provided through the Federal Government's $5.8 billion Sustainable Rural Water Use and Infrastructure Program due to irrigators * already high levels of efficiency, it is imperative that funding is made available for research and development via the Water for the Environment Special Account.

Recommendation 4

Clause 86AD(2)(a) of the Water Amendment (Water for the Environment Special Account) Bill 2012 be amended to include projects in Research and Development or projects using emerging technologies and to acknowledge and reward early adopters of water efficiency measures.

While the Special Account Bill requires annual reports to be presented to Parliament, there is no requirement that the administration of the fund is audited. The need for proper oversight of Federal Government funding was demonstrated in June 2012 when the Australian National Audit Office (ANAO) reported that all applications

from funding rounds one and two of the Private Irrigation Infrastructure Operators Program in New South Wales "did not contain sufficient detail to facilitate a thorough

5 Dr Rhondda Dickson, Murray-Darling Basin Authority, Committee Hansard, Environment and Communications Legislation Committee, 23May 2012, p. 102.

6 Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry into the management of the Murray-Darling Basin System, Committee Hansard, 3 April 2012.

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assessment, particularly in relation to addressing the economic/social criteria, environmental criteria and the projects * cost-benefit analyses"?

Therefore it is imperative all funds paid out of the Water for the Environment Special Account are subject to robust and regular audits so as not to replicate the inappropriate granting of Federal Government funds that has previously taken place.

Recommendation 5

The Water Amendment (Water for the Environment Special Account) Bill 2012 be amended to require the ANAO conduct an audit of the Special Account after the first year of operation, the third year of operation, and every three years after that, with specific attention to:

" The financial performance of the account;

" The projects funded under the account, and the robustness of the funding process;

" The performance of these projects in relation to the outcomes under 86AA;

" Any related matters.

Water Amendment (Long Term Average Sustainable Diversion Limit Adjustment) Bill 2012

I am broadly supportive of the Water Amendment (Long Term Average Sustainable Diversion Limit Adjustment) Bill 2012, however the Committee heard evidence raising concerns over the legality of tins Bill.

The Conservation Council of South Australia, together with the Wilderness Society, argued that under the current Bill social and economic considerations will be elevated to equal status with environmental considerations:7 8

Underlying this observation is a legal debate of a quite fundamental nature concerning the relationship between environmental, social and economic considerations in relation to the proposed Basin Plan. The government, through its statements in the explanatory memorandum, is perpetuating a highly contentious legal viewpoint that all three aspects may be considered simultaneously when producing the Basin Plan, and now in relation to an adjustment to the SDLs spelled out therein.9

Their submission continues:

7 Australian National Audit Office, Administration of the Private Irrigation Infrastructure Operators Program in New South Wales, June 2012, p. 22.

8 Conservation Council of South Australia and the Wilderness Society, Submission 20, p. 6.

9 Ibid, p. 7.

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There is strong legal advice to the contrary... which suggests that socio≠ economic considerations may only be taken into account after the long-term average sustainable diversion limit has been determined by reference to the

environmental sustainability needs of the MDB.10

Similarly, it is possible litigation will commence based on the proposition that the best available science has not been used when setting SDLs and that as a result, the environmental objectives of the Basin Plan will not be achieved.

This concern should be meaningfully addressed by the Federal Government before the Bill passes the Senate.

Further comments

Inquiry into the Management of the Murray-Darling Basin

It is worth noting that the abovementioned inquiry has not yet reported, nor is it due to report until February 6, 2013.

Furthermore, the concerns raised in the Committee's interim report have not yet been responded to by the Government or addressed meaningfully in any way.

Given this, it is worth questioning why the Government is seeking to push this legislation through Parliament before the end of 2012.

While there is no question that a long-term plan for the Murray-Darling Basin is of critical importance, the Government must also meaningfully address past and present failures in the management of the Murray-Darling Basin system as discussed throughout the abovementioned inquiry.

This includes responding to concerns raised about the lack of flexibility and equity in the criteria of established infrastructure funds, which have consistently disadvantaged early adopters of water efficiency measures in regions such as the Riverland in South

Australia.

Amendments must be made to this legislation to ensure that early adopters of water efficiency measures are not disproportionately disadvantaged by water recovery targets as prescribed under the Basin Plan.

Senator Nick Xenophon

10 Ibid.

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288

Appendix 1

Submissions, tabled documents and answers to questions taken on notice

Submissions - Water Amendment (Long Term Average Sustainable Diversion Limit Adjustment) Bill 2012

1 Australian Conservation Foundation

2 Goulbum Valley Water Action Group

3 New South Wales Irrigators Council

4 Environment Victoria

5 River Lakes and Coorong Action Group

6 National Water Commission

7 CSIRO

8 Australian Dairy Industry Council Inc

9 Australian Network of Environmental Defender's Offices

10 Murray Valley Winegrowers Inc

11 Murray Irrigation

12 Murray-Darling Basin Authority

13 Murray River Group of Councils

14 Victorian Farmers Federation

15 NSW Office of Water

16 National Farmers' Federation

17 National Irrigators' Council

18 Minister for Water, Government of Victoria

19 Minister for Water and the River Murray, Government of South Australia

20 Conservation Council of South Australia and The Wilderness Society

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Submissions - Water Amendment (Water for the Environment Special Account) Bill 2012

1 Murray Irrigators farming support group

2 Goulbum Valley Water Action Group

3 CSIRO

4 Australian Dairy Industry Council Inc

5 Murray Irrigation

6 Victorian Farmers'Federation

7 Environment Victoria

8 Australian Network of Environmental Defender's Offices

9 National Farmers' Federation

10 Minister for Water and The River Murray, Government of South Australia

11 Conservation Council of South Australia and The Wilderness Society

12 Australian Conservation Foundation

13 NSW Irrigators' Council

14 River Lakes and Coorong Action Group Inc

15 National Irrigators' Council

16 Mr Alastair Wood

Tabled documents

Comparing environmental outcomes of 2,800GL and 3,200GL 'relaxed contraints' SDL scenarios, tabled by Mr Jonathan La Nauze, Australian Conservation Foundation, public hearing, Adelaide, 8 November 2012.

Answers to questions taken on notice

Victorian Farmers Federation - Answers to questions taken on notice (from public hearing, Adelaide, 8 November 2012)

Australian Conservation Foundation - Answers to questions taken on notice (from public hearing, Adelaide, 8 November 2012)

River Lakes and Coorong Action Group - Answers to questions taken on notice (from public hearing, Adelaide, 8 November 2012)

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MuiTay Valley Winegrowers Inc - Answers to questions taken on notice (from public hearing, Adelaide, 8 November 2012)

Conservation Council of South Australia and The Wilderness Society - Answers to questions taken on notice (from public hearing, Adelaide, 8 November 2012)

Wentworth Group of Concerned Scientists - Answers to questions taken on notice (from public hearing, Canberra, 12 November 2012) and written questions

Murray-Darling Basin Authority - Answers to questions taken on notice (from public hearing, Canberra, 12 November 2012)

ANEDO - Answers to written questions taken on notice

National Irrigators' Council - Answers to questions taken on notice (from public hearing, Canberra, 12 November 2012)

_________________________________________________________________________________________________________ 51_

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Appendix 2

Public hearings

Thursday, 8 November 2012 - Adelaide

River Lakes and Coorong Action Group

Ms Suzanne Rex, Chair

Ms Elizabeth Tregenza, Secretary

Conservation Council of South Australia

Professor Diane Bell, Representative

Mr Rob Fowler, President

Mr Tim Kelly, Chief Executive Officer

The Wilderness Society (South Australia)

Mr Peter Owen, South Australia Campaign Manager

Australian Conservation Foundation

Mr Jonathan La Nauze, Healthy Rivers Campaigner

Murray Valley Winegrowers Inc

Mr Mark McKenzie, Chief Executive Officer

Victorian Farmers' Federation

Mr Richard Anderson, Chair, Water Council

Ms Melanie Brown, Water Advisor

Monday, 12 November 2012 - Canberra

National Irrigators' Council

Mr Tom Chesson, Chief Executive Officer

New South Wales Irrigators * Council

Ms Stefanie Schulte, Economic Policy Analyst

Mr Richard Stott, Chairman

National Farmers' Federation

Mr Matt Linnegar, Chief Executive Officer

Australian Network of Environmental Defender's Offices, New South Wales

Ms Emma Carmody, Policy and Law Reform Solicitor

Ms Rachel Walmsley, Policy and Law Reform Director

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Wentworth Group of Concerned Scientists

Mr Peter Cosier, Convenor

Mr Timothy Stubbs, Environmental Engineer

National Water Commission

Mr James Cameron, Chief Executive Officer

Department of Sustainability, Environment, Water, Population and Communities

Ms Mary Harwood, First Assistant Secretary, Water Efficiency Division

Mr David Parker, Deputy Secretary, Water Group

Mr Tony Slatyer, First Assistant Secretary, Water Reform Division

Murray-Darling Basin Authority

Mr Russell James, Executive Director, Policy and Planning Division

Dr Tony McLeod, General Manager, Water Resource Planning

Ms Jody Swirepik, Executive Director, Environmental Management Division

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The Senate

Finance and Public Administration

Legislation Committee

Government Investment Funds Amendment (Ethical Investments) Bill 2011

August 2012

295

© Commonwealth of Australia 2012

ISBN 978-1-74229-671-5

Senate Finance and Public Administration Committee Secretariat:

Ms Christine McDonald (Secretary)

Dr Jon Bell (Principal Research Officer)

Ms Margaret Cahill (Research Officer)

Ms Diana Harris (Administrative Officer)

The Senate Parliament House Canberra ACT 2600

Phone: 02 6277 3439

Fax: 02 6277 5809

E-mail: fpa.sen@apli.gov.au Intemet:http://aph.gov.au/Parliamentarv Business/Committees/Senate Commit tees?url=fapa_ctte/index.htm

This document was produced by the Senate Finance and Public Administration Committee Secretariat and printed by the Senate Printing Unit, Parliament House, Canberra.

ii 296

MEMBERSHIP OF THE COMMITTEE

43rd Parliament

Members

Senator Helen Polley, Chair Senator Scott Ryan (Deputy Chair)

Senator Richard Di Natale Senator the Hon. John Faulkner Senator Arthur Sinodinos

Senator the Hon. Ursula Stephens

ALP, Tasmania LP, Victoria AG, Victoria ALP, New South Wales

LP, New South Wales ALP, New South Wales

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TABLE OF CONTENTS

MEMBERSHIP OF THE COM M ITTEE............................................................iii

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

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

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

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

Overview of the Bill..................................................................................................1

Related inquiries,...................................................................................................... 3

Background to the Bill..............................................................................................3

Chapter 2.......................................................................................................................II

Issues...........................................................................................................................11

The need for the Bill............................................................................................... 11

Change to the independence of the Future Fund ................................................... 14

Costs of implementation and impact on returns .................................................... 18

Investment practices in other jurisdictions ............................................................ 20

Conclusion................................................................................... 23

Dissenting Report.......................................................................................................25

Australian Greens.....................................................................................................25

APPENDIX 1...............................................................................................................43

Submissions and additional information received by the Committee ............... 43

APPENDIX 2 ...............................................................................................................45

Public Hearing.......................................................................................................... 45

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Chapter 1

Introduction

Introduction

1.1 On 21 June 2012, on the recommendation of the Selection of Bills Committee, the Senate referred the Government Investment Funds Amendment (Ethical Investments) Bill 2011 (the Bill) to the Finance and Public Administration Legislation Committee (the committee) for inquiry and report by 22 August 2012. The reasons for referral were for the committee to consider the provisions of the Bill and to hear from experts on the implementation and effects of the Bill.1

Conduct of the inquiry

1.2 The inquiry was advertised in The Australian and through the Internet. The committee invited submissions from peak organisations, interested parties, and the Commonwealth Government.

1.3 The committee received 13 submissions relating to the Bill and these are listed at appendix 1. The committee considered the Bill at a public hearing in Melbourne on 8 August 2012. Details of the public hearing are provided in appendix 2. References to the committee Hansard are to the proof Hansard', page numbers may vary between the proof and the official Hansard. The public submissions and transcript of evidence may be accessed through the committee's website at:

http://aph.gov.au/Parliamentary Business/Committees/Senate Committees?url=fapa ctte/index.htm.

Overview of the Bill

Purpose o f the Bill

1.4 The Bill proposes to amend the Future Fund Act 2006 (FF Act) and the Nation-building Funds Act 2008 (NBF Act) in order to constrain the investments of the four funds (the Future Fund and the three Nation Buildings Funds) to investments which are consistent with socially responsible investment practices. The Bill would

require the development of Ethical Investment Guidelines (El Guidelines) by Ministers responsible for Australian sovereign funds. The Future Fund must take all reasonable steps to comply with the El Guidelines.1 2

1 Senate Selection of Bills Committee, Report No. 7 of 2012, Appendix 1, 21 June 2012.

2 Explanatory Memorandum, p. 2.

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Provisions o f the Bill

1.5 The Bill proposes to amend the FF Act to insert a definition of a 'prohibited financial asset'. A prohibited financial asset means a financial asset that is specified as a prohibited financial asset in the El Guidelines. It also proposes to insert new sections 20A, 20B and 20C into the FF Act, which would:

" require the responsible Ministers to make, by legislative instrument, the Future Fund El Guidelines with the Guidelines making provision for socially responsible ethical investment practices including, but not limited to, environmental concerns, human rights concerns, labour practices and the manufacture of weapons of war;

" require the El Guidelines to specify, as prohibited financial assets,

investments in companies that manufacture or produce tobacco, cluster munition components, and nuclear weapons (including maintenance and simulation of nuclear weapons);

" require the responsible Ministers to consult with the Future Fund Board on the El Guidelines and require the tabling in each House of the Parliament any submissions by the Future Fund Board for the making or varying of the El Guidelmes together with the legislative instrument; and

" require the Future Fund Board to take all reasonable steps to comply with the El Guidelines. In addition, if the responsible Ministers are satisfied that the Board has failed to comply with the El Guidelines, the responsible Minister may direct the Board, in writing, to give an explanation of the failure and to take action to comply with the El Guidelines.3

1.6 The Bill also proposes, for each of the funds described in the NBF Act, to insert a definition of a prohibited financial asset and the establishment of El Guidelines (proposed sections 3 8A, 157A and 232A), in a manner identical to provisions for the Future Fund. The same consultation and compliance provisions are

also proposed in relation to the three funds under the NBF Act.4 5

1.7 For each of the four funds, the Bill also provides for the disinvestment of any financial assets that are prohibited financial assets within the meaning proposed held on the day the Schedule commences. These assets must be realised within a period of

12 months from the commencement of the Schedule/

3 Explanatory Memorandum, p. 4.

4 Explanatory Memorandum, p. 4.

5 Explanatory Memorandum, p. 5.

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Financial impact

1.8 The explanatory memorandum does not include a financial impact statement. The financial impacts may arise as a result of the Bill and are explored in more detail in chapter 2, including:

" a change in the returns on investments achieved by the Future Fund; and

" on-going costs arising for monitoring what companies are involved in.

Related inquiries

1.9 The following related Senate committee reports have been tabled:

" Senate Economics Legislation Committee, Provisions of the Future Fund Bill 2005, February 2006;

" Senate Standing Committee on Foreign Affairs, Defence and Trade, Non≠ Proliferation Legislation Amendment Bill 2006, February 2007;

" Senate Standing Committee on Foreign Affairs, Defence and Trade, Cluster Munitions (Prohibition) Bill 2006, May 2007; and

" Senate Foreign Affairs, Defence and Trade Legislation Committee, Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010 [Provisions], March 2011.

Background to the Bill

1.10 The Future Fund was established in 2006 as a Sovereign Wealth Fund (SWF) to assist future Commonwealth governments to meet the cost of public sector superannuation liabilities by delivering investment returns on contributions to the Fund.

Sovereign wealth funds

1.11 The Future Fund is among a growing number of SWFs that have been

established in various countries, in some cases fuelled by the rapid accumulation of assets or export surpluses and in other cases by concern over the global financial crisis. SWFs have become significant players in the international capital markets and are estimated to hold close to $US5 trillion in assets, of which $2.88 trillion is oil and gas related.6

1.12 There are over 60 SWFs, with numbers increasing steadily from the 1970s onwards and rapidly in the 2000s. Australia's Future Fund is the 13th largest fund and

6 Sovereign Wealth Fund Institute, Sovereign Wealth Fund Rankings, http://www.swfmstitute.org/fund-rankings/. (accessed 28 June 2012).

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on a country-by-country comparison of fund size, Australia is ranked tenth.7 8 SWFs are established for a range of reasons, including to protect and stabilise the budget and economy from excess volatility in revenues/exports; diversify from non-renewable commodity exports; earn greater returns than on foreign exchange reserves; assist monetary authorities to dissipate unwanted liquidity; increase savings for future generations; fund social and economic development; and sustain long term capital growth for target countries.lS

1.13 A number of SWFs have formed the voluntary International Forum of Sovereign Wealth Funds (IFSWF), which meets to exchange views on issues. The IFSWF and the International Monetary Fund have established the Santiago Principles as a guide to generally accepted principles and practices for SWFs. The Future Fund has been a significant contributor to the IFSWF.9

Responsible and ethical investment

1.14 As SWFs hold substantial assets, there has been considerable interest in their investment policies. Screening and/or influencing investments by non-fmancial criteria by different groups for various reasons has occurred through history. Some notable examples include screening out investments involved with slavery in the

18th century; engagement on workers' rights and screening of alcohol, tobacco and weapons in the 19th century; civil rights and liberties campaigns in the 20th century; shareholder activism on Napalm and Agent Orange in the 1960s; the emergence of environmental campaigns in the 1970s; and the divestment and loan renewal refusals associated with the anti-apartheid movement in the 1980s.10

1.15 Over the last couple of decades there has been a substantial growth in screening and/or influencing investments by non-fmancial criteria and the establishment of many investment funds focussed on responsible and ethical investment. The report by the ACT Legislative Assembly Standing Committee on Public Accounts on its inquiry into the exposure draft of the Financial Management

7 Wikipedia, List of countries by sovereign wealth funds, http://en.wikipedia.org/wiki/List of countries by sovereign_wealth_ funds, (accessed 28 June 2012).

8 Sovereign Wealth Fund Institute, http://www.swfinstitute.org/what-is-a-swf/, (accessed 28 June 2012).

9 International Working Group of Sovereign Wealth Funds, http://www.iwg-swf.org/, (accessed 28 June 2012).

10 JD Cronin, From Ethical Investment to Investment Ethics - Towards a normative theory of investment ethics, A thesis submitted to fulfil the requirements for the award of a Doctorate of Philosophy, Queensland University of Technology, 2004, pp 80-84.

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(Ethical Investment) Legislation Amendment Bill 2010 (ACT Bill) provides a more detailed account of the development of the responsible and ethical investment.11

1.16 The Responsible Investment Association Australia (RIAA) describes Responsible Investment as 'an umbrella term to describe an investment process which takes Environmental, Social, Governance (ESG) or ethical considerations into account.'11 12 Responsible Investment involves one or more of the following:

" screening investments based on ESG factors to either exclude investments (negative screening) or favourably include investments (positive screening);

" identifying 'best-of-sector' based on ESG factors;

" thematic investments that adhere to particular ESG or ethical themes;

" impact investing by actively placing capital in funds aimed at ESG issues;

" integration of ESG issues onto more general investment decision making;

" engagement by asset managers with companies on ESG issues; and

" exercise of shareholder rights, such as voting.13

1.17 There has been some evolution in the terminology from different timeframes and different regions. 'Responsible Investment' is sometimes used interchangeably with the term 'Socially Responsible Investment * (SRI). The SRI acronym is also used for Sustainable and Responsible Investing, which appears to be more European in its origin.14 15 Responsible Investment is 'broader in scope and more contemporary in nature than the tenn ethical investment, and covers the full spectrum of investment practices

and processes where environmental, social and/or ethical issues are considered before an investment decision is made.'13

Internation al developntents

1.18 There have been a number of international developments in Responsible Investment, including initiatives by the United Nations, the SWF Institute, European forums and individual countries. In 2006, the United Nations launched the Principles

11 ACT Legislative Assembly Standing Committee on Public Accounts, inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, December 2011, pp 11-24.

12 RIAA, What is Responsible Investment? httyJ/www.resDonsibleinvestment.orsMrat-is- responsible-investment/responsible-investment-defined/, (accessed 24 July 2012).

13 RIAA, Responsible Investment Annual 2011, A benchmark report on Responsible Investment in Australia and New Zealand, November 2011, p. 8.

14 European Sustainable Investment Forum (EUROSIF), European SRI Study, revision edition 2010, p. 8.

15 ACT Government, Submission to the ACT Legislative Assembly Standing Committee on Public Accounts, inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, p. 12.

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for Responsible Investment (UN PRI) initiative to promote Responsible Investment. A network of participants has been established, including pension funds, insurance companies, sovereign wealth and development funds, and investment managers. The goal is to grow investor interest in ESG issues and the best long-term interests of beneficiaries by supporting signatories in their fulfilment of the principles for Responsible Investment.16 UN PRI is a statement of principles that is deliberately non- prescriptive in terms of the Responsible Investment methodologies used by signatories:

It is not the case that becoming a UN PRI signatory means that an investor should begin screening companies out of their investible universe. This is certainly one of the approaches taken by signatories, but it is by no means the only valid approach, with other approaches used by asset owners with an outsourced funds management model including things like engagement and voting on shareholder resolutions, for instance.17 18

1.19 As at May 2012, there were 125 Australian entities which had signed the UN PRI, including superannuation and other assets managers, investment managers, professional service partners and the Australian Capital Territory. Australia was ranked third behind the US (156 signatories) and the UK (145 signatories).1 s As at 31 July 2012, the Commonwealth and the Future Fund were not signatories, however approximately 15 per cent of the Future Fund's investment managers are signatories.19

1.20 The SWF Institute has also developed an index (the Linaburg-Maduell Transparency Index) to rate the transparency of SWFs. The index is made up of 10 principles for transparency, with each principle adding one point to the index for a fund if the SWF Institute judges that the principle is complied with. One of the principles is that an SWF provides guidelines on ethical standards, investments policies, and enforces those guidelines. The Future Fund is one of a group of nine

funds which received the maximum rating in the second quarter of 2012.20

1.21 The European Sustainable Investment Forum (EUROSIF) is a pan-European network and think-tank focussed on developing sustainability through European Financial Markets. EUROSIF has indicated that:

16 Principles for Responsible Investment, Annual Report 2012, p. 24 and see 'About the PRI Initiative' in front matter.

17 CAER, Submission to the ACT Legislative Assembly Standing Committee on Public Accounts, inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, p. 1.

18 Principles for Responsible Investment, Annual Report 2012, p. 4.

19 Cross matching of the list investment managers appointed by the Future Fund Board of Guardians, 4 June 2012, http://www.futurefund.nov.au/investment/investinent managers (accessed 4 July 2012) and the Signatories to the Principles for Responsible Investment, http://www.unpri.org/signatories/index.php?countrv=AustraIia. (accessed 4 July 2012).

20 Sovereign Wealth Fund Institute, http://www.swfinstitute.org/statistics-research/linaburg- maduell-transparency-index/, (accessed 13 August 2012).

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Currently, at least eight countries in Europe have specific National SRI regulations in place that cover their pension systems: United Kingdom (2000), Germany (2001), Sweden (2001), Belgium (2004), Norway (2004), Austria (2005) and Italy (2005). Spain is in the process of introducing such

SRI requirements into the existing 2002 Pension Funds law. In Italy, the disclosure obligations applying to all complementary pension funds started in January 2008.

There are presently no mandatory transparency laws at the EU level requiring investors to disclose the ESG issues of their investments.21

1.22 Some of the Responsible Investment laws and regulations are focussed specifically on SWFs or pension funds, while others that have substantially broader application to investors generally have also been explored. For example, the Dutch Parliament passed a resolution to ban cluster munitions for all Dutch investors. The resolution was later overturned by the interim Minister of Finance.22

1.23 In terms of initiatives by particular countries, Norway is one of the more prominent examples. Norway's Government Pension Fund Global (GPFG) is a large SWF that considers ethics and human rights in its investment objectives and is perceived as an activist shareholder and also uses exclusions in some cases.23 A range

of policies adopted by other countries are summarised in the submission provided by the Department of Finance and Deregulation.24 25

1.24 In our region, the New Zealand Superannuation Fund (NZSF) has had a Responsible Investment policy for several years and began excluding companies involved with tobacco in 2007, and companies involved with cluster bombs and nuclear weapons in 2008.

Australian developments

1.25 There has been some development of private sector Responsible Investment activities in Australia. According to the 2011 Responsible Investment Annual, approximately half of the funds under the management of Australian asset managers integrate ESG principles in investment practices. Typically, such an approach would involve integrating ESG issues into the selection of assets and exercising ownership rights (including voting and engagement) A

21 European Sustainable Investment Forum (EUROSIF), European SRI Study, revision edition 2010, p. 19.

22 European Sustainable Investment Forum (EUROSIF), European SRI Study, revision edition 2010, p. 42.

23 ACT Legislative Assembly Standing Committee on Public Accounts, Inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, December 2011, p. 37.

24 Department of Finance and Deregulation, Submission 8, pp 4 *5.

25 Department of Finance and Deregulation, Submission 8, p. 4.

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1.26 The proportion of investors applying the subset of ESG principles relating to exclusions and screening is somewhat smaller. The R1AA 2011 Benchmark Report as at November 2011 noted all types of mainstream managed investment portfolios in Australia totalled approximately $936 billion in June 2011. Of this amount,

investment portfolios applying ethical prohibitions and prioritisation screens accounted for $11.5 billion, or approximately 1.2 per cent.26

1.27 In addition to private sector developments, Responsible Investment issues have been explored by Australian Governments and Parliaments, including the ACT and the Commonwealth. At the Commonwealth level, some consideration was given to Responsible Investment issues about a decade ago. The Financial Services Reform Act 2001, 'requires product disclosure statements issued in respect of managed

investment funds and other investment products to disclose the extent to which labour standards or environmental, social or ethical considerations have been taken into account by the manager of the fund or product in selecting, retaining and realising investments.'27

1.28 More recently, in its inquiry into the Convention on Cluster Munitions, the Joint Standing Committee on Treaties (JSCOT) recommended that the Australia Government have regard to:

...preventing investment by Australian entities in the development or production of cluster munitions, either directly, or through the provision of funds to companies that may develop or produce cluster munitions.28

1.29 In October 2010, the Government introduced the Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010 (Cluster Bomb Bill) in the House of Representatives. The Cluster Bomb Bill included legislative measures to ensure consistency between Australian law and the UN Convention on Cluster Munitions (the Convention). Australia signed the Convention on 3 December 2008 but has not ratified it, as the Cluster Bomb Bill remains before the Parliament as of 31 July 2012. Enactment of the Cluster Bomb Bill, along with other non-legislative measures, would place Australia in a position to ratify the Convention.29

1.30 In its inquiry into the provisions of the Cluster Bomb Bill, the Senate Foreign Affairs, Defence and Trade Legislation Committee (FADT Committee) examined

26 Responsible Investment Association Australasia, Responsible Investment Annual 2011, A benchmark report on Responsible Investment in Australia and New Zealand, November 2011, p. 12, 14.

27 Paul U Ali and Martin Gold, Stellar Capital and The University of Melbourne Centre for Coiporate Law and Securities Regulation, An appraisal of socially responsible investments and implications for trustees and other investment fiduciaries, June 2002, p. 2.

28 Joint Standing Committee on Treaties, Report No 103: Treaties tabled on 12 March and 13 May 2009, 18 August 2009, p. 27.

29 Explanatory Memorandum, Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010, p. 2.

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prevention of both direct and indirect investment in cluster munitions by Australian entities generally.30 The FADT Committee recommended that the Senate pass the Cluster Bomb Bill.31 32

1.31 In relation to the positive impact of this legislation on the Future Fund, during Senate estimates in May 2011 the Future Fund informed the committee that it had excluded investment in two companies involved with cluster bombs and land mines towards the end of 2009 and a further group of companies in April 2011. ' * The Future Fund is now listed in the financial institutions pioneering disinvestment in cluster munitions 'Hall of Fame' by IKV PAX CHRISTI/FAIRFIN.33 34

1.32 The extent to which the Future Fund has adopted and applied Responsible Investment polices has also attracted attention with information being sought on its investments in entities involved with nuclear weapons, tobacco and gambling. The Future Fund's holdings include:

" at 13 May 2011, investments of $179 million in 22 companies that may be

involved with nuclear weapons,-4 by January 2012, the level of investment had decreased to around $125 million;35

" as at 14 February 2012, the value of tobacco stocks was $225 million,36 up from $147 million as the start of January 2011 ;37 and

" as at 31 March 2011, over 150 million dollars was invested in companies

involved with casinos and gaming.38

30 Senate Foreign Affairs, Defence and Trade Legislation Committee, Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010 [Provisions] , March 2011, Chapter 6.

31 Senate Foreign Affairs, Defence and Trade Legislation Committee, Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010 [Provisions], March 2011, p. 60.

32 Mr David Neal, Acting General Manager and Chief Investment Officer. Future Fund, Estimates Hansard, 26 May 2011, pp F&PA 24-26.

33 IK VP AX CGRRISTI & FAIRFIN, Worldwide investment in cluster munitions a shared responsibility, June 2012 Update, pp 23-24.

34 Future Fund, Publicly available information released after an FOI disclosure, The ICANW sought documents on the Future Fund's equity holdings in certain companies, 13 May 2011, http://www.futurefund.gov.au/ data/assets/pdf file/0018/458 l/FOI_Disclosure_Log doc A1 74749 .pdf, (accessed 5 July 2012).

35 Senate Hansard, 8 May 2012, Question on Notice 1516, pp 2781-82.

36 Additional Estimates 2011-12, Future Fund, Answer to Question on Notice, No. F65.

37 Mr Mark Burgess, Managing Director, Future Fund management Agency, Estimates Hansard, 23 May 2012, p. F&PA 47.

38 Future Fund, Publicly available information released after an FOI disclosure, Bloomberg News requested documents on the Future Fund's equity holdings in casino and gambling companies, 8 July 2011, http://www.futurefund.gov.au/ data/assets/pdf file/0018/4581/FOI Disclosure Log doc A1

74749 .pdf, (accessed 5 July 2012).

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Chapter 2

Issues

2.1 The Government Investment Funds Amendment (Ethical Investments) Bill 2011 seeks to constrain the investments of government investment funds, namely those created by the Future Fund Act 2006 and the Nation-building Funds Act 2008, to those investments which are consistent with socially responsible investment practices. The Bill will proscribe investments by the funds in companies involved in the manufacture of tobacco, cluster munitions, nuclear arms and other entities to be proscribed under Ethical Investment Guidelines.1

2.2 As outlined in chapter 1, a range of approaches to Responsible Investment have been explored internationally and in Australia. While there are several Sovereign Wealth Funds (SWFs) with explicit Responsible Investment policies, legislated

arrangements with the breadth proposed in the Bill are rare.

2.3 The committee has considered a range of issues arising from the Bill

including the appropriateness of legislation on ethics; whether the proposed delegation and breadth of powers is appropriate; the impact on the independence of the Future Fund Board of Guardians; the costs of implementation if the Bill were to be enacted; whether the Bill reflects best practice for Responsible Investment; and overseas practice.

The need for the Bill

2.4 There were comments in evidence which questioned the need for the Bill particularly in relation to the appropriateness of legislating for ethical investments. The Department of Finance and Deregulation (the department) and the Future Fund

also pointed to the Future Fund's approach to ESG issues.

Appropriateness o f legislating on ethics

2.5 The committee is concerned about the ethics focus of the Bill and notes that concerns regarding legislating on ethics were raised about a similar draft Bill in the ACT.1 2 Evidence was also received that rather than 'ethical investment', the Bill should refer to 'Responsible Investment'. Mr Tomohiro Matsuoka, for example, noted

developments in the investment industry and supported this change:

Historically, investment methods which incorporate non-financial factors, such as, social, environmental and governance (so called ESG), or methods

1 Explanatory Memorandum, p. 2.

2 ACT Legislative Assembly Standing Committee on Public Accounts, Inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, February 2011, p. 8.

12

which apply exclusion criteria for certain types of businesses (such as tobacco, alcohol, or pornography) are referred as socially responsible investment (SRI) or ethical investment (El). However, in recent years, investment communities are more prone to adopt the term, responsible investment, instead of socially responsible investment or ethical investment.3

2.6 Oxfam also supported a change of terminology in the Bill, noting that Responsible Investment tends to use a broader range of internationally recognised tools for applying principles to investment screening as compared to ethical or socially Responsible Investment. Oxfam also indicated to the committee that:

Responsible Investment has been codified in international norms, such as the United Nations Principles for Responsible Investment, which provides actors seeking to introduce Responsible Investment with certainty and a greater level of non-partisan transparency in its application.4 5

2.7 On the other hand, the Responsible Investment Association of Australasia (RIAA) submitted to the committee that the 'Bill in its current form will require government investment funds to exclude investment in companies on values-based grounds *the use of the term "ethical investment" is appropriate in this context'/ However, RIAA went on to note that:

By focussing solely on the avoidance of activities judged to be not ethical, the Bill as it is framed misses an opportunity to promote industry best practice in the form of ESG integration.6

2.8 The department submitted that it should be noted that the term ESG, as defined by many mainstream investors, differs from 'ethical investment'. Ethical investment decisions are often motivated by the institution's beliefs or values, with a focus on excluding certain types of investments, rather than seeking to improve investment decision-making.7 The department also noted that:

The Bill states that the Ethical Investment Guidelines may make provisions for *socially responsible ethical investment practices *. Finance considers that there is considerable ambiguity in the meaning of this term, and of what standard would determine the ethics to be applied.8

3 Mr Tomohiro Matsuoka, Submission 4, p. 1.

4 Oxfam, Submission 10, p. 5.

5 Responsible Investment Association of Australasia, Submission 11, p. 2.

6 Responsible Investment Association of Australasia, Submission 11, p. 4.

7 Department of Finance and Deregulation, Submission 8, pp 3 *4.

8 Department of Finance and Deregulation, Submission 8, p. 9.

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The Future Fund's investment approach

2.9 The committee heard a range of views on whether the Bill represented the best approach to Responsible Investment. RIAA suggested to the committee that there is a range of other approaches to Responsible Investment.9 Oxfam held a similar view

and informed the committee that:

...proscription (also known as exclusion or negative screening) is a component of Responsible Investment, limiting the scope of Responsible Investment to solely proscription fails to allow the Guardians of the Target Funds to more innovatively and broadly pursue Responsible Investment methods.10 11

2.10 In response to evidence about Responsible Investment, the department stated that the investment mandate for the Future Fund already requires the Board to have regard to international best practice for institutional investment in determining its approach to corporate governance principles, including in relation to its voting policy.11

2.11 The Future Fund provided an outline of its approach to ESG issues and portfolio exclusions and stated that it has developed a clear investment program, designed to pursue its statutory obligations, that incorporates its Ownership Rights

and ESG Risk Management Policy. The Future Fund also pointed to improvements in its ESG policy.12 These include, the appointment, in July 2009, of an experienced program manager to lead its ESG risk management.13 In addition, the Future Fund has established a governance committee that will oversee the internal governance of the

fund and will focus on environmental, social and governance issues.14 15 The Future Fund also stated that it 'takes seriously its obligations under the legislation and investment mandates to consider international best practice in all aspects of its

investment program'.

2.12 In relation specifically to exclusions, the Future Fund's statement of investment policies already covers exclusion of investments, with investment being excluded for any entity or relevant funding activity that is unlawful. There may be

9 Responsible Investment Association of Australasia, Submission 11, p. 3.

10 Oxfam, Submission 10, p. 14.

11 Department of Finance and Deregulation, Submission 8, p. 3.

12 Future Fund, Submission 12, p. 6.

13 Ethical Investor, Future Fund makes key ESG, Governance appointment, 8 July 2009, http://www.ethicalinvestor.com.au/index.php7option-com content&task=view&id=3121 &Ite mid=402. (accessed 5 July 2012); see also Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 25.

14 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 34; see also Department of Finance and Deregulation, Submission 8, p. 6.

15 Future Fund, Submission 12, p. 10.

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other circumstances in which a lawful activity may be excluded by the Future Fund, such as entities contravening treaties or international conventions ratified by Australia.16 The Future Fund also told the committee that:

...engagement with companies is now considered world's best practice, not exclusions, on at least at the first level and that the board is committed to that engagement with fiduciaries to ensure that best practice behaviour fits the standards of the board.17

2.13 The Future Fund has a three stage process for assessing investments that:

...firstly, is the investment or funding legal?...Secondly, we recognise the nature of our organisation and the fact that Australia as a country has state party obligations to certain treaties...then we turn to the third element of our policy... What are the economic activities of the company and do those

economic activities contravene the nature of the international conventions or treaties ratified by Australia?' We apply that test to all companies and we believe that all our companies satisfy those three tests. If they do not, they are not investable.18

2.14 In relation to the Future Fund's approach to ESG matters, RIAA

acknowledged that the Future Fund has shown leadership in the steps it has taken to date. While the RIAA provided recommendations in a number of areas where the Future Fund could better integrate the United Nations' Principles for Responsible Investment with its ESG policy, the RIAA did not consider that the Bill was seeking the same outcome. The RIAA commented that 'the difficulty with linking the PRI

[Principles for Responsible Investment] to the Bill as it is written is that they are seeking to achieve very different things'.19 20

Change to the independence of the Future Fund

2.15 Of significant concern to the Future Fund and the department was the impact of the Bill on the independence of the Future Fund and the introduction of uncertainty through the influence of the responsible Ministers in decision-making. The provisions relating to the introduction of responsible Ministers in decision-making were also noted by the Senate Scrutiny of Bills Committee which considered that the provisions delegated legislative powers inappropriately and provided insufficient Parliamentary

.∑ 20

scrutiny.

16 Department of Finance and Deregulation, Submission 8, p. 6.

17 Mr Mark Burgess, General Manager, Future Fund Management Agency, Estimates Hansard, 14 February 2012, p. F&PA 77.

18 Mr Gordon Hagart, Head of ESG Management Risk, Future Fund Management Agency, Committee Hansard, 8 August 2012, pp 32-33.

19 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Committee Hansard, 8 August 2012, p. 22.

20 Senate Scrutiny of Bills Committee, Second report for 2012, 29 February 2012, p. 82.

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2.16 The sponsoring senators responded to the Scrutiny of Bills Committee, suggesting that the Ethical Investment Guidelines could be considered to be similar to and follow the precedence of the existing Investment Mandate, which is provided for,

but not detailed in legislation. While they shared concerns around excessive delegation of powers to the Executive, they suggested that the Government has no incentive to make guidelines that are overly restrictive and adversely affect the returns

of the Fund.21

2.17 However, the department commented that the Bill could provide a quite wide- ranging framework for influence by responsible Ministers in decision-making and thus potentially 'create a range of excluded types of investment and set quite a broad set of ethical guidelines'. This would make a significant change to the purpose of the Future Fund: the Fund at present focusses on 'strengthening the Commonwealth's long-term

financial position, and it would change that to use the Future Fund to try to achieve other policy objectives'.22

2.18 The department further informed the committee that:

There are significant considerations [that] flow from that, which we are suggesting committee may wish to consider. For example, it creates ambiguity around the role of the board and the potential for conflicts in

purpose when making investment decisions. We have expressed the view that it would constrain the ability the board to deliver on its long-term investment strategy, and that has implications for costs, implications for future returns and implications for the government's future position, which

is what this fund was set up for.23

2.19 The department outlined the existing 'arm's-length arrangement' in which the responsible Ministers are not involved in investment matters beyond the broad parameters established by the Future Fund Act and the investment mandate. The department argued that the Bill would alter that arrangement.24 The Future Fund

infonned the committee that:

There are aspects of this structure which we have not seen anywhere else. It introduces a structure that is different to the fund's current standing, its independence and in fact its world standing as a well-structured governance structure.25

21 Senate Scrutiny of Bills Committee, Second report for 2012, 29 February 2012, p. 83.

22 Mr Alan Greenslade, First Assistant Secretary, Funds and Superannuation Division, Department of Finance and Deregulation, Committee Hansard, 8 August 2012, p. 27.

23 Mr Alan Greenslade, First Assistant Secretary, Funds and Superannuation Division, Department of Finance and Deregulation, Committee Hansard, 8 August 2012, p. 27.

24 Department of Finance and Deregulation, Submission 8, p. 10.

25 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 35.

16

2.20 The independence of the Board in its investment decision-making is reinforced by section 18A of the Future Fund Act, which prevents the responsible Ministers from giving directions that require the Board to invest in particular assets, businesses or activities.26

2.21 The department indicated the Bill would introduce a significant change in the current decision-making arrangements:

To date, the policy of successive governments has been to ensure that investment decisions are independent of government, and that view is reflected in the Future Fund Act...The present arrangements have provided for a stable, long-term investment mandate from government. The bill would create a second set of ministerial directions with different policy objectives...Those policy objectives could change over time *they could change with different governments and so on * so it would create a shorter- term as opposed to a longer-term horizon on some of those objectives."7

2.22 The department went on to note that the Bill does not address where the ethical guidelines would sit in the hierarchy of priorities for the Board, with the Board 'likely to be faced with conflicting demands when making investments'.28 The Future

Fund had similar concerns:

The Future Fund has had a single clear objective and hierarchy of priorities, with the focus on maximising returns subordinate to the parameters of the legislation and the investment mandate. The Bill is unclear as to how the Fund would detennine where to place the Ethical Investment Guidelines in

its priorities and how it would go about balancing potentially conflicting requirements between those Guidelines and its existing mandate.29

2.23 The Future Fund also informed the committee that, in its view, it would not be able to assess how it would practically implement the provisions of the Bill in the absence of specifically tailored and defined arrangements and that the Bill raises clear implications for the independence of the Fund:

The provisions relating to 'socially responsible ethical investment practices' are unclear.

...it would be likely that the organisation would need to seek adequate clarity from the responsible Ministers rather than attempt to interpret the expectations of Ministers. This would tend to involve Ministers in specific

26 Department of Finance and Deregulation, Submission 8, p. 3.

27 Mr Alan Greenslade, First Assistant Secretary, Funds and Superannuation Division, Department of Finance and Deregulation, Committee Hansard. 8 August 2012, pp 26-27; see also Mr Alan Greenslade, First Assistant Secretary, Funds and Superannuation Division, Department of Finance and Deregulation, Committee Hansard, 8 August 2012, p. 30.

28 Department of Finance and Deregulation, Submission 8, p. 7.

29 Future Fund, Submission 12, p. 8.

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elements of the investment program at a detailed level and in a manner which is currently not the case.30

2.24 In addition, the committee was advised that the reputation for independence of the Future Fund Board of Guardians was a key element of the Future Fund's ability to operate commercially and any changes that would undennine this reputation had the potential for adverse outcomes. The Future Fund stated that:

Should this independence be reduced as a result of an uncertain and changing range of excluded investments and 'socially responsible ethical investment practice' requirements mandated by Ministers, the Future Fund is concerned that its ability to operate commercially and its ability to operate as a reliable participant in global markets may also be reduced.31 32

2.25 At the committee's hearing, this point was further canvassed. Both the department and the Future Fund emphasised the need for stability and clarity in relation to investments. It was noted that:

It would have an impact on the independence of the fund and on the

operation of the fund. Any uncertainty or lack of clarity around the

mandate, or even expected future lack of clarity around the mandate, can certainly affect the fund, particularly as it invests on a long-term basis at best practice level while working with global partners in that investment.

2.26 The Future Fund provided an example of infrastructure investment:

We will be partnering with others as we often do. These are 10-year

investments and investments which I think are to the benefit of Australia and certainly to the fund. If there were some lack of clarity which raised a concern that, on some future occasion, our ability to invest with them may be compromised *that we may have to sell for some reason or management of these investments may be taken out of the board's hands *that could affect our ability to invest.33 34

2.27 The Future Fund concluded:

One of the aspects that I think is to the credit of the fund is that, as our mandate currently stands and as our governance framework currently stands, we are partner of choice amongst the best investors globally. I think that does reflect very well on our cmrent structure/4

30 Future Fund, Submission 12, pp 7-8.

31 Future Fund, Submission 12, p. 10.

32 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 32.

33 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 34.

34 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 35.

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Costs of implementation and impact on returns

2.28 Another concern brought to the committee's attention is the financial impact of the Bill. The committee received evidence relating to on-going costs arising from closer monitoring of the activities that entities are involved in and the impacts on the returns to the Future Fund and the Nation-building Funds.

On-going costs

2.29 The department indicated that, if the provisions of the Bill were implemented, there were likely to be resourcing implications as additional monitoring and reporting arrangements would be required. In relation to the Future Fund, the department stated that evidence from funds with guidelines such as those proposed in the Bill can be resource intensive.33 In addition, there would be a significant role for the responsible Ministers in monitoring and reporting which would require departmental support/35 6 These costs would increase 'where the parameters for prohibitions and for "socially responsible ethical investment practices" are unclear or hard to define'.37

2.30 The department also informed the committee that costs arising from the need to undertake additional analysis of listed companies to determine if they were involved in prohibited activities would affect the returns of the Future Fund. The department indicated that while this could either be done by developing further in≠ house capability or by contracting the expertise, but both options would carry significant costs, which would be taken out of the returns.38

2.31 RIAA also provided evidence on costs and commented that cost 'depends entirely on the nature of the sorts of steps that the fund wants to take'. RIAA went on to state:

So I do not think that cost, specifically in terms of the transparency

elements of it and the methodology element of it, needs to be a prohibitive factor; but, having said that, other areas of cost do arise. For instance, if one were to impose a set of ethical views on a pooled mandate that one were investing in then, depending on market conditions, it may be the case that the fund manager would choose to levy a higher fee on you. I think that is a problem that is faced by large institutional investors who invest through broad mandates; they find that they pay higher fees. That is a much, much bigger cost concern for an asset owner.39

35 Department of Finance and Deregulation, Subm ission 8, p. 9.

36 Department of Finance and Deregulation, Subm ission 8, p. 9.

37 Future Fund, Subm ission 12, p. 10.

38 Department of Finance and Deregulation, Subm ission 8, p. 9.

39 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Com mittee Hansard, 8 August 2012, pp 21-22.

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Impact on returns

2.32 In addition to the impact of increased on-going costs, the committee heard conflicting evidence on whether Responsible Investment had a direct impact on returns. RIAA, for example, noted that a common criticism of ethical investment was that by restricting the 'investable universe' of a fund, that investment returns are restricted. RIAA went on to comment:

History has shown that there is much more complexity in the process than that. Ethical investment funds do tend to be competitive in terms of financial returns over time. It is not the case that by adopting an ethical investment policy you are necessarily going to restrict your portfolio to the extent where you are going to have a negative impact on returns.40

2.33 Oxfam also commented on returns and stated:

Importantly, the evidence demonstrates that in comparison to conventional investment techniques responsible investment offers competitive returns in the short temi and often better returns in the longer term. These are key considerations for the funds targeted by this bill, focused as they are on strengthening the Australian government's long-term financial position by making provision for unfunded Commonwealth superannuation liabilities.41

2.34 The Future Fund's investment in companies that may be involved with nuclear weapons and tobacco stocks represents less than half of one per cent of the Fund's total value of $77 billion:42 43 $179 million invested in 22 companies that may be involved with nuclear weapons;4 J and $225 million in tobacco stocks.44 45 While the

impact on returns from divesting investments in tobacco and nuclear weapons, may not be material, the provisions of the Bill have more significant implications for investment returns. In particular, pursuant to proposed paragraph 20A(2)(b), the Future Fund Ethical Investment Guidelines 'may make provision for or in relation to

socially responsible ethical investment practices, including (but not limited to) environmental concerns, human rights concerns, labour practices and the manufacture of weapons of war'.4' This may have substantial implications for investment. The RIAA commented:

__________________________________________________________________________________________________________ 19_

40 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Committee Hansard, 8 August 2012, p. 21.

41 Mr James Ensor, Policy Director, Oxfam Australia, Committee Hansard, 8 August 2012, p. 1.

42 Future Fund, main webpage, http://www.futurefund.gov.au/ (accessed 23 July 2012).

43 Future Fund, publicly available information released after an FOI disclosure, J7?e ICANW sought documents on the Future Fund's equity holdings in certain companies, 13 May 2011, http://www.futurefund.gov.au/ data/assets/pdf file/0018/4581 /FOI pisclosure_Log_doc A1 74749 .pdf, (accessed 5 July 2012).

44 Additional Estimates 2011-12, Future Fund, Answer to Question on Notice, No. F65.

45 Government Investment Funds Amendment (Ethical Investments) Bill 2011, paragraph 20A(2)(b).

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The bill as proposed does include reference to a broader range of criteria, however...If one were to put together a policy that incorporated negative screening across that broad range of areas and you started to screen out companies that were, for instance, judged to be doing environmental harm or having high impact in terms of climate change, it is quite likely that you would start to make fairly significant dents in your investable universe and it is quite likely that, unless you were very actively managing a specific portfolio for those risks, you would be making it quite difficult to manage the funds.46

2.35 In addition to the above, the department submitted that if the Bill were implemented it may be necessary to revisit elements of the investment mandate, including the benchmark return. In particular, there would likely be a negative impact on risk and return if the constraints in investment opportunities resulting from the Bill change the investment strategies to a significant degree.47 The Future Fund had similar concerns:

Considering these practical implications and their effects on the investment program, we believe it would be appropriate to revisit the risk and return target for the Future Fund if the Bill were to pass, in particular given the unclear and potentially broad scope of the Bill.48

2.36 The committee was also informed that the Bill may be ambiguous regarding what would constitute an 'interest'. The concept of interest is not defined in the Bill nor in the Future Fund Act or the Nation-building Funds Act. The department went on

to note that:

Depending on the coiporate structure of a manufacturer or producer, or the particular type of financial asset acquired, an investment by the Board might not involve the acquisition of a prohibited financial asset within the terms of the legislation. Conversely, if a broad definition of an 'interest' was

adopted, this could apply not only to the Future Fund *s direct investments, but to a range of other investment arrangements such as co-investments, joint ventures, fund-of-fund structures and pooled investments.49

Investment practices in other jurisdictions

2.37 The committee examined developments in other jurisdictions in relation to exclusions and restrictions on investments. In terms of particular industry sector exclusions, the Australian Lung Foundation, the Australian Council on Smoking and

Health and the Royal Australasian College of Physicians noted divestment of tobacco

46 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Com mittee Hansard, 8 August 2012, p. 21.

47 Department of Finance and Deregulation, Subm ission 8, p. 8.

48 Future Fund, Subm ission 12, p. 10.

49 Department of Finance and Deregulation, Subm ission 8, pp 8-9.

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by some funds.50 Submitters including Quit Victoria, Action on Smoking and Health Australia and the Heart Foundation also noted that the Framework Convention on Tobacco Control discourages investment in the tobacco industry.51 ICAN also informed the committee that:

Both the Norwegian Government Pension Fund and the New Zealand Superannuation Fund have divested from companies involved in nuclear weapons production and simulated nuclear testing, and the Future Fund itself has divested from the manufacturers of cluster munitions and land mines.52

2.38 Oxfam noted that some SWFs, such as those in Sweden, France and Norway, are subject to a legislative direction to invest responsibly.53

2.39 The Future Fund and the department noted that several SWFs or pension funds have Responsible Investment policies that include exclusions. Exclusions for cluster bombs and anti-personnel mines appear to be fairly common, while exclusions based on tobacco and nuclear weapons are less common.54 The Future Fund told the committee that, in its view, it should not be assumed that the use of exclusions is a

standard practice for institutional investors globally. In addition, the Future Fund stated that in most cases consideration of exclusions is done at the Board level, with Norway an exception. The Fund indicated that it was not aware of any arrangements

that allocate decisions on prohibition solely to a minister.55

2.40 The department also responded to the evidence relating to the Norwegian model. It noted key differences with the Norwegian model which may not make it appropriate for the Future Fund to implement:

The Norwegian model requires additional resources dedicated to screening and implementing the exclusion policy. This model requires a high level of involvement by the Norwegian Government in the Fund's investment decisions. It is very different from the Australian approach with the Future Fund, where the Board of Guardians is a separate legal entity to the

50 Australian Lung Foundation, Submission 7, Attachment 1, p. 1; Australian Council on Smoking and Health, Submission 1, p. 2; The Royal Australasian College of Physicians, Submission 9, P-3.

51 Quit Victoria, Submission 2, p. 1; Action on Smoking and Health Australia, Submission 3, p. 1; Health Foundation, Submission 5, p. 2; see also The Royal Australasian College of Physicians, Submission 9, p. 1, 3.

52 International Campaign to Abolish Nuclear Weapons (Australia), Submission 6, p. 2.

53 Oxfam, Submission 10, p. 12.

54 Future Fund, Submission 12, pp 11 *12; Department of Finance and Deregulation, Submission 8, pp 4 *5.

55 Future Fund, Submission 12, p. 11.

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Commonwealth and makes investment decisions independent of the Government.56

2.41 In addition, the Future Fund commented that most major funds have clearly defined roles and independence from government, for example, the Canadian Pension Plan.57 58

2.42 In contrast, the committee notes that the New Zealand Parliament has considered legislation on ethical investment. The Ethical Investment (Crown Financial Institutions) Bill, introduced into the New Zealand Parliament sought to amend Acts, including the New Zealand Superannuation and Retirement Income Act 2001, to provide for a legislated ethical investment framework over and above the existing policy framework. The Bill was defeated on 4 August 2010, with the key reasons being uncertainty of terminology in the Bill and that responsible practices were already established within the New Zealand Government investment institutions by way of operational, not legislated, policies and governance structures.

2.43 A further example occurred recently in the ACT. The exposure draft of a similar Bill, the Financial Management (Ethical Investment) Legislation Amendment Bill 2010 (ACT Bill) was referred to the Standing Committee on Public Accounts (SCPA) for inquiry."'9 The range of proscribed activities proposed by the Bill was seen as being broad and the ACT Government estimated that 'approximately one third of the Australian equity market index (S&P/ASX300 index) would be excluded from investment' if the Bill was enacted/10 The ACT Government did not support the exposure draft of the ACT Bill.

2.44 The SCPA recommended, in December 2011, that the ACT Bill not be tabled in, and not be supported by, the ACT Legislative Assembly.61 A revised Bill was presented to the ACT Legislative Assembly on 9 May 2012 and remains before the

56 Department of Finance and Deregulation, Submission 8, p. 5; see also Mr Mark Burgess, Managing Director, Future Fund Management Agency. Committee Hansard, 8 August 2012, p. 29.

57 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 35.

58 ACT Government, Submission to the ACT Legislative Assembly Standing Committee on Public Accounts, Inquiry into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, p. 23.

59 ACT Legislative Assembly, Minutes of Proceedings No. 76, Wednesday 22 September 2010, pp 891-892.

60 ACT Government, Submission to the ACT Legislative Assembly Standing Committee on Public Accounts, Inquiiy into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, p. 27.

61 ACT Legislative Assembly, Standing Committee on Public Accounts, Inquiiy into the exposure draft of the Financial Management (Ethical Investment) Legislation Amendment Bill 2010, December 2011, p. 9.

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assembly. The revised Bill focusses more on Responsible Investment than ethical investment and has a narrower scope, with proposed exclusions on tobacco, arms or armaments, cosmetics that are tested on animals, and the manufacture or sale of products produced using labour in breach of international labour obligations.02

Conclusion

2.45 The Future Fund was established with the aim of strengthening the

Commonwealth's long-term financial position by making provision for unfunded Commonwealth superannuation liabilities. The Government Investment Funds Amendment (Ethical Investments) Bill 2011 seeks to legislate for ethical investment and in so doing proposes to use the Future Fund to support other policies.

2.46 While such an aim may be welcomed by some, the provisions of the Bill allow for responsible Ministers to influence the investment decision-making processes of the Future Fund Board of Guardians. The committee does not support this approach as it would undermine the independence of the Future Fund and change the structure of the Fund from that originally established. This change would introduce ambiguity, instability and lack of clarity to investment decision-making. At the present time, the Future Fund has a single clear objective and hierarchy of priorities. Implementing the Bill could mean conflicting priorities which may impact on risk and return.

2.47 The Bill is likely to have a negative impact on risk and return if investment strategies were changed to a significant degree because of constraints to investment opportunities. In addition, there would be higher costs for monitoring and reporting

which would have adverse effects on the Funds' rate of return. The committee notes that both the Future Fund and department commented that it may be necessary to revisit elements of the investment mandate, including the benchmark return, if the Bill was implemented.

2.48 The committee acknowledges the world-wide development of Responsible Investment practices. In relation to these, the Future Fund has comprehensive ESG policies which are regularly reviewed and enhanced. It is required to have regard for international best practice and is fully compliant with the Santiago principles which

establish best practice for sovereign wealth funds. The Future Fund also must comply with the requirements of the Financial Management and Accountability Act 1997 and appear before this committee at Senate estimates. In addition, the staff of the Future Fund Management Agency must operate in accordance with the Australian Public

Service values and code of conduct. The committee considers that these mechanisms, taken together, ensure that the Future Fund acts in a responsible and appropriate manner.

62 Explanatory statement, ACT Financial Management (Investment) Legislation Amendments Bill 2012, p. 2.

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2.49 Having considered the evidence before it, the committee concludes that there are significant adverse consequences for the Future Fund if the Government Investment Funds Amendment (Ethical Investments) Bill 2011 is enacted. Further, there are a range of mechanisms already in place which ensure that the Future Fund adheres to best practice and acts responsibly. Therefore, the committee does not support the Bill.

Recommendation 1

2.50 The committee recommends that the Government Investment Funds Amendment (Ethical Investments) Bill 2011 not be passed.

Senator Helen Polley Chair

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Dissenting Report

Australian Greens

1.1 The Government Investment Funds Amendment (Ethical Investments) Bill 2011 is being introduced in order to constrain the investments of government investment funds, namely those created by the Future Fund Act 2006 and the Nation≠ building Funds Act 2008 , to those investments which are consistent with socially responsible investment practices.1

1.2 The Bill will require the creation of Ethical Investment Guidelines which proscribe investments by the Future Fund and Nation-building Funds in companies involved in the manufacture of tobacco, cluster munitions, nuclear arms and other entities to be proscribed under Ethical Investment Guidelines.1 2

1.3 The Bill seeks to make it possible to address the ramifications of an

investment beyond the fmancial returns, such as the impacts on the environment, the rights of those employed by the various enterprises, impacts on human health or potential effect on peace and stability. The Greens consider that Australia *s sovereign wealth fund should endorse international practice on responsible/ethical investment. Many examples of responsible and ethical investment guidelines already exist around the world, including superannuation funds and sovereign wealth funds such as the Norwegian government pension fund.

Need for change in investment practices

1.4 The committee majority report does not support the bill. The Greens find this quite perplexing given the significant harms that tobacco, nuclear arms and cluster munitions cause.

Tobacco

1.5 During the committee's inquiry those who have seen the hami caused by tobacco voiced their support for the Bill. Australian Council on Smoking and Health (ACOSH) and Action on Smoking and Health (ASH) submitted that tobacco is the leading cause of preventable death and disease in Australia.3

...tobacco kills more than 15,000 Australians every year and costs our economy more than $30 billion annually. Cigarettes, when used precisely as intended, kill one of every two long term users.4

1 Explanatory Memorandum, p. I.

2 Explanatory Memorandum, p. 1.

3 Australian Council on Smoking and Health, Submission 1, p. 1; Action on Smoking and Health Australia, Submission 3, p. 1.

4 Australian Council on Smoking and Health, Submission 1, p. 1.

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1.6 Those views were echoed by the National Heart Foundation and the

Australian Lung Foundation which also submitted that tobacco use, and second-hand smoke exposure, contribute to 10 to 13 per cent of all cardiovascular deaths. "

1.7 Witnesses found it ironic that on the one hand the Government is seeking to reduce the adverse health impacts of smoking through steps such as plain packaging legislation, which on the other the Future Fund's investments increase in value as more and more people become addicted to cigarettes. ACOSH, for example, stated:

The irony of these investments is that they increase in value as more and more people become addicted to cigarettes - causing an inherent conflict of interest in simultaneously investing in the tobacco industry to make money from this lethal industry, and actively leading the way world-wide to reduce

smoking.5 6 7

1.8 ASH asserted that 'it is inappropriate for Governments to be investing in an industry that is both lethal and working actively to undermine, oppose and subvert government health policies '.1 Other submitters including the Australian Lung Foundation and Quit Victoria raised concerns regarding the Future Fund investments in companies that are challenging policies and law designed to reduce the harm from tobacco.8 Quit Victoria submitted:

...while Australia is expending considerable sums of money to defend plain packaging laws designed to reduce tobacco consumption, we are also investing hundreds of millions of dollars in tobacco companies who are fighting to have these laws overturned.9

1.9 The Royal Australasian College of Physicians (RACP) submitted that 'tobacco policy must be considered as a system of actions aimed at denonnalising tobacco use, where any number of positive actions can be undermined by smaller negative actions' and that the Government's investments via the Future Fund undermine the

denormalisation of tobacco use at work in other policy instruments.10 11 RACP commented on the international impacts of tobacco:

Tobacco companies key growth markets are developing countries. The World Bank estimates that 84 per cent of the world *s smokers live in

developing countries and that 80 per cent of tobacco deaths by 2025 will be in developing countries.11

5 National Heart Foundation, Submission 5, p. 1; Australian Lung Foundation, Submission 7, p. 1.

6 Australian Council on Smoking and Health, Submission 1, p. 1.

7 Action on Smoking and Health Australia, Submission 3, p. 1.

8 Australian Lung Foundation, Submission 7, pp 1-2.

9 Quit Victoria, Submission 2, p. 1.

10 Royal Australasian College of Physicians, Submission 9, p. 1.

11 Royal Australasian College of Physicians, Submission 9, p. 2.

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1.10 A further matter of significant concern is that Australia is a signatory to the World Health Organisation Framework Convention on Tobacco Control (FCTC). The FCTC includes obligations to protect health policies from the tobacco industry.12 Article 5.3 of the FCTC states that:

In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from commercial and other vested interests of the tobacco industiy in accordance with national law.13

1.11 In November 2008, the World Health Organisation FCTC governing body adopted guidelines for the implementation of FCTC Article 5.3, which included a recommendation that:

Parties that do not have a State-owned tobacco industry should not invest in the tobacco industry and related ventures. Parties with a State-owned tobacco industry should ensure that any investment in the tobacco industry does not prevent them from fully implementing the WHO Framework Convention on Tobacco Control.14 15

1.12 Many witnesses pointed to these obligations and questioned the Future Fund's investment in some 14 tobacco companies.1' The RACP commented that 'it is difficult to understand how the Future Fund *s investments in tobacco producers are not in the very least inconsistent with the intent of the FCTC'.16

1.13 While the Future Fund has been made aware of the FCTC through

representations of organisations such as ASH, it has chosen not to act on the divestment of its investments in tobacco entities. ASH stated:

We did write to the former chief, David Murray, and also to the relevant ministers, including Penny Wong. I suppose the most positive response, if we could put it that way, was that they are going to review their investment strategy, but that is about as far as it went. We drew to their attention the

legal treaty obligations, but they did not refer back to those in any

response.17

1.14 The Greens note that that the Department of Health and Aging submission stated that should the proposed Ethical Investments bill be passed, its intent to specify prohibited financial assets, including investment in tobacco companies, would accord

12 Quit Victoria, Submission 2, p. 1; Action on Smoking and Health Australia, Submission 3, p. 1; National Heart Foundation, Submission 5, p. 2.

13 World Health Organisation, Framework Convention on Tobacco Control 2005, p. 7.

14 World Health Organisation, Guidelines for the implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control, decision FCTC/COP3(7), November 2008, p. 8.

15 Heart Foundation, Submission 5, p. 2.

16 Royal Australasian College of Physicians, Submission 9, p. 2.

17 Ms Anne Jones OAM, CEO, Action on Smoking and Health Australia, Committee Hansard, 8 August 2012, p. 10.

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with Article 5.3 of the FCTC.18 Indeed, the Government pursued reforms including the Tobacco Plain Packaging Act 2011 , which was upheld by the High Court on 15 August 2012. It is quite peiplexing that despite the above achievements, hundreds of millions of dollars of public funds continue to be invested in tobacco companies as part of the holdings of the Future Fund.

Nuclear weapons

1.15 In terms of the impacts of Nuclear Weapons, the International Campaign to Abolish Nuclear Weapons (ICAN) indicated that in its view nuclear weapons are the most destructive, inhumane and indiscriminate instruments of mass murder ever created:

Physicians and scientists have long studied and documented the medical consequences of nuclear war, concluding that human security and survival depend upon ridding the Earth of these indefensible weapons. Even if a nuclear weapon were never again exploded over a city, there are effects related to the production, testing and deployment of nuclear arsenals that are experienced as an ongoing personal and community catastrophe by many people around the globe.19

1.16 ICAN suggested that nuclear weapons are the only devices ever created with the capacity to destroy all complex life forms on Earth within a relatively short period and provided further evidence to quantify the effects of nuclear weapons:

A war fought using 1000 nuclear weapons - around 5% of the total global stockpile * would render the planet uninhabitable. In addition to causing tens of millions of immediate deaths, a regional nuclear war involving around 100 Hiroshima-sized weapons would disrupt the global climate and agricultural production so severely that more than a billion people would be at risk of famine.20

1.17 ICAN supported the Bill and suggested that ongoing investments in entities involved with nuclear weapons may be in conflict Australia's disarmament obligations and may undermine Australia's disarmament activities.21 Australia's international law obligations include compliance with the Geneva conventions, UN charter, the Non≠ Proliferations Treaty, the Comprehensive Nuclear Test Ban Treaty, and the South Pacific Nuclear Free Zone Treaty. ICAN infonned the committee that:

None of these treaties expressly prohibit Australia from investing in nuclear weapons companies. However, the South Pacific Nuclear Free Zone Treaty forbids Australia from facilitating the manufacture of nuclear weapons anywhere in the world, and the NPT requires Australia to advance nuclear disarmament. Additionally, the simulated testing of nuclear weapons

18 Department of Health and Ageing, Submission 13, p. 1.

19 International Campaign to Abolish Nuclear Weapons Australia, Submission 6, p. 8.

20 International Campaign to Abolish Nuclear Weapons Australia, Submission 6, p. 8.

21 International Campaign to Abolish Nuclear Weapons Australia, Submission 6, p. 1.

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carried out by the company Honeywell International, in which the Future Fund invests, is clearly against the spirit of the CTBT.22

1.18 Oxfam also suggested that under instruments like the OECD's Guidelines for Multinational Enterprises issues of an investor's complicity for the activities of a company in which it has invested have become a more prevalent consideration. Oxfam stated that:

Those obligations, and consequences, fall equally on states seeking to intervene in private markets under similar conditions. ... Sovereign Wealth Funds are public institutions but functionally they are generally expected to be private actors. Such expectations fail to take into consideration that

given their connection to the State, they could be held to an even higher level of obligation than truly private actors.2

1.19 ICAN asserted that there is significant support in Australia for the divestment of entities involved with nuclear weapons, drawing attention to the parliamentary resolution on support for a world free of nuclear weapons:

There was a rare display of bipartisan support in the Australian parliament in March this year for a parliamentary resolution on the unanimous recommendations of the Joint Standing Committee on Treaties affirming the Australian parliament's support for the goal of a world free of nuclear weapons and the exploration of legal frameworks for their abolition. I think there is an extraordinary depth of support for the position that nuclear weapons are an enormous threat and Australia's objective is their

elimination. Therefore, the divestment of public funds from their manufacture would be an important pro-health and pro-sustainability position to take, and I think it would be a very desirable development for the Future Fund and would build on its commendable divestment of its

investment in cluster munitions * companies that manufacture those.24 25 26

Reputation impacts

1.20 The Future Fund's investment mandate requires the Board to consider the impacts of its investments, including acting in a way that is unlikely to cause any diminution of the Government's reputation in financial markets.22

1.21 The Future Fund and the Department of Finance and Deregulation (the department) both argued that the reputation of the Future Fund is very important to its ability to conduct its commercial operations and that the Bill would damage its reputation.211 Flowever, evidence was received from the witnesses which pointed to the

22 International Campaign to Abolish Nuclear Weapons Australia, Submission 6, p. 7.

23 Oxfam, Submission 10, p. 10.

24 Associate Professor Tilman Ruff, Chair, Management Committee, ICAN Australia, Committee Hansard, 8 August 2012, p. 2.

25 Department of Finance and Deregulation, Submission 8, p. 3.

26 Mr Mark Burgess, Future Fund Management Agency, Committee Hansard, 8 August 2012, pp 29-31.

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very real risks for the Government's reputation that continued invest in entities involved in tobacco and nuclear weapons will have. The National Heart Foundation commented on the damage to the Government's 'unblemished record on tobacco control' that resistance to disinvestment in tobacco will cause.27 The RACP also argued the Government's leadership in in global efforts to minimise the harm from tobacco use will be undermined.28

Responsible/Ethical Investment practices

1.22 In addition to the background material set out in chapter 1 of the committee's report, in this section we draw attention to some further information on responsible and ethical investment. As noted in chapter 1 there has been a steady development of Sovereign Wealth Funds (SWFs) since the 1970s and they now have very significant impacts on investment markets. Over a similar period and following on from earlier specific examples there also been considerable interest in and development of responsible and ethical investment practices.

Responsible investment is a practice that has evolved and matured within the last four decades and now encompasses a broad range methodologies and approaches. ... Common words used in this space include ethical

investment, sustainable investment and socially responsible investment.29

1.23 Responsible/ethical investment is now a healthy and growing aspect of the investment industry and is instrumental in improving mvestment strategy and processes. Australian institutional investors have been recognised through signatory support of the United Nations Principles for Responsible Investment (UN PRI):

In fact Australia boasts the largest proportionate signatory base in the world, resulting in over 60% of all funds under management in Australia now being part of that global program. 30

1.24 Oxfam suggested that responsible/ethical mvestment has particular applicability to sovereign wealth funds, with Norway and New Zealand being excellent examples. Oxfam went to note that:

This applicability derives from the peculiar position of a sovereign wealth fund as a form of public institution but one which operates in the

investment market as a private investment actor. Unlike other solely private actors, sovereign wealth funds have additional responsibility to comply with international law and the obligations entered into by their host states. ...Incorporating a transparent responsible investment approach will

formalise and deliver clarity to the market on precisely when, where and

27 National Heart Foundation, Submission 5, p. 2.

28 Royal Australasian College of Physicians, Submission 9, p. 1.

29 Responsible Investment Association Australasia, Submission 11, p. 1.

30 Responsible Investment Association Australasia, Submission 11, pp 2-3.

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how Australia *s sovereign wealth funds will balance their public obligations with their private functions.31

Precedents

1.25 While the Future Fund and the department listed some precedents in their submissions,32 there are a range of international precedents for both legislative and regulatory arrangements that are worth drawing attention to.

1.26 The European Sustainable Investment Forum (EUROSIF) is a pan-European network and think-tank focussed on developing sustainability through European Financial Markets. In its 2010 study which details the 2010 status of Sustainable and Responsible Investment developments in each European country, EUROSIF reported that 63 per cent of the assets subjected to Sustainable and Responsible Investment criteria were held by public pension funds or reserve funds33 and that:

Currently, at least eight countries in Europe have specific National SRI regulations in place that cover their pension systems: United Kingdom (2000), Germany (2001), Sweden (2001), Belgium (2004), Norway (2004), Austria (2005) and Italy (2005). Spain is in the process of introducing such

SRI requirements into the existing 2002 Pension Funds law. In Italy, the disclosure obligations applying to all complementary pension funds started in January 2008.34 35

1.27 Some laws and/or regulations are focussed specifically on SWFs or pensions funds, while others that have substantially broader application to investors generally have also been explored:

The Dutch Parliament recently passed a resolution to ban cluster munitions for all Dutch investors, which was overturned by the interim Minister of Finance.33

1.28 Assets managed with a simple exclusion strategy mostly originate in the Netherlands, Italy, Belgium and Sweden, and represent up to 1.0 trillion euros of investment.36 In terms of specific developments in individual countries there are several, including the following examples, most of which relate to pension or

sovereign wealth funds:

31 Mr James Ensor, Policy Director, Oxfam, Committee Hansard, 8 August 2012, p. 1.

32 Future Fund, Submission 12, pp 11-12; Department of Finance and Deregulation, Submission 8, pp 4-5.

33 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 16.

34 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 19.

35 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 42.

36 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 14.

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" Belgium - since 2007 financial institutions, whether public or private, have been prohibited from investing in companies that produce cluster munitions."' Investments in depleted uranium weapons are now also prohibited;"^

" Italy - the Assicurazioni Generali insurance company decided in 2006 to invest all of the assets managed by the Group's companies ( ¨299 billion in 2009) in accordance with the ethical guidelines adopted by the Norwegian Government Pension Fund;37 38 39

" France - since 2001 the Pension Reserve Fund has a legislated commitment to SRI and an explicit long-term outlook.40 Other legislation bans both direct and indirect financing of cluster munitions production.41 In addition more than half of the Core SRI market is also subject to land mine and cluster bomb exclusions;42

" Sweden - the state pension buffer funds have been followed by other

organisations in adopting SRI practices, which include screening on environmental aspects, weapons and tobacco;43

" USA - the California Employees' Retirement System is a large pension fund, which has had a responsible investment framework for many years that relates to human rights labour conditions;44

" Luxembourg and New Zealand - have criminalised investment by public or private entities in companies that produce cluster munitions;4"^

" Ireland - has banned investment of public money in cluster munitions

producers;46 and

37 Human Rights Watch, Promoting the Prohibitions, The Needfor Strong Interpretations of the Convention on Cluster Munitions, November 2010, p. 10. http://www.hrw.org/en/news/2010/ll/06/promoting-prohibitions (accessed 6 July 2012).

38 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 25.

39 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 14.

40 University of Technology Sydney, Institute of Sustainable Futures, Mainstreaming Socially Responsible Investment (SRI): A role for Government, November 2005, p. 2.

41 Human Rights Watch, Promoting the Prohibitions, The Need for Strong Interpretations of the Convention on Cluster Munitions, November 2010, p. 10. http://w w w .hrw .O rg/en/new s/2010/l 1/06/promoting-prohibitions (accessed 6 July 2012).

42 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 32.

43 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 49.

44 ACT Legislative Assembly Standing Committee on Public Accounts, Inquiry into the exposure draft of the Financial management (Ethical Investment) Legislation Amendment Bill 2010, December 2011, p. 37.

45 Human Rights Watch, Promoting the Prohibitions, Tire Needfor Strong Interpretations of the Convention on Cluster Munitions, November 2010, p. 10. http://www.hrw.org/en/news/2010/ll/06/promoting-prohibitions (accessed 6 July 2012).

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" UK - since 2010, the direct financing of cluster munitions production is prohibited, however indirect financing of cluster munitions is not.47

1.29 A detailed list of countries and financial institutions that exclude investment in cluster munitions is also now published annually, identifying entities in both a hall of fame and hall of shame.48

1.30 Submitters pointed to Norway's Government Pension Fund Global (GPFG) as a model for ethical investments. The GPFG strongly considers ethics and human rights in its investment objectives and is perceived as an activist shareholder. The GPFG also uses exclusions in some cases and is required to not invest in, or divest from, companies that: produce weapons that violate fundamental humanitarian principles; produce tobacco; sell weapons or military material to specific countries highlighted in the GPFG *s guidelines.49 In January 2010, the Norwegian Ministry of Finance agreed to exclude 17 tobacco-producing companies from GPFG, based on a recommendation from the Fund's Council on Ethics.50

1.31 The New Zealand Superannuation Fund (NZSF) has had a responsible investment policy for several years and began excluding companies involved with tobacco in 2007, and companies involved with cluster bombs and nuclear weapons in 2008. The background to those decisions is documented and made available publicly."1 A full list of exclusions as at 31 December 2011 is also publicly available/2

1.32 The NZSF noted in its 2010-11 annual report that the New Zealand Superannuation and Retirement Income Act 2001 requires that the overall Statement of Investment Policies, Standards and Procedures (SIPSP) must cover ethical investment including policies, standards and procedures for avoiding prejudice to New Zealand's reputation as a responsible member of the world community. The SIPSP 46 47 48 49 50 51 52

46 Human Rights Watch, Promoting the Prohibitions, The Needfor Strong Interpretations of the Convention on Cluster Munitions, November 2010, p. 10. http://www.hrw.org/en/news/2010/! l/06/promoting-prohibitions (accessed 6 July 2012).

47 Foreign and Commonwealth Office, The financing of Cluster Munitions Production, Written Ministerial Statement, 7 December 2009, http://www.stopexplosiveinvestments.org/uploads/pdf/UK%20Ministerial%20statement.pdf. (accessed 6 July 2012).

48 IKVPAX CGRRISTI & FAIRFEN, Worldwide investment in cluster munitions a shared responsibility, June 2012 Update, pp 23-24.

49 ACT Legislative Assembly Standing Committee on Public Accounts, Inquiry into the exposure draft of the Financial management (Ethical Investment) Legislation Amendment Bill 2010, December 2011, p. 37.

50 European Sustainable Investment Forum, European SRI Study, revision edition 2010, p. 14.

51 New Zealand Superannuation Fund, Exclusion decisions, http://www.nzsuperfund.co.nz/index.asp?pageID=2145883153. (accessed 3 July 2012).

52 New Zealand Superannuation Fund, Companies excluded from New Zealand Superannuation Fund as December 2011 http://www.nzsuperfund.co.nz/index.asp?pageID=2145883153, (accessed 3 July 2012).

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includes a responsible investment framework to address ESG issues, which has work streams closely aligned with UNPRI. The annual report sets out the NZSF activities undertaken under the work streams."3

Impact on returns

1.33 It is a common criticism of responsible and ethical investment that, by restricting the diversity of investments (the investible universe), investment returns are automatically going to be restricted. RIAA disputed those criticisms, stating that:

History has shown that there is much more complexity in the process than that. Ethical investment funds do tend to be competitive in terms of

financial returns over time. It is not the case that by adopting an ethical investment policy you are necessarily going to restrict your portfolio to the extent where you are going to have a negative impact on returns. The two statements do not link.34

1.34 Oxfam supported the above view and indicated that, in its view, returns over both the short and long term can be enhanced:

Importantly, the evidence demonstrates that in comparison to conventional investment techniques responsible investment offers competitive returns in the short term and often better returns in the longer term. These are key considerations for the funds targeted by this bill, focused as they are on strengthening the Australian government's long-term financial position by making provision for unfunded Commonwealth superannuation liabilities.55

...in the Canadian equity fund class, the average of responsible investment funds outperformed the average of all Canadian investment funds on a one, three, five and 10-year basis. We cite that 11 of the 15 funds in that

category outperformed the industry average on a one-year basis. That is one example and there are other examples both in our submission and beyond that.

1.35 The RIAA submitted a summary of analysis to demonstrate examples of enhanced returns for responsible and ethical investment:

The RI Annual Benchmark Report of 2011, produced annually by RIAA, demonstrates how specialist responsible investment funds have

outperformed their benchmarks in every one of the twelve categories covered in the report over one, three, five and seven years across Australian shares, international shares and balanced funds.5 z

1.36 ASH submitted other evidence of enhanced returns in Australia: 53 54 55 56 57

53 New Zealand Superannuation Fund, Annual Report 2010-11, pp 36-44.

54 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Committee Hansard, 8 August 2012, p. 21.

55 Mr James Ensor, Policy Director, Oxfam, Committee Hansard, 8 August 2012, p. 1.

56 Mr James Ensor, Policy Director, Oxfam, Committee Hansard, 8 August 2012, p. 3.

57 Responsible Investment Association Australasia, Submission 11, p. 2.

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Grouped together, "ethical" funds are outperforming their mainstream counterparts. According to Momingstar, Australian share funds that invest ethically produced an average annual return of 4.65% over the five years to July 31, 2010, compared with 4.21% for mainstream share options.38

1.37 Additional evidence was provided by Mr Tomohiro Matsuoka which drew attention to international experience on maintaining financial performance while investing responsibly, including when screening companies involved with landmines and cluster bombs:

Many of the European financial institutions practising SRI already have a long history of doing so, and there is no specific evidence that it affects their financial performance.

For those practising responsible investment *such as screening companies for involvement with antipersonnel landmines or cluster munitions *there is no record that they underperform. There is no track record of that. So there is no evidence that practising responsible investment damages financial performance.39

1.38 Information from the Future Fund supports the above arguments. Prior to its divestment, the rates of return the Future Fund was achieving on its investments in companies involved with cluster bombs, were negative for most of the companies.58 59 60

1.39 The Future Fund has $179 million invested companies involved with nuclear weapons,61 and $225 million in companies involved with tobacco.62 Put together these represent a less than half of one per cent of the total value of the Future Fund. Therefore it is hard to see how it could be justifiably claimed that divesting those companies would have a material impact on overall fund returns. Information from New Zealand supports this argument:

The NZSF noted that its total tobacco company holding amounted to just 0.29 per cent of the total fund. In their decision, the Guardians noted that divestment from the tobacco sector would have an immaterial effect on the expected efficiency...of the Fund *s portfolio. This is almost identical to the

Future Fund, whose estimated $225 million holding represents 0.29 per cent of the $77.05 billion total (as at 31 March 2012).63

1.40 The Australian Lung Foundation also suggested that investments in tobacco companies were not needed to achieve the Future Fund's target returns. The Australian

__________________________________________________________________________________________________________ 35_

58 Action on Smoking and Health Australia, Submission 3, p. 2.

59 Mr Tomohiro Matsuoka, Committee Hansard, 8 August 2012, p. 15.

60 Future Fund, Answer to question on notice No. 3, received 27 July 2012.

61 Future Fund, Publicly available information released after an FOI disclosure, The ICANW sought documents on the Future Fund's equity holdings in certain companies, 13 May 2011, http://www.futurefund.gov.au/ data/assets/pdf file/0018/4581/FOI Disclosure Log doc A1 74749 .pdf, (accessed 5 July 2012).

62 Future Fund, Answer to question on notice F65, Estimates Hansard, 14 February 2012.

63 Royal Australasian College of Physicians, Submission 9, p. 4.

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Lung Foundation cited the example of First State Super's exclusion of companies involved with the manufacture of cigarettes and other tobacco products:

On the 19* of July 2012, First State Super announced that they have

excluded companies involved in the manufacture of cigarettes and other tobacco products from their entire investment portfolio.

In the announcement, CEO Mr Michael Dwyer stated that their decision will have inconsequential impact on investment returns.64

1.41 Based on the above arguments, it is therefore possible to conclude that responsible/ethical investment is a well-known, well-developed and appropriate path for the Future Fund to take, that will not have a material impact on returns and is likely to enhance its reputation.

Applicability to the Future Fund

1.42 The applicability of responsible/ethical investment practices to investment managers has been previously addressed, from a reporting perspective:

The Financial Services Reform Act 2001 requires product disclosure statements issued in respect of managed investment funds and other investment products to disclose the extent to which labour standards or environmental, social or ethical considerations have been taken into account by the manager of the fund or product in selecting, retaining and realising

investments.65

1.43 A suggestion that the Future Fund adopt a responsible investment policy was made as early as November 2005 by the Institute of Sustainable Futures at the University of Technology Sydney.66

1.44 Prior to the establishment of the Future Fund, the Senate Economics Legislation Committee noted the appropriateness of including important principles in the directions to be given to the Board under the investment mandate.67 68 That committee also heard evidence from Mr Easterbrook of Corporate Governance International that:

...the Future Fund provides a major opportunity to be a market leader in terms of best practice...two particular areas for consideration, specifically voting policy and engagement with companies in which a shareholding is held.

64 Australian Lung Foundation, Submission 7, p. 2.

65 Paul U Ali and Martin Gold, Stellar Capital and The University of Melbourne Centre for Corporate Law and Securities Regulation , An appraisal of socially responsible investments and implications for trustees and other investment fiduciaries, June 2002, p. 2.

66 University of Technology Sydney, Institute of Sustainable Futures, Mainstreaming Socially Responsible Investment (SRI): A role for Government, November 2005, p. 2.

67 Senate Economics Legislation Committee, Provisions of the Future Fund Bill, p. 10.

68 Senate Economics Legislation Committee, Provisions of the Future Fund Bill, p. 10.

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1.45 The Future Fund has set up ESG policies and claims that it is pursuing global best practice.69 Other witnesses such as RIAA and Mr Matsuoka rejected that view. RIAA stated:

Not wishing to sound critical of what they are doing, I do not think the Future Fund is achieving best practice in all of the different aspects of the UN PRI that are out there. Certainly I am thinking here in terms of

reporting and things like that.70 71

1.46 Mr Matsuoka went on to comment:

To be honest, I have a bit of a sceptical view about the current practice of the Future Fund. I think they can do even more. I just read the response from the Future Fund. If they are prepared to provide this kind of answer, then I think they are able to practice more responsible investment. To set the very basic mandate, it is good to have legislation.'1

1.47 When asked about influencing the behaviour of tobacco companies under its ESG policy, the Future Fund stated that:

...we do apply our environmental and social governance policies clearly against all of our investments as well, so where we invest in any industry we ensure, for example, that the industry is acting in the right way, is adhering to the best corporate principles and is doing the right thing by its fiduciary duties.72

1.48 Quit Victoria, however, rejected the view that influencing the behaviour of tobacco companies was of any value:

There is no improvement on a tobacco product, I think. As you say, $200 million or whatever is invested in the tobacco industry is funding their activities, and essentially one in two people who uses their product dies. There is no safe level of smoking. There is nothing we can do to tobacco products to make them safer.73

1.49 Continuing to invest in entities involved with tobacco and nuclear weapons also provides clear evidence that the Future Fund is not currently operating at best practice. Oxfam saw the Bill as being able to bring the Future Fund into alignment with best practice:

Responsible Investment has developed in light of this recognition, and its incorporation into the investment practices of the Target Funds through this

69 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 29.

70 Mr Duncan Paterson, Chair, Responsible Investment Association Australasia, Committee Hansard, 8 August 2012, p. 22.

71 Mr Tomohiro Matsuoka, Committee Hansard, 8 August 2012, p. 16.

72 Mr Mark Burgess, Managing Director, Future Fund Management Agency, Committee Hansard, 8 August 2012, p. 28.

73 Ms Fiona Sharkie, Executive Director, Quit Victoria, Committee Hansard, 8 August 2012, p. 10.

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Bill will see Australia again at the forefront of best-practice in the financial and investment sector.74

We recommend to the committee that it support the adoption of responsible investment as an investment strategy, because it is compatible with the legal obligations of investors, as well as being essential to best practice risk management.75

1.50 During the inquiry, some concerns about responsible and ethical investment were raised. ASH countered the four most common arguments that are used by opponents of responsible investment guidelines:

The first one is that it [tobacco] is a legal product. There are lots of products that are legal * munitions, methadone, pornography *but many of these are restricted for social and health reasons...

The second common argument is that funds should be independent and free of political interference. The Future Fund Act, subsection 18(10) requires the board to maximise returns consistent with international best practice and subject to any conditions given by the responsible ministers under

subsection 18(1)...

The third common argument is that a fund's duty is to its investors. The duty of an investment fund is to maximise returns for its members * we know that *usually subject, however, to some direction and in accordance with best practice...complying with treaty obligations like the FCTC...

Lastly, a common argument is that tobacco is a good investment. Economic evidence shows that funds can perform well if not better if they adopt socially responsible investment guidelines. In contrast, the tobacco industry

has been described as a sunset industry. Its long-term future is in doubt.76

1.51 Another criticism of responsible and ethical investment is that it is too difficult to work out what companies are involved in. For example, the Future Fund claimed in its response to questions on notice that it was not able to identify whether companies it had invested in, were involved with nuclear weapons.77 Other witnesses, including ICAN, rejected that view:

The companies that we have included in our submission, as the Future Fund having investments in, are not companies that are producing paperclips, dual-use items or things that are not specific to nuclear weapons or their delivery systems. These are companies that are integrally involved in the

production of key nuclear weapons and delivery system components ...... In our report we have applied certain benchmarks for the size of the

engagement and for the specificity of the involvement. I think there are ways of doing this in a transparent and consistent way, but I would certainly

74 Oxfam, Submission 10, p. 6.

75 Mr James Ensor, Policy Director, Oxfam, Committee Hansard, 8 August 2012, p. 1.

76 Ms Anne Jones OAM, CEO, Action on Smoking and Health Australia, Committee Hansard, 8 August 2012, p. 9.

77 Future Fund, Answers to questions on notice Nos 2 and 3, received 27 July 2012.

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argue that key components of nuclear weapons and their delivery systems that are really integral and essential for those are possible to define.78

1.52 Some other criticisms that are specific to the Bill were made during the inquiry. One of the criticisms was that the Bill does not specify in detail the definitions or universe of proscriptions that would or could apply. While the issues raised around clarity are valid, it is anticipated that the responsible Ministers (in conjunction with the Future Fund) would ensure that adequate detail was present in the Future Fund Ethical Investment Guidelines required by the Bill.

1.53 The issue of a hierarchy of priorities, or competing priorities between the Investment Mandate and the Ethical Investment Guidelines is a valid concern. This matter can be easily resolved by clarifying the relationship clearly in the guidelines or in the Mandate.

1.54 Some of the concern expressed was about ambiguities in the proposed Guidelines. This would be a matter for the responsible Ministers to resolve according to the powers granted to them by the Bill. However, I note that these concerns did not apply to a simple list of exclusions which could be introduced as a short-term alternative to accomplishing the Bill's stated purpose in causing the fund to divest of tobacco and nuclear weapons stocks.

Independence o f the Future Fund

1.55 A key issue raised during the inquiry was the independence of the Future Fund from government and I acknowledge the importance of that independence. The proposed guidelines should allow continued independence regarding individual investment decisions as set out in section 18A of the Future Fund Act 2006 (FF Act). To facilitate independence, the Future Fund could develop the guidelines and provide them to the Government and Parliament for approval.

1.56 It is worth noting that existing powers under section 18 of the FF Act may be sufficient to bring about the changes sought. The existing powers of the responsible Ministers could be used to issue a new investment mandate that emphasised responsible investment without specific exclusions or interference. It is also within the Fund's powers to make those exclusions themselves without any change as they did with cluster munitions. The Bill has specific advantages in terms of making the changes explicit and ensuring that they are endorsed by Parliament.

1.57 In addition to the above safeguards, the Future Fund has contributed to the development of the Santiago Principles, which are among other things, designed to mitigate political interference in the operation of sovereign wealth funds. Oxfam submitted that:

The Santiago Principles of the International Working Group of Sovereign Wealth Funds attempt to address this by imposing requirements for transparency and disclosure of investment decision making. For instance at GAPP 19.1 they state that, "If investment decisions are subject to other than

78 Associate Professor Tilman Ruff, Chair, Management Committee, ICAN Australia, Committee Hansard, 8 August 2012, p. 4.

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economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed." Such an approach prefers an up-front, publically disclosed Responsible Investment policy to an ad-hoc investment strategy imposing ESG factors inconsistently and privately by the investment managers of a SWF. As such, this Bill provides the transparency and clarity required by the Santiago Principles of Australia's SWF.79

1.58 During the inquiry it was also pointed out that the Bill would influence the investment practices of the government and its affiliated bodies, and in doing so, would function as exemplary to wider financial communities both within Australia and outside Australia.80 Mr Matsuoka informed the committee that the European and New Zealand responsible investment initiatives had a huge impact on the financial

community:

...because not only was it, first of all, a sovereign fund but it was also prescribed in the legislation. It did not specifically designate responsible investment; however, the first CEO of the New Zealand Super Fund inteipreted this legislation as meaning practising responsible investment, and this became a kind of model in the industry.81

That is the case in Northern Europe. I mentioned the Norwegian fund case. That set the example in the industry. It is getting more widespread among particularly super funds, both public and private, in Northern Europe.82

1.59 The RJAA also supported this view, submitting that:

The consideration of ESG issues by large institutional investors such as government investment funds is therefore not just an issue of enlightened self-interest, but plays a key role in improving overall market standards, generating better market returns and reducing systemic risk.83

Conclusion

1.60 Evidence presented to this inquiry demonstrates that the harm caused by tobacco, nuclear weapons and cluster bombs is devastating both to Australia and other countries. While it is good that the Future Fund has divested its investments in entities involved with cluster bombs, it seems clear that it will not divest its investments in entities involved in tobacco and nuclear weapons of its own accord under its current governance arrangements. This state of events is both unnecessary and ethically untenable, creating a clear need to establish better governance arrangements to empower the Future Fund to make the necessary divestments.

79 Oxfam, Submission 10, p. 11.

80 Mr Tomohiro Matsuoka, Submission 4, p. 2.

81 Mr Tomohiro Matsuoka, Committee Hansard, 8 August 2012, p. 15.

82 Mr Tomohiro Matsuoka, Committee Hansard, 8 August 2012, p. 16.

83 Responsible Investment Association Australasia, Submission 11, p. 3.

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1.61 The Bill seeks to make measured and appropriate changes to the governance arrangements. The changes would make explicit, powers that arguably already exist under the Future Fund Act 2006. There are precedents in private industry and international sovereign wealth funds for responsible investment practices, such as those proposed in the Bill. Evidence from a range of sources suggests that returns will not be compromised. For tobacco and nuclear weapons in particular, they represent such a small fraction of the Future Funds' total value, that it is highly unlikely that divestment would have any material impact on returns.

Recommendation 1

1.62 The Australian Greens recommend that the Bill be amended to clarify the interaction between the Investment Mandate and the Ethical Investment Guidelines.

Recommendation 2

1.63 The Australian Greens recommend that the Government Investment Funds Amendment (Ethical Investments) Bill 2011 be passed.

Senator Richard Di Natale Senator for Victoria

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APPENDIX 1

Submissions and additional information received by the Committee

Submissions

1. Australian Council on Smoking and Health

2. Quit Victoria

3. Action on Smoking and Health (ASH) Australia

4. Tomohiro Matsuoka

5. Heart Foundation

6. International Campaign to Abolish Nuclear Weapons (Australia)

7. The Australian Lung Foundation

8. Department of Finance and Deregulation

9. The Royal Australasian College of Physicians

10. Oxfam Australia

11. Responsible Investment Association Australasia

12. The Future Fund

13. Department of Health and Ageing

Additional Information

1. Future Fund, Answers to questions on notice, 29 June 2012, (received 27 July 2012).

2. Future Fund, Answer to question on notice 8 August 2012, (received 14 August 2012).

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APPENDIX 2

Public Hearing

45

W ednesday, 8 Au gust 2012

Legislative Council Committee Room

Victoria State Parliament House, M elbourne

Witnesses

Action on Smoking and Health Australia

Ms Anne Jones OAM, Chief Executive Officer

Department of Finance and Deregulation

Mr Alan Greenslade, First Assistant Secretary Dr Greg Feeney, Assistant Secretary

Future Fund Management Agency

Mr Mark Burgess, Managing Director Mr Gordon Hagart, Head of ESG Risk Management

International Campaign to Abolish Nuclear Weapons (Australia)

Associate Professor Tilman Ruff, Chair, Management Committee

Oxfam Australia

Ms Shen Narayanasamy, Economic Justice Advocacy Officer Mr James Ensor, Policy Director

Quit Victoria

Ms Fiona Sharkie, Executive Director Ms Kylie Lindorff, Manager, Tobacco Control Policy

Responsible Investment Association Australasia (via teleconference)

Mr Duncan Paterson, Chief Executive Officer

M r Tomohiro Matsuoka

345

THE SENATE

STANDING COMMITTEE ON FINANCE AND PUBLIC ADMINISTRATION Legislation Committee

Report of the inquiry into the

Government Investment Funds Amendment (Ethical Investments) Bill 2011

Corrigendum

At page 9, paragraph 1.32, third dot point:

Omit: 'in 2011, over half a billion dollars was invested in companies involved with casinos and gaming'.

Substitute: 'as at 31 March 2011, over 150 million dollars was invested in companies involved with casinos and gaming *.

At page 9, footnote 38:

Omit: *ä3 May 2011'

Substitute: *8 July 2011'

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The Senate

Foreign Affairs, Defence and Trade

Legislation Committee

Defence Trade Controls Bill 2011 [Provisions]

Preliminary report

August 2012

347

© Commonwealth of Australia 2012

ISBN 978-1-74229-669-2

Printed by the Senate Printing Unit, Parliament House, Canberra

348

Members of the committee Core Members

Senator the Hon Ursula Stephens, ALP, NSW (Chair) Senator Alan Eggleston, LP, WA (Deputy Chair) Senator Mark Bishop, ALP, WA Senator David Fawcett, LP, SA Senator Anne McEwen, ALP, SA Senator Scott Ludlam, AG, WA

Secretariat

Dr Kathleen Dennody, Committee Secretary Ms Jane Thomson, Principal Research Officer Miss Jedidiah Reardon, Senior Research Officer Ms Penny Bear, Research Officer (from 9 March 2012) Ms Alpana Modi, Research Officer (until 5 March 2012) Ms Jo-Anne Holmes, Administrative Officer

Senate Foreign Affairs, Defence and Trade Legislation 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/Parliamentai~y Business/Committees/Senate Commit tees?url=fadt ctte/index.htm

iii 349

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Table of contents

Members of the committee....................................................................................... iii

Chapter 1

Terms of the Inquiry.................................................................................................. 1

Background to the Defence Trade Controls Bill 2011 ............................................ 1

Scrutiny of Bills Committee.....................................................................................1

Purpose of the bill.....................................................................................................2

Conduct of the inquiry..............................................................................................2

Preliminary Report................................................................................................... 3

Acknowledgements.................................................................................................. 5

Chapter 2

Strengthened export controls....................................................................................7

Changes to current defence export control regime-strengthening export controls.......................................................................................................... 7

Current trade framework..........................................................................................8

Regulation of transfer of intangibles .................................................................... 8

Regulation of transfer of intangibles-issues raised by submissions..................10

Brokering..............................................................................................................11

Brokering-issues raised by submissions.............................................................12

Lack of transition arrangements in the bill ......................................................... 14

Chapter 3

Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation....................17

Obligations under the treaty...................................................................................18

Approved Community under the treaty...............................................................18

Approved Community-provisions in the bill ..................................................... 19

Approved Community-concerns raised by submissions ................................... 19

Re-export under the treaty...................................................................................21

Re-export *provisions in the bill ....................................................................... 21

Re-export- *concerns raised by submissions......................................................22

Recordkeeping under the treaty .......................................................................... 23

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Recordkeeping-provisions in the bill .................................................................. 23

Recordkeeping-concerns raised by submissions................................................23

Security procedures under the treaty....................................................................24

Security procedures *issues raised by submissions .......................................... 25

Transitioning provisions in the bill......................................................................26

Chapter 4

Consultation.................................................................................................................27

Failure to consult with university and research sectors..........................................27

Consultation since 21 March 2012.......................................................................29

Conclusion of consultation process......................................................................31

Chapter 5

Conclusions and recommendations..........................................................................37

Post Implementation Review................................................................................... 40

ITAR reform..............................................................................................................41

Appendix 1

List of submissions...................................................................................................... 45

Appendix 2

Public hearings and witnesses .................................................................................. 47

Appendix 3

Additional information, tabled documents, and answers to questions on notice.......................................................................................................49

Appendix 4

Answ ers to questions on notice from Department of Defence received 20 June 2012.................................................................................................................51

vi 352

Chapter 1

Terms of the Inquiry

Background to the Defence Trade Controls Bill 2011

1.1 The Defence Trade Controls Bill 2011 (the bill) was introduced into the House of Representatives on 2 November 2011, passed on 21 November 2011 and introduced into the Senate on 22 November 2011. The bill, with its companion bill the Customs Amendment (Military End-Use) Bill 2011 (the customs bill), was referred to the Joint Committee on Foreign Affairs, Defence and Trade.1

1.2 On 10 November 2011, pursuant to the Senate Selection of Bills Committee Report, the provisions of the Defence Trade Controls Bill 2011 were referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report by 12 April 2012. The reasons for referring the bill were to 'allow further

investigation into issues of concern within the defence industry'.1 2 The customs bill was not referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry.

1.3 On 21 November 2011, the Joint Committee made a statement advising that to avoid duplicating the examination being conducted by the Senate committee, it had agreed not to inquire into the bills.3

1.4 Draft regulations accompanying the bill, the Defence Trade Controls Regulations 2012 (the regulations), were circulated by the Department of Defence (Defence) for industry consultation between 22 December 2011 and 17 February 2012.

Scrutiny of Bills Committee

1.5 The Senate Scrutiny of Bills Committee examined both bills in late

November 2011 and raised a number of concerns regarding the Defence Trade Controls Bill 2011.4 After noting the response provided by the Minister for Defence, the Scrutiny of Bills Committee recommended that Defence update the bill's explanatory memorandum to include further information.

1.6 The Senate Foreign Affairs, Defence and Trade Legislation Committee notes correspondence from the Minister for Defence to the Chair of the Scrutiny of Bills

1 House of Representatives Selection Committee Report No.38, 3 November 201L p. 3.

2 Selection of Bills Committee Report No. 16 of 2011, lONovember 2011, Appendix 2.

3 Statement to the House of Representatives re Customs Amendment (Military End-Use) Bill 2011 and Defence Trade Controls Bill 2011,21 November 2011.

4 Scrutiny of Bills Committee Alert Digest No. 14 of2011, 23 November 2011.

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Committee dated 26 March 2012, which states that Defence would update the bill's explanatory memorandum after the Legislation Committee's report on the bill. The committee notes the Scrutiny of Bills Committee's recommendations and the Minister's response.

Purpose of the bill

1.7 The bill gives effect to the Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation (the treaty). Signed in 2007 by former Prime Minister John Howard and former United States President George W Bush, the treaty was considered by the Australian Joint Standing Committee on Treaties in 2008.3 In addition to giving effect to the treaty, the bill also:

" introduces controls on the supply of Defence and Strategic Goods List technology and services related to Defence Strategic Goods List (DSGL) technology and goods;

" creates a registration and permit regime for the brokering of DSGL goods, technology and related services; and

" introduces a number of new criminal offences to enforce the new

provisions.

Conduct of the inquiry

1.8 The committee advertised the inquiry on its website. It also wrote to relevant ministers and departments calling for written submissions, and contacted a number of other organisations, commentators and academics inviting them to make submissions to the inquiry.

1.9 Initially, the committee received 11 submissions, including one confidential submission. All submissions except the confidential submission are listed at Appendix 1 and published on the committee's website. In order to examine concerns raised in the submissions, the committee held public hearings on

2 and 21 March 2012. Witnesses who appeared at the hearings are listed at

Appendices 2 and 3.

1.10 Evidence received at the public hearings, and in submissions, indicated that Defence had not conducted consultation with the university and research sectors. Representatives of the university sector argued that they would be negatively impacted by the strengthened export controls outlined in the bill; they were concerned that the new controls outlined in the bill would prevent international collaboration on research. 5

5 Joint Standing Committee on Treaties Report No. 94, 14 May 2008.

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1.11 As a result of this evidence, the committee asked Defence to work with Universities Australia and representatives from the University of Sydney to develop a solution to the problems created by the strengthened export control provisions in the bill. To provide time for this consultation to occur, the committee sought and was granted an extension to its reporting date to 15 August 2012. The committee asked Defence and Universities Australia to provide feedback about the consultation process by 30 May 2012.

1.12 The committee was concerned that the research sector in Australia had not been properly engaged by Defence in discussions about the bill. As a consequence, the committee approached other academic and research organisations to seek their submissions in regard to the effect of the bill on their work. Four submissions were received from this second round of invitations to provide submissions. They supported the aims of the bill but also had serious reservations, similar to the university sector, about the impact of the bill as drafted and also about the lack of consultation on the proposed legislation.

1.13 On 20 June 2012, Defence provided the committee with two briefing papers and responses to questions on notice and in writing from the public hearings. Defence advised that its consultation process with the university and research sectors was progressing and that it anticipated the consultation to be concluded by the end of

June 2012. By the end of July 2012, Defence anticipated that it would then be able to advise the committee of the results, including possible amendments to the bill. The consultation process, however, has taken longer than expected. The committee is encouraged by submissions from the university and research sectors which demonstrate a desire to work with Defence to find a solution. However, the committee notes with concern the submission from the Department of Industry, Innovation,

Science, Research and Tertiary Education (DIISRTE) dated 2 July 2012 which suggests that the consultation process has some way to go before all parties could reach agreement on a solution.

Preliminary Report

1.14 The committee acknowledges the concerns raised by submitters regarding the effect of the bill on the university and research sectors and Defence's lack of consultation with these sectors prior to introducing the bill into Parliament.6 Since the 21 March 2012 public hearing, Defence has conducted consultations and is considering amendments to the bill. The committee is aware, however, that during this recent four month consultation period new issues have emerged.

6 Universities Australia, Submission 11; National Health and Medical Research Council, Submission 12 and 12A; Australian Research Council, Submission 13; Queensland Government, Minister for Education, Training and Employment, Submission 14; DIISRTE, Submission 16; Cooperative Research Centres Association, Submission 17.

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1.15 While the committee is encouraged by Defence's advice 1 that it has also conducted consultations with the research sector, it notes DIISRTE *s observations that the pharmaceutical, biotechnology and nanotechnology industries may also be affected by the strengthened export controls.7 8 The committee is concerned that not enough time has been allowed for consultation on the strengthened export controls in the bill and that Defence has not consulted widely enough.

1.16 In this regard, the committee is conscious that time is rapidly slipping by without any certain resolution. It recognises the importance of the legislation and the general support for the intention of the bill but for the sake of ensuring that there are no adverse unintended consequences, the committee believes that more time is needed for further consultation and consideration. As Mr Michael Kenneally from NewSat observed:

We would rather ensure that what is implemented actually does work efficiently for us. Our preference is that whatever time it takes to get it right is the time it should take.9

1.17 The committee is firmly of the view that more groundwork is needed to refine the proposed legislation.

1.18 In addition to allowing more time to complete the necessary groundwork for this legislation, the committee is aware that the United States Government is currently undertaking reforms to its International Traffic in Arms Regulations (ITAR) that may have a direct bearing on the operation of some provisions in the bill, particularly those relating to the implementation of the treaty. Defence explained that the ITAR reform program is *about streamlining the US approaches and creating simpler lists for people

and about creating exemptions such as treaty exemptions *.10 The treaty, implemented in the second part of the bill, is likely to be affected by reforms made to ITAR as both are gateways by which Australian defence exporters can access the US defence market. The changes are anticipated by the end of 2012.

1.19 In the committee's view, it seems premature for this bill to proceed without the benefit of knowing precisely the detail of these changes and their implications for the legislation now before the Australian Parliament. Unless Defence can provide assurances to the contrary, the committee believes that it would be folly to proceed with the bill at this time while the resolution of important matters remains

outstanding.

7 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 27.

8 DIISRTE, Submission 16, p. 2.

9 Mr Michael Kenneally, Vice President Satellite Strategy, NewSat Ltd, Committee Hansard, 2 March 2012, p. 18.

10 Mr Michael Shoebridge, First Assistant Secretary Strategic Policy, Department of Defence, Committee Hansard, 2 March 2012, pp. 37-38.

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1.20 Taking into account the uncertainty surrounding the bill as currently drafted, the committee has decided to present a preliminary report. This measure is intended to allow Defence more time to give close consideration to the issues raised by submitters and to consult further if necessary especially with the research sector. The preliminary report outlines the committee's concerns, particularly in regard to the need for further consultation, and makes recommendations.

1.21 When the proposed legislation is no longer a work-in-progress, the committee's intention is then to reconsider the provisions of the bill, including any amendments proposed by the government, and present a final report to the Senate.

Acknowledgements

1.22 The committee thanks all those who assisted with the inquiry.

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Chapter 2

Strengthened export controls

2.1 The bill has two key purposes and its parts can be divided up accordingly: to give effect to the treaty (Parts 3 to 8) and to strengthen Australia's defence export controls (Part 2). The explanatory memorandum states that the bill will:

...give effect to the Treaty between the Government of Australia and the Government of the United States o f America concerning Defense Trade Cooperation. The Bill will also strengthen Australia's export controls to align them with international best practice.1

2.2 In this chapter, the committee examines Part 2 of the bill *dealings in items in the Defence Strategic Goods List (DSGL). It considers the provisions dealing with implementing the Defense Trade Cooperation Treaty in the following chapter.

2.3 Part 2 of the bill is intended to strengthen Australia's control over activities involving defence and dual-use goods. The bill includes provisions covering:

" intangible transfer of technology relating to defence and strategic goods, such as transfer by electronic means;

" provision of services related to defence and strategic goods and

technology, such as training and maintenance services; and

" brokering the supply of defence and strategic goods, technology and services.

Changes to current defence export control regime-strengthening export controls

2.4 Australia is a member of several export control regimes, including: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies; Australia Group; Nuclear Suppliers Group, and Missile

Technology Control Regime.1 2 Defence notes in the explanatory memorandum that the measures proposed in the bill introduce the controls developed by other countries in the Wassenaar Arrangement, including aims brokering and intangible transfers of

technology.3

2.5 The bill regulates dealings in items listed in the DSGL, as well as items covered under the treaty. The bill also creates offences relating to brokering or transfer of items listed in the DSGL.

1 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 4.

2 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 4.

3 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 4.

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Current trade framework4

2.6 Currently, before a person can trade in defence goods, technology and related services between Australia and the US, they need to obtain relevant authorisation from the appropriate government authorities. In Australia, the requirements for such authorisations are set out in section 112 of the Customs Act 1901 and regulation 13E of the Customs (Prohibited Export) Regulations 1958 and Part 2 of the bill.

2.7 Submitters recognised the importance of the purpose of the legislation. While they welcome the intention that sits behind the legislation and are looking to secure a robust regime, they also want unnecessary barriers or impediments to exporting controlled articles removed.

2.8 Although operating in different sectors *research and industry *submitters' concerns about the strengthened export controls were similar. They argued that the regulation of the transfer of intangibles and strengthened controls around brokering would create a substantial compliance burden and affect research and international collaboration.

Regulation of transfer of intangibles

2.9 The explanatory memorandum notes in relation to Part 2 of the bill, that:

At present, technology listed in the DSGL requires permission from the Minister for Defence for it to be exported in the form of a tangible good (for example, on paper or a computer drive). This Bill introduces provisions

to control identical technology when transferred via intangible means, for instance via email, facsimile or internet.5

2.10 Under the bill, control over transfer of technology through intangible means would be overseen by Defence. For example, a person seeking to transfer technology via an email would require a permit under clause 11 of the bill. Under this clause, the Minister for Defence approves permits. If a permit is refused, the Minister must provide the person notice of the refusal and reasons for the refusal.6

2.11 Subclause 11(4) allows the Minister to 'give the person a permit to do a specified activity if the Minister is satisfied that the activity would not prejudice the security, defence or international relations of Australia'. Neither the bill nor the

regulations elaborate on the issues the Minister may consider in determining whether the activity would prejudice the security, defence or international relations of Australia *only the explanatory memorandum provides a list of issues, and notes that 'these criteria are consistent with the considerations made in assessing an application

4 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 61.

5 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 46.

6 Defence Trade Controls Bill 2011, ss. 11(6).

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for the export of DSGL tangible goods or technology under the Customs (Prohibited Export) Regulations 1958'.'

2.12 Companies, research organisations, universities or other organisations who work with DSGL technologies will require the permits described in clause 11. It is therefore important for the criteria used in determining the success of an applicant be outlined in legislation. The committee notes that the criteria for approval of an application to become a member of the Approved Community have been listed in the bill at subclause 27(3). Further, the Customs (Prohibited Export) Regulations 1958 lists conditions for assessing applications for the export of DSGL goods or technology.

Recommendation 1

2.13 The committee recommends that the government consider including in the bill the criteria provided in the explanatory memorandum in relation to permits issued under clause 11 so that the Parliament can scrutinise them properly and potential applicants can be clear as to the criteria that will be used to assess their applications.

2.14 The bill creates offences as part of its regulation of transfer of intangibles. A person commits an offence if he/she supplies DSGL technology to a foreign person and does so without a permit or in breach of the condition of the permit. Also, under similar conditions, the bill creates an offence relating to the provision of defence

services.7 8

2.15 'Foreign person' is defined in clause 4 as being a person who is not an

Australian person. 'Australian person' is defined:

Australian person means:

(a) the Commonwealth, a State or a Territory or an authority of the

Commonwealth, a State or a Territory; or

(b) an individual who is an Australian citizen; or

(c) an individual who is, within the meaning of the Migration Act 1958, the holder of a permanent visa; or

(d) a body corporate incoiporated by or under a law of the Commonwealth or of a State or Territory.

2.16 Subclause 10(3) provides exceptions to the offences in relation to the supply of technology under the treaty, for example in an Approved Community.

7 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 49.

8 Defence Trade Controls Bill 2011, ss. 10(2).

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Regulation o f transfer o f intangibles-issues raised by submissions

2.17 Several submitters noted that controls on intangible goods would create a significant compliance burden on industry. The Defence Teaming Centre broadly canvassed its membership and summarised these concerns in its submission:

The decision to place controls on non-tangible goods, whilst logical, will add a significant overhead to many members, especially those who deal with training, systems engineering and consultancy. This will mean that the cost and time needed to tender for overseas opportunities for these

companies is likely to be too great. Unless the export approval process is significantly accelerated, this could lead to companies in this space losing significant market share. Concern was also expressed that the way that export applications are currently implemented is inadequate to cover the wide range of intangible that will now be covered, which will only lead to delays in the approval process.9

2.18 Mr Andrew Giulinn of Saab Systems Pty Ltd (Saab) observed that some definitional issues would need to be resolved in order to assist compliance with the regulation of intangibles. He explained:

There are cost of compliance issues with this arrangement and, obviously, initially some definitional issues to try and work out what it is that is covered and what we need to have in place to be able to meet the

requirements. That is probably the biggest concern for us once the bill is sorted out in terms of the detail of it: what do we need to do internally to try and deal with this? So, while we might get a licence now to make sure we are covered for tangible exports even if we are expecting most of them to be intangible exports, there is a lot behind this bill in terns of record-keeping and that sort of thing that we need to be conscious of. That is probably where the biggest cost of compliance will come for us.10

2.19 Submitters from the university sector noted the effect that these controls would have on research and development in Australian universities. Professor Graham Mann summed up the concerns at the 21 March public hearing:

Think about the fact that the extension of this legislation to intangible transfers is really the critical issue here. The goods themselves are easy to regulate. When you talk about the intangible aspects of research such as: communication among researchers; fomiing of teams to address the problems proposed by academic influenza [an example of collaboration: the problems associated with influenza used for research purposes]; the way people talk to each other; design projects; seek funding for those projects; disclose what they intend to do to get the money for those projects; the

implementation and management of them; the results; the analysis; and the reporting of those results in an open research community to get the best and

9 Defence Teaming Centre, Submission 1 , p. 2.

10 Mr Andrew Giulinn, Contracts Manager, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 12.

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most effective research actually happening and delivering the intangibles are everything in this.11

2.20 Professor Mann's evidence also indicated that the scope of the term 'intangibles' could be quite broad. In questions taken on notice, the committee asked Defence to address specifically this matter. In its response, Defence advised that:

Customs legislation only applies to the export of tangible goods and technology. The new strengthened export control provisions in the Bill will close the existing gap in Australian export controls by regulating the intangible supply of technology and provision of defence services. The Bill does not specifically refer to 'intangible transfers' or 'intangible export', however, the Wassenaar Amangement state parties use the term and throughout a period of extensive consultation, Defence has found

'intangible transfers' to be a commonly-used expression that is understood by industry.11 12

Recommendation 2

2.21 In consultation with all relevant sectors, the committee recommends that Defence provide examples to illustrate the scope of the definition of 'intangibles' and 'intangible transfer' in the explanatory memorandum.

Brokering

2.22 Brokering forms another part of the bill's framework for strengthening export controls. The explanatory memorandum notes in relation to Division 2 *Brokering:

Currently, Australian persons, and foreign persons in Australia, can arrange the supply of DSGL goods and technology or the provision of services associated with those items from a place outside Australia to another place outside Australia without Government authorisation.

The international export control regimes to which Australia belongs have long recognised that brokers have been involved in the delivery of military equipment to countries under arms embargoes, and to criminal organisations and armed groups, including those believed to be engaged in terrorism.

The puipose of this Division is to allow the Australian Government to regulate the brokering of controlled goods or technology and the provision of services in relation to such goods or technology when that transaction is arranged by an Australian or the arranging occurs wholly or partly in Australia. This will be achieved through a power to register brokers and

11 Professor Graham Mann, Associate Dean, Research, Sydney Medical School, University of Sydney, Committee Hansard, 21 March 2012, p. 20.

12 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 20.

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issue penuits to engage in brokering activities involving DSGL goods, technologies and services.13

2.23 Subclause 15(1) creates an offence in regard to arranging supplies and provision of defence services in relation to the DSGL, in the instance where the arranging occurs without appropriate permits. 'Arrange' is not defined in the bill; however, the explanatory memorandum provides this information:

The term 'arranges' is intended to include, but is not limited to, circumstances where for a fee, commission or other benefit, a person acts as an agent or intermediary between two or more parties in negotiating

transactions, contracts or commercial arrangements for the supply of DSGL goods or technology or provision of services related to DSGL goods or technology.

The term 'arranges' is not intended to cover situations where a first person provides a second person with a point of contact for the supply of DSGL goods or technology or provision of services related to DSGL goods or technology and there is no fee, commission or other benefit obtained by the

first person.14

2.24 Persons may apply for registration as a broker under the conditions set out in Division 3. A registered broker may apply for a permit under clause 16. The Minister for Defence may approve a person's registration as a broker (Division 3) and may approve the granting of permits (clause 16).

Brokering-issues raised by submissions

2.25 Boeing Australia and South Pacific (Boeing) and Saab both raised concerns regarding elements of the brokering regulation. Boeing submitted that the scope of the registration and oversight requirements for brokers was too broad and that as a result it captured persons and activities which were not necessary for the intent of the bill * that is to protect national security interests. Boeing provided a specific example:

Freight Forwarders *The teim "supply", which is defined in section 4 as including supply by way of "sale, exchange, gift, lease, hire or hire- purchase", is broadly used together with the teim "arrange" throughout Section 15, which establishes brokering offences. Under this definition, a

freight forwarder delivering goods to one customer on behalf of another customer could be construed as "arranging to supply" the goods, therefore offering a brokering service and becoming subject to Section 15. In order to avoid possible confusion, we recommend defining the term "arrange" in the

Section 4 definitions in such a way as to make clear that although a freight forwarder may "supply" Defence and Strategic Goods List items, in the

13 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 52.

14 Defence Trade Controls Bill 2011, Explanatory Memorandum, pp. 53-54.

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normal course of business a freight forwarder does not "arrange" that supply.15

2.26 Saab too was concerned about the scope of the brokering requirements. Mr Giulinn explained:

Saab notes the reference on page 53 of the explanatory memorandum to a fee commission or other benefit. Saab accepts this would reduce the scope of the brokering rule and align more closely with intent, which is, in our view, to stop uncontrolled movement of technology and where it is being arranged by somebody who is getting some sort of fee for it and therefore there might be a potential for them to prefer to ignore export control regimes around the world. Saab's concern remains, however, firstly because the explanatory memorandum says the term 'arranged' includes but is not limited to circumstances where a fee, commission or other benefit is involved, so it is not only those but also leaves things that do not require a fee.

Saab is also concerned as to when during the business development process the activity becomes controlled brokering. The issue here is that early activities to develop business, which might include arranging the movement of items between overseas locations, often requires speed and flexibility. It would be impractical to be required to apply for a licence in that situation and it could be years before that initial contact results in a contract and subsequently the actual transfer. The department has indicated that the need for a licence would start from the point of sale. Saab awaits further information as to how this might work.16

2.27 It is clear from evidence received by the committee that while the intention of the brokering regulation is clear, the requirements under the bill require further definition to take into account the practicalities of conducting business. Defence has responded to these concerns, noting:

The preference of submitters to have key terms defined in the Bill rather than in the regulations or EM [explanatory memorandum] has been noted by Defence. It is acknowledged that this particular concern was raised in the context of the Bill's reference to the term 'arranges' in the brokering

offences contained in Part 2, Division 2 of the Bill.

The term 'arranges' is intended to be read using the ordinary meaning of the term in conjunction with the additional guidance provided by the explanation given in the EM at pages 53-54. The EM provides clear examples of situations that 'arranges' is intended to cover, as well as

situations that are to be regarded as outside the scope of the temi.

15 Boeing Australia and South Pacific, Submission 6, p. 2.

16 Mr Andrew Giulinn, Contracts Manager, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 11.

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Defence has considered the submissions made in relation to this point, in addition to the comments made by the Committee, and would be prepared to include a definition of the term 'arranges' in the Bill that is consistent with the guidance in the EM, if recommended by the Committee.17

2.28 The committee explored the reasons for having key terms defined in the explanatory memorandum at both public hearings. Defence's explanation for not including definitions of key terms in the bill was not convincing. The committee,

however, is encouraged by Defence's new willingness to do so.

Recommendation 3

2.29 The committee recommends that Defence include the definition of *arrange * in the bill, and that in defining the term Defence consult with submitters who have raised issues regarding the scope of the term.

2.30 For future drafting, the committee draws Defence's attention to the Acts Interpretation Act 1901 , in particular the use of extrinsic material in the interpretation of an act, and notes that clarity of definitions greatly assists the efforts of those who have to comply with the legislation.

Lack o f transition arrangements in the bill

2.31 Four submitters, including Saab, registered concerns regarding transition arrangements: specifically that no arrangements had been outlined in the bill or the regulations for the transition to the new strengthened export controls.18 The government has noted in the explanatory memorandum; in the Second Reading

Speech; and in its response to the Scrutiny of Bills Committee, that implementation of the measures in the bill will include education and consultation with industry. However, while submitters such as the Defence Teaming Centre and the AMWU note that industry education is required, most industry submitters were concerned about:

" when new measures would take effect,

" whether there would be a gradual process, and

" the status of in-train projects.

2.32 Universities Australia also argued for transition arrangements noting that:

Universities require a very substantial transition period before the Bill is enforced against universities, so that they and the authority have sufficient time to intelligently deal with the administrative and technical challenges contained in the Bill. Due to the de-centralised nature of universities, it will take considerable time to train staff to a level that is sufficient, as well as

14_______________________________________________________________________________________________ _____________

17 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 5.

18 Division 5 of the bill provides for transition to the Defense Trade Cooperation Treaty.

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provide that training across entire campuses, including overseas campuses where impacted.19

2.33 Defence responded to submitters' concerns in an answer to a question on notice:

The Bill's commencement provisions provide that the Bill will not commence operation until the Treaty comes into force. Once the Bill has passed through the Australian Parliament, the Treaty will not come into force until the US President has ratified the Treaty, the Attorney-General

has sent correspondence to the Federal Executive Council and there has been a bilateral exchange of notes to agree upon a Treaty commencement date.

In light of continuing consultations with the university and research sectors, the strengthened export control provisions of the Bill and Regulations may need some changes, and may delay the Bill's passage through Parliament. This, combined with the process above, will give Defence, industry and universities a period of time to prepare to meet the requirements of the

Bill.20

2.34 It should be noted that the period of time needed to ratify the treaty cannot be defined. The committee is concerned that the approach outlined by Defence does not provide certainty for the industry, research and university sectors affected by the strengthened export controls. Further, Defence suggested that the time taken for the bill to pass Parliament should be sufficient for organisations to prepare for the regulatory changes *this assumes that there would be no substantial changes to the bill made by Parliament.

Recommendation 4

2.35 The committee recommends that Defence, in consultation with the industry, research and university sectors, establish a timeline for the gradual transition to the strengthened export controls regulated by the bill.

19 Universities Australia, Submission 11, p. 7.

20 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 21.

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Chapter 3

Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation

3.1 The Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation (the treaty) was signed by the former Prime Minister John Howard on 5 September 2007 at the time of the 19th APEC Ministerial Meeting in Sydney.1 The Implementing Arrangement was signed on 14 March 2008. The Implementing Arrangement details the way in which the treaty will be implemented in both countries.1 2 Part 3 of the bill implements the treaty.

3.2 The purpose of the treaty is to remove selected export restrictions on defence trade between Australia and the US. Implementation of the treaty is intended to create a simpler, more cost effective system.3 Defence noted in evidence that:

The Treaty framework is intended to remove the administrative delays associated with existing Australian and US export-licensing systems. It is expected to reduce delivery times for new projects and improve program schedules...It is intended to increase opportunities for Australian companies to bid on eligible US contracts...and to reduce obstacles for improved cooperation between US and Australian companies, which will benefit Australia *s defence capability.4 5

3.3 The current US defence export control system, the International Trade in Arms Regulations (ITAR), requires that licences are sought for each separate trade transfer. Under the treaty, the US and Australia will create a framework which allows

licence-free trade within an Approved Community."

3.4 The treaty was considered by the Joint Standing Committee on Treaties (joint committee) which, after noting the concerns of some submitters in regards to the cost

1 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 33.

2 Parliamentary Library, Bills Digest No. 91, 2011-12 , 22 February 2012, p. 4; Article 14, Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation.

3 Parliamentary Library, Bills Digest No. 91, 2011-12, 22 February 2012, p. 5.

4 Mr Michael Shoebridge, First Assistant Secretary Strategic Policy, Department of Defence, Committee Hansard, 2 March 2012, p. 30.

5 Parliamentary Library, Bills Digest No. 91, 2011-12, 22 February 2012, p. 6.

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of implementing the treaty, recommended that binding action be taken in regards to the treaty.6

3.5 The majority of submissions received by the Senate Foreign Affairs, Defence and Trade Legislation Committee in regards to the bill expressed support for the aims of the treaty and the opportunities outlined by Defence.

Obligations under the treaty

3.6 The Defence Trade Controls Bill 2011 and the draft Defence Trade Controls Regulations 2012 address the domestic ratification requirements of the treaty. In the US, reforms to ITAR are being completed as part of ratification requirements. The treaty will come into force when Australia's and the United States' domestic requirements are complete.

3.7 Part 3 of the bill implements the treaty and comprises, amongst other things, the criteria for membership of the Australian Approved Community. Parts 4 and 5 of the bill detail the monitoring powers given to the Defence to ensure compliance in relation to the Australian Approved Community. Part 6 lists record keeping requirements for members of the Australian Approved Community.

Approved Community under the treaty

3.8 The treaty removes the requirement for a license or permit to be obtained for each transaction conducted by members of the Approved Community, and instead imposes obligations in relation to Australian and US Defence Articles traded or transferred under the treaty.7 'Under articles 4 and 5 respectively, Australia and the US agree to establish, maintain and monitor an Approved Community of government facilities and non-government companies'.8 Defence has stated in relation to the Approved Community that:

Applying for membership in the Approved Community will be a voluntary commercial decision. Those entities that choose not to join the Treaty will continue to operate within existing Australian and US defence export

controls...Entry into the Australian Approved Community will be a commercial cost-benefit decision for individual companies, based on the level of businesses a company is likely to undertake with the US Government or with US defence companies.9

3.9 In its report on the treaty, the joint committee noted that:

6 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 43.

7 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 35.

8 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 35.

9 Defence Export Control Office, The Defence Trade Cooperation Treaty - Defence Export Control Office Booklet, date not supplied, p. 1 of 2, httn:/'/www.defence.gov.au/deco/Dublications/biOchures/DTCT.pdf (accessed 3 August 2012).

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... it is clear from the evidence that those companies who are not a part of the Approved Community will be at a competitive disadvantage.10 11

3.10 Under article 14 of the treaty, an Implementing Arrangement has been signed by both Australia and the US. The Implementing Arrangement 'supplements the provisions of the treaty by prescribing detailed procedures and standards to be adopted by the Parties'.11 Included in the Implementing Arrangement are, amongst other things, arrangements for inclusion of an Australian entity in the Australian Approved Community and exemption of certain Defence Articles from the scope of the treaty.12

Approved Community-provisions in the bill

3.11 The bill lists three groups who make up the Australian Approved Community:

" A person who is a body corporate and holds a clause 27 approval;

" Employees or persons engaged under a contract for services by a body corporate approved under clause 27 can also be a Australian Community member if they meet the requirements to be specified in the requirement to be specified in the regulation under the bill; and

" Federal, State and Territory Government employees with the required minimum security clearance and a 'need to access' US Defence Articles.13

3.12 Clause 27 of the bill allows a person who is a body coiporate to apply to the Minister for Defence for approval to be a member of the Australian Approved Community. In assessing the application, the Minister must have regard to the criteria

set out in subclause 27(3).

3.13 Subclause 28(4) creates an offence for an Australian Approved Community member who holds an approval under clause 27 but does not comply with a condition specified in the regulations. The maximum penalty for this offence is up to 600 penalty units. A strict liability offence in relation to failure to comply with a condition of approval is created by subclause 28(5) and this offence attracts a maximum penalty of up to 300 penalty units.

Approved Community *concerns raised by submissions

3.14 In general, submitters saw the implementation of the treaty and the removal of the obligation to have a permit under the ITAR process to be positive for Australian industry. However, a key source of concern was that the process for becoming a member of the Approved Community would be onerous, both in terms of cost and of

10 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 41.

11 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 36.

12 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, pp. 36-37.

13 Defence Trade Controls Bill 2011, Explanatory Memorandum, pp. 61-62.

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time. The Defence Teaming Centre noted the 'significant investment' needed to introduce an ITAR control regime into a company and that:

Companies who must operate in multiple export environments will not be able to take advantage of the treaty, as the conflict between ITAR guidelines and the access needed by dual *or third country *nationals to the materiel is too great. The conflict between ITAR rules and access provisions for other control regimes will impact companies across the entire industry, including Prime contractors, Small and Medium Enterprises and ancillary service providers such as freight forwarders.14

3.15 Saab emphasised that the Australian export control regime should operate without 'adding cost to either government or industry' and to 'minimise competitive hurdles for Australian Defence exports whilst retaining appropriate controls'.15

3.16 Submitters such as Boeing were of the view that the penalties imposed under the Approved Community structure may deter potential participants. One corporation's confidential submission also noted that US Government approval is required for membership of the Australian Approved Community, whereas membership of the US Approved Community is based on registration with the US Directorate of Defense Trade Controls.

3.17 Defence has acknowledged that it is difficult to quantify the direct impact on industry of enforcing compliance given that the costs will vary depending on a range of factors such as the 'size of the business, the extent of their existing exports of controlled goods, services and technology and/or the maturity of their business practices, including record management'.16 Such costs are separate to any additional

costs associated with record-keeping as required under the legislation, staff training and any additional costs associated with determining whether a permit is required under the legislation. There may also be investment costs associated with denial of a permit or limitations imposed thereafter.17 Other costs to industry which have been identified in the explanatory memorandum relate to the following:

" ensuring and maintaining facilities to meet the requirements to hold, store and protect treaty articles;

" ensuring and maintaining information technology infrastructure to satisfy the requirements to store or transmit treaty-related information electronically;

14 Defence Teaming Centre, Submission 1, p. 5.

15 Mr Andrew Giulinn, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 9; Saab Systems Pty Ltd, Submission 5, p. 2.

16 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 14.

17 Defence Trade Controls Bill 2011, Explanatory Memorandum, p. 22.

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" the time required by company employees to complete application forms and undertake training provided by the government to meet all membership requirements;

" meeting membership conditions including costs involved in the:

a) development or amendment of existing policies and procedures to ensure authorised access to treaty articles;

b) facilitation of internal audits to assure compliance with treaty membership obligations;

c) assurance process and assistance to Authorised Offices in this regard;

d) establishment and retention of records of prescribed activities;

e) reporting to government of business conducted under the treaty framework including treaty article transfer and results of internal compliance processes.18

Re-export under the treaty

3.18 Under Articles 8 and 6, Australia and the US agree that members of the Approved Community may export and transfer Defence Articles without licences. Under Article 9, re-transfers and re-exports of Defence Articles require the approval of both the Australian and US Governments, although the treaty allows for some mutually determined exceptions. In Article 1 're-transfer' and 're-export' are defined as:

"Re-export" means the movement of previously Exported Defense Articles by a member of the Australian Community from the Approved Community to a location outside the territory of Australia;

"Re-transfer" means the movement of previously Exported Defense Articles by a member of the Australian Community from the Approved Community to a location within the Territory of Australia.

Re-export *provisions in the bill

3.19 Clause 28 under Part 3 of the bill lists the approval conditions which must be met for organisations wishing to become a member of the Approved Community. The explanatory memorandum notes that the approval conditions stipulate that 'the re≠ transfer or re-export as defined in the treaty of a US Defence Article cannot occur without prior approvals of the US and Australian Governments'.19

18 Defence Trade Controls Bill 2011, Explanatoiy Memorandum, p. 33.

19 Defence Trade Controls Bill 2011, Explanatoiy Memorandum, p. 64.

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Re-export * concerns raised by submissions

3.20 Submitters raised concerns with regards to the prohibitions on re-export under the bill: that articles exported under the treaty must not be re-transferred or re≠ exported outside the Approved Community. The Defence Teaming Centre noted that:

Several companies also questioned the lack of ability to re-export goods. As many companies are performing integration work as part of a supply chain, Defence articles from the US occasionally need to be re-exported to a third country. The treaty provisions do nothing to simplify this process, and with the expansion of the control regime to cover more articles this will lead to increased overheads for supply-chain focussed companies.20 21

3.21 Mr Michael Kenneally from NewSat also raised concerns regarding re-export by contrasting the framework under the treaty with the current situation:

We do not have the skills base in Australia to do a lot of what we are doing in terms of the design of a satellite, and so we have engaged a network of specialist advisers to help us on the Jabiru satellite program, most of them based out of the US. However, under the rules of ITAR, if we have a technical assistance agreement where US companies export to us, if we communicate that data to anyone else, that is a re-export of the technology and has to be listed on the TAA. We believe that this is one of the areas of complication for the bill as it is going forward, because re-export is not covered in the arrangements that we have seen."1

3.22 Defence responded to these concerns by noting that:

The provisions of the Bill relevant to the Treaty reflect the intent of the Treaty itself, and are designed to enable simpler trade in defence goods between Australia and the US. Trade within the Treaty framework is confined to mutually agreed scope lists on which the included activities contain elements of eligible bilateral trade... As a bilateral Treaty, there was no intention to provide exemptions from existing controls for re-exports to other countries. Exports to countries other than the US will still require the authorisations they currently require under existing controls. As a result, the Bill does not change arrangements for re-exports to third countries *this type of activity will remain subject to export controls.22

3.23 The committee understands the background and purpose for the treaty, but notes that companies that need to pass goods through a non-Australian/non-US location as part of a supply chain would need to work under the current framework to

20 Defence Teaming Centre, Submission 1 , p. 2.

21 Mr Michael Kenneally, Vice President Satellite Strategy, NewSat Ltd, Committee Hansard, 2 March 2012, p. 16.

22 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 16.

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obtain permits for that location. For some companies, this would make becoming a member of the Approved Community less attractive.

Recordkeeping under the treaty

3.24 Article 12 of the treaty stipulates that each Party require entities within the Approved Community to 'maintain detailed records of all [Exporting, Transferring, Re-transferring, Re-exporting or receiving Defense Articles] movements'.23

3.25 Article 12 also requires that the records maintained by entities in the Approved Community be available on request to the other Party, in accordance with procedures under the Implementing Arrangements.

Recordkeeping-provisions in the bill

3.26 Part 6 of the bill outlines the requirements for the making and retaining of records as part of the Approved Community. Subclauses 58(1) to (5) provides that separate records must be kept; the time in which they must be made; and the retention of the record. Subclause 58(4) notes that the form of record may be prescribed in the regulations. Subclause 58 (6) creates an offence in relation to failure to create and retain the required records.

3.27 Clauses 59 to 62 deal with the production and inspection of records and create an offence for failure to comply with a notice to produce records (subclause 59(4)). Further information regarding record keeping requirements is also detailed in the regulations at regulation 31.

Recordkeeping-concerns raised by submissions

3.28 In its submission, Boeing argued that clarification was needed regarding the practicalities of record-keeping requirements and in particular the scope of the requirements. Boeing noted:

For example, Section 51, subsection 1 requires the creation of 'a separate record of each activity that the person does under a permit.' For services and intangible transfers in particular, individualized record-keeping is very difficult to achieve, and could amount to many thousands of entries. As drafted, the current language does not explain whether a record is required for each controlled defence service, or if every individual email, telephone call, or fax constitutes a separate, recordable export of intangibles subject to export controls. Although some of these questions may be addressed in the more detailed implementing regulations, it is important to include clarifying language in the Bill itself, taking into consideration the practical aspects of each recordkeeping requirement.24

23 Article 12, Treaty between the Government of Australia and the Government of the United States of America concerning Defense Trade Cooperation.

24 Boeing Australia and South Pacific, Submission 6, p. 3.

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3.29 In Saab's view, companies will have an added compliance burden with regards to record-keeping, and the differences between requirements for the Approved Community and those for the strengthened export controls:

There is a lot more required at the back end * for instance, on the record≠ keeping side because we suddenly have to keep track of a whole lot of stuff in a way that we did not have to before. We need to make a distinction

between this bill's implementation of the treaty and the other two aspects of this bill, which are intangible and brokering controls, which are purely Australian. .

3.30 Defence noted that Saab was correct in that the record-keeping requirements for the strengthened export controls and those for the movements of defence articles under the treaty are different:

While Defence is able to vary the record-keeping requirements for strengthened export controls, the record keeping requirements in the Bill and the Regulations for Treaty activities have some flexibility but need to

reflect Australia's commitments under the Treaty. As the Regulations are currently drafted, the record-keeping requirements for the strengthened export controls and those implementing the Treaty provisions have a high level of consistency. Any changes to the record-keeping requirements for strengthened export controls and Treaty activities may be different for each area and may introduce inconsistency between the Treaty and the

strengthened export control record-keeping requirements.25

3.31 Given submitters' concerns regarding the definition of a record and the practical considerations of making and retaining records, the committee asked Defence if it would consider providing examples in the legislation or the explanatory memorandum. The committee is encouraged by Defence's response that 'the

Government is considering options to amend the record-keeping requirements in the Regulations to include a minimum of information'.26 27

Recommendation 5

3.32 The committee recommends that Defence undertake consultation with industry in order to eliminate unnecessary record-keeping.

Security procedures under the treaty

3.33 Articles 6, 8 and 11 of the treaty 'require each Party to establish procedures to ensure that all Defence Articles are clearly marked or identified as being traded pursuant to the treaty at various points of their movement'.2/

25 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 14.

26 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 16.

27 Joint Standing Committee on Treaties Report No. 94, 14 May 2008, p. 35.

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3.34 Security procedures, including marking and identification of Defence Articles, are detailed in the regulations at Part 3.

Security procedures * issues raised by submissions

3.35 In its evidence to the committee, Ms Stephanie Reuer from The Boeing Company raised concerns that the marking of goods and technology may cause concern for companies. She noted:

...the significant effort associated with the required marking and re-marking of items and data. This requirement may create an environment in which companies elect to forgo some of the advantages of the treaty. We

recommend that the marking be accomplished through the marking of associated commercial documents normally provided with shipments.

With the way the treaty is written, items would have to be physically marked in some manner, unless it was impracticable to do so. The examples given are aerosols and chemicals. But in the aerospace and defence

business, marking components or subassemblies is a very, very difficult thing to do and a very costly thing to do. We also have to be concerned in this business about foreign object debris. So having to mark those parts is, I think, a considerable request. Once items come into the community they have to be marked. If you need to send them back to somebody outside the community for whatever reason, maybe the supplier is not part of the community, they have to be unmarked. Then if they come back in, they have to be re-marked. So you can see that that constant marking and re≠ marking can be very dissuasive to treaty use.28

3.36 Defence noted that similar concerns had been raised in regard to the regulations, and advised:

Marking requirements to Treaty articles were seen to be onerous and unclear *Defence has raised this issue with the US and the common understanding is that marking of items is only required where it is

practicable to do so *more specific implementation guidance will be developed.29

3.37 The committee notes that marking and handling of Defence Articles is a condition placed on members of the Approved Community. Under clause 28 of the bill, members of the Approved Community commit an offence if they fail to comply

with any of the conditions of membership. In order to encourage industry to become

28 Ms Stephanie Reuer, Director, Global Trade Controls, The Boeing Company, Committee Hansard, 21 March 2012, pp. 2-3.

29 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 10.

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members of the Approved Community, it is important that the sector is provided with clear practical guidance on matters such as marking requirements.

Transitioning provisions in the bill

3.38 Under Division 5 of the bill, clause 35 details procedures for transitioning Defence Articles from a previous licence to the framework established under the treaty. Under subclauses 35(1) and (2), a person must make an application to the Minister in regards to transitioning the Defence Article.

3.39 Subclause 35(5) provides that, should the Minister refuse the transition, then the Minister must inform the person of the refusal and the reasons for the refusal.

3.40 Saab made some comments in relation to the transitioning provisions, raising concerns regarding the 'practical implications of the different requirements of the proposed US and Australian implementations of the treaty with regard to the transition from existing ITAR export licences to the treaty exemption to ITAR of US-controlled items already in Australia'.30 Mr Giulinn advised the committee, in relation to this

concern, that Saab had discussed the issues with Defence. As a result:

The department have indicated it has been proposed to the US that all transitions to the treaty instigated by Australian companies are done through the department, providing a single interface with the US Department of State on such matters. The two reasons for that being suggested are (1) it would make it easier for the Australian companies because we do not have to know who to talk to at the US Department of

State and follow US processes that we are not familiar with and (2) the Australian department would know which items are being moved from the existing arrangements through to the treaty arrangements.31

3.41 Clearly, a number of the problems identified with Division 5 of the bill could be resolved by close consultation with industry.

30 Saab Systems Pty Ltd, Submission 5, p. 3.

31 Mr Andrew Giulinn, Contracts Manager, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 10.

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Chapter 4

Consultation

Failure to consult with university and research sectors

4.1 Evidence given at the committee's 2 and 21 March public hearings,

particularly by witnesses from Universities Australia and the University of Sydney, demonstrated that Defence had failed to adequately consult with all stakeholders on the bill. The substantial part of Defence's consultation process with universities and other relevant research stakeholders began during March 2012; four months after the bill had been introduced and only after the committee recommended that Defence conduct the process.

4.2 Defence outlined its consultation process in answer to questions taken on notice at the public hearings. The process included the release of an exposure draft of the bill, a series of consultation workshops (from information provided these workshops were aimed at industry), and release of draft regulations for consultation. While Defence noted that it contacted Universities Australia, it provided no information about the nature or extent of the contact with other universities and research organisations.

4.3 The inadequacies of Defence's consultation process were first brought to the committee's attention by Dr Pamela Kinnear from Universities Australia during the 2 March 2012 public hearing:

I will finish my opening statement by making the point that it is very

unfortunate that we are having to address these issues at this point in time. We do understand the stage that the legislation is at. We think the situation could have been avoided through greater levels of engagement between the government and the university sector, and possibly even internally to

government. We would like to point out that we do not understand how the regulatory impact statement can have assessed that the impact on universities will be small when in its own admission it did not have any

data to support its conclusion, and it did not consult with the university sector.

4.4 Defence disagreed with Universities Australia's assertions regarding consultation.* 2 The committee notes, however, that when the exposure draft of the bill was released for public consultation on 15 July 2011, the explanatory memorandum included a Regulation Impact Statement which detailed the impact of the legislation

1 Dr Pamela Kinnear, Deputy Chief Executive, Universities Australia, Committee Hansard, 2 March 2012, p. 24.

2 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), pp, 25-26.

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on academic institutions. In its advice to the committee, Defence indicated that it received no response to its letter sent to Universities Australia on 9 May 2011, prior to the exposure draft process. Given this lack of response, it is difficult for the committee to understand how Defence reached the conclusion in the Regulation Impact

Statement that the bill would not have a detrimental effect on academic institutions.

4.5 In the explanatory memorandum to the bill, Defence outlines the consultation conducted with industry.3 The Australian Industry7 Group Defence Council also discussed in their submission the consultation process Defence had undertaken with their members. Despite this consultation, companies such as Saab and Boeing raised concerns with the committee and indicated that further detail was required from Defence, particularly in relation to the regulations accompanying the bill.

4.6 On 20 June 2012, Defence provided answers to the committee's questions taken on notice and written questions following the public hearings. As part of this information, Defence advised the committee that its consultation process, which started in March, would be concluded by the end of June 2012 and that Defence would be able to advise the committee of an outcome at the end of July.

4.7 Also, as a result of the concerns about the effect of the bill on research

organisations raised by Universities Australia and the University of Sydney, the committee invited a number of other research organisations to make submissions to the committee's inquiry. The National Health and Medical Research Council

(NHMRC), the Australian Research Council, and the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) responded. The Queensland Government also made a submission regarding the effect the proposed legislation could have on universities and research organisations.

4.8 The NHMRC, the Australian Research Council and DIISRTE all referred to the consultation process and each recommended that further consultation be conducted. They made clear that they were willing to work with Defence to find a solution to concerns about the bill's effect on research.

4.9 The NHMRC and DIISRTE noted in their submissions, dated 15 June and 2 July respectively, that Defence had provided two options papers. One contained three options for amending the bill (of which option 3 was the submitters' preferred option) and a second paper had four options. The submitters had concerns regarding option four. For example, the NHMRC expressed strong reservations about this option:

Option 4 as presented raises a number of questions and concerns. As presented, and without clear advice and definitions, implementation of Option 4 may result in a significant increase in regulatory burden for

3 Explanatory Memorandum, Defence Trade Controls Bill 2011, p. 14.

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researchers and institutions in comparison to Option 3, which appears to largely address concerns raised by the research community.4

4.10 Given the concerns raised by these submitters, the committee is concerned that Defence's proposed timeline does not allow sufficient time for the conclusion of consultation and the creation of a suitable solution for all stakeholders.

Consultation since 21 March 2012

4.11 The committee gained the impression that Defence was not well prepared and was caught by surprise by the concerns raised in some submissions, particularly the comments made by Universities Australia. Indeed, Defence found itself in a position in March, four months after the legislation had been introduced in Parliament, where it

had to undertake extensive consultation about some provisions in the bill, most notably those dealing with the application of the legislation to intangible transfers. This aspect of the bill remains one of the pressing concerns still requiring a resolution. Unfortunately any conversation on this matter started very late. Indeed, Universities Australia was of the view that the situation could have been avoided through 'greater levels of engagement between the government and the university sector and possibly internally to government'. For example, as noted earlier, Universities Australia could not understand:

.. .how the regulatory impact statement can have assessed that the impact on universities will be small when in its own admission it did not have any data to support its conclusion, and it did not consult with the university sector.5

4.12 Sydney University supported this view. It noted that when preparing the bill, Defence 'had no information available to it indicating the number of activities in Australian universities likely to be affected'/1 Furthermore, at the hearing on 21 March Dr Michael Biercuk informed the committee that discussion with Defence about such matters had started 'about an hour ago'.7 At the same hearing, Professor Mann told the committee that there was 'a job of work to be done, not just an instrument, which we have not seen yet, which may have lots of exemptions'. He was of the view that Defence had 'grossly underestimated how many exemptions there would need to be'.8

4 National Health and Medical Research Council, Submission 12, Supplementary * Submission, p.2.

5 Dr Pamela Kinnear, Deputy Chief Executive, Universities Australia, Committee Hansard, 2 March 2012, p. 24.

6 University of Sydney, Submission 7, p. 1.

7 Dr Michael Biercuk, Faculty of Science, School of Physics, University of Sydney, Committee Hansard, 21 March 2012, p. 22.

8 Professor Graham Mann, Associate Dean, Research, Sydney Medical School, University of Sydney, Committee Hansard, 21 March 2012, p. 20.

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4.13 Even as late as 30 May, the NHMRC informed the committee that while the university sector had been consulted, the Medical Research Institute (MRI) sector and the public health sector had not. It also had strong reservations about the bill, noting

that the legislation 'may have ramifications not only for the university sector, but also for other institutions that conduct health and medical research.. NHMRC then stated:

In order to ensure that the MRI sector will be consulted, my Office will provide details of the draft Bill to (Association of Australian Medical Research Institutes) AAMRI and provide contact details for AAMRI to the Defence Bill secretariat. However, both the MRI and the public health

sectors should be included in the consultation process.9

4.14 In this regard, the NHMRC suggested broad consultation once the bill had been redrafted, which should 'include the peak body for MRIs and the health sector'. At this late stage, the committee received a similar submission from the Australian Research Council, which was of the view that the concerns raised were 'sufficiently serious as to justify further consultation with universities about the proposed controls, prior to their implementation'.10 11

4.15 As noted earlier, Defence commenced consultation in earnest with the Australian research sector about the proposed legislation during March 2012. The consultation was continuing when on 21 June 2012, the committee received information from Defence indicating that it had met with Universities Australia and agreed to develop principles and options for further consultation and discussion with the university and research sectors.

4.16 On 2 July, the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) stated that it was encouraged with the progress of consultations between Defence and the higher education sector since March 2012. It noted, however, that the consultations were continuing and Defence was 'still developing options for consultation with the sector'. Indeed, based on the perspective of its portfolio agencies, DIISRTE identified another issue that was 'yet to be addressed' *the treatment of statutory authorities, whose staff have not been granted exemption from committing offences under the bill. DIISRTE also noted that while Defence had dealt directly with Universities Australia and the University of Sydney, it had not done so with the broader range of universities. It suggested that universities 'may have different viewpoints and it would be desirable to broaden the consultation process to include all Universities members'.11 It noted that Defence was planning to do so.

9 NHMRC, Submission 12, p. 2.

10 Australian Research Council, Submissioti 13, p. 2.

11 DIISRTE, Submission 16, p. 3.

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Conclusion o f consultation process

4.17 On 9 August, Professor Jill Trewhella, Deputy Vice-Chancellor (Research) at the University of Sydney, advised the committee that

It is with considerable regret that I must inform the Committee that at present the university sector is unable to support what we understand to be Defence's preferred position relating to this Bill and its implementation.

In our view the current Option 4, which we understand to be Defence's preferred position, is inconsistent with the regulatory principles that we understood had been agreed by Defence early in the consultations.12 13

4.18 Universities Australia shares the concerns of the University of Sydney, noting that

Since March, Universities Australia has engaged in discussions with the Department of Defence...with the intention of securing a workable

outcome. Despite early promise of progress and a commitment from the Department to work collaboratively, we have been disappointed that there has not been the opportunity for open or considered sectoral engagement on the issues, and to date adequate responses to our concerns have not been provided.11

4.19 The universities argue that their concerns have not been recognised by Defence. A set of amendments to the bill to resolve the issues raised by the universities, known as option 3, was proposed during consultations and supported by the universities, research organisations, and DIISRTE.'4 The University of Sydney

explains that option 3

...balances the competing demands of providing controls for high-risk activities and ensuring protection for innovative research, education and freedom of inquiry. It accomplishes this by targeting enforcement to a relatively small class of high-risk activities which have limited overlap with typical academic research (e.g. advanced "experimental development"

activities pertaining to Veiy Sensitive controlled goods). Exemptions for basic, strategic basic and applied scientific research ensure that it is possible to create a culture of compliance among the limited pool of researchers

engaged in activities that potentially carry security risks.15

4.20 Defence propose a different set of amendments to the bill, known as option 4. In June, Defence circulated a paper with both options 3 and 4 to stakeholders. The

__________________________________________________________________________________________________________31_

12 University of Sydney, Submission 7A, pp. 1-2.

13 Universities Australia, Submission 11 A, p. 1.

14 University of Sydney, Submission 7A, p. 3; Universities Australia, Submission 11A, p. 1; NHMRC, Submission 12A, pp. 1-2; DIISRTE, Submission 16, pp. 2-3.

15 University of Sydney, Submission 7A, p. 3.

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universities, research organisations and DIISRTE have all raised concerns with option 4.16 Universities Australia explains that:

...from our perspective, it was evident that the proposed new option [option 4] had numerous shortcomings that would not achieve the objective sought. Universities Australia provided a formal response expressing our concerns about the new option [option 4] and reiterating our preference for the core elements of Option 3' to form the basis of any solution...Despite some

advantages provided by exempting supply of intangible technologies within Australian borders, the sheer volume of international collaborative activity in a digital age means that Option 4 would, in practice, be little different, in practice, to the draft legislation currently before Parliament. More

importantly, it fails to address the Bill's own stated objective to apply to a limited and small volume of high-end, specialist research. In doing so, it risks constraining low risk research of high public value, with few obvious benefits to national security.17

4.21 Both the University of Sydney and Universities Australia raise concerns with the way in which the consultation has been conducted by Defence. For example,

Significantly, on 10 July 2012 Defence advised Universities Australia in writing that it intended to recommend amendments to the Bill to introduce permit requirements for academic publications involving DSGL technologies. Coming so late in the consultation process, Defence's reversal of its previous verbal advice (made during the consultations) that it did not

intend to control publication of university research, raises profound questions of principle, policy and process.

Universities Australia requested written advice from Defence about its proposal to control publications as part of Option 4. To date, no such advice has been forthcoming. This means that we have had no detailed information on which to make an assessment of the practicalities of Defence's plans.18

4.22 On 9 August, Defence wrote to inform the committee it was 'unlikely that Defence and the university and research sectors will reach agreement on a preferred option and, as a result, consultation has moved towards the practical implementation of the legislation'.19 As noted above, the cause of the disagreement is that the university and research sectors and DIISRTE prefer option 3, while Defence argues for option 4.

4.23 Defence asked the committee to 'adopt'20 option 4 and endorse the

amendments that Defence proposes in support of this option. Amongst other

16 University of Sydney, Submission 7A, p. 3; Universities Australia, Submission 11A, p. 1; NHMRC, Submission 12A, pp. 1-2; DIISRTE, Submission 16, pp. 2-3.

17 Universities Australia, Submission 11 A, p. 2.

18 University of Sydney, Submission 7A, pp. 3-4.

19 Department of Defence, Submission 15A, p. 1.

20 Department of Defence, Submission 15A, p. 3.

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arguments, Defence lists the following reasons the committee should endorse option 4:

It implements Australia's obligations under the Wassenaar Arrangement to implement controls on intangible transfer of controlled technology;

It is most consistent with the existing tangible export control model and therefore provides a more simple and common approach. It also reduces potential cost to businesses as they will not need to establish separate compliance systems for tangible and intangible controls.21

4.24 Defence lists the proposed amendments which could be made to the bill explaining that:

To implement Option 4 and address other aspects that have arisen during the course of consultation, if accepted by the Committee, the Bill could be altered by:

" making the Bill consistent with Australia's existing tangible export controls by:

o removing controls on supplies of technology inside

Australia;

o removing controls for Australians located overseas who supply technology; and

o applying controls to all supplies of technology from

Australia to anyone outside Australia;

" including definitions for 'in the public domain' and 'basic scientific research' in the Bill and Regulations;

" removing controls on defence services; and

" including an additional control on publishing information where it will transfer controlled technology to the public domain.22

4.25 Defence proposes to work with the university and research sectors to assist them in implementing option 4, should the committee agree that bill be amended in this way.23

Defence will remain engaged with the Department of Innovation, Industry, Science, Research and Tertiary Education and UA [Universities Australia] on outreach activities and materials, so that we can benefit from their knowledge of how to best communicate with the sector. Planned measures

include:

" a simple user guide to help individuals to understand and navigate the Defence and Strategic Goods List;

21 Department of Defence, Submission 15A, p. 3.

22 Department of Defence, Submission 15A, p. 4.

23 Department of Defence, Submission 15A, p. 9.

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" a sector-specific publication to assist the academic and research sectors to understand what Australia's export control system means for them (similar to the product developed previously for the mining industry);

" tools and guidance to help academic and research institutions to build internal compliance frameworks that are appropriate for their organisations;

" sector-specific outreach sessions for key export compliance staff (train the trainers); and

" sector-specific outreach sessions with researchers to help them understand their obligations and how the export control process works.24

4.26 Universities Australia, and the other research organisations, remains willing to work with Defence to find a solution. However, Universities Australia notes that 'agreement can only be achieved through a transparent consultation process in which all stakeholders from the research community and other affected organisations are brought together'.2" Universities Australia suggested that the Chief Scientist, Professor Ian Chubb, could assist in resolving the consultation deadlock. It informed the committee that Professor Chubb has accepted an invitation to convene a roundtable of key stakeholders.26 Universities Australia supports a roundtable in that it is

...an initiative that is consistent with our calls during the consultation process to move beyond the series of bilateral conversations that had characterised the Department's approach. A roundtable would enable the key stakeholders to hear the Department's proposal and reasoning and

develop their own response in light of perspectives that extend beyond naiTOw sectoral interests.27

Recommendation 6

4.27 The committee endorses the roundtable approach proposed by Universities Australia and recommends that Defence participate in the roundtable of key stakeholders convened by Universities Australia and chaired by the Chief Scientist, Professor Ian Chubb. The committee also recommends

that the further consultation be conducted by Defence with key stakeholders, until the issues raised can be resolved to the satisfaction of all parties. Further, the committee recommends that consultation be conducted in an open and transparent manner, and sufficient time allowed for key stakeholders to consider the complex issues and respond.

24 Department of Defence, Submission 15A, p. 9.

25 Universities Australia, Submission 11 A, p. 3.

26 Universities Australia, Submission 11A, p. 3.

27 Universities Australia, Submission 11A, p. 3.

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4.28 The committee further recommends that, in designing the implementation of the strengthened export controls, Defence create an advisory group of key stakeholders which must have input into each part of the process. Key stakeholders in the group should include, but not be limited to: DIISRTE, the Department of Health and Ageing, NHMRC, Universities Australia, and the Chief Scientist of Australia.

Recommendation 7

4.29 The regulations are an important part of the implementation of the strengthened export controls. Defence has proposed that the regulations will be amended iu line with any amendments made to the bill. The committee recommends that the regulations form an integral part of the consultation process.

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Chapter 5

Conclusions and recommendations

5.1 Undoubtedly, industry supports the intention of the legislation but has lingering concerns about its implementation and acknowledges that there are 'issues that need to be worked through'.1 Mr John O'Callaghan, Australian Industry Group Defence Council, told the committee that he was reasonably confident that issues with the regulations would be resolved. Based on the draft regulations he had seen, however, he indicated that he would keep an open mind on the actual start-up date for the legislation, if that date were to be September 2012.1 2 He noted that since their release there were issues with the draft regulations and 'additional issues which have arisen, which were not foreshadowed necessarily in the bill'. He stated:

I think at the macro level the intent of the bill in regard to the definitions is accepted, but in getting into the detail of the regulations there is a degree of nervousness, perhaps, that was not there previously.3

5.2 For the research institutions, the bill as currently drafted would simply not deliver on its stated intention that the proposed controls would be limited to high-end specialist research and thus have a limited regulatory and administrative impact on universities. Dr Pamela Kinnear told the committee bluntly that not only would the bill not realise that intention:

...we believe it will have the opposite effect. It is so widely drawn at

present that it will potentially expose a vast array of routine teaching and research activities to such controls.4

5.3 The Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) agrees that there are:

...potentially negative implications of the Bill, as originally drafted, on the Australian higher education sector, public good research and industry, in particular the pharmaceuticals, biotechnology and nanotechnology sectors, arising from a large change in the regulatory environment.

In considering the Bill, it is important to note that Australian research involves a high degree of international collaboration. In 2010 it has been estimated that 42% of Australian research involved international

1 Mr John O'Callaghan, Executive Officer, Australian Industiy Group Defence Council, Committee Hansard, 2 March 2012, p. 6.

2 Mi- John O'Callaghan, Executive Officer, Australian Industry Group Defence Council, Committee Hansard, 2 March 2012, p. 6.

3 Mr John O'Callaghan, Executive Officer, Australian Industry Group Defence Council, Committee Hansard, 2 March 2012, p. 7.

4 Dr Pamela Kinnear, Deputy Chief Executive, Universities Australia, Committee Hansard, 2 March 2012, p. 23.

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collaboration, compared with 29% in the United States, 44% in Canada, 26% in the European Union and 13% in China. In part, the relatively high level of collaboration is due to our small population, which necessitates

greater contact with international researchers than is the case in larger economies, such as the United States and the European Union. Given the importance of international collaboration to Australia's research and innovation, the tightening of regulations envisaged in the Bill may result in a significant administrative burden on the research sector and result in disruption to establishing international collaborations.5

5.4 In summary, submissions raised a number of matters. Some go to critical issues that, contrary to the intentions of the proposed legislation, could have a serious deleterious effect on the export activities of companies in Australia. They include:

" exemptions surrounding research and international collaboration;

" clarity around the scope of regulation governing the transfer of

intangibles;

" a clear definition of 'arrange' which should be included in the legislation to assist companies in working with brokering regulation; and

" the need for a clearly outlined transition period for the introduction of strengthened export controls.

5.5 Other matters raised, while less about the integrity of the bill, are nonetheless important for the overall success of the new regime. In general they deal with the practical procedures of exporting controlled articles and are mainly concerned with establishing a more simplified and streamlined process *removing roadblocks and reducing red tape. As one witness suggested, industry wants 'clarity, guidance,

outreach and help'.6 For example, Saab's objective in making representations to the committee was 'to assist in the process of making the Australian export control regime work efficiently and achieve its intent without non-value adding cost to either government or industry'.7 Concerns included:

" simplifying recordkeeping requirements8 *a number of witnesses referred to onerous recordkeeping *as noted by Mr Giulinn, 'we suddenly have to keep track of a whole lot of stuff in a way that we did not have to do before';9 and

5 DIISRTE, Submission 16, p. 1.

6 Ms Stephanie Reuer, Director, Global Trade Controls, The Boeing Company, Committee Hansard, 21 March 2012, p. 4.

Committee Hansard, 2 March 2012, p. 9. See also Universities Australia statements, Committee Hansard, 2 March 2012, p. 23.

8 Ms Stephanie Reuer, Director, Global Trade Controls, The Boeing Company, Committee Hansard, 21 March 2012, p. 9.

9 Mr Andrew Giulinn, Contracts Manager, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 12.

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" ensuring that the requirements for joining the Approved Community are not onerous and deter companies from applying to be members.

5.6 The committee is encouraged by the willingness of industry to work with Defence in resolving the practical issues above so as to ensure the success of the new arrangements under the bill. The committee believes that it is likely that many of the issues industry has raised could be resolved through changes to the draft regulations. However, the committee notes the importance of any changes to the draft regulations being the subject of wide consultation with all stakeholders, including research and university sectors. The committee sees significant benefits in Defence aligning its consultation on the draft regulations and the bill so as to ensure that there is no disconnect between the two.

5.7 The committee is also encouraged by the continuing willingness of the research and university sectors, and DIISRTE, to work with Defence to find a way to strengthen export controls without unnecessarily interfering with the work of research organisations and universities. For example, DIISRTE noted that the 'current Bill would adversely impact on the pharmaceuticals, biotechnology and nanotechnology industries, either because they store or use affected materials or they would otherwise collaborate with overseas companies and researchers'.10 11 As noted earlier, DIISRTE mentioned that when Defence had consulted with the higher education sector it had dealt directly with Universities Australia and the University of Sydney and not the broader range of universities. It was of the view that the consultation should include all university members. According to DIISRTE, Defence, through Universities Australia, was 'planning to broaden its consultation with universities' and the Department of Innovation would 'facilitate ongoing consultation with the higher

education sector'.11

5.8 As noted previously, on 20 June the committee received a progress report from Defence detailing its consultation process on the issues raised by Universities Australia. The committee is encouraged by the expanded consultation *Defence has now included other research organisations and is working with DIISRTE and the Department of Health and Ageing to ensure that the public health sector is also included, as per the request from NHMRC in their submission of 30 May.

5.9 In the 20 June progress report, Defence noted that acceptance of any options 'was a matter for government consideration following this consultative process'. The committee believes that the bill should proceed once all issues have been resolved through extensive consultation with all relevant stakeholders and adequate time has been allowed for government to consider and approve the option finally accepted by all sectors.

10 DIISRTE, Submission 16, p. 2.

11 DIISRTE. Submission 16, p.3.

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Post Implementation Review

5.10 Defence noted in the explanatory memorandum that it would conduct a Post Implementation Review which will 'provide retrospective analysis on the merits of the treaty. Defence will start to collect data once the proposed legislation takes effect'. Defence also advised that it would:

...also collect data through application forms for both tangible and intangible export and brokering permits to assess the impact of the strengthened export controls and its administrative impact on the Government.12

5.11 Submitters such as the Australian Manufacturing Workers' Union noted the importance of the Post Implementation Review:

The anticipated benefits are tempered by the fact that the Treaty has a built- in 'review' process to be undertaken 12-24 months after it comes into force. Correctly, the impact statement is qualified by the following statement: "At this stage, it is difficult to quantify the Treaty's impact and the Post Implementation Review will be the opportune time to assess it." Indeed, the Post Implementation Review will be important in assessing the impact.

AMWU would seek that the review closely examines the impact on Australia's Defence industry through comparative data on import/export balances of Treaty goods; changes of suppliers of goods in both markets; participation rates of Australian SMEs; US tenders won by Australian manufacturers and vice-versa; and employment trends in the industry.

Should the review find that the anticipated benefits have not been realised then appropriate and immediate remedial action should be undertaken.13

5.12 In its submission, DIISRTE also asserted that a review of the bill would be needed, noting:

The Department of Innovation considers that a clear communication and education campaign will be needed with the research sector to ensure smooth implementation of the Bill and ensure appropriate compliance. Additionally, to assess the Bill's regulatory impact, it should be reviewed within two years of commencement of the new arrangements, including an evaluation of the impact of the Bill on business (particularly exports), research, and higher education.14

5.13 Submitters identified issues which Defence did not envisage as being included in a Post Implementation Review of the treaty. The Post Implementation Review outlined by Defence in the explanatory memorandum is required by the Office of Best

Practice Regulation (OPBR) *once completed it would be assessed by OPBR and

12 Defence Trade Controls Bill 2011, Explanatory Memorandum, p.7.

13 Australian Manufacturing Workers' Union, Submission 4, pp. 4-7.

14 DIISRTE, Submission 16, p.3.

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sent to the relevant portfolio minister and the Prime Minister.1" The Post Implementation Review will also be presented to the Joint Standing Committee on Treaties.

Recommendation 8

5.14 In light of the concerns raised during the committee's inquiry regarding the strengthened export controls, the committee recommends that the Post Implementation Review be extended to include review of the strengthened export

controls arrangements and the issues outlined by DIISRTE. The committee sees significant benefits in Defence undertaking the review in cooperation with DIISRTE and the Department of Health and Ageing. The committee requests that the Minister provided the committee with a copy of the review.

ITA R reform

5.15 The committee is aware that the United States Government is currently undertaking reforms to its International Traffic in Arms Regulations (ITAR) that may have a direct bearing on the operation of some provisions in the bill, particularly those relating to the implementation of the treaty. Defence explained that:

US Administration has stated its intent to reform ITAR over time according to a set of guiding principles based on four singularities:

" a single export control licensing agency

" a single control list

" a single enforcement coordination agency; and

" a single integrated IT system.15 16

5.16 Defence advised further that:

Australia and the US are committed to ensuring that joining the Approved Community and operating within the Treaty framework will continue to provide benefit to Community members and remain attractive over existing export control authorisations, including in the context of the reforms

underway. We are working closely with our US State Department colleagues in the Treaty Management Board to ensure that the Treaty incorporates the benefits of US export control reform and have received a

15 Office of Best Practice Regulation Guidance Note Post-implementation Reviews, Department of Finance and Deregulation, undated, p. 14 of 24, http://www.finance.gov.au/obpr/proposal/docs/pir guidance note.pdf (accessed 3 August 2012).

16 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 4.

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commitment from the Department of State that the Treaty will always remain beneficial over the ITAR licence regime.17

5.17 Ms Reuer from Boeing spoke of the treaty and the ITAR reforms being able to 'live alongside' each other. She noted that as compared to the ratification of the treaty, 'the export control reform process is proceeding, but it is going to be a longer process'.18 Mr Giulinn from Saab also thought that the ITAR reforms would not

inhibit the treaty, however, he did note that the US was considering amendments to brokering controls and that:

...for the treaty we are talking about a bilateral arrangement where we have to understand what our obligations are under that arrangement within the US and in Australia. In regard to the brokering they are two different sets of rules: the US rules and there are our rules. Yes, it would be nice to have the two things aligned, but we cannot expect that because it is not part of one

overall arrangement.19

5.18 Defence noted that it is working with its US counterparts to ensure that the treaty arrangements incorporate benefits from the reforms, which are yet to be concluded. The committee is concerned that if the reforms are being incoiporated into the treaty, this may affect the provisions of the bill and the consultations currently underway. In this regard, however, the committee notes that submitters are not overly concerned with regards to the ITAR reforms and their effect on the treaty.

5.19 From 14 April to 3 May 2012, three members of the committee (including one participating member-Senator Johnston) were part of a delegation of

Parliamentarians, which included members from the Defence Sub-Committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade, visiting the US, Europe and the UK. During its US visit, the delegation was able to discuss defence

export controls issues with US officials.

5.20 From discussions during the US visit, the delegation noted that:

" The US is contemplating a number of reforms to ITAR, including

changing a large number of Defence and dual use items from the Munitions List to the Commercial List. A further reform is a Licence Exception for a number of countries, including Australia, which would

allow an item on the Commercial List identified for government end-use to be exported without a licence.

17 Defence, answers to questions on notice from public hearings, 2 and 21 March 2012 (received 20 June 2012), p. 4.

18 Ms Stephanie Reuer. Director, Global Trade Controls, The Boeing Company, Committee Hansard, 21 March 2012, p. 4.

19 Mr Andrew Giulinn, Contracts Manager, Saab Systems Pty Ltd, Committee Hansard, 2 March 2012, p. 13.

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" Much work has been undertaken so far by the US in contemplation of legislating reforms to ITAR, including consultation with industry and harmonising definitions. As described above at paragraph 5.15, the aim is to simplify the ITAR.

" The US aim to put the majority of planned reforms into effect by the end of 2012, however the November election will impact this timing.

5.21 While the committee believes that the bill should proceed, it sees significant benefits in delaying consideration of the bill until the effects of the ITAR reforms are clear and the consultation process has concluded.

Recommendation 9

5.22 The committee is disappointed with the consultation undertaken by Defence in regards to this bill. Evidence provided to the committee demonstrates that the consultation conducted by Defence was started too late in the process; lacked transparency; and was not conducted in a way which encouraged

consensus in solving the policy problems at hand. The committee draws Defence's attention to the issues outlined in this report.

5.23 The committee notes the importance of proceeding expeditiously with the bill and considers that the efforts shown by all parties during this short consultation process demonstrate that everyone involved understands the importance of the timeframe. The committee considers that it should be possible

for Defence to continue consultation and find a solution suitable for all stakeholders prior to the end of the year.

5.24 The committee recommends that the Senate defer consideration of the provisions of the bill until Defence has completed its consultation process; the government has been advised of the results of that consultation and decided on amendments to the proposed legislation; and the committee has had an opportunitv to consider any proposed amendments and made its final report on 31 October 2012.

Senator the Hon Ursula Stephens Chair

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Appendix 1

List of submissions

Public submissions

1 Defence Teaming Centre

2 Confidential

3 US Trade and Export Control Services

4 Australian Manufacturing Workers' Union (AMWU)

5 Saab Systems Pty Ltd

6 Boeing Australia and South Pacific

7 The University of Sydney 7A Supplementary Submission

8 Ambassador of the United States of America

9 NewSat Ltd

10 Australian Industry Group

11 Universities Australia Covering Letter

11A Supplementary Submission

12 National Health and Medical Research Council (NHMRC) 12A Supplementary Submission

13 Australian Research Council

14 Minister for Education, Training and Employment, Hon John-Paul Langbroek MP, Queensland Government

15 Minister for Defence, the Hon. Stephen Smith MP 15A Department of Defence - Supplementary Submission

16 Department of Industry, Innovation, Science, Research and Tertiary Education

17 Cooperative Research Centres Association

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Public hearings and witnesses

Appendix 2

Friday 2 March 2012 *Canberra

BEECHER, Ms Glenda, Universities Australia (Monash University)

CUNLIFFE, Mr Mark, Head, Defence Legal, Department of Defence

CURTOTTI, Mr Michael, Universities Australia (Australian National University)

GIULINN, Mr Andrew, Contracts Manager, Saab Systems Pty Ltd

KENNEALLY, Mr Michael, Vice President Satellite Strategy, NewSat Limited

KINNEAR, Dr Pamela, Deputy Chief Executive, Universities Australia

KIRKWOOD, Mr Angus, Assistant Secretary Export and Amis Control, Strategic Policy Division, Department of Defence

O'CALLAGHAN, Mr John, Executive Officer, Australian Industry Group Defence Council

SHOEBRIDGE, Mr Michael, First Assistant Secretary Strategic Policy, Strategic Policy Division, Department of Defence

SILSBURY, Ms Elissa, Business Analyst, NewSat Limited

WALKER, Ms Rebecca, Senior Advisor, Australian Industry Group Defence Council

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Wednesday 21 March 2012 * Canberra

ASPLUND, Mr Mark, Regional Counsel, Boeing Australia Holdings Pty Ltd

BIERCUK, Dr Michael, University of Sydney

CANNING, Professor John, University of Sydney

KIRKWOOD, Mr Angus, Assistant Secretary Export and Anns Control, Strategic Policy Division, Department of Defence

MANN, Professor Graham, University of Sydney

PAYNE, Mr Timothy, University of Sydney

REUER, Ms Stephanie, Director, Global Trade Controls, The Boeing Company

SHOEBRIDGE, Mr Michael, First Assistant Secretary Strategic Policy, Strategic Policy Division, Department of Defence

THOMAS, Dr Ian, President, Boeing Australia and South Pacific

TREWHELLA, Professor Jill, Deputy Vice-Chancellor, University of Sydney

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Appendix 3

Additional information, tabled documents, and answers to questions on notice

1. Universities Australia - Answers to questions on notice (from public hearing, 2 March 2012, Canberra)

2. Saab Systems Pty Ltd - Answers to questions on notice (from public hearing, 2 March 2012, Canberra)

3. NewSat Limited * Answers to questions on notice (from public hearing, 2 March 2012, Canberra)

4. Boeing Australia and South Pacific - Answers to questions on notice (from public hearing, 21 March 2012, Canberra)

5. Department of Defence - Answers to questions on notice (from public hearings, 2 and 21 March 2012, Canberra)

6. Department of Defence - Answers to written questions on notice

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Appendix 4

Answers to questions on notice from Department of Defence received 20 June 2012

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Australian Government

Department of Defence Strategy Executive

Strategic Policy Divisic Department of Defence R1-1-A005 CANBERRA ACT 2600

Tel: 02 6265 1883

Fax: 02 6265 3091

Senator Ursula Stephens Chair Senate Foreign Affairs. Defence and Trade Legislation Committee Parliament House

CANBERRA ACT 2600

Dear Ms Stephens

I am writing in response to your request for Defence to provide a response in relation to the Defence Trade Controls Bill 2011 (the Bill). My response will address the issues raised during the Senate Foreign Affairs, Defence and Trade Legislation

Committee (the Committee) public hearings on 2 March 2012 and 21 March 2012, and answer the questions on notice received by Defence on 9 March 2012 and 5 April 2012.

This response will provide answers in the context of the current version of the Bill. At the Committee7s request. Defence has been consulting with the university and research sectors. The Principles and Options document that forms the basis of this

consultation is attached. I anticipate that this process will be complete by the end of June 2012 and Defence will be able to advise you of the results, including possible amendments to the Bill, by the end of July 2012.

Questions on notice ~ 09 March 2012

1. Regulatory requirements for Approved Community. What is Defence *s view on the proposition that the Bill may act as a disincentive to the establishment of the Approved Community as it may impose significant regulatory requirements and penalties (including strict liability offences).

The Bill sets up a framework that allows the Treaty to be implemented into Australian domestic legislation. The Treaty7 enables licence-free trade between Australian and US members of an 'Approved Community7. The Approved Community will include government facilities and companies in both countries. Australia and the US wall

mutually determine the defence articles and the specified end-uses that define the scope of the Treaty.

The Treaty framework wall remove the administrative delays associated with the existing Australian and US export licensing systems. This is expected to:

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" Reduce delivery times for new projects and improve program schedules and sustainment processes bv permitting transfers within the Approved Community without further US approvals.

" Increase opportunities for Australian companies to bid on eligible US contracts without the need to wait for US access approval.

" Reduce obstacles for improved cooperation between US and Australian companies to benefit Australia's defence capability.

Membership of the Approved Community is voluntary and those Australian companies that choose not to apply for membership will continue to operate within existing Australian and US export control systems.

In removing the licence requirement there need to be appropriate mechanisms in place to prevent and deter defence articles being moved outside the Approved Community or used for purposes other than those specified under the Treaty.

As the Treaty is an exemption under the US International Traffic in Arms Regulations (ITAR) framework, its compliance obligations have been aligned with existing compliance obligations for companies who currently trade in US ITAR controlled technology.

The maximum penalty for the criminal offences related to an Australian Community member is 10 years imprisonment or 2.500 penalty units or both. This penalty is consistent with the penalty in the Customs Act l90J for exporting tangible goods and technology listed on the Defence and Strategic Goods List (DSGL) without a ministerial permission. It is also consistent with the penalties under sections 10. 14 and 15 of the Bill.

2. Education and training. The Australian Manufacturing Workers ' Union highlighted the importance of education and outreach services explaining the changes to industry. Could Defence detail the education training programs that will be undertaken?

Defence has undertaken extensive industry consultation during the development of this Bill. 'The Bill's consultation was conducted over two major phases during December 2010 and August 2011. Consultation on the Regulations was conducted from December 2011 to February 2012.

Additionally, there have been wide-ranging and continuing conversations with key stakeholders and industry. Defence established a small group of representative figures front defence industry to enable more detailed discussion of key provisions. These Defence Trade Cooperation Treaty Industry Advisory Panel (DlAPj sessions were moderated by Mr Ken Peacock AM, a former CEO from a major defence prime. The feedback from the consultation has been taken into account when developing the Bill. As a result of the consultation, the Bill and Explanatory Memorandum were amended. Defence is now in the process of considering the comments received on the Regulations.

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The Defence Export Control Office (DECO) is developing a comprehensive communications plan to raise awareness of strengthened export control aspects of the Bill and its implications for government agencies, academic institutions and industry.

DECO will provide information and guidance on how the Bill aligns Australia with international best practice by closing legislative gaps relating lu the;

a. intangible transfer of technology listed in the DSGL (e.g. emailing blueprints of military vehicles or performance data for night vision equipment):

b. provision of defence sendees related to goods and technology listed in the DSGL (e.g. providing assistance in the design of a military vehicle or the maintenance of night vision equipment); and

c. brokers arranging the supply of DSGL goods, technology or defence services.

The communications plan will include public awareness raising through the DECO Newsletter, information flyers and targeted mail-outs, media releases, advertising, editorials in industry- publications, presentations and outreach activities at related conferences and trade shows.

DECO will also specifically large! developing and emerging dual-use industries by using advice from industry7 groups and defence networks to identify areas and opportunities for outreach in these sectors.

DECO will undertake Export Control Awareness Training (ECAT) in Canberra, Adelaide, Melbourne, Sydney. Perth and Brisbane before and after the commencement of the Bill. The free ECAT training sessions will provide specific guidance on both the strengthened export control and Treaty aspects of the Bill, along

with ait overview of the wider export controls including the permit application process.

Defence- is aware that additional tailored outreach will need to be provided to the academic sector which unlike defence industry, to date, has had limited exposure to current controls for tangible defence exports Additional measures will include working with key personnel in universities to assist them to become familiar with the Bill provisions and the Defence and Strategic Goods List and to jointly identify

activities that may be subject to permit requirements, 'Hie Wassenaar Arrangement Best Practice guidelines encourage industry and academic institutions to appoint export control officers to assist the institutions to self-regulate by designing and implementing internal compliance programs. Defence will be able to provide advice to institutions, should they choose to appoint an export control officer. This outreach will build on consultation now underway with the university sector.

For Part 3 of the Bill relating to the Treaty, Defence is drafting guidance to assist industry to understand the requirements of the Bill and the new administrative implementation processes. The Treaty Pathfinder program will assist Defence to identify training needs and formulate appropriate and relevant guidance for industry and Defence participants.

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Defence continues to consult with industry through the DIAP, peak industry bodies such as the Australia Industry Group and the Australian industry & Defence Network, and through other outreach activities such as industry conferences and trade shows to ensure industry concerns are identified and considered in implementation planning

processes.

Direct support will be available to companies through a combination of web-site information, email and free-call telephone enquiry' lines. Targeted training for specific companies and organisations will he considered upon request where it provides significant reach and value for money.

3. Record keeping. A number of subminers referred to the record keeping requirements which they regard as *significant * and which would add to the administrative costs of Defence industry .

The detailed provisions prescribing the record-keeping requirements are contained in Regulation 31 of the draft regulations. The public consultation period for the Regulations closed on 17 February 2012. Defence has considered the comments

received and is working towards making the record-keeping requirements as practical as possible.

In answer to the three specific questions raised by tire Committee:

3.1 How has Defence responded to concerns about what industry regard as onerous record keeping requirements?

Defence is committed to ensuring that the record-keeping obligations are as practical as possible. Defence recognises the common theme of industry *s comments about the record-keeping requirements for

strengthened export controls and Treaty activities. Defence is currently exploring options to amend the Regulations to prescribe a minimum level of record keeping, and when the risk of the activity

warrants further measures. Defence will impose additional record≠ keeping conditions on the permit (for strengthened export controls) or membership approval {for Treaty).

While Defence is able to vary the record-keeping requirements for strengthened export controls, the record-keeping requirements in the Bill and the Regulations for Treaty activities have some flexibility but need to reflect Australia *s commitments under the Treaty.

Defence is also exploring avenues to amend the Regulations to provide a simpler mechanism for industry and universities to record a series of related activities over a period of time,

3.2 Has Defence considered taking a risk based approach to record keeping, requiring more in relation to items of high risk and less in respect of more mundane activities?

Yes. This is reflected in the approach described in subparagraph 3.1

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above. If this approach is adopted, it will also provide greater consistency with the current requirements for tangible export controls w hich impose record-keeping requirements by way of permit

conditions.

3.3 In consultation with industry and universities, does Defence intend to clarify and simplify the record keeping requirements?

Defence is considering simplified record-keeping requirements in consultation with industry' and universities.

Q uestions on notice - 05 April 2012

4. Definitions in the EM. Concerns have been raised by submitters in regards to Defence's decisions around clauses being placed in the Bill, the EM, or (he draft Regulations. Could you outline the rationale far placing definitions in the EM and not the Bill or the draft Regulations

The preference of submitters to have key terms defined in the Bill rather than in the regulations or EM has been noted by Defence. It is acknowledged that this particular concern was raised in the context of the Bilks reference to the term 'arranges * in the brokering offences contained in Part 2. Division 2 of the Bill.

The term *arranges * is intended to be read using the ordinary' meaning of the term in conjunction with the additional guidance provided by the explanation given in the EM at pages 53-54. The EM provides clear examples of situations that 'arranges * is

intended to cover, as well as situations that are to be regarded as outside the scope of tlie term,

Defence has considered the submissions made in relation to this point, in addition to the comments made by the Committee, and would be prepared to include a definition of the term *arranges * in the Bill that is consistent with the guidance in the EM. if recommended by the Committee.

5. Scrutiny of Bills - definitions in the EM and regulations. In 2011 and 2012. the Scrutiny of Bills Committee raised concerns that 'important matters' including defences for offences that have been left to the regulations be included in (heprimary legislation. The committee also sought the Minister's advice as to why matters in the EM or left to the regulations were not included in the primary legislation. The Minister for Defence responded in February> 2012 providing explanation far the proposed approach. Can you outline action that has been taken to alleviate the concerns of the Scrutiny Committee regarding these matters?

The Minister for Defence responded to this concern by advising the Scrutiny of Bills Committee:

In delegating exceptions to the regulations, appropriate safeguards have been considered and put in place to ensure that the offence provisions are dear and the scope and effect of the offences are plain and unambiguous. The content of the

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offences in the Bill and the exceptions contained in the regulations are cross- referenced to ensure seamless navigation between the Bill and its regulations, Drafting notes, which serve as additional navigational markers, have also been included to assist in legislative interpretation.

Where an exception makes reference to a separate legislative, instrument, as is the case in subparagraph 11(2) of the draft regulations which refers to regulation I3E of the Customs (Prohibited Exports) Regulations 1958 , it is justified in the circumstances that the exception be delegated to the regulations to allow the reference to that legislative instrument to be amended in a timely manner.

Further. in circumstances where the content of an exception to an offence involves a necessary level of detail, it is appropriate that the exception be delegated to the regulations. Draft regulation 12 creates an exception to the offences for the supply of technology and provision of defence services in relation to Australian Defence Articles. This exception introduces the concept of Australian Defence Articles which

is a concept that is particularly detailed and is dealt with exclusively in the regulations.

Prior to commencement of the Bill and regulations, the Defence Export Control Office (DECO) will extend its outreach programs to individuals and companies to attempt to ensure that these parties are made aware of the operation of the offence provisions. In addition to these outreuch programs DECO maintains, a dedicated

website with links to relevant legislation and legislative instruments and alerts on changes to export controls laws.

The First Report of 2012 of the Scrutiny of Bills Committee thanked the Minister for his detailed response and requested that key information is included in the Explanatory Memorandum (EM). On 26 March 2012, the Minister for Defence wrote to the Chair of the Scrutiny of Bills Committee to advise that he proposed to delay

making these amendments to the EM until it became apparent whether any further amendments would arise from the consideration by the Senate Foreign Affairs. Defence and Trade Legislation Committee.

6. Scrutiny of Bills - discretionary powers. The Scrutiny of Bills Committee raised concerns regarding the discretionary powers conferred on the Minister under Clause 10 to grant or refuse a permit to supply technology or provide services related

to DSGL goods. The committee suggested that the criteria listed as permissible considerations in the EM in the primary legislation to provide guidance for the exercise of power. Further to the Minister's response, the committee requested that

key information in this regard be included in the EM. Can you establish for the committee the rationale for such discretionary powers and outline what action has been taken to alleviate the Scrutiny Committee s concerns?

The Minister for Defence responded to this concern by advising the Scrutiny of Bills Committee:

Clauses 1 1, 14 and 16 confer a discretionary power in circumstances where l am required to grant or revoke a permit or to issue a prohibition notice for the supply of technology∑ or provision of defence services. In exercising the powers to grant a permit under clauses 11 and 16.1 must be satisfied that the activity for which the

licence is sought would not prejudice the security, defence or international relations

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of Australia. In revoking a permit and issuing a prohibition notice 1 must be satisfied that the activity would prejudice the security, defence or international relations of Australia.

The Government *s policy is to encourage the export of defence and dual-use goods where it is consistent with Australia *s broad national interests. Australia s export control system is the means by which this consistency is ensured. Applications to export defence and dual-use goods are considered on a case-by-case basis. The assessment of these applications take into account the considerat ions listed on page 48 of the Explanatory Memorandum. These considerations were developed in line with the policy criteria (page 11 of the Explanatory Memorandum) agreed by the Prime Minister and the Ministers of involved key portfolios including the Department of Foreign Affairs and Trade and the Australian Customs and Border Protection Service.

The listed considerations outlined in the Explanatory Memorandum are able to be accessed by the public through the DECO website. To further assist industry in understanding the application processes and any significant changes in export control policies, additional guidance is available to industry through ongoing outreach activities provided by DECO and a dedicated telephone support line.

Australia's export control policies and procedures need to be flexible in order to lake into account changes in de fence and dual use technology *, use and delivery of that technology, Australia s strategic priorities and threats to regional and international security. Due to the changing nature of the export control environment, wide discretionary> powers are necessary> and it would not be appropriate for a set offixed considerations to be included in the Bill.

J consider this discretion is appropriate and necessary to support Australia *s capacity! to protect its national interests and contribute to reducing the threat to regional and international security by working with like-minded countries. This discretion is consistent with the powers that 1 hold under existing legislation ,

including, Regulation J3E of the Customs {'Prohibited Exports) Regulations 1958 and the Weapons of Mass Destruction (.Preventions of Proliferation) Act 1995.

The First Report of 2012 of the Scrutiny of Bills Committee thanked the Minister for his detailed response and requested that key information is included in the EM. On 26 March 2012. the Minister for Defence wrote to the Chair of the Scrutiny of Bills

Committee to advise that he proposed to delay making these amendments to the EM until it became apparent whether any further amendments would arise from the consideration by the Senate Foreign Affairs. Defence and Trade Legislation

Committee.

7. Scrutiny of Bills - reversed evidentiary burden. The Scrutiny Committee was also concerned with Clause 31 regarding the reversed evidentiary> burden of onus o f proof and sought further information regarding exceptions and whether they could be outlined in the primary legislation. Can you explain the rationale for this course of action and outline any action taken to address (he Scrutiny Committee's concerns.

The Minister for Defence responded to this concern by advising the Scrutiny of Bills Committee that:

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The draft regulations (regulation 25) set out the circumstances in which all or some of the main Treaty offences in subsections 31(1) to (6) will not apply. Currently the regulations as drafted create the following two exceptions:

" in circumstances where an Australian Community member supplies goods , technology or defence services and holds a valid licence or other authorisation granted by the Government of the United States of America tint! permits the supply; and

= in circumstances where an Australian Community member supplies goods or technology to an approved intermediate consignee for the purpose of transporting the US Defence Articles.

These tsvo provisions include a level of detail that should nut be included in the primary legislation and for this reason, these exceptions have been delegated to the regulations. The exceptions will be subject to parliamentary ∑ scrutiny as the regulations are a disallowable instrument.

The reversed evidentiary: burden of the onus of proof in cases where the applicability> of the exception is peculiarly within the defendant's personal knowledge is consistent with Commonwealth criminal law policy. The exceptions included in the draft regulations have been drafted with the defendant bearing the evidential burden. This shift in the onus ofproof recognises that the applicability of the exception to a particular Australian Community member will be within the member *s personal

knowledge. For example, the Australian Government would be unlikely to know whether an Australian Community member holds a valid licence or other authorisation granted by the United States Government. In such circumstances it would be significantly more resource intensive and costly for the Australian

Government to disprove the existence of the authorisation than for the A ustralian Community member to prove its existence.

I consider it appropriate that the exceptions outlined above are delegated to the regulations and that Commonwealth criminal law policy has been applied appropriately in reversing the evidential burden of the onus ofproof

The First Report of 2012 of the Scrutiny of Bills Committee thanked the Minister for his detailed response and requested that key information is included in the EM. On 26 March 2012, the Minister for Defence wrote to the Chair of the Scrutiny of Bills Committee to advise that he proposed to delay making these amendments to the EM until it became apparent whether any further amendments would arise from the consideration by the Senate Foreign Affairs. Defence and Trade Legislation Committee.

8. Differences in exposure drafts. Ccm you outline for the committee what the primary differences are between the February 2012 exposure draft o f the regulations and the draft December 2011 version?

The primary difference between the December 2011 and February 2012 versions of the draft Regulations is tire inclusion of merits review provisions in the February 2012 version, for an adverse decision by the Minister regarding approval of an intermediate consignee. The review provisions in Regulation 28 apply to both applications for approval of an intermediate consignee and the cancellation of an approval. The

December 2011 version contained a note following subregulation 26(10) that a further version would be released to detail these merit review provisions and the February

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2012 release fulfilled this commitment. There were also some minor changes to provision numbering.

9. Consultation on draft Regulations. During the 2 March hearing Defence noted that it had begun to collate the responses to the draft Regulation consultation process. Could Defence outline the main concerns which have been received in regards to the draft regulations?

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Defence received five submissions which expressed the following concerns about the Regulations. Defence's response to these concerns is noted in italics below:

" Marking requirements for Treaty articles were seen to be onerous and unclear Defence has raised this issue with the US and the common understanding is that marking of items is only required where it is practicable to do so more specific implementation guidance will be developed;

e Bilateral trade under the Treaty provisions without export licenses might have potential inconsistencies with the transparency required by the Arms Trade Treaty - consistent with current export controls, all Treaty-related exports will be declared to the Australian Customs and Border Protection Service ;

∞ Administrative requirements to apply for Approved Community membership were seen as burdensome on universities - unless universities are accessing US defence technology which falls within the scope of the Treaty, it is unlikely that they would apply to become Approved Community members',

e Assessment of Approved Community membership was perceived as potentially leading to delays - the processes will be similar to the process for dealing with 1TAR items but would be a one-off application, as compared to the multiple applications under the current Australian and US export control regulations',

o There was a perceived lack of guidance on the handling of articles that are transferred between the Treaty regime and regular export control - see the discussion on Pathfinder program in paragraph 10 and paragraphs 16 and 17;

o In the significant ties assessment process in Part 1 of the Regulations, a suggestion was made that the referral to US should be deferred until the procedural fairness procedure has been completed - procedural fairness is a core element of the process, including merits review , and the referral to the

US happens at the end of the process and only if the applicant seeks to have the referral proceed ;

e Details of what information will be required on the Annual Compliance Report lor Approved Community members were requested - this will be provided by administrative guidance: and

" Record keeping for each activity was seen as unnecessary - see paragraphs 3 and 15.

10. Additional issues in relation to draft DTC Regulations. The. committee has received evidence suggesting that additional issues (such as IT matters, cost implications and arrangements for the Pathfinder Program) have arisen in relation to the draft regulations which were not necessarily foreshadowed in the bill. How do you respond to these concerns?

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The Australian and US Governments are jointly developing a Pathfinder program to test the Treaty's scope, policies and procedures. The Pathfinder program is a preparatory exercise, not an activity that will be regulated through the Bill and the Regulations. The objective is to identify where improvements to administrative and

operational processes can be made prior to the Treaty entering into force. Pathfinder participation is completely voluntary. Defence will select appropriate test projects and programs and then invite related companies that meet eligibility criteria to participate. There is no requirement for companies to participate. Defence will keep the costs of participating in Pathfinder to a minimum.

To keep costs down for industry. Defence will absorb the costs involved in processing Approved Community applications and security clearances. Other costs for individual companies that choose to join the Approved Community will vary, however those companies already engaged in defence business will have many of the required processes in place.

The new IT system under contract to replace the current DECO system is a business system in Defence and is not regulated by the Bill or Regulations.

11. Concerns raised by Universities. Universities Australia is concerned that it is 'not adequate' to rely on regulations as secondary instruments to deliver the legislative intent of the bill and that there is a need to ensure that the intention set out in the EM is enshrined in the legislation thereby ensuring that institutions have full statutory * protection. What is your response to these concerns? Universities Australia suggest that the Bill should include an exemption modelled on Section 8 of the UK Act. In evidence to the Committee, Defence noted that a similar exemption will he created in a legislative instrument Could you expand upon the verbal evidence provided to the Committee? Was insertion of the exemption into the Bill considered

during drafting? Could you outline how the consultations with Universities Australia will fit into the proposed timeline for implementation of the export controls and how long you have allowed for the consultations?

The legislative intent of the Bill is clear in that the intangible supply of technology will be controlled. There will be exemptions for certain technology in the 'public domain' and for *basic scientific research'. It is important these concepts are fully defined in secondary instruments so that the definitions can stay abreast of changes in

the way that technology may be supplied.

Defence did not consider including a provision similar to section 8 of the UK Act while the Bill was drafted as it was considered that the definitions for *public domain * and "basic scientific research' were best defined in secondary instruments. Defence's continuing consultation with the university sector is contemplating a model which refers to *public domain * and *scientific research" in the Bill and fully defines the concepts in the Regulations.

At the Committee *s request, Defence has been conducting consultation with the university and research sectors. The Principles and Options document that has formed the basis of this consultation to date is attached. When that consultation is finalised and decisions on the way forward have been taken by Government. I will be able to advise you of the proposed approach. 1 anticipate that this consultation will be

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complete by the end of June 2012 and Defence will be able to provide you with an update by the end of July 2012.

12. Timetable. What are the necessary steps that must be undertaken before September including in relation to the regulations? What is your timetable in the lead-up to proclamation of the bill?

The Regulations will need to be amended in light of the comments received during the public consultation and lo include any consequential amendments to the Regulations that flow from any changes to the Bill.

Defence is continuing to work on the domestic implementation processes for the Treaty in collaboration with other government parties, industry and academia. The implementation timetable in the lead-up to the proclamation of the Bill will focus primarily on the operation of the Pathfinder Program from May-July 2012. After Pathfinder testing is finalised. Defence will analyse the results, conduct further consultation with industry as appropriate and finalise processes.

The Bill's commencement provisions provide that the Bill will not commence operation until the Treaty comes into force. Once the Bill has passed through the Australian Parliament, the Treaty will not come into force until the US President has ratified the Treaty, the Attorney-General has sent correspondence to the Federal

Executive Council and there has been a bilateral exchange of notes to agree upon a Treaty commencement date. This will give Defence, industry and universities time to prepare to meet the requirements of the Bill, with Defence providing outreach support.

Once the Pathfinder Program is complete, how will jindings from the program he used?

The Pathfinder Program is designed to test the policies and processes required to implement the Treaty. Participants will be requested to provide comment on the results and opinion on improvement opportunities. The results will be made available to peak industry and consultative groups and through a network of established

Defence contacts. Defence will use Pathfinder to identify1 any opportunities to improve the processes with the intent of making them more effective and practical for industry' and government. The objective is to settle processes and provide assurance and confidence to both government and industry before the Treaty enters into force.

13. Facility accreditation. Article 4 of the Treaty appears to allow arrangements for a single facility as an Approved Community. Defenceevidence at the last hearing suggested that specific divisions within a company can be accredited According to Boeing, the US and UK concept of an Approved Community appears to

be facility specific'. Submitters are concerned that the concept of art Approved Community as facility specific * has not been captured in Sections 27-30 of the bill concerning an Approved Community. Is there a risk that the hill will not meet the intention of the Treaty if such a concept is not captured in the bill? Can Defence supply references to the relevant parts of the Bill and Regulations which provides that specific facilities can he registered?

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The Treaties, while similar, differ slightly in their approach to suit the domestic requirements of the participants. For Australia, the Approved Community will comprise bodies corporate that, after gaining approval from the Minister, are Approved Community members in their own right. However, a body corporate only needs to have those facilities accredited that it intends to use for the movement,

storage and handling of US Defence Articles.

This approach provides more flexibility' to industry in how companies conduct the aspects of their business involving trade in Treaty articles. There is no requirement for a company to accredit all of its facilities if Treaty trade is only a small part of its business and this trade can be confined to a single facility . Defence's evidence at tire

Iasi hearing is accurate, insofar that different divisions of a company may be located in separate premises and these premises can be accredited separately for Treaty trade as befits the company's commercial interests.

Section 27(3)(a) of the Bill provides that one of the criteria that the Minister must have regard to in assessing an application for membership of tire Approved Community' is whether the body corporate 'has access to a facility :hat is included, or that is capable of being included, on a list, managed by the Department, of facilities accredited for storing and handling classified information and material.' "Ihe legislative requirement is that a potential member must have access to at least one

facility * it is not required that the potential member own that nominated facility. Ihe Department will manage administratively the lisi of accredited facilities, to which Approved Community members can apply to add facilities according to their business requirements,

14. US approval for community membership. Membership of the Australian Approved Community requires US Government approval whereas membership of the US Community is based on registration with the Directorate of Defence Trade Controls. Given the level of due diligence needed to become a member of the Australian Community, why is US approval required? Could you explain why the US

Government retains the right of veto for Australian industry when the Australian Government has no input into the Directorate of Defence Trade Controls registration process?

The Treaty exists within the broader ITAR framework, and is an exemption within ITAR. The majority of trade that is expected to be conducted under the Treaty regime is in US defence articles, and the Treaty reflects the US position to retain control and

monitor access to its technology. As with the ITAR framework, the Treaty reflects the US position to retain control and monitor access to its technology. Gaining US approval will remove the need for companies in the Australian Community to continually seek licences from the US for trade in Treaty-eligible US defence articles. Admission to the Australian Community constitutes a permission to trade in US

Defence Articles that would ordinarily be controlled under the existing ITAR framework. The US retains the right to deny such applications.

Ariicle 4(c) of the Treaty requires that Australia and the US mutually determine the eligibility' requirements for the inclusion of bodies corporate on the list of Australian Community members. The provision in s27(4) of the Bill that the Minister must not approve an application unless the US Government has also approved the application

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fulfils tills requirement for mutual agreement. The Treaty does not have the same requirement for the US Community as US exporters must undergo a similar application and approval process to become registered with the US Government as an exporter of controlled goods. Given they must already comply with ITAR under their registration. The Government did not want to add additional compliance requirements

for US companies to meet in order to trade with Australian companies under the Treaty.

Subsections 11(3)-(5) of the Treaty *s Implementing Arrangement allows for bilateral consultation and Australian Government action if concerns are raised about a US Community member *s ability to protect Australian defence articles. Following these consultations, the Minister may decide to issue directions to the Australian Community in accordance with s33(l) of the Bill preventing future dealings with that

US Community∑' member. Although Australian input has not been incorporated into the US registration process, the Bill provides the Minister with an appropriate measure of domestic control over trade conducted under the Treaty.

15. Record keeping. Submitters have raised concerns regarding record keeping. Saab noted that companies will have to keep track of things they didn't have to before and make a distinction between the bill's implementation of the treaty and the two other aspects of the bill intangible and brokering controls. Others are concerned about individualised record keeping. Please outline for the committee ;

e Plow Defence has responded to these concerns; and

Paragraph 3 of this Response outlines Defence *s consideration and intentions for record keeping for strengthened export controls and Treaty activities.

The Bill contains record-keeping requirements for strengthened export controls and movements of defence articles under the Treaty. While Defence is able to vary the record-keeping requirements for strengthened export controls, the record-keeping requirements in the Bill and the Regulations for Treaty activities have some flexibility hut need to reflect Australia *s commitments under the Treaty. As the Regulations are currently drafted, the record-keeping requirements for the strengthened export controls and those implementing the Treaty provisions have a high level of consistency. Any changes to the record-keeping requirements for strengthened export controls and Treaty activities may be different for each area and may introduce inconsistency between the Treaty and the strengthened export control record-keeping requirements.

For tire Treaty provisions of the Bill, in exchange for tire licence-free movement of US Defence articles within the Approved Community record keeping requirements are necessary to ensure that those articles are being transferred and safeguarded in accordance with obligations under the Treaty. The requirements imposed are

sufficient to ensure an appropriate level of accountability and traceability. Companies trading in US technology should already be familiar with meeting requirements under ITAR and will therefore likely have many of the required processes already in place.

* The record keeping requirements set out in the regulations.

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The record keeping requirements for both strengthened export controls and Treaty activities are set out in regulation 31. If a record is required to be made (pursuant to section 58 of the Bill), the record should contain:

" a description of the goods or technology supplied, or the defence service provided

" the permit, licence or authorisation under which the person does the activity, and any unique identifier given to the permit or authorisation

" the name of the person receiving a supply of goods, technology or defence services, and the time and date of supply

" the name of any intermediate consignee involved in the activity, and die date the goods or technology arc supplied to the intermediate consignee

" the date and lime at which, and the place from which, goods or technology were provided

" the place at which goods, technology or defence services were received and the date and lime of receipt

" the method by which the goods or technology were supplied, or the defence services were provided, to the recipient

" if the activity involves the electronic transfer of defence services, details sufficient to identify the transfer

%† die marking applied to an Article 3(1) US Defence Article or an Article 3(3) US Defence Article supplied by the person, or that is included in die accompanying documentation

" the marking applied to an item of technology provided by the person, or that is included in the accompanying documentation

" the marking given to a defence service, included in accompanying documentation

o die security classification (if any) given to an Article 3(1) US Defence Articles, an Australian Defence Article, or an item of technology included in accompanying documentation

o the marking applied to an Australian Defence Article supplied by the person, or that is included in the accompanying documentation

Further, has Defence considered the addition of an example of activities on which records should he kept to (he Bill or the EM? Please provide examples of how the record keeping requirements would work in practice.

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For strengthened export controls, as the Regulations are currently drafted, an example of record keeping would be: if a researcher sent an email to a foreign researcher explaining how to produce a toxin controlled under tire DSGL (e.g. cholera toxin under DSGL 1C351) which was authorised by a permit, then the researcher could include a reference to a permit number in the email and the email itself would be a sufficient record of the supply.

Noting the comments from industry about record-keeping for strengthened export controls, the Government is considering options to amend the record-keeping requirements in the Regulations to include a minimum of information. An example of

how this might work is if a defence industry member wanted to market their DSGL- eontrolled technology in a low-risk overseas location, a record of the permit number, the technology marketed and the country involved may be sufficient, if the same technology were to be marketed in a higher-risk destination, the permit may impose a

condition that each person who attended the marketing sessions and the location and date of toe marketing sessions would also need to be recorded.

The Regulations are not prescriptive about the method of making these records and it could vary from a diary note, to the ability to access the required data from the company *s business systems, to a full database record of the marketing session, noting the locations, dates and attendees. Where corporate business and information systems record such information, the intent is to use existing good business practice and not require separate information and record-keeping systems to be created.

For the Treaty provisions, the Explanatory Memorandum provides an overview of the record-keeping provisions required to be imposed on Approved Community members under the Bill. Defence is working with industry on Treaty implementation to ensure

that the record-keeping requirements are practical, but also recognises that existing good business practices and processes are expected to meet much of the compliance obligation.

When these provisions are settled. Defence will include more examples in the Regulations * explanatory statement.

16. Re-export limitations. Submilters have raised concerns regarding an inability to re-export goods under the bill to a third country (Sub 1, p[2]). Please explain the limitations on the re-export of goods and of the underlying rationale?

The provisions of the Bill relevant to the Treaty retlect the intent of the Treaty itself, and are designed to enable simpler trade in defence goods between Australia and the US. Trade within the Treaty framework is confined to mutually agreed scope lists on which the included activities contain elements of eligible bilateral trade. The scope

lists include - Australian Government End-Use Projects, Australia-US Combined Programs. Australia-US Combined Operations, Exercises and Counter-Terrorism Operations and US Government End-Use Projects. As a bilateral Treaty, there was no intention to provide exemptions from existing controls for re-exports to other countries. Exports to countries other than the US will still require the authorisations they currently require under existing controls. As a result, the Bill does not change

arrangements for re-exports to third countries - this type of activity will remain subject to the existing export controls.

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17. Transfer outside community needing US approval. Please clarify whether articles imparted into the Australian Approved Community cannot be transferred outside the Approved Community without further approvals whilst articles exported to the US are not subject to the same controls as they are deemed to be controlled under the ITAR. If this is correct, please explain the reasons far the discrepancy.

The intent of the Treaty is to provide less restrictive access for Australian industry to US controlled technology. All articles imported into the Australian Approved Community will continue to be controlled under ITAR; the benefit of the Treaty is that individual authorisations will not be required for each article. Trade within the Treaty framework is permitted through a licence exemption under ITAR - so if US- origin goods are transitioned out of the scope of the Treaty they will need appropriate authorisations under ITAR.

Australian articles e